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Part One: Oil


The credit crisis, the sub-prime mortgage debacle, and the European sovereign debt fiasco are all just pieces of a larger puzzle, and when we put them all together they form one very clear picture - the house that oil built is collapsing...rapidly. This treatise will describe in detail the circumstances that have led us to this point, as well as what we can expect to see in the future. This is partially my own research, and partially an amalgamation of the research of many who have preceded me. It paints a very chilling picture of our future and a grand departure from the future we've been taught and told to expect.

I'll begin with the concept of Peak Oil. Peak oil is the point at which the height of annual global petroleum extraction is reached, after which world oil production begins an interminable decline. It's axiomatic that this also means that at this point we will have used half of the oil on planet earth. We experienced this peak in late 2005, and since that time global oil production has steadily declined. We now find ourselves in the most unstable of economic circumstances - an exponentially expanding increase in global petroleum demand and an irreversible decrease in supply. These facts are not disputed.

You may read or hear talk of the vast oil reserves still available in the form of shale oil and tar sands. Admittedly, there is a lot of oil available from these two sources, and many experts claim that once oil prices inflate to a certain level these will become commercially viable options. What you likely won't see discussed is the concept of net energy, or the ratio of how much energy is invested vs. how much energy is returned. The simple fact is that shale oil and tar sands are net energy losers. It takes more energy to extract them than you get from them. Regardless of how high the price of oil climbs, these resources will not save us.

It is also important to note that nobody knows what the actual amount of global oil reserves is, but we can safely assume that it is far lower than what is reported. In 1985 OPEC implemented a production quota system. This allowed OPEC nations to increase production based on a percentage of each nation's total reserves. As a result, OPEC nations reported a massive increase in their reserves in order to be able to produce and sell more. Between 1986 & 1988 Kuwait reported an increase of 41% - Saudi Arabia 50% - Iran, Iraq, & Venezuela 100% - and Abu Dhabi & Dubai 200%. Given that global oil discovery peaked in 1962 at around 45Gb (billion barrels) and has declined at a fairly consistent rate of 1Gb per year, we can be certain that all of these countries could not have discovered this much oil in such a short timeframe. Most of the reserves that have been discovered in the last few decades are also in places that make extraction increasingly difficult.

Currently the world consumes about one billion barrels of oil every eleven days. This means that at current rates, all of the oil we've discovered in the last 10 years will only feed us for two, and consumption is still increasing.

Think about the current disaster in the Gulf of Mexico. Why would BP allow the Deepwater Horizon rig continue to operate in the face of so many safety concerns considering the amount of money they had invested in the operation? And why would they go online in the first place without a proven technique in place to prevent an entire field's worth of oil from spilling into the ocean, resulting in a massive profit loss? And given that there were only about 50 million barrels down there (or enough to feed the global economy for about an hour) why would a company that functions solely to earn profits spend so much money and take such enormous risks to recover a relatively small amount of oil?

The simplest answer is the correct one - they had to. When it comes to oil, we've picked all of the low hanging fruit. In the instance of Deepwater Horizon, BP reached too far out on a very high branch to get a tiny apple, and they fell. This is neither the first nor likely the last environmental and economic fiasco we will see as a result of the worldwide depletion of oil reserves.

I think the best way to understand the impact of fossil fuels on our society was described by Richard Heinberg. He pointed out that from the beginning of human history up to about 150 years ago, all human civilizations ran on current sunlight. We ate food that was grown with current sunlight, our transportation was based on labor from animals and people that ran on current sunlight, for fires we burned wood grown with current sunlight, and we built things with materials made by current sunlight.
Then we discovered an immensely dense, powerful, and cheap source of ancient sunlight in fossil fuels. These energy sources of coal, natural gas, and oil are concentrated types of sunlight, formed over millions of years of geological processes. It was a one-time gift from our planet to our civilization, which we could have used wisely to create longer-lasting, more sustainable sources of energy. It was only this discovery that led to the industrial revolution and allowed us to build the complex society in which we live today.

Now that gas is almost $3.00 per gallon, it is can be difficult to understand exactly how cheap fossil fuel energy is. Truthfully, even if the price of oil were triple its current price, or ten times its current price, it would still be remarkably cheap energy. Of course, a gas price increase of even a modest fifty cents per gallon has huge economic repercussions for us because everything we do is so inextricably tied to oil. But let's look at the price of oil another way.

Let's assume that for all the oil-powered cars in existence, the average fuel efficiency for any car is 20 miles per gallon. Stating the obvious, this means that at $3.00 per gallon your car can travel for twenty miles for three bucks. This also means that, at an average speed of 55 miles per hour, you can travel those 20 miles in 18 minutes and 20 seconds.

