Nicloe Foss (aka Stoneleigh at Automatic Earth) presents, in an extensive interview with Jim Pupluva, the most cogent exposition I’ve yet seen on how peak oil will (indeed, already is) manifesting itself in the world of finance.

I think over the next few years, finance is going to rewrite the energy debate. Which is not to say that, you know, I in any way deny peak oil. Obviously, I think peak oil is a fact, is a given, but I think that the way finance is going to interact with peak oil is absolutely critical.

Foss sees energy as a key driver on the way up the growth ladder – but finance is the key driver on the way down because it plays out so quickly. The credit expansion we experienced was grounded in ponzi dynamics – but the real economy was actually hollowed out from the inside, devoid of structure, and very much prone to implosion. The financial crisis is resulting in excess claims to underlying real wealth being extinguished, and that is deflation by definition. As economies collapse (triggered in part by energy price spikes), falling demand for energy drastically undercuts price support for energy because energy supplies are still geared to a previous higher level of demand. However, moving forward, low prices mean no investment, no exploration, no drilling, no maintenance.  All of these things set up a supply collapse a few years down the line. While a financial crisis buys you time initially, it aggravates the situation with peak oil in the longer term – like maybe only five years.

Foss’ prognosis for the future is not pretty:

So we’re going to have, this is going to be remembered, I think, as a time of financial crisis for the next few years, but beyond that, I think the energy crisis is really going to bite. And if we get to a point where the economy is trying to recover again, it is going to hit a hard energy ceiling at a very much lower level than was previously available. And at that point, the limits are hard.

Tom Whipple in a commentary at the Falls Creek News-Press titled “Politics in the Great Transition” steps back and takes a longer view:

Someday there will be thousands of scholarly books on how political systems coped or failed during the transition from fossil fuel-sustained civilizations to that which is to come. For now, however, there are practically none as only a relative handful of the 6.7 billion on earth today have even a glimmer that the great transition is underway.

Indeed, it will be many years before we begin to appreciate the dimensions of how the various forms of government, (parliamentary democracies, theocracies, military dictatorships, “Communism” etc.) that have evolved around the world will cope with the great multi-decadal transition to civilizations that can function with little or no fossil fuel. Some already are predicting anarchy as industries, businesses, and monetary system crumble without their accustomed sources of energy; some talk of the great wars that will be fought over dwindling energy resources; and some foresee a return to pastoral towns akin to life in the 18th and 19th centuries – albeit after much social turmoil.

Whipple says that people today do not yet understand that the oil age has started drawing to a close and that a massive change is already underway. In but a few years it will be obvious to everyone that the world’s oil supply has started to decline. At that point the blather about getting the economy growing again will be over, subsumed by concern with social stability and survival.

Restoring the American dream of ever expanding prosperity is not possible. Whipple’s vision of the near future is strikingly similar to Foss’:

No one and no political party can put oil, coal, and other minerals back in the ground. Not the Democrats, or Republicans, or Greens, or Tea Partiers, or Communists, or Social Democrats, or Fascists, or Monarchists can quickly stop the glaciers and ice caps from melting, the seas from rising, and droughts and floods from reducing the food supply. For the foreseeable future, America seems destined for political gridlock while politicians argue issues that were appropriate for a bygone era. The only solution to this is likely to be a great shock that gets everyone’s attention. As debilitating consequences from global warming are likely decades away, a permanent oil price spike seems like the way we will get everyone’s attention. Such a shock may be one, three, or five years away, but it will come and with it radical changes in the political landscape.