There are a number of great books on Peak Oil that you may enjoy reading. In no particular order my list includes:

Hubbert’s Peak: The Impending World Oil Shortage

Beyond Oil: The View from Hubbert’s Peak

Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy

I also think that you need to include Rothbard’s great book, Man, Economy & State, on your list and should consider looking at, Mises: The Last Knight of Liberalism, by Jörg Guido Hülsmann. If you are interested in the topic of the Great Depression you might also want to look at Robert Higgs’, Depression, War, and Cold War: Studies in Political Economy.

I’ll definitely have to consider writing more on this issue. My view is this: we have reached peak or peak-cheap oil and basically demand will grow over time (the present period notwithstanding). With supply constrained that means repeated spikes and severe recessions. A few have claimed this recession is oil related as recessions in 1973, 1980, 1990 and 2001 were. Every recession since peak U.S. oil has actually been oil related.

Definitely, I will need to say a lot more about this going forward. Take a look at the books on my reading list and you’ll see a few titles that I think are mandatory reading on this topic.

I am not a fan of mathematical models in economics because they fail to capture the real world complexity that is evident to any objective observers. That said, I wish that some competent economist would make an effort to use queueing theory to project the effect of a fairly balanced supply/demand situation to prices.

If you look at a supermarket you find that long queues when there aren’t enough employees working at checkout and no lines when there are too many. An interesting observation is that when there is a balance there is a great deal of volatility and an outside observer notes swings between very long lines and no lines. I suspect that a world in which demand matches supply but where supply has plateaued there is a great likelihood for very large volatility. I suspect that will provide the gamblers with plenty of opportunities for gains but that the largest and safest gains will come to the shareholders of companies that have healthy cash flows that can be used to purchase competitors during the pull-backs.

An article with your fine analytical skills about the impact of a declining production curve would be an interesting read.

My own view is we are entering an economic period akin to an undamped shock absorber and that we will see radical oscillations up and down on a macro view until we reach some steady state a long ways down the road. I expect that when this current cycle plays out we will boom briefly and then bust again as oil skyrockets.

It certainly will be an interesting ride. Resource conflict would seem inevitable in light population and energy demand.

Even if we invested as much as we possibly could in energy exploration and development there is no way to keep the supply increasing or flat because new projects are of much lower quality and potential. My worry is that we are not ready for a post peak oil world because there has been too much meddling in the energy sector to allow for a smooth transition.

With idiot bureaucrats and special interests putting up barriers to the construction of nuclear and coal plants and with unconventional oil projects being threatened by carbon taxes we will not be able to have a smooth transition to a new source. That probably means that the US, which is by far the biggest consumer of oil will have to do without. What could make the situation much worse is a transition to a new reserve system that includes a basket of other currencies and/or commodities such as gold, silver, copper, etc. In such a scenario the power of the US is diminished very rapidly and other nations, which rely on economies that are based on the production of real goods and services, become much more important. That could mean a rise for China, Brazil and Russia (if they hold together politically) and a decline of the US, UK, France and other Western nations.

Real wealth comes from the accumulation of productive capital. Sadly, the idiots in Congress have made such an accumulation extremely difficult so capital has gone to places where it is more appreciated.

Inflation IS already in the system waiting for a transmission mechanism to make itself felt. While I do not think that mechanism is likely to present itself without a recovery, your comments underline a potential transmission mechanism – oil.

I agree that oil investment is getting crushed here. I mentioned as much in a post on ConocoPhillips a while back:

http://www.creditwritedowns.com/2009/01/conoco-phillips-34-billion-writedown-makes-me-bullish.html

I think with the severe investment cuts supply will indeed drop to meet demand and a higher price will be the result – recovery or no recovery. This and a falling dollar could be the mechanisms through which inflation embedded in the system are made manifest irrespective of what turn the economy takes.

I am skeptical that the Fed can drain this liquidity before inflation appears on the scene in the form of higher consumer prices.

