Friday, August 13, 2010

The economy and peak oil.


Food production, energy and even the production of substitutes for oil depend on petroleum.

So does the economic system. It is unlikely it will survive the loss of cheap energy.

"To illustrate, if home and business loans are issued with interest rates in the 7% range, the assumption underlying the loans is that the monetary supply will increase (on average) by 7% per year. But if that 7% yearly increase in the monetary supply is not matched by a 7% yearly increase in the amount of economic activity (goods and services), the result is hyper-inflation. The key is this: in order for there to be an increase in the amount of economic activity taking place, there must be an increase in the amount of net-energy (i.e. the net-number of BTUs) available to fuel those activities. As no alternative source or combination of sources comes even remotely close to the energy density of oil (125,000 BTUs per gallon, the equivalent of 150-500 hours of human labor), a decline or even plateau in the supply of oil carries such overwhelming consequences for the financial system. Dr. Colin Campbell presents an understandable model of this comple  relationship as follows: "

No comments:

Post a Comment