DrumBeat: July 18, 2007

Oil Industry Offers Sobering Outlook on Supply

It started with a simple question by Samuel W. Bodman, the energy secretary: “What does the future hold for oil and natural gas supply?”

The query was made in October 2005 in a one-page letter sent to Lee Raymond, the former chairman of Exxon Mobil and head of the National Petroleum Council, a federal advisory group representing the oil industry.

After nearly two years, Mr. Raymond has finally delivered his answer.

Oil to hit $100 in 2008, predicts bank

A "steady ascent" of crude oil prices toward $100 (U.S.) a barrel continues, but the predicted date when that level will be hit remains a moving target, according to a CIBC World Markets report Wednesday.

The investment banking division of the Canadian Imperial Bank of Commerce (TSX: CM) predicts "new record highs of $80 a barrel this year and reaching as high as $100 a barrel by the end of 2008 as soaring oil demand outpaces growth in global supply."

Hybrid lovers: The honeymoon may be over

As the reality of fuel efficiency sinks in, fewer new car buyers are considering a hybrid, according to J.D. Power.

Designer bag hysteria at Whole Foods

Entrances to Whole Foods locations in New York, New Jersey and Connecticut swarmed with shoppers Wednesday morning who had lined up to buy limited-edition canvas bags designed by Anya Hindmarch.

...The light brown bags - emblazoned with the words, "I'm not a plastic bag," in blue letters - are designed to raise awareness of the environmental impact of plastic bags.

Tight Global Supply to Underpin Long-Term Oil Price

Jeffrey Currie, an analyst at Goldman Sachs in London, said the only way to avoid a spike in crude prices above $90 a barrel this autumn is a ramp up in production by Saudi Arabia, Kuwait and the United Arab Emirates.

"These three countries are the only members of OPEC that took significant supplies off the market a year ago, have not increased production with the recent rise in prices and still have significant spare capacity," he said.

Currie estimates that keeping OPEC production at current levels, and assuming normal weather this winter, would mean total petroleum inventories will fall by 6.5% by the end of 2007, a move which could push the crude price to $95 a barrel.

UK: Consumers in energy debt

Recent Ofgem figures reveal that 2 million consumers are now officially in debt to energy providers.

At the same time there has been a 33% increase in energy debt since 20041- the average amount of money owed by consumers to energy companies. But this is just the tip of an energy debt iceberg says uSwitch.com, as the figures only take into account customers on official debt repayment plans.

Africa’s Energy Crisis Worsens: Viable Clean Energy Alternatives Are Imperative

A comparative study of debt relief and spending on oil and human services in on-petroleum producing countries in Africa that receive assistance under the Heavily Indebted Poor Countries Initiative—the countries hit hardest by high world oil prices.

Poor maize crop could dent South Africa biofuel hopes

Two seasons ago, when a bumper harvest pushed South African maize prices to four-year lows, it seemed like a good idea to plough all that excess maize into biofuels -- energy tapped from crops like sugar and maize.

But for the second year in a row, South Africa faces a season of slim pickings after a drought slashed maize production, raising doubts about how a country with such a poor farming climate can produce crops to meet the government's ambitious green energy targets.

Oil Companies Not Seen Impacted By UK-Russia Spat - Analysts

British oil and gas companies are unlikely to be impacted by the diplomatic spat between Russia and the U.K., analysts said Tuesday.

They said that Russia's takeover of large projects has already taken place, while the Russian energy sector has come increasingly to depend on the U.K. financial sector and U.K. companies for its development abroad.

If the Russians wanted to take control of certin energy projects, "they already achieved that," said Aton Capital analyst Artyom Konchin.

Russia to increase oil, product export duty from Aug 1

The export duty on oil in Russia is to increase on August 1 from $200.6 to $223.9 per tonne.

Buying imported food may actually be more energy-efficient

A conference of experts yesterday heard that importing food from the other side of the world can actually be more energy-efficient than buying British produce and helps developing countries tackle poverty.

6,000 Kurdish fighters to guard Iraq oil installations

The Iraqi government will soon dispatch about 6,000 former Kurdish guerrillas to protect electric and oil infrastructure from insurgents attacks, a security official said yesterday.

House boosts energy efficiency programs - But Bush threatens veto

The House voted Tuesday to award increases to programs aimed at making cars and buildings more energy efficient and boosting research and development of alternative energy sources.

Slick Connections: U.S. Influence on Iraqi Oil

Violating the very notions of freedom and democracy Bush invokes in nearly every speech on Iraq, the U.S. government has actively intervened in the restructuring of Iraq's oil industry since at least 2002. At different times, the Iraqi government has been threatened that passing the oil law was a pre-condition for partial reduction of Saddam Hussein's debts, for the provision of reconstruction funds, and even for the continued survival (through U.S. military support) of the al-Maliki government itself.

Solar Power Sector Will Need to Cut Costs

At present a shortage of high grade silicon, a key component in solar panels, has created a bottleneck, boosting producer profits as demand for the clean energy source outstrips supply.

But a ramping up in silicon investment means the production of solar panels could surge in the next two to three years, risking a shakeout across the supply chain to mirror a glut now in the biofuels sector, another renewable energy source.

BP Expands Solar Energy Manufacturing Capability

BP Solar is expanding what is already the largest fully integrated solar plant in North America. On July 17 the company broke ground on a $97 million expansion project that will nearly double the current casting and sizing capacity to 150 MW and will create 70 new jobs. Construction is slated for completion by the end of 2009.

World first: Flying high on pond scum

Air New Zealand and airliner manufacturer Boeing are secretly working with Blenheim-based biofuel developer Aquaflow Bionomic Corporation to create the world's first environmentally friendly aviation fuel, made of wild algae.

Glory days are over for North Sea as the big companies look abroad

High oil prices have triggered a drilling boom off Britain but the big oil companies around which the North Sea energy industry was built are pulling investment out of this country and shifting their focus to what they see as more promising areas such as West Africa, the US Gulf and Russia.

How High Can Crude Oil Fly?

In London, the price of North Sea Brent, the benchmark for two-thirds of the world’s oil, touched an all-time high of $78.40 per barrel this week, with no sense of alarm at the world’s top central banks. Regarded as a key indicator of global inflation, central bankers are sitting in stone faced silence about the surge in crude oil, and that’s good news for bullish speculators in gold and energy shares.

Tighter Oil Markets: Get Ready for Another Spike in Oil Prices

The tightening oil market has made some analysts change their price forecasts, but one of the latest oil reports is calling for some serious spikes. The question is whether or not we'll be able to avert them.

Analysis: Venezuela, Iran team up on oil

Venezuela and Iran are forging closer oil ties in hopes of reducing their dependence on the United States, inking a $4 billion deal to develop a block of the lucrative Orinoco Reserve in Venezuela.

Turkmenistan: Engineer Shortage Threatens Energy Expansion

Turkmenistan has overstretched its resources by pledging to extract more oil and gas when it does not have enough trained professionals to meet the task, say NBCentralAsia observers.

Hummer owner gets angry message

On a narrow, leafy street in Northwest Washington, where Prius hybrid cars and Volvos are the norm, one man bought a flashy gray Hummer that was too massive to fit in his garage.

