This is my first diary. I just wanted to bring together two concepts that most readers here are probably already pretty familiar with, but I don't often see directly linked. Of course, everyone has heard about the bailout. Full disclosure: I am completely against it, for many reasons. One of the many reasons has to do with Peak Oil. For any of you that are not familiar with this concept, I will give you a 30 second introduction. Everyone else, skip directly to the third paragraph.
Peak Oil is a somewhat tinfoil friendly concept. Briefly, peak oil advocates hold two somewhat interdependent beliefs. First, they believe that oil is a limited resource that follows a somewhat bell shaped production curve, with a defined peak. Most peak oilers believe that peak was reached around 2005, and that worldwide oil production will never rise again, only decline. Second, peak oilers believe that starting from this peak forward, we will experience massive economic and social dislocations. These dislocations range from economic collapse and resource wars to famine and even massive die offs. You don't have to believe that civilization will literally collapse to be a peak oiler. But at the very least, you should believe that things are going to be tough for a while as the world adapts to the new reality of ever more scarce oil. If you want to learn a lot more about Peak Oil you can start with the dummies guide to peak oil, and then progress to reading Kunstler's blog. Advanced Peak Oilers will want to keep abreast of daily impending doom news here and even don their tinfoil regalia and contribute to the forums here.
Ok, now that we know what we mean by Peak Oil, let's get to meat of what I wanted to say. In a nutshell: our current economic problem is at the very least partially caused by the advent of peak oil, and in considering whether to support the bailout it is useful to take this into account. More specifically, what peak oil theory suggests is that much of the bailout money will never be repaid. Here is why:
- At the root of the securities mess is the housing bubble collapse. The reason the alphabet soup of securitized instruments became toxic is that their underlying value are mortgages. And those mortgages lost value because they are tied to homes that are worth less than what is owed for them. No matter how insolvent the borrower is, if the house was worth more than what is owed, it could probably be sold to a more solvent borrower before foreclosure.
- The housing bubble collapse is at least partially linked to Peak Oil. Kunstler has been writing about this for years, but here it is in a nutshell: a huge proportion of the housing bubble went into the development of unsustainable suburban environments. When the age of cheap oil ended in 2005, the real cost of these properties became evident. That is when the bubble burst.
- This has enormous implications for the true value of the so called assets we would buy under the proposed bailout schemes. Most of these assets are mortgages on suburban homes, at a time when the suburban era is one way or the other slowly coming to an end. There are already virtual ghost towns in Florida, Nevada, and Arizona. These places are not coming back, and eventually many other suburbs and exurbs will meet a similar fate. What is the value of holding the title to a $300K abandoned home in one of these empty suburbs? Potentially as little as zero.
So, it is important to keep these concepts in mind when thinking about the bailout and the idea that we will be repaid someday. Yes, that worked for some other bailouts in the past, but it may very well not work for this one. As a direct consequence of the new realities of scarce oil, those assets may represent our failed national investment in our unsustainable suburban way of life.