Last week I reviewed my predictions from 2008. Suffice to say that I didn’t have a very good record. Now it’s time for predictions for 2009. While my ego would like to be more accurate this year, in reality I’d like nothing better than to be wrong:

1. The economy will muddle along. We won’t clearly “emerge” from our economic troubles, and we won’t enter a true “crash” or depression either. There will be good signs (revival in the real estate market in some areas) and bad signs (unemployment will keep rising, it will become increasingly clear that some regions of the US will never regain their former glory).

My overall prediction is based on my belief that our economy is facing two sets of challenges. The first set are truly fundamental: diminishing energy availability and the fact that our economy is predicated on an assumption of perpetual growth despite our residence on a finite planet. These, however, are not the source of our current troubles.

The second set is the result of short-sighted hubris and greed: sub-prime mortgages, the belief that housing prices can perpetually rise faster than the general rate of economic growth, the belief that we can create real wealth out of thin air through the “magic” of complex financial derivatives, etc. These second set of mistakes created a bubble that popped (or, more accurately, is still rapidly deflating), and we’re riding it on the way down.

There is a critical distinction between these two sets of problems, however. Our economic engine, our fundamental blend of capitalism and fascism (what else do you call a controlling government-industrial interface?), will continue to grow and generate wealth (at least for some) until it collides with the fundamental problems in “Set 1.” That means that it will deal with, and overcome, the problems presented by the second set. We’ll realize the sources of our short-term problems and we’ll fix the system. Then we’ll get back to business and growth. Bottom line: the economic problems we’re currently facing can and will be fixed.

We probably won’t turn things around in 2009, but we’ll lay the groundwork for a recovery in 2010.

2. This 2010 recovery will, however, come just in time to collide with the more fundamental problems in “Set 1” that will have been gathering steam while we focus on fixing our short-term problems. This is the larger theme of 2009: we will be so focused on fixing our immediate problems that we will fail to effectively address our true, long-term problems.

To make things worse, we’ll be squandering our last, best opportunity to effectively, proactively deal with these fundamentals. We’ll be squandering arguably an amount of surplus energy that simply won’t be available in the future, energy that we could use now to build a truly sustainable infrastructure to provide energy and food for our planet. Instead, we’ll use this energy to try to make sure we can keep driving our SUVs, keep moving up into larger houses filled with more trinkets, etc. I’m calling this “selfishness” because I can think of no more accurate term.

Many people will argue that most people aren’t aware of our long-term problems, so they can’t be blamed for not acting to solve them. I think this is, at most, conscious ignorance. It’s so much more fun, at least in the short-term, to squander our inheritance. This won’t be a function of Obama and the Democrats or the Republicans–it is far more fundamental than that. It is far more ingrained than that–in the stories we tell ourselves about progress and in our faith in the continuation of the recent past perpetually into the future.

I think we’ll see just enough success in the short run–an economic recovery in 2010, a return to global growth and wealth, to destroy any chance (small to being with) that we may have had to make fundamental changes.

3. Oil prices. Most of my recent predictions have addressed the issue of oil prices, and this post won’t disappoint. I don’t think we’ll regain the highs seen in 2008, but I think we’ll spend a few months in the $30s and $40s and then end the year between $60 and $70/barrel. This will not be because of any recovery in demand, but rather because of a much more troubling decline in production caused by decreased investment due to low oil prices.

We’ll see many of the megaprojects, scheduled to come online over the next few years to stave off serious production declines, delayed indefinitely. While it won’t make many (any) headlines in 2009, we’ll lay the groundwork for precipitous production declines to hit just about the time we experience a last-gasp economic recovery in 2010-2013 (so, while it’s far into the future, my prediction will be for a true spike in prices in the area of 2012).

4. Geopolitics: we’ll continue a similarly selfish course of action in 2009. While I’d like to think the Obama administration will take a bit more far-sighted tack than his predecessor(s), I think Obama will be too fixated on trying to create an immediate economic recovery to expend any political capital on diplomacy. Hopefully I’ll be wrong here, as well.

What will this look like? It will mean continuing to support dictators, strong-men, and corrupt regimes in the name of near-term stability and security, and at the long-term expense of continually grieving the world’s poor and oppressed. As I noted a few weeks ago, people don’t hate America “because of our freedom,” rather they hate us because we support their oppression in our own self-interest. We’ll continue that trend in 2009.