My sense is that oil is going to be a leading indicator before GDP goes positive. That means Q4 at the earliest in my view. But again, the probability of recovery is not enormous. It may happen, but then again it may not. We still have a long way to go. And if there’s no recovery, then there’s no inflation

Since this all started last year I’ve been thinking that we would start seeing the first wave come onto the shore sometime in Oct/Nov this year. Of course I may be eating my crystal ball.

It seems to me that the Chinese are hoping that the RMB becomes money that is used by other nations to facilitate trade. That would give China the reserve currency advantage that was enjoyed by the United States.

http://mgiannini.blogspot.com/2009/04/g20-summit-dawn-of-man.html

They seem to be taking an altogether different tact. They are opening the Yuan on a bilateral basis, country by country, where China can maintain their peg and dictate the terms of exchange. They are also pushing for a new global reserve currency based on the IMF special drawing rights. This move would stalemate the US influence on the world economy via its dollar reserve status and would allow China to maintain their artificial peg of the Yuan.

It seems a smart play. I wonder how far they can push bilateral agreements until a near true float is accidentally achieved? What would be the result of two or more of their bilateral partners suddenly using the Yuan between them without China as a middleman? All that Yuan has to go somewhere. It may not all return to China. I doubt Chinese policy makers are looking this far ahead or perhaps they have a contingency plan in the event this occurs.

Interesting times…

This sentence is so off the mark that it is difficult to figure out where to start.

Let us begin by noting that in the current environment, ‘Anglo-American-style laissez-faire capitalism,’ means highly regulated systems that are supervised by government agencies and the central banks. That arrangement does not resemble real laissez-faire capitalism, which has no room for such things as banking cartels, complex regulatory structures, or meddling in the economy by central banks or governments. What we witnessed was a failure of misguided and ineffective regulation, not laissez-faire capitalism.

We also need to point out that the EU banking system, which is hardly an example of, ‘laissez-faire capitalism,’ has gotten in as much trouble as the American and UK financial systems. Why didn’t the French regulators, who should have spotted the sub-prime paper fraud, not tell the French banks to stay away from American mortgages issued to people with bad credit? Or the Spanish regulators? Or the EU itself? I hope that the author does not mean to suggest that the EU suffers from too little regulation.

I would argue that to solve the crisis we need a true move towards laissez-faire capitalism. That means that we need to take away the power of governments and central banks to rob workers and savers of purchasing power by creating money and credit out of thin air, to take away the power of governments to meddle in the markets and to let failure be punished by the market. There is little doubt that most nations have existing laws against the initiation of force and against fraud, and that those laws are sufficient to protect individuals. We don’t need other laws that are supposedly put into place to protect individuals but serve to allow politicians and bureaucrats to line their pockets as they use their power to redistribute wealth from the productive to the politically connected.

Gold has a historic ratio to silver of 9:1 – 13:1, meaning that if gold is $100 per oz, then silver would usually be at $9-13 per oz. Since the bull run in gold starting in 2002, that ratio has been subverted by banks controlling the options trading at the big commodity traders. That will change sometime late summer, early fall of 2009.

The current gold – silver ratio is about 70:1. Silver, if left purely to the market demand, should be around $60 per oz. The historic ratio will come back, and with a vengeance. Many variables, any one of which can cause havoc, are waiting to blow up. When they do, those manipulating behind the scenes will be left with no clothes on.

One of the major variables that will emerge is China’s wish to create a regional currency for Asia based on the Yuan. Japan, Korea and Singapore have already, in theory, agreed. It will take 12 – 18 months, but expect that to become reality. When it does, China will begin issuing its own debt. That means the Chinese, Koreans, Japanese et al will not be buying US Treasuries.

That is very bad news for the US, as our current economic recovery plans have us selling an additional $8 Trillion in Treasuries over the next 5 years. Without those buyers, Obama’s plan has no chance of success.

The market was way oversold before the rally began last week. Now, it seems a bit overbought. But, I can’t say I anticipate a major sell-off here unless things get significantly worse in the real economy.

As for Gold, wait until inflation rears its head.

The rioters are attacking the banks, China and Russia are calling for a new reserve currency and I can’t help think that kind of fear wouldn’t translate into the financial markets.

Interesting.