Legendary oil pundit Jeff Rubin has an article out today on the effect of peak oil on sovereign debt.
He says treasury yields are incredibly low, despite record levels of borrowing in recent years, because everyone is counting on a booming recovery. But you can’t have a booming recovery when oil climbs over $100.
That suddenly makes all that government debt very energy intensive. It will take huge amounts of energy, particularly oil, to achieve the growth rates that all the near-bankrupt governments around the world need to even service their debt, let alone repay it.
So consider just how sustainable economic growth would be in a world of oil prices of $100 to $225 per barrel. Because those are the price parameters we’d be facing in the unlikely event that we actually see the kind of economic growth that bond markets and public treasuries around the world are so desperately depending on.