By Paul B Farrell, MarketWatch Feb. 12, 2008
ARROYO GRANDE, Calif. (MarketWatch) -- Hollywood tag lines fit Exxon
Mobil's $40 billion profit as well as the movies:
"There will be Blood. There will be Greed. There will be Vengeance."
Our "war of civilizations" is not of theologies but a primal battle to
control basic resources essential to survival. Yes, there is blood ...
and oil ... and greed ... and vengeance ... and wars for survival.
At the highest level, this war's being waged in the elite towers of
Wall Street and London and Dubai and Singapore: Quants wearing
Turnbull & Asher shirts, trading commodity derivatives, gunning for
megabonuses, soaring high, like stealth bombers detached from the
bloody fighting 40,000 feet below.
That's also how Eric Janszen's radar reads the world in Harpers
Magazine's "The Next Bubble." Inside a thought-bubble common on Wall
Street, he invents a new economic theory from the simple observation
"that the Internet and the housing hyperinflations transpired within a
period of 10 years."
Get it? Two bubbles, 10 years apart: An anomaly, yet suddenly we have
a bizarre new economic theory: "There will and must be many more such
booms, for without them the United States can no longer function. The
bubble cycle has replaced the business cycle."
Warning, this "new economy" is a tired old theory driven by utopian
dreams of uninterrupted growth and perpetual prosperity, one that,
unfortunately, consumes modern economic and political thought. It
rejects contrary evidence, is blind to alternatives. Recessions are
bad. In this latest spin, we're asked to believe that the economy will
only survive if it endures bubble after bubble after bubble, like a
raging volcano of oil bubbling from the earth's core, insatiable, a
planet consuming its own life blood.
'Alternative energy' bubble or PR gimmick?
We're told the "next bubble" is already here: "Alternative energy,"
says Janszen. In his new "perpetual bubble-blowing machine" theory
this means that biofuels, solar, wind, nuclear, hydroelectric and
geothermal energies are the new bubble, until it peaks and "creatively
destructs" around 2013.
2013? Yes, then Wall Street will replace it with a new new bubble.
Bubble after bubble, accelerating, increasing in size and frequency ad
infinitum. And each time, "we will be left to mop up after yet another
devastated industry," while Wall Street "will already be engineering
its next opportunity." Unfortunately, the only thing perpetual is
greed.
Small wonder Janszen dismisses my challenge on his iTulip.com Web
site, claiming I have "no idea how the economy actually works." And
yet, since my days at Morgan Stanley, I've seen many other theories
that undercut this bizarre idea of a "perpetual bubble-blowing
machine" which is predicated on a weak assumption: That the planet has
an inexhaustible supply of oil and other natural resources.
Unfortunately, that assumption is faith-based wishful thinking, much
like Greenspan, Bernanke and Paulson's assumptions that the subprime
problems were "contained."
'Peak Oil' and 'Bubble Blowing' theory
The main alternative is "Peak Oil" theory, which the world's
Exxon-Mobils hate. "Peak Oil" forecasts a different end game.
Janszen's theory simply predicts America's economy will "creatively
self-destruct" in 2013 while Wall Street is busy creating a newer,
bigger bubble. In marked contrast, "Peak Oil" forecasts:
*
A "not-so-creative destruction" of the oil industry
*
The end of Wall Street's "bubble-blowing machine"
*
A steady decline of the oil-dependent global economy
*
Widespread resources wars intensifying through the 21st century
Doom and gloom? Certainly among investors in the world's Exxon-Mobils.
But before dismissing "Peak Oil," read a few books like: "Twilight in
the Desert: The Coming Saudi Oil Shock & the World Economy," "A Crude
Awakening: The Oil Crash," "The Final Energy Crisis'', ''The End of
Oil: On the Edge of a Perilous World," and others exposing "Big Oil's"
rosy estimates of inexhaustible oil reserves, new exploration
technologies, geopolitics conflicts and, above all, the inability of
supply-side scenarios to meet demand as the global population bubble
explodes in the 21st century.
Also see "The End of the Oil Age" in the latest Bloomberg Markets. It
forecasts the peak in 2018, after that demand outruns supply. For more
on "Peak Oil," check out lifeaftertheoilcrash.net with an open mind:
"Civilization as we know it is coming to an end soon. This is not the
wacky proclamation of a doomsday cult, apocalypse bible prophecy sect,
or conspiracy theory society. Rather, it is the scientific conclusion
of the best paid, most widely respected geologists, physicists,
bankers and investors in the world. These are rational, professional,
conservative individuals who are absolutely terrified by a phenomenon
known as global 'Peak Oil.'"
Megathreat: Exploding population vs. stagnant supply
We're at the "Oil Peak," but not the population peak. Supply is
declining. Soon, megabillion earnings will be history: "Worldwide oil
production in the year 2030 will be the same as it was in 1980.
However, the world's population in 2030 will be both much larger
(approximately twice) and much more industrialized (oil-dependent)
than it was in 1980. Consequently, worldwide demand for oil will
outpace worldwide production of oil by a significant margin. As a
result, the price will skyrocket, oil-dependent economies will crumble
and resource wars will explode."
Question: Even if "alternative energy" is the next bubble, is it a
realistic solution? No. It cannot meet future demand. Big Oil's
certainly not betting on it. In a recent Fast Company report we
learned that "Big Oil companies are investing less that 1% of their
capital budgets in alternative energy sources." Big Oil even jokes
about alternative energy: "Man left the Stone Age not because he ran
out of stone," says Red Cavaney, CEO of the American Petroleum
Institute. "We'll leave the age of oil, but it won't be because we ran
out of oil." Their token investments in alternatives are just PR
gimmicks.
But this reality won't stop Wall Street from hyping and milking the
"alternative energies" bubble, just as it milked the dot-com and
subprime bubbles. Wall Street's greed has become dangerously
anti-American. Subprime killed the "American Dream" of millions of
homeowners. Wall Street diluted the equity of millions of its own
investors with huge write-offs and insulted Americans by selling off
equity to sovereign equity funds, all while paying outrageous bonuses
to nearly everyone in the industry.
Recently I read "American Economic Bubble," which Janszen co-authored
a couple years ago. The authors predicted a perfect storm of multiple
bubbles reaching critical mass simultaneously, triggering a
"bubblequake:"
*
Federal deficits bubble
*
Inflated U.S. dollar bubble
*
Foreign trade deficit bubble
*
Overvalued stock market bubble
*
Real estate bubble
*
Consumer debt bubble
Back then, in 2005, I included "Peak Oil" and 13 other bubbles in my
"Megabubble Meltdown Poll." But we weren't the only ones who saw this
"train wreck" coming. We often reported on warnings from Buffett,
Bogle, Grantham, Shilling and other realists.
This reality was also obvious to America's leaders, including
Greenspan, Bernanke, Paulson and many of Wall Street and Corporate
America's hot-shot CEOs. Yes, they all saw it coming years ago. They
could have stopped it, but greed blinded them. They got trapped in
denial, purposely misled Main Street and let the "train wreck" happen.
Warning: Greed will continue driving their decisions in the future.
You cannot trust them.
In short, America's Bubble Economy's prediction, though ignored, was
accurate: "Never in our history have all these factors and conditions
coexisted at the same time ... No one can predict the exact moment
when our linked bubbles will begin to burst, but this much we know:
it's not a matter of if, but a matter of when ... In other words, our
bubbles will burst and our economy will fall. Think Internet Bubble,
times 10."
Tell us: Is "Peak Oil" really the "megabubble?" Or do you believe
we've reached critical mass with all of them, a perfect storm nearing
a flash point: "The Internet Bubble times 10?"
