The Crash Course - Chris Martenson [119]
Finding the true bottom takes 15 long years. When the bottom finally arrives, the economies of the developed world have been reduced by anywhere from 20 percent to 50 percent, government budgets are finally reduced to bring them in line with the actual pace of economic activity, and the citizens of the developed world look back on this period as the Great Destruction. Stock markets in the developed world, which have been trading as if they were a single market for the past 10 years and sharing the ups and downs without any distinction between them, finally separate and begin trading somewhat independently, reflecting the prospects of each country more accurately. The most heavily indebted countries, those that lived most fully beyond their means for the longest, suffer the greatest corrections in their domestic stock markets.
Maddeningly, not every country participates in the despair, with some, particularly energy-rich Brazil and the commodity-exporting nations of Australia and Canada, performing significantly better in a relative sense, although Canada does have to expend considerable resources in tightening up its long border against economic refugees from the south, which drags down its overall performance.
Throughout the Great Destruction, uncertainty and fear continue to rule. Will the financial system suffer a systemic collapse? Which governments will mindlessly print, and which will face the music? Where is the risk, and where are the safe harbors (if any)? How will $600 trillion in notional value derivatives be settled? Are capital controls about to be imposed by any country? Will war break out? The rumors swirl, uncertainty builds, nerves fray, and fear settles like a thick mat of thorns across the land. Gold emerges as the best-performing asset during these times.
Throughout the entire period, oil remains firmly bid and even creeps up, as exploding demand from China and India more than consumes the surplus left by retreating demand in the West. The elevated price somewhat bolsters exploration and development activities, but liquidity and credit problems in the developed world prove to be like sand in the gearbox, preventing these activities from progressing to their full potential. Accordingly, oil supplies remain tighter than they otherwise might, and this proves sufficient to maintain a firm price floor on oil in particular and energy in general.
The basic pattern, so easy for some to see, eludes detection by the monetary authorities in the OECD central banks, whose training does not extend to fields of energy or basic science. Those countries with increasing flows of energy are doing well, while those with decreasing flows are struggling. It takes another decade for this idea to rise up high enough that it can find a seat at the polished mahogany table at the center of the 2024 meeting.
Scenario 2—Peak Oil Recognition and a Hard Landing
Framing: In this scenario, once again, market skeptics thoroughly underestimate the ability of the central banks to engineer yet another business cycle using a flood of liquidity. The new flood of freshly printed money works—for a while—but then runs headlong into the next energy crisis.
While structural debt problems persist throughout 2010 and 2011, they prove to be less of a threat than initially feared. Quantitative easing by various central banks, along with government stimulus spending, apparently does the trick to stave off fiscal woes, and the developed economies lurch to life and eventually begin to trot.
Markets rebound, global trade picks up momentum, elections continue to reward incumbents, the FIRE sector (Finance, Insurance, Real Estate) returns to its former glory days by dominating corporate earnings with 40 percent of the entire take, and people everywhere breathe a sigh of relief. (“Whew! The emergency is over!”) Everyone hurries back to business as usual.
Oil use ticks up by 1.6 million barrels of additional consumption in 2011 over 2010, taking the total to 87.6