It is time to start powering down as much as you can


Imagine if you will a household that discovered gold in their back yard.  They started digging it out and spending it.  At first they dug close to the house and about 2 feet deep.  They found pockets of gold everywhere.  They started living lavishly off the gold. There were sources of income outside of the gold digging.  Some things like growing trees were fairly easy to tap in to but nothing would bring anywhere near the same return as digging in the back yard would.  Gold was the most convenient way to pay for transportation.    Everyone else on the block started digging in their backyards for this gold.  Those who had it sold it to those who didn’t  Eventually all the easy to get to spots in the backyard were dug through.  Some people complained that the backyards were really ripped up but the alternatives to gold digging were seen as too expensive.  Switching to something that wouldn’t wreck the backyard would require far fewer vacations and shopping trips to the mall.  All households kept growing with new additions and more people.  There were a lot of mouths to feed with the food bought by this gold.

As the gold became harder and harder to find the household found better ways to dig deeper, dig sideways, and chip away at the rocks.  It became more and more expensive to get the gold and the value of gold increased.  Eventually some people starting to think about how sustainable this whole situation was.  They started planting things in the backyard but you can only grow so many trees and vegetables in a year. 

The richest house on the block hit a point where it seemed they started running out of gold.  There was still plenty of gold left but it was getting harder and harder to dig up.  They sent out household members to help other houses find their gold and bought as much as they could from them.  The richest house had a seemingly insatiable appetite for gold. 

Eventually more and more of the houses on the block hit the point the richest house did.  They had gold to dig up but it became so much more complicated they couldn’t possibly dig up as much in a day that they used to.  This became a problem.  Some of the poorer houses on the block with a lot of people living in them started to earn themselves a tidy income and they wanted to live like the people in the rich houses do.  The demand for gold skyrocketed.  In fact the demand for just about anything you could dig out of your backyard or grow on the back yard increased wildly.  Those that had gold became less and less willing to sell it to others.  People blamed the actual gold diggers for the high prices and never really considered the reality that someday it would eventually run out.

Some people started trying to find ways to grow things to replace gold.  They discovered techniques that allowed households to grow a lot more things sustainably and cost effectively.   They suggested that the household begin to switch.  People didn’t want to.  While they could earn an income from growing things there was no good replacement for gold when it came to paying for transportation.  People started to sense the urge to conserve.  They started giving up gold toothbrushes for wooden ones but most people just paid lip service to the ideals of living within their means.  People had become accustomed to the easy transportation that gold offered them and believed it was their right to pay for luxury and convenience.

Some people started sounding warnings.  They started crunching the numbers and realized that if the whole block started running out of gold there was no easy way to transition to another source of income.  Every alternative required massive amounts of investment and at best couldn’t pay for all that they were doing.  They could have taken the gold they had and invested it in alternatives so when gold got too expensive they were ready to transition to something else.  They didn’t.  When the first gold shortages hit the block became a less stable place.  More and more households tried to steal gold.  There were fights in the street.  The cost of everything went up because the cost of transportation increased exponentially.  The lavish lifestyle people enjoyed because of the abundant gold came to an abrupt end.  Those on the block small reserves of gold had to live off of what they could grow each year.  In many cases it wasn’t enough.  Many of the richer households became much more like the poorer ones.  Everyone had to restructure their whole way life because they couldn’t rely on paying for transportation.  Those that invested early in alternatives and gave up on their voracious desire to consume more and more things managed much better who felt easy living was their right and it would go on forever.  In the end everyone had to learn to live with a lot less.

 


Today CIBC economist Jeff Rubin warned us that gasoline prices will hit $1.50 a litre in the near future.  Economists cite growing demand from India and China combined with decline oil production in non-opec countries for continual price increases in gasoline.  It appears that conventional oil production peaked in 2005 and the world has turned to unconventional sources of oil that are much more difficult to get and to process.  Even unconventional oil production cannot offset the estimated declines in major oil producing areas like Mexico and the North Sea.  Fears of a recession grow in the United States as the housing downturn, energy prices and more expensive credit take the steam out of the US economy.  There is growing fear that increased food and commodity prices will spark inflation while the economy is a downturn creating stagflation much like what occured in the 70’s.  At that time central banks hiked interest rates to astronomical levels to bring inflation down and reboot national economies. 

 

I think the party is over.  Everyone should start thinking about how that can seriously reduce their consumption of finite resources like oil and natural gas.  

 

 

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