One of my degrees is in psychology and thus the psychology of this issue is of immense interest to me. I posted something on the mentality of survivors of calamity and disaster last week. This was taken from Gregory Jeffer's blog, there is a third part in the works. The original piece can be found here: http://mentatt.blogspot.com/2007/05/denial-ii-why-we-deny-our-energy_28....

Denial. A powerful force, that. Einstein once famously remarked that: “compound interest was the most powerful force in the Universe” (of course he was referring to the exponential function, the most common representation of which is known as compound interest). Perhaps it is. I'm gonna go with denial.

Denial shapes our politics and policies, our parenting, our planning, our view of the future, and our recollection of the past. Denial shapes our relationships (a second marriage, after all, has oft been said to be the triumph of hope over experience) with our spouses and lovers, our families, our friends and co-workers. Without it there would be many days that many of use would be unable to cope. Denial has its positive attributes. But denial of the magnitude of our (think you and your family) dependence on oil, natural gas, and coal and of the CERTAINTY that, at some point, we will deplete these resources is not one of these. And it is a certainty – probability = 1.00. Not up for debate.

The lead story for all of 2006 and 2007 in the mainstream media has been energy (prices). Let’s connect the dots, shall we?

The President of the United States says we must reduce oil usage by 20% by 2017 (gonna happen anyway as there will be less oil available). D’ya think he knows something?

Worldwide inventories of the major foodstuffs – wheat, corn, rice, milk and dairy – are at their lowest levels of “days of supply” in over 30 years. Inventories of processed, preserved, or fresh foods, the stuff Americans have come to rely on, can be measured in DAYS (got that? The food you are going to eat next week is, for the most part, a work in progress today. I worked in the Fulton Fish market one summer where the saying went: “sell it or smell it”. If the trucks and farm equipment can’t roll because of a lack of diesel… Or if the electricity goes out - no refrigeration - local food supplies will not be what we have come to expect, to say the least.)

Inventories of crude oil, motor gasoline and distillates are at multi decade lows when measured in days of supply (does any other measure really matter?).

America has not built a new refinery in over 30 years, although we have expanded capacity at the existing refineries. What does the industry need with a new refinery if our oil supply is decreasing?

Oil companies are investing their record earnings by increasing dividends and buying back stock, rather than expanding exploration and production. Makes sense if their is little oil to find.

The average American has a 0% savings rate, and the U.S. runs a budget and trade deficit in the trillions (how can this improve if we borrow $1 BILLION per day just to buy the oil we import?).

The U.S. $ is falling in value relative to gold and our major trading partners' currency (Iran and Venezuela no longer wish to take U.S. $ and are now taking payment for their oil in Euros).

The average American lives in a car dependent environment. He needs a car to get to and from his home, collect food, and perform his livelihood.

America has less arable farmland in production than in 1950 (but we do have a bunch of soon to be worthless housing divisions on that former farm land).

U.S. population is over 300 million (considering our immigration issue, this is most certainly an understatement) at this time, up from 151 million in 1950. World population has followed a similar trajectory.

80% of the cost of food is fuel inputs. As fuel prices rise (supply falls), food prices will also rise (supply falls). Less oil = less food.

Almost 2 years of data show that, despite rising prices and their incentive on producers, oil production has been in decline (not population though, that continues to grow).

China is a net importer of coal, and the U.S. coal production PEAKED in 1998, in terms of BTU’s (not tonnage; all coal is not created equal in it’s energy content). Only 15% of the WORLD’S coal production is available for import (85% of it is used where it is produced).

Natural Gas production peaked in North America in 2002, with drilling activity up 100% since that year. Although Natural Gas can be imported, it is far more difficult to do so than oil or coal.

Considering the previous 2 "dots": The U.S. has increased, and will increase, its dependence on foreign energy sources. (Unfortunately, these sources will no longer be there to import and depend on in the first place. See "dot" number 1.)

Human population growth tracked the rise in Oil use since 1859 (Colonel Drake's oil well), compounding already advancing population growth brought on by the use of coal in the industrial revolution.

Prior to the industrial revolution (marked by the use of hydrocarbons) very little financial capital, in proportion to the general population, existed. The growth in financial capital, fiat currency, bonds, stocks, mortgages, debt obligations, etc… closely mirrored man’s increased use of hydrocarbon’s.

