The latest US economic data has renewed speculation that the world might dip back into recession. Half a year ago, everything appeared to be looking good with major economies rebounding strongly but that was only ever due to government stimulus spending. Like using the starter motor in your car, that stimulus spending got the engine of the world economy turning again. But you can’t drive your car on the starter motor and you can’t stimulate an economy on borrowed money forever. As government stimulus programmes wind down, the private sector is meant to be stepping up but it isn’t – the private sector is failing us again and the governments are too indebted for another big round of stimulus; like a car whose engine won’t start and with its battery run down.
The result: ebbing growth at the point in the cycle when it should be skyrocketing.
Yet the economic pundits and players still don’t seem to understand there is a fundamental problem. They talk of a double-dip recession as a bad thing but don’t get that the underlying problem is not going away. Returning to the car analogy, the problem is literally the fuel. To go faster, our world economy needs more fuel, more oil, but there’s not enough of it. If I’m not stretching things too much, we can even say it’s like the fuel tank is being emptied and the engine, to go faster, needs more petrol than can be supplied through the fuel line. When we hit that max speed, the engine splutters and we have a recession. Afterward, we can build up to that speed again but every time we do it’ll have the same result.
We’re not talking a single great recession or even a double-dip recession here. We’re talking cascading recessions with various parts of the economy failing in turn but all driven by the stalling and falling world oil production.
This is a totally different situation than mainstream economics is designed to deal with and a world that our economic and political leaders simply aren’t prepared to contemplate. Right now, they’re just scratching their heads and wondering why things aren’t fixing themselves like normal. They need to wake up, quickly, to the fundamental problem – our energy lifeline is running out.