Leaders ignore oil depletion

Try to imagine what your life would be like if you didn't have complete access to your bank account. Let's say that Parliament passed a new law preventing you from withdrawing more than $250 per week, regardless of how much money you owned. Would you still be able to cover your car payments, your mortgage, or even buy enough food for your family?

This occurred in Argentina in 2001, prompting mass protests and the resignation of three presidents within two weeks. Six months later, the value of Argentina's peso had fallen from US$1 to US$0.20.

During the Canadian federal election campaign, major party leaders have downplayed the possibility of any kind of economic crisis, never mind an Argentina-style meltdown. They're not making a big deal out of the world's diminishing oil reserves, either, the very problem that could trigger massive economic failures.

Two new nonfiction books suggest that these threats deserve far more attention than they're getting from those party leaders. The first, The Empty Tank: Oil, Gas, Hot Air, and the Coming Global Financial Catastrophe (Random House Canada, $34.95), should be required reading for all politicians. The second, And the Money Kept Rolling In (and Out): Wall Street, the IMF, and the Bankrupting of Argentina (Public Affairs, $38.50), demonstrates what happens when a country can't pay its debts, which could happen to Canada if the first book's forecasts come true.

The author of The Empty Tank, Jeremy Leggett, is no lightweight. A former oil geologist with a PhD from Oxford, he has spent more than a decade urging the world to focus on global warming. He begins his new book with a detailed explanation of why petroleum companies haven't found any giant new oil fields since the 1970s. He then describes the seriousness of the looming supply crisis by focusing on the views of highly credible key "witnesses".

One of these is retired petroleum geologist Colin Campbell, the founder of the Association for the Study of Peak Oil and Gas, who has investigated oil reserves around the world. Campbell has concluded that demand for oil will soon surpass production, causing sharp price increases, widespread panic, and an inevitable stock-market crash.

Leggett describes how the editor of Petroleum Review, Chris Skrebowski, came to a similar conclusion after trying without success to prove that Campbell was wrong. Then the author brings forth his third witness: Matthew Simmons, a Houston-based energy investment banker who has suggested that Saudi Arabia is grossly exaggerating its reported oil reserves.

Leggett claims that the coming economic crisis will be coupled with dwindling food and water supplies caused by global warming. Droughts will spread across the U.S.; at sea, warmer temperatures will cause fish populations to collapse.

In a particularly scary section, he cites the Intergovernmental Panel on Climate Change's conclusion that the world cannot "afford" to burn more than another 400 billion metric tons of carbon from fossil fuels. Doing any more will raise average temperatures by two degrees Celsius by the middle of the century, which could wreak ecological havoc. Yet, as Leggett reports, there remain 3,500 billion metric tons of carbon in the world's supplies of oil, natural gas, and coal.

The second book, And the Money Kept Rolling In (and Out), is a riveting story about what happens when a country's economy goes bust. Author Paul Blustein, a veteran Washington Post reporter, describes how Wall Street firms, in an endless search for higher yields, continued underwriting Argentina's bonds as the country's debt rose to dangerous levels in 2001.

Blustein also documents how the International Monetary Fund refused to confront the country's rulers. Successive governments ran large deficits while insisting on maintaining the peso's parity with the rising U.S. dollar. Argentina's exports became less competitive on world markets and the country slid into recession.

As the crisis intensified, the IMF and Argentina's political leaders spurned Columbia University economist Charles Calomiris's recommendation to trim interest payments to bondholders. Instead, the IMF sponsored repeated bailouts, which worsened the situation.

In a disturbing twist, Blustein finishes the book by comparing the governments of Argentina and the United States. In 2004, the U.S. deficit reached $413 billion and the trade deficit was even higher. Blustein notes that Bush administration officials have rejected the possibility that, one day, global markets will stop propping up U.S. markets.

"Such soothing rhetoric may prove well founded; the United States may dodge the financial-crisis bullet indefinitely," Blustein writes. "But does the talk about deficits reflecting economic strength sound familiar? It could happen here."

If the elephantine U.S. economy ever goes the way of Argentina's, the impact will quickly spread to Canada, a major U.S. trading partner. However, based on what's being said in the current federal campaign, voters likely won't find out how party leaders will address such a crisis until long after election day.