Dear Sir,
It needed petrol to reach $1.40 a litre, but finally our politicians are beginning to realise that they can't hide the problem of Peak Oil any longer. Oil is not running out just yet, but production rates are peaking ahead of a long period of falling production figures. Australia's oil production, although relatively small scale, has followed the classic pattern, peaking in first quarter 2000, and now 52% off that peak. So worldwide supply cannot keep up with worldwide demand, and prices have to rise to shake out some of that demand.
The PM and the Treasurer have both admitted this week that the danger now is that businesses will pass on the increased cost of fuel, causing inflation. The dragon, that was 'slain' only a few years ago, rears its ugly head once more. What are the chances that businesses will absorb these costs ? Buckley's, of course. Since when did businesses absorb costs rather than pass them on ?
So we will have inflation, which makes it easier to pay off loans with next year's devalued money. So the RBA will raise interest rates, to discourage people from borrowing too much money and thereby fuelling inflation further. The triple whammy of higher petrol prices, higher cost of everything that is transported (i.e. everything), and higher interest rates, will cause people to reign in their expenditures, leading to a minor recession.
The minor recession will lead to bankruptcies, especially in sectors with a high transport component - airlines, trucking companies, etc. This results in take-overs and mergers, down-sizing, rationalisation, asset-stripping and retrenchments, as usual. Those laid off will be unable to service their mortgages, so the banks will move in and sell off the collateral into a housing market already hit by higher interest rates and fewer buyers. This will cause a serious fall in house prices, and suddenly those second property mortgages will look like paying out a lot of money for a drop in capital values, further fuelling the exodus from property.
Now we have had recessions before, and we have always got out of them - by making more stuff. But that takes more energy, and this time there will not be more energy, there will be less oil each year, and don't forget that Peak Gas is not far behind. Technology has provided us with better and better energy sources in the past, but this time we are looking at Peak Energy. All the alternatives will require so much energy to scale them up, in an energy-scarce environment, that they will not happen.
The only solution is for people to recognise that we will have to make do, and be happy, with less energy. This is going to be a difficult transition for a Prime Minister who believes in "sustainable economic growth" on a planet with finite resources, and for a Treasurer who thinks that businesses will absorb the rising cost of energy. It is time for some new politicians, for sure.
Dave Kimble
Dave Kimble April 2006
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