Here is how I connect these dots:

The industrial revolution was made possible by hydrocarbons. As hydrocarbon availability declines, so will industrial output. At the end of the hydro carbon era, which for all intents and purposes to the common person will be 75 years, more or less, mankind will find the end of hydrocarbon industrial output. Over the next 40 years or so, we are going to rewind most of the industrial revolution. I find this disconcerting, as it does not bode well for my 401k.

Financial capital will decline with the decline of energy usage, and will be back to its pre-industrial revolution level at the end of hydrocarbons. Its decline will track the decline in hydrocarbon usage.

Population levels will decline with the decline in energy usage. Given a variable population number at the end of hydrocarbon availability, i.e. 1 billion, 2 billion, 3 billion, and given a time period certain, i.e. 75, 85, or 100 years, it is not a terribly complicated equation to arrive at an average number of excess deaths over births to arrive at that population target.

For instance, if one were to model a 2 billion person carrying capacity of the planet at the end of oil age, and that date would be 75 years hence, excess deaths over births would be 6.5 billion - 2 billion/(75*365) or 164,000 excess deaths over births per day, every day, for 75 years. This would be a hell of a shock to a world that is used to 300,000+ excess births over deaths per day. To put this in context, the Nazi genocide against European Jews, Roma, Gays, the Disabled, Catholic Poles, and other groups (no disrespect meant to any group not specifically mentioned, a la'shalom) resulted in roughly (using data points from wikipedia.org) 6500 excess deaths (murders) per day.

I have 2 young sons. This issue will likely be settled in its entirety within their lifetimes. However, this progression lends itself to a bell chart, with the maximum excess deaths over births occurring sometime around 2030 – a mere 23 years from now. In case you think I have flipped my lid, this is not an original line of thinking. Several excellent white papers have been written on the subject and I am merely boiling down the salient points here.

Here comes the denial. I can feel it. You think : "SOMETHING WILL SAVE THE DAY"... Bio-fuels, hydrogen, nuclear power, tidal power, hydro, wind, prayer, little green men... Sorry, even when taken together, these energy sources/sinks will supply no more than a small fraction of the BTU's we get from fossil fuels (guess what percentage of American voters know; a: what BTU stands for, and b: what measurement BTU represents?).

I am not running for office. No American politician at this time in our history is going to run on a platform of catastrophe. But there are alot of people in our federal government that know this issue well. Just Google the term "peak oil congressional caucus", or the former Director of the CIA "James Woolsey, Peak Oil". It is not just me.

Think my math is wrong? The modeling is not an exact science (but the math is). Ask yourself 2 questions:

What is the population carrying capacity of the planet in the absence of oil?

How many years between today and the end of oil (the peak date does not really matter in this context)?

Even if you stretch the final date out 100 years (NAFC - "not a freaking chance", is a technical term in hospital triage) and use a 3 billion-population figure (about double the pre oil human population) the number of excess deaths over births is mind-boggling. You can then slope the graph any way you see fit. Guess what? No matter how you slope that graph, or how much margin of error you give to the final date and final population, the excess deaths over births each and every year during all model periods is horrific (ever hear of Easter Island?).

There is no macro (society wide) solution. “They” are not going to be able to come up with a solution to this conundrum under any circumstance. "They" are going to take care of their own. Many of "them" are preparing for this as we speak. There are going to be less people, a lot less people, on G-d’s (formerly) green earth in the coming decades. The people who make the right decisions and take the right actions (whatever that may be), right now, will be far better off than the rest.

Denial II – Why we deny our Energy Condition

“Denial is the psychological process by which human beings protect themselves from things which threaten them by blocking knowledge of those things from their awareness. It is a defense which distorts reality; it keeps us from feeling the pain and uncomfortable truth about things we do not want to face. If we cannot feel or see the consequences of our actions, then everything is fine and we can continue to live without making any changes.” - CAIP website, author unknown

Before I delve further into the psyche of our national denial I want to make clear that I am not hoping for an energy crisis, population decline, financial crash, or even a date with Jessica Simpson (I'm happily married). I just call it as I see it. Further, I am more than willing to change my conclusions and assertions the VERY MOMENT THAT THE DATA CHANGES. I merely wish to explore the truth. That said, let's get to it.

