The USA is headed for a fiscal cliff

13 September 2012

Norman Pagett writes:

But this is more than just a fiscal cliff for the USA, it is a financial crisis pushing the industrial world over a cliff.
The problem isn’t economic, or political, it is one of denial of reality, the refusal to face the reality that the American dream has turned into a nightmare. There is no longer enough cheap energy to power the engines of world industry, and borrowing money into infinity isn’t going to refill the oilwells.
Politicians and economists try to sell the notion that money circulation drives the economy, but we do not live in a money-economy. Our infrastructure is a dynamic of energy input. Or to be more specific, a dynamic of energy surplus because all forms of energy are essentially the same thing.
10,000 years ago the first farmers grew enough food (energy) to support themselves, as their farming skills improved they found they had a little left over which might have paid for someone to guard it, or a holy man to pray over it. How the excess was used is irrelevant, it was surplus energy and became a trading medium for exchange of skills; using it for other than food meant that energy could be tokenised. The soldier needed weapons, the holy man needed a house of worship, neither could be paid for unless there was a surplus of food-energy to do so. Money is still used to trade skills.
We had created an ‘economy’, because while the soldier and the priest could be paid with bushels of corn, it was easier to tokenise the transaction, and convert energy into money, then sustain the value of money by constantly producing more energy.
Now fast forward 10,000 years, and we’re still locked into that same trading system, but now it’s on steroids. 250 years ago we learned how to extract the energy from 200 million years worth of fossilised sunlight. We invented the steam engine, and dug coal oil and gas out of the ground as fast as we could, congratulating ourselves on our ingenuity. The more we dug up, the more ‘wealth’ we had, the faster we burned it, so our growth increased. Cheap fossil fuel energy drove our machines, vastly increased our food-energy supplies and boosted our population by an extra 6 billion who wouldn’t otherwise be here.
But we have been burning a finite energy source. Just the same as taking out a bank loan and convincing ourselves we are rich. We are not. We are living on borrowed time and money.
If we don’t maintain energy input, our economic system will collapse.
Which is where we’re at right now: we are trying to maintain a cheap-energy economy using expensive energy. In 1998 oil was under $12 a barrel, 10 years later it hit $147. At that point the world economy crashed because we tried to sustain a cheap energy economy using expensive energy.
This is the reality our politicians refuse to acknowledge. Without cheap oil we do not have an economy, and no amount of wish-politics and wish-economics is going to refill the oilwells and bring back $2 gas. Unfortunately what became the American Dream for a few became a nightmare for the rest. Our sources of cheap energy are gone, but our delusions remain. Its wealth was unevenly distributed, those on the prosperity ladder have climbed higher, while those at the bottom are fighting against the rising tide of poverty and despair because the cheap energy that gave everyone a glimpse of prosperity has now become too expensive to support our lifestyle, which is vanishing into our future like the mirage it always was.