Now think about how long it would take you to travel 20 miles on foot without the assistance of an oil-powered machine, and how much physical energy that would require. Taking it a step further, imagine how long it would take you to push your car, with everything in it, 20 miles, and how much energy that would require. Without even factoring in the extra time and energy it would take to push the car, the average human walks at about 3 miles per hour, meaning it would take you 6 hours and 40 minutes to walk the twenty miles. Multiplying that figure by the current federal minimum wage of $7.25 per hour gives a total of $48.29, once again, just to walk it, not to push the car. Comparatively, $3.00 to travel the same distance is unbelievably cheap, $9.00 is still really cheap, and even $30 is relatively cheap.
The point here is that there is nothing in existence that can replace the edifice we've built on oil and there is no energy source that is even close to being as cheap as oil. Without it, society would cease to function in any discernible way compared to how it does today.



Part Two: Money


I will now explain the basics of what money is, how it functions, and how it impacts our society. Without an understanding of the financial principles of our society, it is impossible to grasp the effect they will have on the collapse of industrialized society.

It is important to understand that money, be it precious metals like gold or silver, commodities like chickens or tulips, or fiat currency like paper money or tally sticks, is simply a method of exchange. It is easier to facilitate commerce with paper money that has a universally accepted value than by a trade or barter method of exchange. It matters not what the currency is backed by, but rather how much of the currency exists in the system relative to the amount of goods and services available. Essentially, as long as the amount of money is equal to the amount of things you can buy with money, the system is stable. However, the system of fractional reserve central banking has distorted this relationship to a completely unsustainable and disastrous paradigm. In the world today, money is not valued according to goods and services available. It is valued according to goods and services that might eventually be available. This seems like a small distinction, but it is this principle that has led us to our current predicament. This is the concept of infinite growth, and it is the only thing that gives our money any value today.

Way back in the day banking was very basic. You deposited money to the bank, and the bank loaned out money that it had on deposit to others, and charged them a percentage of the loan as interest. Thus you had a safe place to keep your money, you could earn a small profit on your money by allowing the bank to lend it out, and the bank also made a profit. Pretty simple.

Eventually, however, bankers got greedy. They figured out that if they were able to loan out more money than they actually had, they could make more money in interest payments. This idea that you can lend a multiple of what you actually have is called fractional reserve banking. The obvious problem with this is that if they loaned out say ten times what they actually had, and suddenly a large contingent of account holders came into the bank to collect their money, they would not have enough to cover everyone's accounts. This led to the creation of the central bank.

The central bank's function is very simple - they exist to print money. If all of the money in circulation is printed by the central bank, when a member bank doesn't have enough, they can just have the central bank print them some more. Theoretically, this would prevent a "run on the bank." Initially, this fractional reserve system worked on a gold standard and a multiple of ten. This meant that for every dollar in gold the bank held in its vault, it could loan out nine dollars in paper money.

Eventually, however, the bankers got greedier. They realized that they could print exponentially more money, leading to exponentially more interest payments, but they couldn't print any more gold. So the system was altered to it's present state, which allows a bank to loan nine dollars in paper money for every dollar that is already owed to it from previous loans. Now, if the bank loaned out $100, that would become debt owed to it and it could in turn loan out another $900 based on that debt. Once the bank made that $900 loan it had $1,000 owed to it and could in turn loan out another $9,000. I'm sure by now you can see where this is going. This is bank credit, which is just a synonym for fake money. Fast forward 97 years and, in the United States today, 95% of all money that exists is fake money because of this system. I'll circle back to this in a bit.

Moving back to central banking, all money that exists comes from the central bank, and in the United States that central bank is the Federal Reserve. It is very important to understand that the Federal Reserve is not a government entity. For proof of this, you need not look any farther than your local phonebook. If you look up the Federal Reserve, you'll find that it is not listed in the government section. It's listed in the business section, because that's what it is, a private business. The Federal Reserve is a cartel, owned by other private banks, with exclusive control over printing U.S. dollars, and operated for profit by it's owners. This is the entity that holds our national debt, because when the government needs to borrow money, it prints U.S. government bonds which it trades to the Federal Reserve for currency it can then spend. It is also noteworthy that every dime of the Federal Income Tax goes to pay the interest on the national debt, which means it goes to the Federal Reserve, which means it goes into the coffers of private banks. The services government provides are paid for by taxes on products, capital gains, and goods like gasoline, but 100% of what is collected from Federal Income Taxes goes directly into the pockets of private bankers.