So he parked the seven-foot-tall behemoth on the street in front of his house and smiled politely when his eco-friendly neighbors looked on in disapproval at his "dream car."

It lasted five days on the street before two masked men took a bat to every window, a knife to each 38-inch tire and scratched into the body: "FOR THE ENVIRON."

Save the Earth, buy less

China's growth, however, is powered by America's demand for consumer products -- and this growth is fueled by coal. These two factors lie at the heart of the political impasse. China and the United States each worry that if they agree to binding greenhouse-gas reduction targets, their respective house of economic cards will collapse. This unhealthy symbiotic relationship needs to be unraveled if any global post-Kyoto global warming agreement is to be reached.

Ministers speak out on Chile's energy crisis

Chile’s impending energy crisis, sharpened by diplomatic tensions with Argentina and one of the coldest winters on record, was the theme of a seminar held last week in Valparaíso’s Congress building. New Energy Minister Marcelo Tokman Ramos, Environment Minister Ana Lyn Uriarte and various members of Congress spoke at the event, which was titled “Energy Policy in Chile: A Challenge.”

Nigeria: Oko-Afo Ilogbo community protests power outage

The Oko-Afo Ilogbo community Badagry has cried out over power outage that has lasted over a year, following the packing up of the 2.5 KVA transformer that serve the community.

Biofuels: “We are nowhere near an economic solution”

We believe that first-generation biofuels should merely be seen as a stepping stone towards the development of second-generation, because first-generation biofuels will never be available on the necessary scale, without causing huge problems in terms of food supply. I mean, first-generation biofuels will have a very small impact on fuel compared to the impact they will have on food supply. Also first-generation will not be sustainable in terms of water and land use and will lead to a loss of biodiversity and deforestation, which in the long run, will cause an increase in CO2.

So second-generation, I would say, are the future, but we first will need many more technological breakthroughs.

Queens Residents Mark First Anniversary Of Blackout

Since the outages, Con Ed has spent nearly $1.5 billion to upgrade their system. The utility says it will spend another $7 billion over the next five years on improvements, but many Queens residents are still skeptical.

...They say the company should not be rewarded for mishandling the blackout – including vastly underestimating the number of customers who were affected.

Nationalized oil staying in the ground

World demand for oil now stands at 86.1 million barrels a day. The U.S. Energy Information Administration expects it to reach 97.3 million in seven years and 117.6 million barrels a day by 2030. That extra 31.5 million barrels of daily production is the equivalent of three Saudi Arabias.

Based on what's known about the world's petroleum reserves, nearly all of the increase will have to come from countries that have national oil company monopolies.

Conservation, alternative fuels and giant new oil and natural gas fields in areas where Exxon Mobil Corp. and other private companies can explore won't be enough to meet the rising demands of a growing global economy.

Japex Suspends Production at Niigata Field After Quake

Japan Petroleum Exploration Co Ltd (JAPEX) said it has suspended production at one of its oil and natural gas fields in Niigata Prefecture Tuesday after yesterday's powerful earthquake cut water supply to the site.

However, it said the total production level will be maintained by increasing output of other fields in the prefecture.

India holds out helping hand to Mittal's oil foray

The project is configured to process low cost sour and difficult crudes and convert them into high value products like petrol, diesel and LPG, he had said. Petrol and diesel quality would comply with Euro-IV emission norms.

Taiwan, Venezuela Seek to Resolve Oil Exploration Dispute

Officials of the Taiwan state-owned oil company CPC Corp. are poised to meet with their Venezuelan counterparts in Houston to discuss how to resolve disputes over oil exploration rights, CPC General Manager Chen Pao- lang said Tuesday.

Speaking at a meeting of the legislative caucus of the opposition People First Party (PFP), Chen said that the CPC has retained a lawyer to help deal with disputes over its right to explore oil resources in Venezuela and that should the bilateral negotiations in Houston fail, the CPC will not rule out the possibility of filing a lawsuit against the Venezuelan government to defend its oil exploration rights in the South American country.

Indonesia: House enacts new energy law, hopes to encourage sustainability

The policies set out in the bill include the maintaining of a strategic energy reserve to ensure the nation's energy security, consisting of not only conventional fossil fuels (oil, gas and coal), but also renewable energy resources, such as biofuels, hydropower, and geothermal energy.

Energy Policy Could Help Make or Break European Unity

Back in the good old days, European unity was all about energy. The European Union's original ancestor was the European Carbon and Steel Community, established in 1951. Six years later, on March 25, 1957, leaders signed Euratom, an agreement on atomic energy, along with the other, better-known Rome Treaty.

Fifty years of peace and wealth are a testament to a convergence of fundamental interests, which would be better represented by a common European energy policy than by tomato quotas. Yet today, while the agricultural trade restrictions remain in place, energy policy has taken a back seat in the European truck, even as the Union's energy problems --natural gas ones in particular -- become more evident by the day.

Japan's nuke spill bigger than first reported

The earthquake Monday off the Japanese coast killed nine people, started a small fire at the sprawling Kashiwazaki Kariwa nuclear complex and caused 312 gallons of radioactive water from the plant to spill into the Sea of Japan. Tokyo Electric Power Co., which owns the plant, didn't announce the leak until nearly 12 hours after the quake struck.

Tokyo Electric spokesman Akitsuka Kobayashi said today that the water was actually 50% more radioactive than they had initially calculated. The company apologized on its website for the error. Spokesman Jun Oshima said the amount was still "one-billionth of Japan's legal limit."

"They were hiding the truth," said Masako Sawai, researcher at Tokyo's Citizens' Nuclear Information Center.

Japan's Nuclear Plant Shutdown May Boost Oil Demand

Nippon Oil Corp. expects Japan's oil and heavy fuel demand to rise by about 700,000 kiloliters in August after the shutdown of a Tokyo Electric Power Co. nuclear station, Chairman Fumiaki Watari said.

The Kashiwazaki-Kariwa nuclear station, the world's biggest, was shut after a magnitude 6.8 earthquake struck Niigata prefecture in central Japan on July 16. The trade ministry and Kashiwazaki city authorities have ordered the utility to keep the plant shut until they approve its restart.

National Petroleum Council report comes up a dry hole

On Wednesday, the National Petroleum Council (NPC) plans to release its report on oil and natural gas trends out to 2030. However, “Facing the Hard Truths about Energy” does not meet the promise of its title, according to the Association for the Study of Peak Oil & Gas (ASPO-USA).

“The NPC artfully camouflages the enormous near-term challenges in producing sufficient oil and gas to fuel the global economy,” says Randy Udall, a board member of ASPO-USA. “Hard truths are hinted at, but are never clearly identified. Troubling trends are referenced, but their ramifications are dodged.”

Petrol hits £1 a litre with no end in sight to turmoil in the world's oil market

More pain to come as supplies are disrupted by strife and Opec turns screw.

World Economy Resists Oil Price

The world economy is bounding ahead, largely unaffected by record high crude oil prices, which have quadrupled over the past six years, economists say.

Real Crude Prices Higher Than Nymex Suggests

A quick look shows U.S. crude oil futures prices are lagging record year-ago levels by 5% while crude oil inventories are brimming at their highest early-July level in 14 years.

That snapshot might suggest that prices, which have held above $70 a barrel for the past two weeks, may be in for a steep slide.