Our collective denial regarding our society’s energy situation begs the questions why and how (or, more precisely, the process of how)? The “why” is, perhaps, more simply explained. The “how” is somewhat more complicated.

I am often asked: Does the “government”, or “the President”, or do “They” know about “Peak Oil”? And, “if this is true, why haven’t I/we been thoroughly informed”? Though the United States federal government has funded and received detailed reports on the issue from the U.S. Department of Energy and the Pentagon, the American body politic, and the American people, have and must continue to deny the reality of a permanent and accelerating decline in energy supplies – if we do not continue this denial WE WOULD HAVE TO ACTUALLY DO SOMETHING ABOUT IT. And those “somethings” are going to have real and immediate intended AND unintended consequences, much to the chagrin of our political leaders.

Why isn’t this front-page news? Why, indeed. It is not a conspiracy. The mainstream media is in the business of selling advertising, not public service. While they delight in the opportunity to bleed one unfortunate sot or another on the rack, they have little incentive to gore their holy cow(s) – the energy intensive industries that make up the backbone of their advertising revenues - residential real estate and automobiles.

Don’t count on Big Oil to be forthcoming on the issue. The executives at Big Oil are pulling down as much as 9-figure (that’s over $100,000,000) yearly compensation, and not for their brilliant execution (although that’s what the press releases claim). The record profits these corporations are enjoying at the moment have nothing to do with executing and everything to do with commodity prices (which these executives have no control over and have provided no value added, although they have been paid as such), but if you were in line for a $400 million compensation package, would you let ”Peak Oil” and high commodity prices take credit?

Corporate America outside of the energy sector is in no mood to be a hero (martyr). Once this issue breaks into the national dialogue corporate America’s stock options and 401k’s are going down like a rock in a pond.

If the media, corporate America, and our elected officials are disinclined to bring this issue to the fore… why would John Q. Public? It is far easier for John Q. Public to use his highly developed sense of denial (the same technique he uses for his obesity, smoking, drinking, lack of savings… we might not be able to save for the future but we sure can work the denial button).

Consider what might result should a sitting President (I should say "when", because this speech is coming, relatively soon) of the United States hold a news conference and state:

"My fellow Americans. It is my unfortunate duty to inform you that our petroleum supplies have entered a period of sustained and accelerating decreases in supplies. Within 15 years America will have 50% less oil available to its citizens than today, and within 30 years approximately 90% less….” (This speech does not have to take place all at once… it might be delivered over the course of several years by many political leaders. It might have already begun with the “America is addicted to oil” line in the last State of the Union address.) The speech will be entirely reactive. Most informed people will already know that we have entered terminal decline of energy supplies, and the uniformed will just be angry.

Of course the speech would be much longer and filled with pointless platitudes about the American people’s ability to handle adversity, blah, blah, blah… but then things get interesting. Upon waking from their denial, and once the idea is in the public domain and now without fear of ridicule, the American inteligencia would begin to explore the ramifications, combinations, and permutations of all of the possible outcomes, as well as the timing, of the overwhelming impacts that energy descent will have on our political, social, and economic structures, and they are going to do it OUT LOUD. Denial is going to evaporate instantly, only to be replaced by something worse – panic. Right now there is the heavy brake of denial slowing its momentum, but once we reach critical mass, nothing, and none of us, will be able to stand in its way.

The inteligencia will be the spark - but it is “middle management” on down to migrant farm worker that will become the fire. The lumpen masses will figure out that their ship ain’t coming in, and some might even be bright enough to figure out that they were the victims of societal propaganda, and that their ship was NEVER going to come in – and then they might get mad (more on that in the next article in this series titled ANGER). But first they will hoard.

They will hoard gasoline, propane, kerosene, etc… they will hoard food, water, and medicine, etc… they will hoard gold, silver, diamonds, etc… they will hoard weapons, etc… THEY WILL HOARDE EVERYTHING (everything except US dollars). This is the point when systems will likely begin to break down. But I digress; we are talking denial here…

I received more emails about the implications of declining energy availability and population on the housing market than anything else! What happens to housing when people can’t get to their second home in the mountains or at the beach, and there are less people in the society in the first place? Talk about denial: This is barely worth discussing – we have much bigger problems, folks.