If you want to better understand how the Federal Reserve creates our money, I highly recommend a book called "The Creature from Jekyll Island" by G. Edward Griffin. You can also find his lecture covering the topics of the book on Youtube.

What this all means is that all our money is backed by the principle of infinite expanding growth. Since the bank only creates enough money for the original loan, and not for the interest that must be paid back with the loan, it has to make more loans every year to cover the value of the ones it's already made. The system assumes that the economy, the workforce, the population, the monetary supply, the market, etc. will get larger and larger every year. If it fails to do so, the entire system crashes, which is what we saw in 2007. The only thing that staved off this collapse then was the giant loan the banks got from the people. The .com bubble, the credit crisis, the sub-prime mortgage bubble, the derivatives bubble of seven hundred trillion dollars, the student loan debt bubble, and the bailout bubble we are experiencing now are all just attempts to shuffle around money and debt and keep the system alive.

Like I said before, 95% of all money in the system is simply bank credit (or fake money). It doesn't exist in the form of gold or silver or even paper currency. It simply exists on the spreadsheets of banks. This is what the term "too big to fail" really describes. The money only exists because the banks say it does. If the banks were to fold, that money would cease to be. As long as the central bank exists, we can never pay off our debts, because there simply isn't enough money to do so. The system is specifically designed to create debt, not to allow for it to be paid off.

All this all ties into peak oil because all global commerce is predicated upon the expanding availability of cheap oil to move these goods and services around. Without expanding oil production, growth is not possible, and therefore the collapse of the system is inevitable. It is only a question of when.

This brings us to an understanding of what money really is, and what it has always been throughout history. It is a medium of exchange backed only by energy, That energy may take many forms, but it is energy nonetheless. Take a look at any paper bill, weather it be a dollar or a euro or a franc or a yuan or a looney (perhaps the most aptly named currency in the world). What is it good for? Can you shove it in your gas tank and get energy to run your car? Can you eat it and get energy to power your body? Can you plug a lamp into it and get energy to light your home? Can you make it do physical labor providing the energy to run your business? Of course, the answers to all of these questions is no. You can not use it to make energy. You can only exchange it for energy. And without oil, which is society's primary form of energy, you can't exchange it for anything.



Part Three: Food & Population


I will now address one of the most dire and immediate threats we face due to the emergence of peak oil and the monetary collapse careening towards us - food. However, in discussing how food is grown, processed, and consumed in the global economy today, we must also address the issue of population, for not unlike oil and money, food and population are inextricably linked.

In 1804 for the first time in human history, the global human population hit one billion people. It took only 123 years to reach a population of two billion in 1927. It took 33 years to reach three billion in 1960. At  our current rate, the world population grows by 1 billion people every 13 years. Of course, that growth rate is an exponential function. There are more than twice as many people on the planet today as there were when John F. Kennedy was inaugurated. Since the discovery of oil the human population has increased by 600%, and this has been made possible only because of the impact oil has had on food production. Let's take a look at how much of a role oil plays in food production today.

Currently for every of calorie of food produced, 10 calories of hydrocarbon energy were used to produce it. Food production is entirely dependent on petroleum all across the world, and especially in industrialized societies.

An oil-powered machine plows the land. Then another oil-powered machine plants the seeds. Then the land is fertilized by an oil-powered machine. Because we no longer practice crop rotation we have destroyed the topsoil of farmland so that all crops must be fertilized with artificial nitrogen, which is made from natural gas. Today, ammonia made from natural gas produces as much nitrogen annually as all natural sources of nitrogen combined. Without these petrochemical fertilizers we would be unable to grow even half of what we grow now. In the past 50 years the amount of food grown globally has tripled. As I pointed out earlier, in that same span of time the global population has doubled.

Next pesticides are sprayed on the crops (by an oil-powered machine), all of which are made from petroleum products. Then the land is irrigated, a process powered by an oil-powered machine or  electricity, which is generated by coal or natural gas. Then another oil-powered machine harvests the crops. Another oil-powered machine carries the food, often hundreds or thousands of miles, to where it's processed (by electricity) and packaged (usually in plastic, which is made from oil). Then another oil-powered machine takes it to a distribution center. Another oil-powered machine takes it from there to your local supermarket, which you drive to in your oil-powered machine, purchase it, bring it home, and store and prepare it (using electricity or natural gas).

The emergence of peak oil means that the price of oil will inevitably rise, meaning the cost of fertilizers, pesticides, farm equipment operation, and food transportation will inevitably rise with them, which means that the price of food can only continue go up - that is until it simply gets to expensive to transport food across the vast distances we do currently, at which time you will have no choice but to obtain your food locally.