But the regional issues surrounding the price of U.S. benchmark West Texas Intermediate crude oil for delivery at Cushing, Okla., mask a broader, far more bullish reality: Many refiners are paying record-high prices for increasingly tight supplies of sweet crude oil and even higher prices may lie ahead.

"Refiners are paying more for crude than last year due to more serious worries on supply and a fundamental tightening in the market," said Antoine Halff, an analyst at Fimat USA in New York.

New low-sulphur crude to be introduced into Asia

New Asian oilfields are about to produce some 120,000 barrels a day of high-quality, low-sulphur oil.

The low sulphur oils should appeal to simpler refiners, as more Asian countries switch to lower-sulphur petroleum products to reduce worsening pollution.

Even though the fresh barrels won't fully offset declining output elsewhere in the region, the spread between Tapis and Brent crude should be shortened.

Industry's role in Cheney energy report emerges

A confidential list prepared by the Bush administration shows that Cheney and his aides had already held at least 40 meetings with interest groups, most of them from energy-producing industries. By the time of the meeting with environmental groups, according to a former White House official who provided the list to The Washington Post, the initial draft of the task force was substantially complete and President Bush had been briefed on its progress.

Alternative Energy: How to Invest in the Next Booming Industry

Even if the whole global warming epidemic isn’t enough to change human behavior, we really don’t have much choice in the matter. Fossil fuels are becoming more difficult and expensive to find, and extract, from the earth. Couple lower supply levels with rapidly increasing demand from nations such as China, and India, and you have the perfect recipe for much higher oil prices. Many experts believe we have reached, or will soon reach, “Peak Oil.”

Biofuel demand makes fried food expensive in Indonesia

Palm oil-derived cooking oil is a staple in the Indonesian pantry. It is used to fry many of the spicy dishes that are part of the local cuisine.

But the high price of oil has forced millions of poor Indonesians to eat their food boiled instead of fried.

Chrysler to drop new sedan, cites fuel curb

The Chrysler Group is abandoning a plan to build a new luxury sedan, citing fuel regulations currently on the table in Washington that could push U.S. automakers to increase vehicle fuel mileage, the New York Times reported on Wednesday.

Swiss glacier retreats at a rapid clip

In the past 30 years, studies show, the Aletsch has been losing 50 meters of length a year and is thinning. Some years show gains in length, others record losses. But the overall figure is one of shrinkage. Last year, it lost 115 meters – though in 2004 and 2005, the glacier gained about 50 meters per year.

"At this rate, by 2100 about 80 percent of the surface of the glacier will be gone," says Ralph Logon, a Swiss geomorphologist and expert on glaciers.

Action needed on climate change: Business group

A major U.S. industry body said on Tuesday that human activity is changing the Earth's climate and urged Washington to take action to reduce greenhouse gas emissions nationwide.

But the Business Roundtable, representing 160 of the largest U.S. companies with $4.5 trillion in combined revenue, stopped short of advocating a specific policy to accomplish that, saying its members did not yet agree on methods.

Climate change threatens Italy's Po River delta

Rising sea levels, reduced rainfall and lack of snow in the Alps will combine over the next few decades to render the last 100 kilometers (60 miles) of the river useless because of saltwater intrusion, the experts predicted at a meeting in Parma on Monday.

Goldman Sachs says Crude Oil production down 1 mb/d from last year.

"We believe the current price rally is critically different from last year's, as the fundamentals are substantially stronger," Goldman Sachs said in a research note.

"Global crude oil production is over 1 million barrels per day lower than last year, while demand is over 1 million bpd higher."

As I said yesterday, last year’s rally was driven largely by fear but this year’s increase in price is due to the fundamentals. Crude oil production is now falling. The question is; how long before the financial world figures out exactly why?

Ron Patterson

It's time to bug out.

"You can run but you can't hide." - Joe Louis.

More like "You can run...but you can't hide!" - the Wez in "The Road Warrior"

Yeah, I'm hoping I can suck another year out of the market before it crashes. I'm enjoying those 17% returns. My returns are greater than the APR on my credit card. I would like to think that moving my money to stocks in renewable energy companies such as SunPower and Evergreen Solar would be beneficial, but I'm sure the market will take those down right with the rest of the stocks due to general panic.
~Durandal (http://www.wtdwtshtf.com/)

Yeah, I'm hoping I can suck another year out of the market before it crashes.

Famous last words.

Yeah, and don't count on it, looks like the market will do the sucking:

Bear Stearns Warns Hedge Fund Investors of Total Loss

Bear Stearns Cos. told investors in one of its hedge funds that they won't get any money back after creditors forced it to sell assets at depressed prices, according to a letter sent by the firm.

While a second fund still contains ``sufficient assets'' to cover the $1.4 billion it owes the New York-based firm, there's ``very little value left for the investors,'' Bear Stearns said in the two-page letter, a copy of which was obtained by Bloomberg News from a person involved in the matter. Bear Stearns bailed out that fund last month with $1.6 billion in emergency funding.

The situation underscores the severity of the shakeout in collateralized debt obligations, securities that the funds used to bet on subprime mortgage loans. Bear Stearns said in the letter that the funds faced ``unprecedented declines'' in bonds that were rated AAA or AA, the two top investment grades.

NB: One Bear [sic] fund was valued at $5 billion, the other at about $15 billion. No word on that one yet, but they're not even trying to save it.

NB2: An isolated incident?! Sure, and isn't it hilariously great that the Dow is breaking records? Try this one from the TOD:Canada Round-Up:

Options market expects a drop in U.S. stocks

..... the Leuthold Group, whose flagship fund has beaten 99 percent of similar funds during the past five years, expects the S&P 500 to slide as much as 19 percent by the end of the year.

sent to me by a latoc reader 10 days ago. I didn't post as I didn't want to create a panic. but he turned out to be correct. Oh well.


Matt, that links leads me here: http://internetnewz.info/?rid=705831.
Not what you intended, I'm thinking. Been hacked?

Matt: The Fitts book looks like a good read. Thanks.

Did someone say Fitts!



Start up a good Peak Oil discussion. I'd like to see someone other than Daybrown post!

Fitts had the correct reply. The stock markets, interest rates, dollar index, and gold prices are all actively managed. The Fed (~JPMorgan) and Treasury (~GoldmanSachs) have all the tools required to prevent abrupt market discontinuities. The BOJ, BOE, and ECB are all partners in this process. There will only be a financial "crash" when and if the PTB want one.

In addition, for people who have significant investments, "crashes" can be immensely profitable. Selling some stock (even in Evergreen Solar) and buying some put options can put one in position to profit from a "crash".

As for real estate, the "crash" can't come soon enough for this renter. IMO, someone who bought their house or farmlet in 1977 should be very happy to sell it to me for a 1997 price and make a huge profit. But, they still are greedy enough to want a 2007 wishing price, which is at least twice a reasonable multiple of local income and no buyer will pay it. Bring on the "crash", please!

What is the BOJ, BOE, and ECB and the PTB?

Bank of Japan
Bank of England
European Central Bank
Powers That Be


I intend to poach you from TOD over to the LATOC forum. I can offer you lots of turnips.