I’ll go out on a limb and make at least one bold prediction here: Pakistan will succumb to another military coup, and Obama will take sides with the new military ruler in the name of expediency in the “War on Terror.”

In addition, here are a few responses to an e-mail interview I gave last week that are essentially predictions for 2009 and beyond:

Q: According to you is the problem of Peak Oil (and the likely impacts of a decline in oil production) a top-priority for the US Department of Defence or is it just seen as an important issue but equal to others?

A: I don’t think Peak Oil is really on the DoD’s radar, especially not at the highest levels. I know that, within the DoD, there is widespread understanding of the problems that rising (and, more recently, volatile) oil prices create for budgeting, logistics, acquisitions, pre-positioning, etc. There is a lesser understanding of how and where Peak Oil will drive conflict–in my experience, most senior leadership understand that competition for energy resources will make oil exporting regions into conflict areas, but I think there is minimal awareness (at best) of the extent of these conflicts, of the positive feedback loops between geology and geopolitics, and about how declining oil revenues will weaken nation-state structures just as many export-reliant states are facing the peak of their domestic demographic crises.

Q: – As they say in the recent JOE 2008 report “The implications for future conflict are ominous”, in this context, do you think the Department of Defence is preparing/planning (e.g. ways to secure oil transport, invasions of producing countries) for the crisis?

A: I think this quote from the JOE demonstrates that, at least within the think-tank side of the DoD, there is some understanding of the scope and scale of problems that Peak Oil will bring. However, there seems to be a widening gulf between this understanding (often isolated in policy and research organizations) and the operational and developmental policies being implemented on the operational side of the DoD.

We seem to be stuck, operationally, in a Catch-22 situation. We’re preparing to defend regimes against insurgencies and we’re increasingly willing to compromise our proclaimed policy of “we support democracies” to achieve the ends of securing energy supplies; we’re lamenting our inability to diffuse, at its most basic level, the motivation among “terrorist” groups to attack the US and the West in general; yet we seem incapable of understanding–at least at the senior operational and policy level–that it is our very policy of supporting exploitative regimes (to secure our energy supplies and economic hegemony) that drives the threat against those regimes, ad infinitum.

Q: How do you see major actors (USA, China, Russia, EU, OPEC) reacting to the crisis and oil shortages?

A: I think that, in light of recent US experience in Iraq and Afghanistan, you will see increasing support for non-democratically elected regimes (e.g. regimes that will barter access to energy supplies for third-country military and financial support to stay in power) and an increasing willingness to provoke proxy conflicts and support insurgencies to gain access to supplies otherwise locked down by another power.

I don’t think we’ll see the wholesale occupation of oil producing countries (and even in Iraq I think we’ll continue to see US forces drawdown), but I do think we’ll see a growth in economic and military deals that can only be described as mercantilist. Unlike past, colonial mercantilism, I think the primary tool here will be long-term bilateral supply contacts paid for up front with regime aid. China, and to a lesser extent India are already doing this, but it will become more pronounced and will be joined by Europeans and America.

Q: Do you rather see an anarchic world or a world of alliances (e.g. NATO vs. Shanghai Cooperation Organisation)?

A: Near-term, I think we’ll see a push for strategic aliances. Longer-term, I think the answer will depend on the broader state of the world economy. To the extent that states can fulfill their constitutional (small “c”) obligations to their constituent nations, then they will be in a position to make the (wise) long-term investments in strategic partnerships. However, to the extent that states need to show immediate results to hold themselves together, they will sacrifice these long-term prospects for near-term gain achieved by abandoning (or double-crossing) their former allies.

OPEC (and the nascent natural gas cartel) is a perfect example: as long as the Saudi monarchy, for example, can continue to buy off its citizens with handouts, then it will be able to hold together some kind of cartel to operate in its long-term best interest. However, to the extent that the Saudis have any true spare capacity, they will bring it online for short-term cash if they need to prop up their domestic spending to stay in power–alternately, they will damage their field geology by overproducing if they are short on cash. Same things is already looming in Venezuela, Mexico, etc.

On the consuming-nation side, heavy lifters in NATO and the SCO will grow tired of pulling the weight for others and will be more likely to abandon their alliances if they see it to be in their self interest–and this will largely be determined by whether they have the luxury of looking to their long-term self interest or whether they must, by necessity, look for the quick fix.

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