Only about 4% of the earth's surface will grow crops. Before the age of oil, accounting for the fourth of that that was reserved to grow grain for horses to power farm machinery and transport people across land, and the two thirds of what remained that lay unused each year to allow the soil and nutrients to rejuvenate, the human species depended on a very small percentage of land on which to grow food. Also, most farmland could not produce at full capacity as the carrying capacity of a region is defined by whatever resource is in least supply. It didn't matter if you had 10,000 acres of good land to grow crops on if you could only get enough water to irrigate 1,000 acres. With oil we are able to make up for this problem by very cheaply moving the resources a region needs from another region that has an abundance of them.

In short, the discovery of oil and it's application to food production has allowed fewer and fewer farmers to grow more and more food on smaller and smaller amounts of land. This has also allowed the continual urbanization of our species, as more people can live in smaller spaces due to access to food that is transported in from far away. As a result of the age of oil, the human population has exploded, and the human population bubble will be the final one to burst after the monetary collapse.

To get a very simple picture of this process, consider the growth timeline of bacteria in a petri dish. Even if you begin with just two, the population grows exponentially until they consume all of the food available. Once all of the food and resources have been consumed, the population decreases rapidly. This is an immutable law of physics. No amount of human ingenuity, effort, or charity can prevent it. We live on a planet with finite resources, upon which infinite growth is not possible.

To summarize this section with the previous two, as growth stops, the monetary system will collapse. When the monetary system collapses, global commerce will slow and eventually halt. As commerce stops, the resources needed to grow food and the food itself will not be transported to the regions that need it. And as goes the food so goes the population. We should also note that this will be felt hardest and most immediately in industrialized nations as our populations have a greater disconnect with the land and the production of food. How many people in New York, Los Angeles, Chicago, Atlanta, Dallas, Tampa, Baltimore, Washington D.C., Boston, Houston, Detroit, Cleveland, Miami, or any of 200 other U.S. cities, even if they knew how, could grow enough food to feed themselves? Even if the soil wasn't devoid of nutrients, entirely dependent on petrochemicals, covered over by cement and asphalt, or eroded by other industrial processes, we simply cannot produce enough food in the United States to feed 300 million people.



Part Four: The Fall


Now that we understand that this collapse is occurring, what factors are causing it, and what it will mean in terms of human society, what can each of us do to insure that we aren't, in the words of Michael Ruppert, Darwinianly deselected? In this segment I will discuss what parts of the collapse we are already experiencing and what we will likely see happen next.

First I must note that the coming collapse is not only an eventuality, but also a necessity for the survival of our planet, and by extension for the long-term survival of our species on it. In forestry management, sometimes we must let a wildfire burn because it's good for the ecosystem. Albeit disturbing, that principle applies to our society also. We have overfished the oceans, reducing many commercially fished species by 90% in just the last 60 years. We've polluted the air, which is contributing to observable planetary temperature anomalies. The soil of most of the world's commercial farmland is barren without the assistance of petrochemicals. Much of the population of the industrialized world is dangerously overweight because food that is unhealthy for us has become cheaper and easier to obtain that nutritional food, and simultaneously the population of non-developed societies is malnourished. Much of the planet's population is without consistent access to fresh water (which is a rapidly decreasing commodity everywhere) because 85% of our fresh water is used to irrigate crops. Our consumerist society institutionalizes a wasteful, use-once-and-throw-away behavior. Vast amounts of people are overmedicated because the pharmaceutical industry creates pills and then invents the ailments they alleviate. We have become almost completely ignorant about our natural habitat, as generations of people who know only the industrialized society in which they have always lived seem to believe that we can live our lives completely divorced from the earth. And as I discussed previously, the world is now unsustainably overpopulated. In fact, almost everything we do is ultimately unsustainable. The world needs a wildfire to save itself from the effects that industrialized society has wrought.

That being said, I would prefer not to be a casualty of the world's war against itself, and if you're reading this it's safe to assume that you are of similar mind, so here's what to look out for.

In a 2008 treatise, Dmitry Orlov discussed in detail the five stages of societal collapse. I will include the descriptions of each, but I'd recommend reading it in its entirety. It's fairly short, easily available online, and pretty entertaining. Apply what it says to events happening in the world. The evidence of the progression of this collapse is apparent in the news, even the corporate controlled TV news, every day. You just have to know what to look for.

Stages of Collapse

Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed to resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse. Faith that "your people will take care of you" is lost, as local social institutions, be they charities or other groups that rush in to fill the power vacuum run out of resources or fail through internal conflict.

