Monday, April 20, 2009


Growth and Debt

In an interview, Colin Campbell says in part,
These new energy sources, especially oil, the easiest, allowed the rapid expansion of industry, transport, trade and agriculture allowing the economy to expand greatly. It was accompanied by the growth of financial capital as banks lent more than they had on deposit, confident that Tomorrow's Expansion was collateral for Today's Debt.
I don’t know if Campbell made up that italicized bit himself, but it’s a great line that we should all remember because it distills the essence of our oil-driven growth economy into a short, pithy sentence: “Tomorrow’s expansion is collateral for today’s debt.” In other words, the only way that most of the colossal debt out there could ever be repaid is for the world economy to quickly recover and grow at a respectable clip. And in fact, as the above verbal distillation says, that is indeed the whole premise for our debt-based world economic system.

The world financial crisis is said to have been precipitated when a whole lot of bad debt (subprime loans, etc.) started to unwind. And of course there has been much unregulated greed out there creating that toxic waste. But what led to this in the first place was the expectation that continuing economic growth would somehow keep the show going.

Now, however, there’s a really big possibility that we have passed the peak of oil production. Making this especially likely is the shelving of many oilfield development projects because they are unprofitable at current low crude prices. Even if there is an economic recovery, there would almost certainly not be enough oil to power it.

If this really is the “end of growth,” then there is a heckuva lot more bad debt in the world than we can imagine, because the collateral for all of that debt is disappearing or already gone.

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