Everything MH said about the PTB and a crash are pretty much dead-on, however, if the PTB really had all the power they think they do, and all that we attribute to them, we wouldn't be in quite the level of sh!t we are in right now.

The best laid plans, and all that.

And a crash can also be profitable a little later on when large amounts of material resources can be had for fire sale prices, but one again needs significant resources to begin with.

The rich get richer, etc.

710: TPTB are rich-they are getting richer-they are presently too busy to worry about everybody else's problems.

If I have a 5% fixed 30 year mortgage, and the bank has a call provision that allows them to call the loan at any time, and they can get 7% on their money somewhere else, why don't they?

If S&Ls made 3% fixed 30 year mortgages in the 50s and 60s, and the prime interest rate went to 20% in 1980, and the S&Ls can call in the loan, why did they choose to go bankrupt instead?

If a BANK is actually solvent but having a liquidity crisis, can't they borrow money from the federal reserve? Bears Stern investment fund I dunno, but if it was solvent, and Bears wanted to, I presume they could borrow money from somebody.

If I have a 5% fixed 30 year mortgage, and the bank has a call provision that allows them to call the loan at any time, and they can get 7% on their money somewhere else, why don't they?

They would bite the golden goose that feeds them. As long as that mortgage is in their books, they can use it as collateral to go out and "fractionally invest" 10 times what the mortgage is worth. That pays far more than the 2% extra you mention. In fact, if they use your loan to raise 10 times what it's worth, and get 10% interest on that, their return is 100% of the loan, not some lousy 5-7%.

They'd be real dumb calling it in, it would kill the collateral, and hence the chance to invest.

What's more: it's not their money you borrowed for your home, they created it out of nowhere, it's not like they had it waiting in the safe when you walked in. They need just a few percent of it in their books, if that.

If a BANK is actually solvent but having a liquidity crisis, can't they borrow money from the federal reserve? Bears Stern investment fund I dunno, but if it was solvent, and Bears wanted to, I presume they could borrow money from somebody.

These funds consist of 95% borrowed money to begin with. They'd have to borrow money to save the money they borrowed to buy into vehicles that are now worthless. One of Bear's funds' big lenders is Merrill Lynch, and they got the ball rolling recently, by making a call on Bear. When they tried to auction off part of the funds' "assets", no-one offered more than pennies on the dollar, and the auction was halted.

So where could Bear borrow? Not at Merrill's. Other big banks? Not today, honey, I have a headache...

Goldman, JPMorgan Stuck With Debt They Can't Sell to Investors

Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell.

The banks have had to dig into their own pockets to finance parts of at least five leveraged buyouts over the past month because of the worst bear market in high-yield debt in more than two years, data compiled by Bloomberg show.

Goldman, JPMorgan Stuck With Debt They Can't Sell to Investors

Goldman Sachs Group Inc., JPMorgan Chase & Co. and the rest of Wall Street are stuck with at least $11 billion of loans and bonds they can't readily sell.

It strikes me that these big financial institutions have tons of money. So much money that they can hold $11BN of worthless bonds on their books pretending that it is still worth something. The tipping point will come when, in aggregate, the excess money sloshing around at these institutions dries up and they can't pretend any more. The only things we can be sure of are:
1. the real picture is highly likely to be worse, maybe much worse, than the publicly reported picture.
2. They will keep pretending as long as they aren't totally forced into some kind of liquidation
Hmmmm, sounds like other pictures, such as oil and energy and Global Warming.

Another finance company getting hit...

CIT Group Posts Unexpected Loss on Home-Lending Exit


CIT Group Inc., the largest independent commercial finance company in the U.S., reported an unexpected second-quarter loss and said it's getting out of home lending.


``They're essentially taking about a 7 percent haircut on the value of those assets, meaning they think they're worth 93 cents on the dollar,'' said David Chiaverini, an analyst at Bank of Montreal's BMO Capital Markets division in New York. ``The way the housing market has deteriorated, it certainly wouldn't surprise me if they have to take an additional charge.''

Hooray! That makes it 100!


They would bite the golden goose that feeds them. As long as that mortgage is in their books, they can use it as collateral to go out and "fractionally invest" 10 times what the mortgage is worth.

Damn, and just when I thought I understood banking! I always heard, from my economics teachers and other such no-nothings, that banks were allowed to loan out a given percentage of monies held on deposit. I believe it was 90% at the time but I would not swear to that.

But now I hear that this is not the case at all. That instead banks are allowed to loan out 10 times the money they already have out on loan. Well no, that's not really what you said is it? You say they can "fractionally invest" ten times the money they have out on loan.

Exactly what does "fractionally invest" mean anyway. Where would they get this money to "fractionally invest"?

I did a Google search on "Fractional Investment" and find it means to invest in a fraction of a property. For one million dollars you can buy a ten percent fraction of a ten million dollar property.

Uhhhh....now I am really confused.

What am I missing here HeIsSoFly, somehow that just doesn't make any sense at all. I need you to explain what you mean and do banking laws really allow this sort of thing.

Ron Patterson


I am genuinely sorry that it's hard to understand, and humbly suggest Money as Debt to clarify matters.

HeIsSoFly, thanks for the link. I watched all 47 minutes and 7 seconds of it. It was excellent and I would advise anyone to watch it. Although I do not see money as the bogeyman the creators of the film obviously did, it was nevertheless very good.

I found the explination of how the economy must grow exponentially as we use, then throw away, our natural resources very interesting.

That being said, the film cleared up for me where you got the idea that banks were allowed to loan out or "fractionally invest" ten times the amount of existing loans. You simply misunderstood what the film was saying.

Banks were allowed to loan out ten times the amount of moneys that were invested, by the bankers, in the original bank charter. After that, as the film clearly stated, banks were then allowed to loan out 9 dollars for every 10 dollars on deposit in the bank. And that is the way banks create money.

A bank will loan out 10,000 dollars. The borrower then deposits the 10,000 back into the bank. New deposits! Then the bank can loan out another 9,000 on these new deposits. The borrower then deposits the 9,000 back into the bank. The bank then lends out 8,100 on these new deposits and so on down the line.

That is exactly how I learned it in economics classes and that is exactly how it is explained in this film.

Thanks again for the link.

Ron Patterson


I'm glad you liked it, and yes, i agree, everyone should watch Money as Debt.

Your description of the process is exactly how I tried to describe it; the term "fractional investing" was half-jokingly used.

I was responding to the question why banks wouldn't call in loans if they could make more with "their money" elsewhere. As the film says: If there's no debt, there's no money. So that loan of yours is a prerequisite, and it's not so important how much the interest is. You are the vehicle that allows the bank to make money.

I like the following piece by Prof. Succo at Minyanville for describing the next phase in money for nothing and your chicks for free: derivatives.

FT's financial editor Gillian Tett wrote well on that topic too, see The Dream Machine, and estimated the trade at $470 trillion.

The Land of Credit

A $1 billion REPO by the Fed doesn’t seem like much until you check your premise. The Fed just did a $1.3 billion dollar coupon pass, which is like a permanent REPO. The Fed calls up JP Morgan (JPM) and purchases its bonds with credit, credit created from nothing. They just tell JP Morgan, "we owe you money."

