It sure sounds like the Chinese are catching on that the US National Debt is a giant Ponzi Scheme, and they're the mullets.

The Chinese monetary authority has tied the yuan to the dollar. The U.S. would like the dollar to float down against the yuan so as to improve the U.S. balance of payments deficit with China. China adamantly refuses to let the yuan float.

How all this will play out I do not know.

Perhaps China is saving up to buy the U.S. :-)

Interesting. I've made a few links from here to Overcoming Bias in the last couple weeks. They made a reverse connection recently, when one of their contributors made a quick post on Peak Oil.

Opinion there seems to be running against peak oil, but with a few of the predictable, knee jerk, responses one would not want to see in a bias-free discussion ("Malthusians are always wrong").

I personally think the pendulum should swing to concern but not fear, action without panic, etc. That might be happening out there in the broad world ...

Some consumers run into big problems with auto title lending

Strapped for cash, James Haga of Marion, Va., took out a $1,600 loan last year, using his truck as collateral. In August, when he couldn't keep up with the escalating balance, Haga's Ford was repossessed.

Total cost for the loan? A $13,000 auto, plus $4,500 in payments.

"I was at home in the shower getting ready to go to work, and I went out to get my truck and it was gone," says Haga, 44, whose loan carried an effective 300% annual interest rate. Adding to his worries, Haga's girlfriend, Brandy Smith, 31, is carrying a similar, $700 loan.

Haga is one of thousands of consumers who have turned to auto title lenders for quick cash and ended up with big problems. Under the loans, sometimes called auto equity lines of credit or auto pawns, individuals offer fully owned cars or trucks as backing for loans of several hundred to several thousand dollars. Lenders take the title to the vehicle and, often, a duplicate set of keys.

Title lending is one of the lesser-known, high-cost loans now proliferating across the country. But consumer advocates call it one of the more dangerous.

I guess this is the new trend.

Auto title lending is part of a huge expansion of the alternative financial system since the 1990s, including payday loans, high-cost mortgage products and check-cashing firms. The industry has boomed by opening outlets in areas not served by banks, promising loans regardless of credit history and providing quick cash, including Internet lending and disbursements via prepaid ATM cards for clients without bank accounts.

Consumer advocates worry that these lenders are stripping assets from lower-income Americans who can least afford it, helping exacerbate an already huge U.S. wealth gap.

I'd like to see a list of some people's New Year's resolutions. Here are some of mine:

1. Economize
a. by eating less to lose another seven pounds. (In 2006 I've lost 22 pounds.)
b. Drive less. (In 2006 I drove about 3,000 miles; I want to get that down to 2,000 miles or less in 2007.)

Localize: I'm moving to a neighborhood where almost all amenities are within walking distance.

c. Produce: I plan to write a best seller on Peak Oil, perhaps "The Peak-Oil Way to Fitness and Permanent Weight Loss." Also I plan to teach more people to sail than I did in 2006.

Prof. G Love how the new site works- very nice :-)

From the linked article on China:

But with coal-fired stations providing over 80 percent of China's electricity supply, China is on course to overtake the United States by 2009 as the largest emitter of carbon dioxide, one of the main greenhouse gases that warm the planet.

China has resisted calls for a cap even on emissions growth, arguing that most carbon dioxide currently in the atmosphere was produced by developed nations as they industrialized, and they have no right to deny the same economic growth to others.

China knows what is going to happen to their country and the world if something is not done about cutting emissions. They are supposedly "worried" but are embarking on a path that is guaranteed to make global warming intractable. They know that an economy based upon the ubiquity of the automobile will be an environmental disaster. They know they are going to overtake the U.S. with respect to total greenhouse emissions.

While the U.S. is hardly in a position to tell China to cut their emissions, this begs the question. Is it possible to have economic growth while stabilizing or cutting emissions? Or, is the problem the kind of economic growth that China has chosen? In the book, Natural Capitalism, Amory Lovins showed that is possible to have a healthy economy while seriously cutting energy use.

In essence, however, China is saying that they will continue with their high pace of economic growth even if there is a high degree of certainty of not only environmental, but economic disaster. An economy cannot do well without its resource base, its "natural capital" and the trillions of dollars worth of economic services that the natural capital provides.