Can the U.S. fiat currency system survive the knowledge that most fossil fuel energy supplies will dwindle to nothing before my infant son reaches middle age? NAFC (Not A Freaking Chance). Will people continue to pay back their 30-year mortgage? They won’t be able to (and will have no incentive to do so). So what happens to the financial markets and the banking system if people do not pay back their loans and the currency collapses? Nothing good. Unemployment in this environment would make the 1930’s look like a prom date.

Just “how” did we get to this level of denial? Not enough space here to do that justice. It was not some great conspiracy; more of a phenomena. Our method of government is purposely decentralized and its missions fragmented, our corporate institutions were not charged with saving us from ourselves, the media is there to entertain (after all, how can the media explain such a complicated issue in 12 minute segments punctuated by 3 minutes of 30 second distractions extolling the virtues of eating, driving, and then dieting, with the occasional “hope in a bottle” pitch?), and our educational institutions were too busy deceiving the American proletariat into believing that if you spent 10% of your working life and several hundred thousand dollars at their schools getting a certificate that says you were competent in sports massage therapy, art appreciation, or sensitivity training, or some other impossible to measure, nearly worthless “skill” (easy, if you think the skills have value, why are their compensation rates so low?), that you could compete with Ivy League graduates from establishment families, get a job at a Goldman Sachs, Lehman Brothers, or Bear Stearns (where the AVERAGE employee compensation, including secretaries, is over $500,000 per year) and live in a mansion in Greenwich, irrespective of your families social position.

I am not suggesting American life is, or should be, fair. Only that we have deceived ourselves into believing that it is. Life has always been a competition with its resultant “winners” and “losers”. If you are a self-made “winner” that came up out of the muck and mire, you understand this without further explanation. If you were born into a “winner” family, advantages such as private schools, summers on the Vineyard, a semester abroad, before beginning your career on Wall Street, the Law, or Medicine were the norm. Our very own George W. Bush, an admitted “C” student, was accepted to the prestigious Harvard Business School. Considering how limited seating was at HBS my bet is that some less-well-connected straight “A” student was the “loser” in that competition (it gets even better… “W” once said in commenting on performance enhancing drug use by athletes that “there are no short cuts to success” – "W" was a Yale legacy student (his family were Yale Aumni)! Hypocracy knows no bounds.) If you were born into a “loser” family, your experience was somewhat different than W’s. Still, “losers”, at least in America, did not starve. The rest of the world’s “losers” have not been so fortunate.

The definition of “winner” is going to be markedly different in our new environment: your progeny will survive. “Losers”, in the 21st century, will get a far less satisfactory consolation prize than the “losers” of the 20th century. That’s what population decline means. It’s just that when the U.N. says it, it sounds nicer.

We were all too busy with our nose to the grindstone to notice that the scale of growth in our population, energy, food consumption, and environmental impacts (over-fishing, anyone?) had grown beyond our ability to sustain them. Well, not everybody. SOMEONE OR SOMETHING spent an awful lot of money to dissuade Americans from accepting mankind’s contribution to climate change and that they could pump CO2 into the atmosphere with reckless abandon and without consequence. It wasn’t until the Chinese threatened to usurp our position as the CO2 emission leader that we began to realize that, while it is OK if WE do it, everybody can’t live like this (and by the way, why are you guys trying to steal “our” oil?).

I continue to maintain that there is no macro solution to this condition - and it is a condition, not a problem; problems have solutions - any more than there was a solution to the Tsunami of 2004, or the 1918 flu pandemic. You either survived these challanges or you did not, you were either a "winner" (survivor) or a "loser" (casualty). There will be "winners" and "losers" in the new paradigm brought to you courtesy of energy descent, and all of our denial in the aggregate will not change that outcome.

My infant son, born earlier this year, will likely never need a driver’s license. His children will not experience air travel. My older son’s first car will survive its fuel supply. Our denial is most prominently displayed in the way we prepare our children for their future – a future that will not exist.

Mentatt (at) yahoo (dot) com
Gregory Jeffers Wall Street veteran, professional investor, and CEO of boutique investment firm for real estate and securities. Thomas Jeffers & Co., Real Estate, LLC and G.T. Jeffers & Co., LLC a SEC registered broker/dealer.