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Our Greatest Obstacle to Getting Out of This Recession

By Jim Gillespie | November 18, 2009

Four years ago I wrote an article that began with the following words…

"Of the approximately 300 articles I’ve written on the subject of real estate, this one could be the most important one."

Well, this article that you’re reading right now is even more important than that one. And the reason it’s more important is because the subject that I discussed in that original article four years ago, "Peak Oil", has now manifested itself and is the real underlying cause of many of the economic problems we’re now facing.

And if you’re not familiar with the term "Peak Oil", I recommend that you read the article that I wrote about it four years ago. (Click here to read the article.)

In order to get out of this recession, we need to increase GDP, or Gross Domestic Product. And Gross Domestic product is generally defined as "the value of a country’s overall output of goods and services within a given year."

Now here’s where we’re faced with a difficult problem around all of this…In order to increase GDP we need to consume more energy, and the world over the past four years has now peaked with the amount of petroleum we’ve been able to extract out of the ground annually. You can click here to see the information from the U.S. Department of Energy on this, showing that global petroleum production has peaked at between 73 and 74 million barrels of oil a day for the past four years. You can also see on that chart that U.S. oil production peaked in the early 1970s, making us now much more dependent on importing our oil from all over the world.

And when I utilize the word "peak" it means the following…that this is the highest level of petroleum production possible with today’s technology, and that future years will see gradually lower levels of petroleum production. This is what is recognized today as technological fact within the petroleum industry.

The fact that the world has now peaked in its annual production of petroleum, amid an increased world demand for petroleum, explains why prices have risen so high in recent years. I remember about seven years ago paying just one third of the amount of money I’m paying for gasoline right now, and this is all due to Peak Oil.

So if in order to emerge from this recession we need to produce more goods and services, and producing more goods and services requires an even greater consumption of energy, can you see that we have a problem? Whether it’s increasing manufacturing, increasing distribution, or increasing the delivery of services to both people and businesses, more energy must be consumed in order to accomplish this.

So amid this paradigm of peaking petroleum, and what will soon become decreasing annual petroleum production worldwide, combined with rising energy prices because of a greater demand for energy, businesses are now finding it more difficult to remain profitable, and people are spending more money on energy themselves, too.

So with everybody getting squeezed financially around this, it’s no surprise that we’re in the economic condition we’re in right now. People for awhile were able to take equity out of their homes to meet their monthly expenses, but that option has pretty much disappeared for many of these people.

What still amazes me is that four years now after I wrote my original article on this subject, I know of no one else in our entire industry who’s written an article about Peak Oil. I’ve received many "thank yous" for writing that article from people within the real estate industry, and from people within the petroleum industry, for bringing this subject to our real estate industry. Because there are many people within the petroleum industry who have have known about this problem for many, many years.

When we were in the middle of the Great Depression, we still had abundant energy resources to increase our GDP, and eventually we pulled out of the Depression. But we don’t have those same abundant energy resources anymore. And if you’re thinking, "But what about alternative energy?", many people think that this is where the solution to the problem really lies. But if you read my original article from four years ago on this subject, you’ll understand that alternative energy definitely will not solve our problem.

So I sit here as someone who’s written more than 400 articles for our industry, and most all of them have been on solutions to help you as a broker to make more money in your business. And in knowing that’s what I’ve written about over the years, I wondered if I should even write this article you’re now reading on this subject…Because it’s not one that inspires great, positive feelings within all of us. But I decided I needed to write it anyway, because as intimidating as it is, I think there are some people who will still want to learn more about this subject.

Since I originally wrote my first article on Peak Oil more than four years ago, I’ve received E-mails from brokers thanking me for the information, and telling me that since then they’ve done their own additional research on the subject. And while they don’t like the ramifications of what they’ve learned, they’re glad that they now know about it in great detail, and that they understand it.

Doesn’t it make sense that the most extraordinary economic conditions we’ve ever experienced in our lifetime, are all due to an extraordinary underlying cause? Well Peak Oil is that extraordinary underlying cause. It’s the underlying cause of the collapse in our banking and financial systems, and in our economy. And as much as I don’t like thinking about this, I feel strongly that it will cause still another collapse in the stock market in the future. And while my expertise is really in writing about subjects relating to commercial real estate, you may remember the article I wrote on June 23, 2008, describing how the The Royal Bank of Scotland, founded in the year 1727, was advising its clients “to brace for a full-fledged crash in global stock and credit markets over the next three months.” (Click here to read the article.)

I wouldn’t have published that article if I didn’t believe strongly in what they were forecasting, and we all know what happened in the stock and financial markets over the following three months after I wrote that article…

So again, while my expertise is really in writing about commercial real estate, I wouldn’t be writing this article to you today unless I had researched the information extensively, and knew that it was true.

Three weeks after I wrote my original article on Peak Oil, the U.S. House of Representatives agreed with me, passing Resolution 507 stating that "the United States, in collaboration with other international allies, should establish an energy project with the magnitude, creativity, and sense of urgency of the `Man on the Moon’ project to develop a comprehensive plan to address the challenges presented by Peak Oil." (Click here to read the Resolution.)

Well, we’re facing the challenges that they were describing in that Resolution right now.

I recommend that you read the original article I wrote on Peak Oil four years ago to learn more about this subject, as it will give you a far greater understanding of this article you’re now reading. (Click here to read my original article.) And I also recommend that you do your own Internet searches under the term "Peak Oil", too, in order to gain an even greater understanding on the subject.

But if you’re really interested in finding out more details on Peak Oil, and what we’re going to be facing around it, there’s a movie that’s just been released that I really recommend you watch. The movie is called "Collapse", and I drove 3 1/2 hours in traffic to L.A. to see the premiere of it last Friday night. I think that everyone should see this movie to better understand what we’re faced with right now, but at the same time, I have to tell you that the subject matter isn’t very pleasant once you see it and begin to understand it.

Had this movie been released one or two years ago people wouldn’t have believed what’s talked about in it. But now that we’ve experienced some shocks to our economic and financial systems, people are really beginning to pay attention. Even "The Wall Street Journal" has recently written an article about this movie.

You can click here to see the movie’s Web site. The movie will be playing for one week in select theaters within the United States and Canada, and it’s just now becoming available on video-on-demand on Verizon FIOS, Time Warner, Comcast, Charter, and Cox cable systems within people’s homes. (And here’s an update–It’s now available on both DVD and on Netflix.)

Whether or not you decide to see the movie, I recommend that you do your own research on the subject of Peak Oil. It is, in my opinion, the most important subject that we’re facing in the world today. 

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