JP Morgan now has funds (credit) it can lend out. But because of margin requirements it can lend out much more than $1.3 billion. In fact it lends out about twenty times that amount. So let’s say they call up 20 regional banks and let them borrow $1 billion each. In turn, each regional bank then lends out $5 billion to various mortgage borrowers. These borrowers refinance their house and spend the extra cash while the equity in their home drops.

The original $1.3 billion of credit the Fed created yesterday will in a few days turn into $100 billion of money borrowed by consumers. In fact these numbers are born out by the Fed’s activity over the last year. The Fed’s balance sheet has grown by about $30 billion over that time, while total credit market instruments outstanding grew by $3.5 trillion.

But that is just traditional pyramiding. Today we have the derivatives markets where JP Morgan can take some of that credit and lever it 100 to one by underwriting derivatives (I don’t mean to pick on JP Morgan, although it is by far the largest derivatives dealer in the world; others like AIG or other large Broker Dealers are doing the same). So of the $1.3 billion, let’s say JP Morgan keeps $300 million and then sells options to customers. It uses that credit as capital to support the trade; the trade itself is $150 billion in notional contingent liabilities. The notional amount of derivatives over the same period of time has grown by a scary $88 trillion. Derivatives are lending on steroids.

"Rich Dad" Kiyosaki put it this way:

Besides, banks really do not need your savings. They don't need much in deposits because they can magnify money at least 10 times. If you put a single $1 note in the bank, by law, the bank can lend out $10 and, depending upon the reserve limits imposed by the central bank, possibly as much as $20. That means your single $1 suddenly becomes $10 or more. It's magic! When my 'rich dad' showed me that, I fell in love with the idea. At that point I knew I wanted to own a bank, and not go to school to become a banker.

Leanan, sorry dear but that is not the way it works.

Watch the film:

Or just skip to the point where this point is explained. It begains at about 13:28 into the film.

The 9 to 1 reserve ratio applies only to the banks investors in a newely chartered bank! That is to the banks original investors, not deposits. After that the law kicks in that governs loans verses moneys on deposit. And that is 10 to 9, or 9 dollars can be loaned out for every 10 dollars on deposit.

It is al explained very well on the film. Just watch the part beginning at about 13:28 on the film and runs for three or four minutes. Just take the short time to do that and all this muddy water will be cleared up.

Ron Patterson

And may I rudely add that Kiyosaki is a louse.

You want proof? The Google Corporation happily obliges:


I think the term that you want to look up is Fractional Reserve Banking. See link for an explanation of Fractional reserve banking.

Banks rarely invest their own deposits in Mortgages these days. Banks usually off load Mortgage debt to the GSE or sell Mortgage backed bonds on the market (Syndication). They make money collecting service fees. This is why during the mortgage boom years banks were more than eager to loan money. They didn't own the debt, so if the borrower defaulted, they cared less. The more loans they made the more loan service fees they collected, but they don't make any direct money off the loan interest. Since the Banks don't own the debt the can issue as many billions or trillions they wish without violating federal (or state) banking laws. I believe HeIsSoFly doesn't quite understand how mortgage lending works.

Another common misunderstanding is how long term fixed rate mortages work. When a borrow gets a 30 yr fixed mortgage, the lender doesn't issue a 30 yr fixed bond to finance it. Generally a long term mortgage is financed with much shorter term bonds (2 yr, 5 yr and 10 yr). When the bond comes do, they re-issue a new set of bonds. They'll continue to do this until the mortgage is paid off. However, there is a risk factor. For instance lets say that a lender offers home owners 30 yr fixed at 6.00%. They calculate that the during the entire life of the loan, that they'll be able to issue bonds below 6.25%. Usually its a significantly lower since they make money off the difference. Now lets suppose that with in the next few years, the rates rise substantially, so that the Fed overnight rate is at 6.50% and the lender must sell a new set of bonds to finance a group of 30yr mortgages sold @ 6.00%. Can you see the lender's problem?

Seems as though the whole bond market is tanking. Check out the price of AAAs:

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And some comments:

"World wealth isn't growing, world DEBTS are growing and the place they are growing the fastest is the US which is the sole terminus of world trade at this point. The biggest growth industry today is selling debt instruments. The entire existence of hedge funds, for example, is to funnel profits from uneven trade with the US back into the US via dumping debts onto the backs of any corporations that can run up more debts!"

Get it? It's all just recycled dollars — debt piled on debt piled on debt piled on debt — repeat ad infinitum. America's equities portfolio = 1% assets, 99% pure helium.

Some interesting numbers from the Housing Bubble Blog:

“Each month about 5,500 homes come on the market in Las Vegas and only 1,500 are sold.”

An interesting photo essay on the number of businesses that have shut down along a three mile long commercial area in Boston:


I've begun to notice a similar pattern in the Dallas area--businesses closing and no one taking over the empty space.

I thought that the news release from Southwest Airlines--probably the best, or at least one of the best, managed airlines in the world--was pretty interesting.

Southwest is offering buyout packages to about 9,000 of their highest paid employees--basically offering to pay them to go away.

The fundamental restructuring of the US economy from an economy focused on meeting wants into one focused on meeting needs has begun.

One of the many reasons that I recommended trying to live on half of your current income, as part of ELP, was that it would allow you to offer to take voluntary pay cuts in order to keep your job and benefits, at least for a little longer. You need to be thinking about how to become, or work for, a provider of essential goods and/or services.

WT: Another option, if one has a modest nest egg, is to relocate. There are gringos living quite well in Costa Rica on $20000 per annum.

Or live cheaply in the US: http://www.katu.com/news/local/8499817.html

This is an article from the EB, about a woman living in a 84 square foot space.

Recall our discussions about 100 square foot living spaces last year? I mentioned it in my August, 2006 net oil exports article:

"Cheap is the new chic"

WT: If you wanted to live that lifestyle, my estimate would be $7000 per annum in CR. Talking to expats in CR, it seems like the main obstacles to a really cheap existence in the USA are 1. health insurance (one woman alleges her bill for a family of 4 was $10000 per annum) 2.property taxes and 3. house insurance (for expats from Florida). The minimum charge to breathe the air in the USA seems to be increasing at a good clip.

Health insurance for my wife and I cost us over $14,000 per year.

JJ: Wow. I wasn't questioning her number, I just wasn't sure as I am in Canada and health care is almost free here. I think yours is the biggest bill I've heard.

Is it also true that the deductible for a single treatment can be as high as $10,000? I won't admit where I got that figure from...

WT, this absolute gem of an article has a different take:

Everything I Want to Do Is Illegal

You would think that if I cut the trees, mill the logs into lumber, and build the house on my own farm, I could make it however I wanted to. Think again. It's illegal to build a house less than 900 square feet. Period. Doesn't matter if I'm a hermit or the father of 20. The government agents have decreed, in their egocentric wisdom, that no human can live in anything less than 900 square feet.

Our son got married last year and wanted to build a small cottage on the farm, which he now oversees for the most part. Our new saying is, "He runs the farm, and I just run around." The plan was to do what Mom and Dad did for Teresa and I: trade houses when children come. That way our empty nest downsizes, and the young people can upsize in the main family farmhouse. Sounds reasonable and environmentally sensitive to me. But no, his little honeymoon cottage or our retirement shack had to be a 900-square-foot Taj Mahal.