China is "worried" and yet it persists in pursuing a doomed strategy, a very good illustration of what Jared Diamond was talking about in collapse. Perhaps it is even worse, however, in the sense that the societies in Diamond's book may not have known better. But China, the U.S. and others have the benefit of history and science in planning their future. This makes the coming collapse and environmental disaster even more tragic.

We are going over the cliff. We know we are going over the cliff. We know what is going to happen. But we persist in moving towards the cliff. A very good definition of insanity.

Mall traffic 'moderate' after holiday

A survey by one of the nation's largest credit card companies released Tuesday put a damper on expectations for the season. MasterCard Advisors said retail sales rose a "disappointing" 6.6% compared with an 8.7% increase last year for the period from the day after Thanksgiving through Christmas Eve.

Gotta have that infinite growth to keep the Ponzi scheme going.

And it appears that those who noticed that malls weren't as crowded as expected last weekend were correct:

Although figures are preliminary, some analysts say the surge of last-minute shoppers that was anticipated never materialized. The weather in much of the nation, except for the Colorado Rockies where it snowed like crazy, has been warmer than usual, even drizzly, foggy and gray. That's kept winter-weather-gear shoppers on the sidelines, Bjornson says.

Wayne Best, senior vice president of business and economic analysis for Visa, blames energy prices and the housing slowdown:

He says falling home values are "having more effect than people thought" on consumers, who have also been hit by rising gas prices earlier in the year.

"Consumers haven't fallen off the cliff, but they're more cautious," Best says.

As several of you on TOD have warned, tar sands development may squeeze exports of Canadian natural gas to the US domestic market:

Canada gas exports to U.S. could plunge: analyst

CALGARY, Alberta (Reuters) - Canadian natural gas exports to the United States could post the largest drop in a generation in 2007, an analyst says, as exploration cuts reduce supply and home-grown demand to fuel oil sands output booms.

Martin King, who follows energy commodities at FirstEnergy Capital, a Calgary investment bank, expects exports to fall by up to a billion cubic feet a day next year, down about 10 percent from current shipments around 10 billion cubic feet a day.

"The supply picture is looking rather negative," King said. "You have to go back to 1984 to see a (similar) downward trend."

Where is todays inventory report :P

What if the U.S. economy just keeps slowing?

MSNBC isn't worried:

...there are no realistic scenarios we can think of that would create a "tipping point" that would set in motion an unstoppable down cycle. Economies, like markets, have a way of correcting themselves — by inflicting severe pain in the short term. (See: Japan.) The U.S. economy has suffered through several prolonged such periods: the Great Depression of the '30s and the Great Inflation of the '70s come to mind. Eventually, if the government doesn't screw things up, the economy gets back on track. Some people may be a lot poorer, but economic growth returns.

Fear thee not, the Invisible Hand will provide. Just keep the government out of it, and everything will be fine...

The Cognitive Science of Belief <+soapbox stream>

In the end, much of what every individual holds as knowledge outside their own area of activity are essentially beliefs. Some of us have taken science classes, often partaking in what are essentially laboratory demonstrations but that we often mislabel as experiments, but much is essentially information transfer. A relatively few of us are lucky enough to be able to pursue science, the best method we have for improving our understanding of nature. But, on most issues most of us must remain as bystanders, taking on what is essentially faith the conclusions of those actually generating empirical evidence. Although most of us percieve ourselves as rational and unbiased, considerable work suggests that we are less rational and more susceptible to bias. We can compare the arguments between the camps but in the end we individually have to decide who to trust, often doing so on less than objective criteria.

This situation is much like religous faith as many do not have direct evidence of the existence of higher beings and even fewer have empirical evidence that they can present to others. Yet many undertake the mission of attracting holders of different beliefs to their faith, usually without much direct experience with empirical evidence external to themselves. For success, belief conversion has to occur.

IMO, this is essentially similar to the social understanding of fossil fuel consumption as the primary energy source for civilization. Most people have little understanding of the laws of thermodynamics, the engineering aspects of energy conversion processes or forms or the geology of petroleum. Hence, for a successful social transition to occur with the least social trauma, a belief conversion will have to occur for a sufficient number of people. If the belief of a sufficient number of people does not change, the transition will still occur but with considerably more severe consequences for considerably more people who made ill-informed decisions.