Stage 5: Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for "kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity" (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes "May you die today so that I die tomorrow" (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

The origins of the current collapse really go back to the conceptualization of central banking, more recently to the synthesis of oil and food production, but are immediately observable in the wild speculation of financial markets and the succession of the rise and fall of financial bubbles over the last two decades. As previously described, the ".com" bubble led to the "housing" bubble, which led to the "derivatives" bubble, which led to the current "bail-out" bubble. They have all progressed the same way that the first ever financial bubble did - Tulip Mania.

During the Dutch Golden Age the Tulip (yea, the flower) was first introduced to the region. They were so sought after that financial speculation on tulips skyrocketed and at one point a single tulip bulb was worth 10 times the annual salary of a skilled craftsman. Then, one day in 1638, the most valuable bulb in existence failed to sell at market. All of a sudden people seemed to realize that they were just flowers, and could easily be grown in almost limitless capacity, and the price of bulbs plummeted. Many people were ruined in the ensuing collapse of the tulip bubble.

The bail-out bubble began in ernest after the crash of 2008, when the U.S. Treasury "loaned" $700 billion in fake money to the very banks that created the problem. This was the highly touted solution that was supposed to save the economy. Fast forward two years and there are more banks on the FDIC's troubled bank list now than there were in 2008. We are seeing the next step in this collapse all over the country and all over the world. The European Union is sinking deeper by the day as Ireland & Greece have already gone under, with Portugal, Spain, and Italy just around the corner. However, the collapse of this bail-out bubble is different than all the ones that came before it in a very important way: It deals with sovereign national debt instead of private consumer debt.

We are seeing this in the United States as well as several states and hundreds of municipalities are nearing bankruptcy. This is truly the beginning of the end. As governments go broke, unemployment benefits and pensions will no longer be paid. Fire stations and police precincts with no operating budget will be shut down. Teachers won't be paid, and schools won't be maintained so they'll be shutdown. As fires rage and crime becomes rampant, we'll begin to see food shortages in ernest.

As hyperinflation hits currency markets, all paper money will devalue rapidly. You won't need the cliched "wheelbarrows full of money" to buy groceries, because the supermarkets will shutdown when the trucks stop bringing the food in. The price of corn has risen 40% in the last year in America alone, and since corn is in almost all of the food we eat, you'll begin to see the repercussions of this very soon. The price of everything from Pepsi to beef will increase dramatically. The dollar menus at your favorite fast food restaurants will disappear. Since we import most of our food from other countries, you'll see shortages and/or price spikes in select items in the near future, followed by their entire disappearance further along, as the people that produce them begin to hoard food for themselves.

The price of gold (a historically true value of currency because you can't just print it arbitrarily) is at an all-time high and still rising. The rates on U.S. T Bonds, one of the safest means of investing your money, are rising steadily. Japan's debt to GDP ratio is astronomical, they have no IMF, Federal Reserve, or World Bank to back them up, and Japan is the 3rd largest economy in the world. The only reason they aren't bankrupt already, in fact the only thing staving off this collapse is China. China's bubble is holding up the entire world economy right now, and once the Chinese bubble goes, there's only one bubble left, and that's the population bubble. This is an economic crisis that will rewrite history. World War I was once called "the war to end all wars," and then WWII showed us that it really wasn't. The financial apocalypse that's coming now will lead future textbooks (whenever they're written) to call "the Great Depression" "the economic downturn of 1930." Of course, we had an industrial infrastructure, a seemingly limitless supply of cheap energy, and a war-manufacturing economy to pull us out of the depression of the 30's. What will pull us out of this one?

Look at the financial meltdown like a macrocosm of what happened at Enron. Speaking about that collapse, an NYSE analyst said, "As the fraud is perpetuated, all the various lies and artifices begin to convince [them] that in fact the fraud is the reality. The perception is the reality, and as long as you can keep the perception going on, it really isn't a fraud."

What you will likely see next is massive sovereign debt defaults, then the IMF, World Bank, and the European Central Bank declare insolvency. The U.S. Federal Reserve will shortly follow suit, then China. The civil unrest has already begun, and will only widen and intensify dramatically and we'll see nations tear themselves apart and anarchy in the streets as people do whatever they can to feed themselves. There will be no martial law, at least not nationally or globally, as we simply don't have a large enough military force for that. This will likely last for several years as we devolve back into a localized, agrarian society, which is how man has lived for about 99.% of human history. Where we go from there depends on how the powers that be handle the crisis, and in which directions they push us.