Then build it 900 square feet. You just got to out think the Feds. Make all but 200 square feet Open to the outside via porches which are considered living spaces in most house plans. Move your kitchen to one of these porches and you have the ability to have a no heated area for cooking in the summer time and a heated kitchen in the winter time for added heat to your living areas.

I could with a few hours prep time draw up several ideas for a 900 square foot house. I have plans for a 450 square foot house that seconds as a 600 square foot house with all the covered decks and open roof design for star watching.

Just because a gov't agency tells you to live beyond your desires does not mean you have to cowtow to them, it just means you have to work around their petty rules and get better at design work.

Me and my dad discussed the fact that if we had cisterns in our yard we could have gotten over 2,000 gallon of fresh rain water over the past 2 weeks of rains. And if we had other systems in place we could rebuild the kitchen to house several renewable energy items while we rebuild it sometime this next year. He is working 48 hrs a week for a company that is in the closeout mode. They were only supposed to work 13 weeks, as it stands they have about 6 more weeks than that worth of merchandise to sell. But he is for once getting paid time and a half for his overtime. and he is working it just to catch up. But at 71, he is afraid that when he does stop work he will go down hill fast if he does not have something to do after this mess goes away.

We could get into the design and building of small cottage homes in the 900 square feet or less range.

Aww, just build it as small as you want, then put wallpaper on two of the outside walls and leave up a tape perimeter for the 'rest' of the mansion.. put up a nice, courteous sign saying 'pardon our appearance while we build'..

Sometimes its better to ask forgiveness than permission.

Building codes are why people are putting these little habitations on wheels. That way they become trailers, not "houses." A friend of mine in New Hampshire has done the same thing, because housing on wheels is not subject to property taxes. She has hauled her "Gypsy Cabin" up to a 340 acre hunk of land she owns in the northern part of the state.

Replica of Thoreau's Walden one room cabin c. 1850. Thoreau wrote of the virtues of a simple life on the land.

I grew up in and around Central and Boston, MA, and have walked around Walden Pond many times, but that is the first picture I have ever seen of what Thoreau's cabin looked like on the inside.

Thank you, it's quite inspirational.


Where do I fit the big screen plasma Monitor????

On the wall?

How about the landfill?

Southwest is offering buyout packages to about 9,000 of their highest paid employees--basically offering to pay them to go away.

I have a nephew who got a job flying for Southwest a few months ago. I thought when I saw this, that his job might be at risk, but then it might not be. They will likely try and shed the pilots with more seniority and higher pay, hanging on to the newer ones with entry level salaries. Thus contributing to the general lowering of median income that is going on, and probably accelerating.

At any rate, my nephew is very cognizant of the hazards.


Your nephew must also be cognizant that he is in a union shop. The junior guys will be the first ones to go. Seniority in king. Trust me, I have the same hazards as him.

this buyout package has a fine print. must have been employeed for 10 years minimum. not all labor groups in the company are allowed to take up this offer. Then the package offers 25k cash lump sum severence, plus free flying privilages, and medical coverage for one complete yr after leaving the co.
By the way: these highest paid employees is a misnomer. yes they are highest paid (by virtue of seniority) for their work group. but for some of them, the highest paid employees are only making 40K a year, maybe up to 60 (rare case). these particular work groups are over staffed. and the company is simplying thinning out the dead weight in these work groups who are over staffed. unlike maintenance (which is staffed lean and mean) or pilots.
ET, email me sometime. I may have already met your nephew on a gate call!

Given all the people I've met from Bear over the years and what I know of their culture, I'm not shedding any tears, but don't get all hyped over the losses at BS causing a major meltdown. 5-year CDS on Bear only widened from 31-ish to 67/70 and this occurred at a time when credit markets have been "repricing" risk across the board i.e., CDS spreads have widened out significantly over the last few weeks. 5-yr CDS on other financials: Goldman 48/51, Mother Merrill 49/51, MWD 54/58, LEH 59/62.

The entire subprime mess is, what, 10 times smaller than the S&L mess back during Bush 41? The world didn't end then. Why should anyone expect markets to meltdown now? Maybe disaster will strike, but let's keep the current mess in perspective.

The HEDGE FUNDS to watch that could sink us all are Freddie Mac & Fannie Mae not some internal fund at Bear. (If you use the famous "duck" test, Fannie & Freddie are hedge funds, and funds of enormous size.)

They are a great scam: use an implicit govt guarantee to issue debt lower than you could otherwise and take the funds and speculate in the mortgage securities market. It gets better: don't be required to mark the multi-hundred billion in assets you hold to market (just focus on annual cash flow), and then channel any profits to shareholders and employees. If you blow up, the taxpayer gets stuck cleaning up the mess.

The move to hedge-fund-in-disguise status started way back in the 90's. Freddie moved first, Fannie followed. So far, we've all been lucky that they haven't messed up too badly.

Wait, there's more. Heeeeeere comes Ginnie....

US Turns To China To Save Mortgages

The Bush Administration is urging China's central bank to buy more government-backed mortgage bonds, Bloomberg reports, in an effort to sustain financing for US home loans in the midst of the subprime mortgage crisis.

The Secretary of the US Department of Housing and Urban Development is in Beijing to persuade the PBoC to buy more securities from Ginnie Mae - a seller of US mortgage products which, unlike Fannie Mae and Freddie Mac, are government guaranteed. China has delved into Ginnie Mae securities previously, but not in any significant fashion.

China has, however, increased its foray into mortgage products in general over the past three years. Investments totalled US$107.5 billion at June 2006, up from US$3 billion three years earlier. The HUD hopes to direct China's recycling of US$1.33 trillion of foreign reserves into its Ginnie Mae products ahead of others, as they offer the government guarantee for the same credit rating.

China has bought $104.5 billion in US "mortgage products" in just three years, and now the White House sends a US Secretary to plead with them to speed up the buying. But that stuff is about to crash, right?

Well, not really. What is real then? Look, this is how Wall Street unloads its gambling debts on the American taxpayer. Why would the Chinese be worried that the paper is worthless? You have personally guaranteed that you will pay taxes to pay them whatever they might lose.

PS article stolen, again, from The Round-Up: July 17th

Sonic, one more thing:

It's hard to figure how big it all is, but 10 times smaller than S&L sounds a long way off. If I were to follow Jim Willie's reasoning:


The Greenspan reaction to the 2000 tech/telecom stock bust was to create a housing/mortgage bubble perhaps 20x larger.

And then I'd combine that with you saying S&L was 10 times bigger than the subprime tsunami, I'd have to conclude that S&L was 200 times bigger than the tech/telecom bubble. And that I find hard to believe.

The most recent figure I saw on the subprime was that it would take 120 billion to clean up. (It was plastered all over cnn.com and elsewhere no that long ago.)

The Resolution Trust Corp spent something on the order of 400-500 billion (or more) S&L mess back some 15 years ago.

Adjust for inflation and round and we get one order of magnitude i.e., the S&L mess was roughly 10x bigger. (500 bn at 6% for 15 years is almost exactly a factor of 10. The 10x figure is meant to be approximate to facilitate discussion. If one uses a lower compound rate and only gets a factor of, say, 7x, does it really matter?)

