Friday, October 15, 2010

energy constraints will collapse global economic recovery

ThinkorSwim | It takes the technical, social, infrastructural, and economic resources of an optimised globalised economy at its peak to extract and and use our current energy flows, and even then oil production cannot be maintained. There may indeed be plenty of fossil fuels left in the ground, but following a major systemic collapse, most may remain there as that capacity dies away.

Ultimately the deflationary pressures will start to give way to currency re-issues, currency devaluations, inflation and hyper-inflation. Bank intermediation, credit, and confidence in money holding value are the foundation of the complex trade networks upon which we rely. With their failure we could see supply-chain collapse.

The risks extend to the complex infrastructures such as the grid and IT networks, transport, sewage and water. Their dependence on large economies of scale, the purchasing power within economies, and continual re-supply through highly complex resource intensive and specialised supply-chains will be challenged. Furthermore their co-dependency may mean that failure in one will cause cascading failure.

Finally, the integration and complexity of the globalised economy means that no country will avoid some level of collapse. The principal risk management challenge is not about how we introduce the energy infrastructure and conservation measures to maintain those systems, but about how we deal with the consequences of their collapse.

We are not talking about abstract consequences in an abstract future. They are growing real-time risks that may have a rapid on-set. This is an urgent societal issue, and although there are many things we can do if we accept the risks, we cannot say we were not warned.