Peak Oil or Depression

Both it seems...

I have attempted to wrap my mind around the real reason that gas prices have fallen so drastically since I "left the world". It seems that the answer, or at least a reasonable theory that serves is an answer is decreased demand resulting from other economic woes. That is such a simplistic answer (albeit it is riddled with economic mysticism at its core) to be beautiful. Peak oil has not gone away you see, oh no far from it. The over all product in the ground has not increased, production facilities to suck up those pesky hard to get drops in untapped places have not been developed. Supply remains the same, demand has decreased.

Peak oil has not gone away....

But depression - that is deflation right. It is hard to see deflation in prices anywhere right? Perhaps if we look at the "good retail season" and all the deep discounts out there. Folks are rejoicing that Black Friday was a success but maybe this is a two-edged sword. If people are buying because prices are cut so deeply could that not be the initial stages of a deflationary period. What happens in Febuary or March after everyone has used up their disposable income (or last bit of their credit line) on deeply discounted merchandise? Do retailers then discount things even further? At what point are companies moving products at so deep a discount just to generate some cash flow that they cannot continue to produce/procure?

From The Automatic Earth

Thanks to a credit boom that dates back to at least the early 1980s, and which accelerated rapidly after the millennium, the vast majority of the effective money supply is credit. A credit boom can mimic currency inflation in important ways, as credit acts as a money equivalent during the expansion phase. There are, however, important differences. Whereas currency inflation divides the real wealth pie into smaller and smaller pieces, devaluing each one in a form of forced loss sharing, credit expansion creates multiple and mutually exclusive claims to the same pieces of pie. This generates the appearance of a substantial increase in real wealth through leverage, but is an illusion. The apparent wealth is virtual, and once expansion morphs into contraction, the excess claims are rapidly extinguished in a chaotic real wealth grab. It is this prospect that we are currently facing today, as credit destruction is already well underway, and the destruction of credit is hugely deflationary. As money is the lubricant in the economic engine, a shortage will cause that engine to seize up, as happened in the 1930s. An important point to remember is that demand is not what people want, it is what they are ready, willing and able to pay for. The fall in aggregate demand that characterizes a depression reflects a lack of purchasing power, not a lack of want. With very little money and no access to credit, people can starve amid plenty.

According to the author credit, or more accurately an uncontrolled credit boom is the problem. Of course at the root of that is a prevailing sense of entitlement and greed. The author is kind in their description calling it "high expectations" - perhaps - greedy and materialistic fit too I believe.

I must admit, even when I try to read and stay connected to the world I live far from it. I currently leave on a small Army post in the middle of the desert, before here I was stationed in Korea and between here and there I have been back to the middle east. I have been away from home all of my adult life - I do not really know what goes on in the lives or regular people. My wife tells me from time to time that she talked to so-and-so and that they are losing their job or that their company is cutting back etc. My mother told me on the phone the other day that our local paper back home had six pages of foreclosures. These are things I cannot connect to or understand. I do not have debt, I do not worry about losing my job, I do not know anyone who does (well I have had troops get into debt problems but that is not really what I meant - their issues are generally related to too much stereo equipment and not enough paycheck, they will still have a place to live regardless).

I do know that I have been searching very hard for a piece of land way out in the boonies. I have not been able to help but notice that land is cheap.

I suppose this is all worth watching - as I have suggested before it seems high time to prepare to secede from things because if predictions of doom and gloom are correct and deflationary times are coming the man that can provide for himself and his family will be infinitely better off. And maybe, just maybe, come March that laptop that crazy woman ripped from my hands will go on deep, deep, deep discount.....