The true import of peak oil, therefore, may not be sustained high prices, but economic shrinkage. Demand will be destroyed long before oil gets to $200 a barrel, but it will not be destroyed by improved efficiency.
From where we stand today, it's hard to make an argument for economic recovery. Persistently high unemployment rates, broken state and federal balance sheets, and an inflationary depression will continue to cut into petroleum demand.
We spent the last several decades offshoring the fundamental value-adding sectors like energy production and manufacturing, and now our FIRE economy — finance, insurance, and real estate — rests entirely on real value created elsewhere.
The reason is simple: Energy is the only real currency.
Every dollar of fiat currency or GDP was ultimately derived from cheap energy. Trying to print your way out of energy decline is like prescribing ever-higher doses of aspirin for a headache caused by a brain tumor. Yet those at the levers of monetary policy are, by all appearances, completely ignorant (or in willful denial) of this fundamental fact.
The vogue prescription for the sovereign debtors at greatest risk of default (see a Top 10 list) is "austerity measures." The theory is that a period of belt-tightening will stanch the fiscal bleeding until economic recovery puts everyone into the black again.
Yet, if primary energy supply is declining, and the rising star of developing economies is inexorably cutting into the supply available to developed and indebted economies, then there can be no recovery.
I have joked on Twitter that I'm expecting an "M-shaped recovery," where we're now on the second hump. A more accurate image is slow strangulation.