Extract – full article here.
The Peak Oil Crisis: The German Army Report
~ Tom Whipple
Wed, Sept 21, 2011.
… Last year two military planning organizations went public with studies predicting that serious consequences from oil depletion will befall us shortly. In the U.S. the Joint Forces Command concluded, that by 2015 the global shortfall in oil production could be as much as 10 million b/d. Later in the year a draft of a German army study, which went into greater detail is unique for the frankness with which it explores the dire consequences which may be in store for us. They introduce the notion of a peak oil induced economic “tipping point” that would trigger so much economic damage that it is impossible to evaluate the possible outcomes.
For the near future the study foresees that a very large increase in oil prices would harm the energy-intensive agricultural systems that produce much of our food. The study goes on to postulate a “mobility crisis” that would arise from substantial increases in the costs of operating private cars and trucks.
As oil is used either directly or indirectly in almost 90 percent of industrial production, major increases in the price of oil would change most price relationships. Domestic and foreign trade will have to adapt to these new relationships but doing so will likely lead to economic upheavals. As businesses transform to less oil-dependent forms of services and production, there would likely be an extended period of “transformation unemployment” that will become a major economic problem. A case could be made that our current “jobs” crisis is simply the leading edge of the “transformation unemployment” that could go on for decades.
Of great significance is the willingness of nations to implement the economic policies necessary to effect the transformation to the post fossil fuel age. Forms of government will be sorely tested. The Germans who have much experience in these matters note that only continuous improvement in individual living conditions forms the basis for tolerant and open societies. Given the widespread unemployment and high mobility costs that are almost certain to accompany the transition to a post fossil fuel world, democratic forms of government are likely to face severe challenges.
For the immediate future, however, the German Army study foresees: 1. increasing oil prices that will reduce consumption and economic output (i.e. a recession or worse); 2. increasing transportation costs that will lead to lower trade volumes – less income for many and unaffordable food for some; and 3. pressure on government budgets as they must keep populations fed, deal with the social consequences of mass unemployment, and attempt to invest in sustainable sources of energy. Governmental revenues are bound to fall as unemployment increases along with resistance to further taxation.
In the medium term, most companies would come to realize that the global economy is going to be shrinking for a long time and act accordingly. In an indefinitely shrinking economy, savings would not be invested as profits could no longer be made or borrowing costs paid. In this environment, the banking system, stock exchanges and financial markets would have a hard time surviving.
The final step would be the loss of confidence in currencies and with them the ability to carry on normal economic transactions outside of barter. If all this sounds extreme, remember the Germans have been through far more than we have in the last century. What is interesting is the way they are telling it like they see it – no pulling of punches.