Is there a global recession/depression on the way?

Not only are we heading for a worldwide depression, it will not be a temporary state, but a new permentant condition. Not very cheerful, am I? Well let me explain.

For some time now we have been developing economies that have relied on a model of constant, exponential growth. This has been fuelled by the availability of cheap, abundant oil. Oil was used to make things to be sold and transported and encourage investment and businesses grew and more people bought more stuff, etc., etc. Capital was no longer the accumulated proceeds of labour, it became specutlative, money being lent on profits not yet earned.

Credit was extended and the money created from thin air on the promise that the lender would and could pay it back. This is fine as long as businesses can keep expanding, and the God of Growth can be appeased. If you failed to grow, it could affect your ability to pay back the money extended to you, plus the interest, of course.

Men in sharp suits got impatient, the money that didn't exist wasn't being earned and paid back fast enough. So they invented Collateralised Debt Obligations, bundled all the outstanding loans on their books, and sold them to someone else to get the money straight away. They assured the banks and hedge funds that bought them that the money was a sure thing, the loans had been secured on property, after all. What they didn't tell them was the amount of money lent had no bearing on the value of the property. Doesn't matter how much you paid for it, a wooden shack is still a wooden shack.

Then there came a problem with the supply of oil. It is now apparent that the last major discovery was in 1968. Since then more oil has been used than new discoveries made and there is no more oil to find. Oil was no longer abundant, and very soon it was no longer cheap. The peak of all production of light, sweet, crude passed in the spring of 2005. Now we have to use heavy sulphourous oil that costs more to process and the cost is being passed on in it's price. Higher prices mean lower consumption and the specture of low or non-existant growth. No growth or even low growth and the economic model begins to unravel.

Low growth and higher prices for energy means businesses start to unload staff to cut costs. No jobs mean these people defualt on their overpriced mortgage. When that happens the banks that bought CDO's find they have peices of paper that are effectivly worthless. Thus the sub-mortgage crisis is born. But it gets worse. Those loans were sold on and sold on again, the liabitly for these loans so sliced and diced that no-one knows who ultimately is responsible for them or how much money is actually owed. Banks don't trust each other any more, and credit, the life-blood of the current economic model has dried up.

O.K, we've had recessions before, and economies have recovered. We even had the Great Depression and America went on to become the economic powerhouse of the world. But that was at a time when the only thing that was in short supply was money. Once the money supply expanded, so did the economy, there was still an abundant supply of resources. This time it's different. The oil supply is declining, and so is the supply of water and food.

The markets may yet still rally. We have had the dot.com bubble and the housing bubble, there may yet be the energy bubble, where money is thrown at people who promise to come up with a 'solution' to the problem of Peak Oil. However, ultimately they are doomed to fail. There is no more oil, and nothing that can replace it. Biofuels can never replace oil in the scale it is used today, and besides, there is the ethical question of allowing people to starve so that you can fill up your SUV on bioethanol.

Until the current economic model is a stinking, steaming heap, we will not abandon it, there are still too many people making obscene amounts of money from it. We will have to develop local economies based on local production and get back to an economic system where the money created is based on something of value. Why do you think that in times of trouble people make the rush to buy gold?

Get yourself some plastic containers and start to store food. The world is 40 days away from running out of grain. China has stopped exporting certain varieties of rice in an effort to stem runaway food price inflation. The rising cost of wheat and grains used in animal feeds means the rise in cost of practically everything in your fridge that comes from an animal. There are good websites like Survival Acres that have great tips on how and what to store.

Don't despair. Although the current system of things will be swept away, a better society could emerge as a result. That will be down to each of us to create. Look after yourself.