Regarding the Chinese owning $107 bn of US mortgage securities. What percentage is subprime? Maybe 15%? Of that, it's not all worth zero. (Recovery rates on unsecured corporate bond average on the order of 40 cents on the dollar; it averages well over 60 on unsecured bank loans.)

Again, the basic question is, since the much larger S&L mess/fraud didn't sink us (though it did cause a recession & extensive credit rationing), why should the subprime mess/fraud sink us? Is something truly different this time (a far, far more leverage economy perhaps?), or should we just expect a replay of 1990-1991 (mild recession, credit rationing, etc.)?

(a far, far more leverage economy perhaps?)

You bet.

Watch what happens when they tighten credit.

I've seen figures ranging from $900 billion to $2 trillion.

You seem to forget that the LTCM debacle was cleaned up with a few billion dollars but the overextended nature of LTCM had them over $120 billion into trouble. It's the leverage that is the real problem here.

Ghawar Is Dying as we slide Into the Grey Zone
"The greatest shortcoming of the human race is our inability to understand the exponential function.

I haven't forgotten LTCM: I helped take several of their trades off their books (and made several million in trading profit in the process). LTCM may have had $100+ bn in positions, but that was not their net exposure.

I finally found an "official" FDIC figure for the S&L mess: $153 billion. Initial estimates were far lower. Estimates at the height of the mess were far, far higher ($500+ bn). So, take $153 bn, gross it up for the time value of money, and compare it to the current subprime mess. Using 6% for 15 years gives $367 bn in 2007 dollars -- an order of 3X (not 10X as I guessed above -- me bad).

Fed governor Susan Bies estimates that the subprime market is about 7-8% of the $10 trillion mortgage market. That is consistent with your $900 bn figure. However, that does not imply $900 bn in losses. Not all loans go bad, losses on bad loans are not 100%, etc. The $120 bn estimated loss figure estimate I cited seems an appropriate figure to use to compare with the S&L mess from the late 80's/early 90's.

While the subprime mess will hurt, I see no reason to expect disaster given how the significantly larger S&L mess played out unless the massive increase in leverage throughout our economy over the last 15 years amplifies these losses. Our near-term economic future is highly uncertain, caution from the subprime mess seems warranted, but not fear or panic (IMO).

Not all loans go bad, agreed. But this is not about individual loans! This is about a derived financial instrument that is dependent on the sum of the parts performing at a certain expected level and if some subset of the parts performs below that level then the entire financial instrument is worth less (or even worthless, as Bear Stearns discovered).

Your error is in focusing on individual mortgages. Every single CDO created has defaulting mortgages. That was written into the CDO but if the number of defaults exceeds a certain limit, the paper drops in value. And since that paper was then used as collateral for other loans, those loans might be called in because the collateral no longer matches the requirements for the loan.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

For Alan from the "Big Easy":


"What no one seems to be paying attention to is a simple clause that exists within nearly all conventional, and non-conventional commercial mortgate agreements that enable banks, or other financial institutions, to 'call' a loan. That is, they can demand that homeowners pay the remaining unpaid balance of their mortgage within 30 days, EVEN IF THEY ARE NOT LATE ON THEIR PAYMENTS, NOR HAVE EVER BEEN LATE ON ANY OF THEM."

Either it's a mistake, and he meant .net instead of .com, or he lost his .com domain to a domain name vampire.

Interesting stuff and to the point. It was pretty well disclosed (although peripherally and not fully marked to market, which it has been now ... as 0$) during Cantor's auction on June 22. I made a little post about this here:


Many folks saw this as the big bad sign.

Hoping, but I'm not realisticly expecting to be in it that long. The fact is that I can't pull all of my money out for at least another month, and personally I would love to wait until Jan 08 to pull out my money due to tax reasons. The thing is, most investors aren't PO aware, and they don't know the writing is already on the wall and they're just riding the momentum. Yup, it's risky, but I'm not sure that having my money in the bank would be any safer.

~Durandal (http://www.wtdwtshtf.com/)

My signal to liquidate my US equity positions in 1999 was that idiot "Dow 36,000" article. Be on the lookout for something similar this time around, then bail out immediately.

WNC: I wouldn't write off Dow 36000 just yet. The way the greenback is going (down 12% against the Cdn dollar since Jan)you never know.

This is true. I have often advised coworkers, friends, and family to invest their assets in a basket of stocks on the Zimbabwe stock exchange. At about 12000% return it's done very well. At least until recently:


Try under your bed. I don't trust banks either, but then again I did keep a lot of pennies till i found that the new ones are getting an electro-plating over junk metals. I don't trust hard currencies much either unless it is silver or gold, or stones.

going to start storing coal soon, LOL

Nickels and pre-1982 pennies are still worth saving. 1982 was the change-over year with some of both.

But even new pennies have almost 1 cent worth of zinc in them.


You can easily separate copper pennies from the post-82 zincies (as I call them, since they're basically zinc with a thin copper finish) by simply dropping them on a hard surface. The zincies go "click", but copper pennies have a noticable ringing sound. I save my copper pennies, just for the helluvit.

Thanks Alan.

I'll make sure my pennies that I save are of the later models.

Not that I will need them much, I have skills in finding food in the wilds where most citie dwellers do not.

Durandal, you must have a strong stomach. I think the meltdown could begin any time now.

Why not hedge?

If you really want to wait until January 1st to take your money out of the market for tax reasons, then pick up a couple of March '08 put options well out of the money on the Dow (and possibly also the Dollar). Assessing how many you'll need, and how far off the money, requires that you consider how much you currently have in the market and where the threshold for an unacceptable loss is. Just a guess (haven't checked the option quotes), but you should be able to hedge loss from a million dollar portfolio through January 1st for somewhere in the neighborhood of $10k-$20k. And, given your tax concerns, if the options expire worthless because the markets didn't crash, you can write off the loss.

Well, the majority of it is in my 401k. I was dumping 21% of my income into the thing for a few years. I'm young so it's a relatively small nest-egg compared to some people on the board, but it's still enough $ that I would cry if it were to all disappear.

The rest are in balanced mutual funds and money market accounts that I can yank at a moment's notice. Instead of saving it in a bank, I'll spend it on something worthwhile. (I would prefer to buy land with it, but that takes time.)

~Durandal (http://www.wtdwtshtf.com/)


Diversification is a myth in this kind of economy. Why don't you take a look at oil and gas royalty trusts? They're paying 8%-9% right now, and since they are a physical asset can only get better. Look at Permian Basin Royalty Trust and Sabine Royalty Trust.

You don't have to play the option market directly. You can short the Dow or S&P with mutual funds. They even pay you a dividend!

It is not going to play out that way. The market is not going to “wake up” one day and accept Peak Oil as fact, close up shop, shut everything down, and everyone goes home.

Global central banks are inflating their currencies, many in double digits.

As of 07/09/07, Country YOY % increase in money supply:
Russian Fed. M2 50.94
India M3 19.70
China M2 16.74
Australia M3 14.05
United Kingdom M4 13.84
Mexico M4 12.21
Brazil M2 11.92
Denmark M3 10.62
Korea M3 10.07
Canada M3 8.08
OECD Total M3/ EUROZONE 7.86/10.9
United States M3 reconstructed 13.7
Germany M3 6.16

Excessive money printing will beget new bubbles, which will require more excessive money printing to offset the bubble when it pops, to create another new bubble to offset the popped bubble. Rinse and repeat.

