[CAMWEST-discuss] financial crisis

[Danny Hannan]

G'day all,
Thought I might make a comment on the financial collapse in both the US and Europe.
The problem is the level of debt and has little to do with the sub-prime mortgage market (one of several possible triggers).  Debt in the US has been bundled into securities and then sold to finance more lending and so on.  The US debt to GDP ratio is close to twice what it was during the Great Depression and growing.

The rescue package will only transfer debt from the very overdrawn accounts of financial institutions to the very overdrawn accounts of the US federal government (taxpayer) with little net result.  Currently the per-head US federal debt (about US$40,000.00/head) is higher than the Australian per-head total net debt (about Au$30,000.00/head).

So Australia is in a fairly sound position compared to both the US and Europe but we will still suffer.

Please do not view this as more doom and gloom, it is but:  I believe it is an accurate analysis of our situation and as such provides advantages for those with the information.  We get so little accurate information from our fearless leaders.

Following are some quotes from my former articles so that you can compare what I have said in the past to what is happening now:

The level of debt in western countries and around the world is high.  The USA is the prime example requiring 20% of its GDP to service its debt.  Escalating oil and energy prices will cause economic downturns and recessions as is current in 2001.  As the price of oil and energy increase through this decade it will cause further economic recession, the burden of debt will increase.  As the GDP reduces due to recession, the percentage of GDP required to service that debt will increase.  Companies and individuals will start to go bankrupt under the burden of debt.  These collapses will have effects on other companies and individuals and will eventually cause a domino collapse leading to a depression.  I believe some time 2011-2015 but very possibly much sooner. 
 
High oil prices will have repercussions throughout world agriculture and the populations sustained
 The oil price shock and supply crunch are coming.  Some modellers say as early as 2003, some say not till 2020.  The only argument is when.  If we believe the earlier forecasts and prepare for the worst by building infrastructure that will make us independent of oil, that means rail (both light and heavy)and cycling infrastructure, we will have valuable resources well into the future.  If we squander our resources by building more roads, when the crunch comes there will be social and economic devastation.
 
Air transport with its crucial dependency on fuel will be hit first and hardest with other very vulnerable sectors being transport and agriculture.    (Hannan 2001)
 
There is nothing suggested or currently in development that will be an economically viable replacement for oil   (Hannan 2003)
 
The price of oil has risen relative to global GDP since 1998 (Citigroup 2005) and increased in actual price since 2002 (indicating that the production of conventional crude oil peaked in the period 1998-2002).
 The actual average price increase for WTI monthly Spot Prices January 2002 (US$19.71/barrel) to January 2008 (US$92.97/barrel) is 61.8% per annum
 By plotting estimates of global GDP growth (3%pa)  and using the above price model I have estimated that with a price in excess of US$150/barrel in 2008-9, oil will be the highest price relative to GDP ever recorded and be the cause for the world to be in an economic recession.
 “Beyond 2007, the supply/demand balance (for oil) looks increasingly tight and we conclude that there is more risk of a supply shortfall than a surplus toward 2010.”  (Lehman Brothers 2006)  (Hannan 2005 revised Feb 2008)
 
The future of the aviation industry is bleak with bankruptcies in the industry threatening around the world.  And without low cost travel can the tourism industry be far behind?
 These rapidly rising cost inputs will affect all industries; challenging profitability.  Inflation will be rampant, with attendant interest rate rises.  This will impact on employment causing the economy to slow and unemployment to grow.
 
Many scientists are predicting that as the energy crisis deepens there will not be enough energy to produce sufficient food to maintain our current world population.  Well accepted estimates are from over 6 billion people now to around 3 billion by 2050 and as coal is depleted 1-2 billion by 2100.
 
“The Great Energy Depression of the Twenty-first Century”  (Hannan 2008)
 
 
Currently oil prices though volatile are hanging around US$100/barrel but world inventories of both oil and fuels are low, despite a reduction in consumption due to the slowing of global economic growth.  This low inventory level may not be a problem if economic growth continues to slow or go negative,  but it is unlikely that oil prices will stay below US$100/barrel for long and a peak of US$200-250/barrel in 2009 is not an unreasonable expectation, with the additional impacts on the global economy that would bring.  The future does not look bright economically but for cycling if enough people start advocating for better legal status on the roads we could get legal priority and/or cyclist priority lanes on many if not all roads.  So get those letters to the politicians demanding more status on the roads.
 
See you with your wheels on,
 
Dan
 danny_hannan at yahoo.com   Highest price achieved in 2008 so far was US$147/barrel.


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