The Perfect Storm
Yesterday, over lunch, I found myself saying something I have not been able to say out loud. And after I said it, I saw the truth of it in the eyes of my lunch guest.
We were talking about the future and how there are some major drivers that are beginning to come together in what might be characterized as a perfect storm.
Most of us know this term because of the 1991 storm that was labeled the "perfect storm" by the National Weather Service. The storm sank the swordfishing boat Andrea Gail, whose story became the basis for the best-selling novel "The Perfect Storm" by Sebastian Junger. The resulting movie impressed me mostly with its terrific giant wave scenes. The storm was actually a "storm within a storm" and it ultimately became a true "extratropical hurricane" that became famous in meteorological circles for many reasons, including the oddity that it was never officially named.
These major policy drivers I speak of are Climate Change, Peak Oil, and the Collapse of the Dollar. They make for a different kind of Perfect Storm, but no less ferocious or dangerous.
Instead of the Collapse of the Dollar, I could use a "very irresponsible government in Washington". I say irresponsible because this government pays attention only to what it believes and says, not the facts or the realities of the event or issue. Some have referred to this government as the worst in American History and they may be right. There is some pretty good competition though.
So we have three very large, very ill timed events coming together.
All three are somewhat undeniable.
And, they all are remarkably and profoundly interrelated.
First, there is Climate Change, which, to quote the Republican Senator from Maine, is a environmental timb bomb for the entire planet. But, climate change payouts by insurance companies are already beginning to add up. This puts pressure on the Financial Markets.
So, it is not just a time bomb for the environment, it is a financial time bomb.
And then there is the issue of Peak Oil. Two years ago, Peak Oil was on the lips of crack pots and the terminally negative. Now, the issue is appearing in M I T's Technology Review this month. Books such as the End of Oil, and the Party is Over have brought the Hubbert Curve to the front burner of many a board room and policy meeting.
Peak Oil means permanently high oil prices as resource depletion begins to work its way into the mature oil fields of the mid east and the rest of the world. Few would believe that the great North Sea Field, seemingly just discovered, is now past its prime, but it is true. The United States saw the peak in its oil fields in 1973, just as Hubbert predicted. We use 84 million barrels a day in the world and some say that 84 to 90 million is all the world can produce.
Couple this limit with growing demand from China and India and you have a perilous intersection of supply and demand curves.
Then, there is the decline of the dollar. After President Clinton left office, you could buy a Euro for 84 cents. Today, you need a $1.30 something to buy a Euro. That means the dollar is worth 62% of what is was worth four years ago. That means the Dow Jones Average from the perspective of an European is actually at 6470 not 10,400.
To compound the issue, you have the unique relationship of the dollar to the price of oil. Oil is traded in dollars. It's been that way since World War II. Oil is the largest commodity traded in the world. Therefore, in order to buy oil, you must have dollars. This makes the dollar a valuable thing. When the dollar goes down, oil prices go down for everyone whose currency is going up against it.
So, just like the stock market is actually down, the real price of oil is actually less. Oil at 50 dollars a barrel to a European is actually more like 31 dollar oil. And that is the price that OPEC has pegged as their price target.
Part of the reason the dollar is collapsing is the resumption of historically high deficits coming from the government of the geographic state of the United States since the end of the Clinton administration. A substantial part of these deficits come from the Tax deferment policies of the Bush Administration. (Tax relief for the wealthy is actually just tax deferment and redistribution of future burden.) Much of the rest is military spending.
So a weak dollar makes oil cheaper for Europeans and Japanese, therefore sending the wrong pricing signals that oil is about to become more and more valuable because of the supply demand curve intersection.
Meantime, the world spends its time worrying about how to get more oil when they should be concentrating on how to quit using oil and coal completely.
At the same time, the most powerful military force in the world is in the hands of a bunch of oil and gas gizzards from Texas who can't tell their assets from a hole in the ground.
The result is a big bad storm.
A Perfect Storm.
So what happens?
The most powerful military force in the world will make up a bunch of goofy reasons to put a huge military force in the region where 2/3 s of the World's remaining oil remains. They will croon about democracy and freedom, but they really just want the oil.
Meanwhile, their currency is collapsing and the World hates them.
They get bogged down, and they need more troops.
Some geographic states, who are not that sympathetic,
secretly help the neighbor nations.
The Worst Government in American History seemingly gets re-elected.
Then they get cocky.
They can do no wrong.
It reminds me of the story of the German General with his girlfriend.
He tells the girlfriend, who really knows nothing about geopolitics,
that the Fuhrer is going to invade Russia.
He proudly shows her the invasion map.
The girlfriend looks at the map and at the scope of the task.
And then looks at the General, just a little confused.
Mein General, has the Fuhrer seen this map?
Humankind saw 15 million deaths in the
War to End all Wars.
We experienced 55 million deaths in
World War II.
How many deaths might come from
World War III?
In the meantime,
Everyone is worried about Social Security.
So am I.