In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high.
~ Gail Tverberg
The idea that there may no price where a buyer and seller can agree is patently obvious, right?
Suppose you can only afford to spend $1 on some thing you absolutely need, but I need $100 to cover the cost of producing the thing. No amount of haggling over price will solve this problem. The solution is to add some debt; you borrow some money and buy the thing at some price we can agree on.
What happens if you cannot take on more debt? You need the thing, you cannot afford the price, and you cannot leverage future payment (aka, debt) to purchase the thing…
What happens as more of the world can no longer afford to purchase oil at the price needed by the oil producers?
What happens as more of the world runs out of debt?
…and if you think running out of debt is not possible, please go read more of Gail’s writing.