Oil fell $5 a barrel this morning, as Tropical Storm Dolly is not expected to have as much of an effect in the Gulf of Mexico as experts had previously thought. What was mainly dragging the price of oil down were comments from Hank Paulson on the need for Congress to bail out Fannie Mae and Freddie Mac.

"We're going through a challenging time in our economy," the Treasury Secretary said, "This is a tough time. The three big issues we're facing right now are, first, the housing correction, which is at the heart of the slowdown; secondly, turmoil of the capital markets; and thirdly, the high oil prices, which [are] going to prolong the slowdown."

These remarks coupled with the news that Wachovia reported a net loss of $9 billion on losses related to home mortgages and the bank's declining market value, pulled the price of crude down to $125.95 a barrel this morning.

It's no secret that we are facing a global oil crunch - and increased oil production is not the answer.

"The efforts to turn Canada's tar sands and Colorado's oil shale into energy are really just efforts to speed up what would happen naturally over time. But we don't have time. So we throw excess energy at the problem, trying to cook shale in situ or use huge quantities of natural gas to increase oil production via the tar sands. We don't have much excess energy, either.

"Both processes use tremendous amounts of energy for a small net energy yield (energy returned on energy invested, or EROEI). Yet free solar income rains down on the planet each day. The sun is eight-minute energy! We simply don't have an industrial system built to run off the modest amounts of energy we can convert from sunlight. We need a new system or a way to convert a higher percentage of sunlight into usable energy.

"It's not the sort of thing you design on your kitchen table. It's the sort of thing that evolves out of necessity and experimentation. Its evolution obeys the same basic laws that govern the evolution of species…variation, mutation, adaptation. Australia has a wide variety of clever and well-managed companies working on different aspects of the problem.

"But in the big picture, we think human beings are pretty good at adapting when they have to. The alternative is non-survival, which also goes by the name of death. True, civilisations seem to through a life cycle of their own. And perhaps this oil-based one is past its prime. People are quarrelsome and stupid. We may not adapt our way out of this problem before it overwhelms us. But it would be unnatural not to try."

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.