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Endgame: USA

By Cameron Leckie - posted Friday, 18 December 2009


President Obama’s inauguration in January provided the opportunity for “change we can believe in”. This was reflected in his approval rating which soared to more than 70 per cent. Since then his approval ratings have fallen to less than 50 per cent and he has at some points been less popular than his predecessor at the same time in his presidency.

Unfortunately President Obama’s rhetoric and actions have not aligned. No clearer indication of this is provided than by the key economic appointments made by President Obama and his continued support) of people such as Timothy Geithner, Larry Summers and Robert Rubin, all products of the Wall Street-Washington revolving door policy. The result is that while record numbers of Obama voters lose their jobs and homes, exorbitant profits and bonuses are made at Goldman Sachs and other firms on Geithner's speed-dial. This is one reason why the folks over at The Automatic Earth argue that this is a political and not a financial crisis.

This is not a complete list, other fuel sources include; failing infrastructure, unpopular and expensive wars and unsustainable levels of both private and government debt. The list could continue, but you get the idea. There is significant evidence to suggest that a very large bonfire has been set in the USA.

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The fire starters

What will it take for this load of fuel to ignite and turn a nation that since the US civil war has been one of the most stable in the world into a failed or failing state? No one can answer that, but there are a number of potential sparks on the horizon that could well light the bonfire.

Mexico

The Mexican Government obtains about 40 per cent of its revenue from oil. However, Mexico has big problems in its oil industry with production and exports declining rapidly. A prime example is provided by the peak oil poster boy, Cantarell oil field, which despite, or maybe because of, technology has seen output from what was once the world’s second largest oil field plunge from its peak production of 2.1 million barrels a day in 2005 to 500,000 barrels a day. Combined with its growing financial problems, the rise of drug cartels and escalating violence, it appears likely that the Mexican nation state will collapse at some point in the near term future. Indeed, the US Joint Forces Command identifies Mexico (PDF KB) as one of the most likely countries to collapse in the immediate future.

US dollar

How long will the US dollar remain the world’s reserve currency? According to William Clark, author of Petrodollar Warfare, the invasion of Iraq was largely triggered by Saddam’s decision to sell oil in euro’s. Iran is now selling oil in euro’s and yen. There are rumours, which have been strongly denied, that a number of countries are planning to trade oil in a basket of currencies other than the dollar. Regardless of the truth or otherwise of these claims, with the US economy severely weakened, it does seem likely that other nations will want to diversify away from the dollar. If this is the case, the current status of the US dollar, US hegemony and its role as the global superpower are numbered.

Oil

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A number of economists such as Dr James Hamilton (PDF 637KB) and Jeff Rubin attribute the GFC to the oil price spike of 2007-08. This is not particularly surprising with oil price spikes having been followed by recessions consistently since the 1970s. With depletion rates of oilfields running at 6.7 per cent a year, and the significant cut in investment as a result of the GFC/oil price crash, the conditions are set for another oil price spike in the not too distant future. Indeed it appears that the global economy has reached an inflection point where the cost of bringing new oil to market has approached the point where it becomes economically damaging.

There are numerous other potential fire starters. Examples might be civil unrest, another Hurricane Katrina type climate event, a major terrorist attack on a US city, a Tet Offensive, Blackhawk down or Abu Ghraib type incident in Iraq or Afghanistan and probably many others. In the complex, non-linear world that we live in, it is impossible to predict exactly how the collapse maybe triggered and subsequently unfold. What can be identified, however, is that there are enough trends in place to suggest that the long term stability of the US is questionable and that there are enough triggers, either alone or in combination, to suggest that some form of collapse is possible, if not probable.

Catagenesis

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About the Author

Cameron Leckie has a Bachelor Science and a Graduate Diploma in Education. Employment experience includes a range of management positions both in Australia and overseas in the telecommunications industry. He is a member of the Australian Association for the Study of Peak Oil and Gas (ASPO Australia). Since finding out about peak oil in 2005, he has written extensively on the topic and in particular, its impact on the aviation industry.

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