Considerable work on the cognitive science of belief exists; Googling the terms brings up a fair number of papers among the chaff. An example, which may have direct relevance to changing beliefs on peak oil is:

Brelsford, Theodore (2005). Lessons for religious education from cognitive science of religion. Religious Education, Spring 2005. (A lot of his work is on education and teaching)

And no, I don't believe that peak oil is a religion! My point is that understanding this aspect of human belief and behavior helps understanding much belief and behavior in the peak oil arena as well. My hope is that a bit of cross-pollination might occur, improving the effectiveness of everyone.

Gazprom warns Europe of problems with Belarus

Russian gas monopoly Gazprom has warned its customers in Europe they may face gas supply problems due to its pricing dispute with Belarus, chief executive Alexei Miller said on Wednesday.

"Gazprom has today sent letters to its partners in Lithuania, Poland and Germany about the gas supply situation occurring with Belarus," Miller told state television Vesti 24.

He said Belarus has adopted a "destructive position" four days before the expiry of its gas pricing contract with Russia and called on the Russian government to slap a duty on gas exports to Belarus of $200 per 1,000 cubic metres.

A number of people have asked if we were really at peak, where do the shortages occur ?

Leannan has linked to this article which is a sad example of the consequences of production/consumption imbalance and subsequent demand destruction. Recall, this is the actual main crude exporter in Africa. The west is doing what it can not to fulfill exportland theory which results into a disgraceful body count. When will it be our time to drill the pipelines ?

China touts mass transit before Olympics

BEIJING - Beijing officials are trying to convince the city's 13 million residents to use public transportation, a step that should please 2008 Olympic planners troubled by the capital's snarled traffic and dirty air.

Without offering specific money figures, Liu Xiaoming, spokesman for Beijing's Transportation Commission, said Wednesday that spending on public transportation would be boosted in the 600 days remaining before the 2008 Olympics begin. Liu also said new bus and subway passes would be introduced early in 2007.

The city's subway system is expected to grow from its present 120 miles, reaching 185 miles by 2010 and 350 miles by 2015.

From one of the links:

But within these broad categories, which companies pulled the weight, which were laggards, and what trends can investors look forward to next year?

Here are the comments about hydrogen. Fast-forward 3-5 years and I predict we will hear the same things about cellulosic ethanol:

At the bottom end of the index lies hydrogen companies. Hydrogenics (Charts) lost 60 percent, while Quantum Fuel Systems (Charts) has fallen 37 percent. Hydrogen firms, said Rob Wilder, manager of the index, are having trouble as they attempt to commercialize an expensive product with hardly any distribution system.

There's just been this steady cold rain of reality," he said.

How is money made, and some other very interesting observations. Sorry about the length.

John

http://globaleconomicanalysis.blogspot.com/

The simplest (and best) refutation to date of the silly notion that there is some kind of "Global Savings Glut" came today from Professor John Succo on Minyanville. In Response to Ben Stein, Professor Succo had this to say:

Dear Mr. Stein,

I have been running a hedge fund for almost seven years now and prior ran derivative trading at several wall-street firms. My fund trades derivative instruments with our $1.5 billion in capital.

In addressing your first assertion, that hedge funds make their money on positive carry, I would say that you are partially right. There are most likely many hedge funds borrowing low and lending high in “safe” investments, but the key word is “safe”. There are many likely scenarios where these safe investments would turn toxic quickly. It is not only hedge funds that are speculating in this way; you can say the same thing of Goldman Sachs and JP Morgan.

I disagree for the most part on your thoughts of where this cheap money is coming from: It is not coming from a high savings rate from Asian investors but from the creation of credit by all central banks.

The Federal Reserve creates credit through its open market operations like REPOS and coupon passes. If the Fed wants to inject liquidity (credit) into the system, they simply call up large broker dealers and buy some of their bonds with credit they create out of thin air (this expands their balance sheet). The dealer then passes this credit on to “the market” by making loans to mortgage companies or margin accounts or whatever. Because each layer of lender is only required to keep marginal capital on hand, a $1 billion REPO done by the Fed eventually creates as much as $100 billion in new credit to the consumer.

That credit creates the liquidity for additional consumption in the U.S., but these days we are buying our stuff from China (other countries too but we will just say China to make it easy). When a Chinese company receives dollars in trade, this normally would drive up U.S. interest rates: the company goes to the central bank of China to exchange Yuan for dollars; the central bank of China would normally sell those dollars into the currency market for Yuan thus driving up U.S. interest rates.

But in our world of today these dollars are being sterilized: the central bank of China prints the Yuan to give to the company and takes the dollars and buys U.S. securities.

It is not the excess savings of Chinese investors that are buying U.S. securities.

It is central banks creating credit themselves to buy those securities. The tick data that measure foreign inflows of money does not distinguish between private investors and central banks going through brokers to buy U.S. securities. We believe that as much as 90% of foreign money buying U.S. securities (not just Treasury bonds, but corporate bonds, mortgages, and yes, stocks) is not private investment, but central banks.

In order for other central banks like China’s to print the Yuan necessary, they too must create credit. Public debt in Asian countries is expanding as a result and creating worries: this is why Thailand came out essentially raising margin requirements to reduce speculation that is occurring as a result. Notice how they were quickly slapped down by their trading partners who do not want to rock the boat at this time.

This situation is very unstable in the long run. The Federal Reserves’ balance sheet this year alone has expanded by $30 billion in this way and created $3.5 trillion of new credit in the U.S. Public debt around the world is growing exponentially and total debt in the U.S. now stands at nearly 3.6 times GDP (1929 was 2.8 times).

My hedge fund’s position is the opposite of the carry trade you mention.

There is coming (timing is unclear where it may be tomorrow or may be years away) a massive correction in debt and derivatives whose magnitude is only growing with time.

Best Regards,
John Succo

Spot the differences:

First Bloomberg:

U.S. Stocks Rise, Pushing Dow Above 12,500, as Home Sales Gain

U.S. stocks rose, sending the Dow Jones Industrial Average above 12,500 for the first time, as oil tumbled to a one-month low and home sales exceeded forecasts.

Fifteen of the 16 homebuilders in Standard & Poor's indexes advanced amid optimism that the worst of the real-estate slump is over. Home Depot Inc., the largest home-improvement retailer, and Sherwin-Williams Co., the biggest U.S. paint seller, paced a rally by companies whose products are used in houses.

``Housing is a major risk that consumers were facing and a risk that investors were concerned about,'' said Charles Stamey, who helps manage $14 billion at Manning & Napier Advisors Inc. in Rochester, New York. ``Any announcement that shows we might be near the bottom of that is going to be viewed as very positive.''

Then Calculated Risk

November New Home Sales: 1.047 Million SAAR

According to the Census Bureau report, New Home Sales in November were at a seasonally adjusted annual rate of 1.047 million. Sales for October were revised up to 1.013 million, from 1.004 million. Numbers for August and September were also revised up slightly too.

Sales of new one-family houses in November 2006 were at a seasonally adjusted annual rate of 1,047,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.4 percent above the revised October rate of 1,013,000, but is 15.3 percent below the November 2005 estimate of 1,236,000.

The Not Seasonally Adjusted monthly rate was 72,000 New Homes sold. There were 86,000 New Homes sold in November 2005.

On a year over year NSA basis, November 2006 sales were 16.3% lower than November 2005. Also, November '06 sales were below November 2004 (84,000) and November 2003 (76,000) sales.

This is the lowest November since 2001 when 67,000 new homes were sold.

The median and average sales prices were mixed. Caution should be used when analyzing monthly price changes since prices are heavily revised.

The median sales price of new houses sold in November 2006 was $251,700; the average sales price was $294,900.

The seasonally adjusted estimate of new houses for sale at the end of November was 545,000.

The 545,000 units of inventory is slightly below the levels of the last six months. Inventory numbers from the Census Bureau do not include cancellations - and cancellations are at record levels. Actual New Home inventories are much higher - some estimate about 20% higher.

Speaking of new years resolutions, the Energy Bulletin put up a "Resolutions for a Post-Peak New Year" from John Michael Greer. Is it time for a new years resolutions thread?

Since it is not the new year yet, I'll make one final prediction...Robert...want to take a stab at tomorrow's inventory report?

My last prediction:

Crude - down
Gasoline - down
Distillates - up

Can anyone say if this article is correct ?
Iran may need nuclear power: study

It claims that Iranian oil exports are falling 10-12% annually, and may reach zero by 2015. But using BP (2006) data, and assuming Exports = Production - Consumption,
this chart appears to show their exports have been reasonably level since 1991.

Is this another case of "good news" stories being planted ? A Google of the news shows the story has been carried by 280 US news outlets and the fiercely anti-Iranian www.iranian.ws , which many think is run by the CIA.