The terminal phase will be inflation, followed by a brief period of dis-inflation, followed by massive inflation, followed by a brief period of dis-inflation, followed by hyperinflation. The markets will be an outlet for the massive liquidity being pumped on a global scale and it will be irrelevant if the price of oil continues to rise (irrelevant in the sense that certain industry sectors may be hit, but other sectors will experience bubbles pumped by liquidity and rising oil prices: Alt Energy, infrastructure, traditional energy companies with long life reserves, energy service).

Those that are waiting for deflation and a market crash are correct, it will eventually happen. But they are way to early, we must go through terminal hyperinflation first.

No Deflation! Disinflation then Lots of Inflation
The "Ka" phase of "Ka-Poom" has officially begun
by Eric Janszen

CRACK-UP BOOM, PART IV: Gold, Oil and the Dollar
by Ty Andros

Ka-Poom is a Rhyme not a Repeat of History
In a World of Floating Exchange Rates and Fiat Money, What Goes Down, Must Come Up
by Eric Janszen

I had heard of yen carry trade, but I would wager that the Master Card carry trade is a purely american phenomenon.

Wake up, you are being harvested.

Ditto, Thought this was an excellant article wonder why I haven't seen it in the WSJ since its a Dow Jones article? Judging by the still bargain prices of most energy stocks and the la la land called the stock market most investors still don't get it. However the specs are obviously engaged given the biggest speculative long position in the history of the stock market.
As my brother said to me after he read the copy of the Long Emergency I provided him "this is kind of big secret insider information isn't it?" I said not from people trying to get the word out ... Our actions and reactions to this news defy logic. The multitudes of venues providing the repeated warnings (thanks Leann) are staggering but most of the population remains in denial blissfuly ignorant adhearing to the message most present in the MSM Hear no Oil Shortages, See No Oil Shortages, and Speak no Oil Shortages their perception is the assumed reality. The more I see it the more I am amazed at the denial no one wants to believe it thats why we seem to exist in this almost surreal state of a disconnected oil market reality.

The question is; how long before the financial world figures out exactly why?

Maybe never. TPTB have other ideas in mind.

Israel preparing for war with Syria, confirms general

Syria “will try to hit Israel's home front in order to win diplomatic gains in peace talks that will follow, and also cause another split in Israeli society,” Israel National News quoted Ben-Reuven as saying.

In order to deny Syria this victory, Ben-Reuven said the Israeli army is training for a swift and overwhelming invasion of Syria “to knock out the areas from where missiles are launched against Israel as quickly as possible.”

'Syria removing Golan checkpoints'

The London based Al-Hayat reported Saturday that Israel was "concerned" that Syria's decision to remove military checkpoints on the road to Kuneitra on the Syrian side of the Golan Heights could be a preparation for war.

One Front. And then a second.

Turkish army build-up fuels anxiety on Iraq border

The Turks keep on the buildup at the border...doubt they need this force for just some PKK. But, those numbers could be a wonderful additional force for a US/NATO invasion of IRAN. *US knows exactly what they are doing, and they are allies with the Kurds...do you really think?

US Army Troop Build up on Iraq-Iran Borders

After the Tehran administration conducted operations against the terror network Kurdish Workers’ Party (PKK) by crossing the Iraqi border, the US Army in Iraq is claimed to have increased the military build up of US troops on the Iranian border


The US administration, however, announced they increased the troops stationed at the border as a security measure since the insurgent’s smuggle stocks weapons into Iraq from Iran.

Meanwhile, both Turkey and the US have reportedly agreed to collaborate on the Iran and Syria issues.
Accordingly, it was claimed, Turkey “moved in harmony with the US in the operational phase” after the monitoring.

Those pesky PKK again...nice cover.

All coincidence and not coordinated, maybe. But, it sure looks coordinated. Carrier rotation isn't for another few weeks, so there is 3 carriers in the Gulf for at least 3 more weeks, roughly.

Don't want to wear the the tin hat, but it appears that it may be justified, either way we will know soon enough(if two carriers sail back to the US probably all clear).

Here's hoping I am wrong!

Have been covering Syria/Israel the last few days. For additional links and background:


See post below for Russia/Syria background.

A question I have is to what extent is the weak dollar holdidng down the price of oil?

I'm not an economist so I may have this all wrong, but it seems that, because oil is priced internationally in dollars, one can buy more oil with the same amount of, say, euros, as the dollar declines in value relative to the euro. So doesn't this mean that the declining value of the dollar serves to artificially hold down the nominal (ie, posted) price of oil?

you do realize that is all going to be oil in the next couple million years right? These dead zones across most of the continents many years ago are what did this.

But Mr. Yergin is confident the world has ample resources of oil and natural gas; this just is not a great time to go out and explore for them. In the last 30 months, the costs of oil and gas exploration have risen 64 percent, he said.

"The industry is reeling from sticker shock right now," Mr. Yergin said. "When costs go up that much, it limits the things you can do. I hear everywhere people talking [about] rising costs meaning delays or projects postponed."

From the first link. So if miter Yergin is very concerned about above ground factors limiting oil supply. Maybe expectations that peak production will occur later are unfounded ?

Next we know many regions have peaked going into decline.
And we know when a region goes into decline a huge amount of investment is needed to minimize the decline rate.

Maybe our assumptions that the world decline rate will remain low and close to that of Texas is unfounded ?

And of course you need to consider export land model.

Yergin is raising alarm bells ?

But we don't want to scare anybody on this airplane thats a really ugly cloud not a mountain. Is no one but WestTexas going to talk about reality instead of their favorite model.
We obviously have a major problem brewing. I've not seen a single one of the ASPO projects that predict peak 2010 or later adjust their forecasts nor seen a single explanation from them for why we are not getting the oil the predicted and these are people who believe in peak oil.

It friggin Yergin who is raising the red flag and it does not take a genius to figure out what happens when a region in decline pulls back on investment.

If anyone would like to enjoy a little comic relief check this out.


Just below opportunity #4 is something bordering on fraud.

Just released today, Canadian industrial chemical production for may 2007.



Polyethylene production up 0.2% for yearly cumulative compared to a year ago.

Seems like the plastics industry is not growing as fast as it "should". And for those of you not in the know, plastics come from oil.

DD can occur in things other than fuel!


Gasoline inventories Down 2.3 million barrels

Crude inventories Down .5 million barrels

Summary of Weekly Petroleum Data for the Week Ending July 13, 2007

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) declined by 0.5 million barrels compared to the previous week. However, at 352.1 million barrels, U.S. crude oil inventories remain well above the upper end of the average range for this time of year. Total motor gasoline inventories fell by 2.3 million barrels last week, and remain below the lower end of the average range. Most of the decline was in finished gasoline inventories, but gasoline blending components inventories fell slightly. Distillate fuel inventories decreased by 0.2 million barrels, and are in the middle of the average range for this time of year. Propane/propylene inventories increased by 1.5 million barrels last week. Total commercial petroleum inventories rose by 1.3 million barrels last week, and are in the upper half of the average range for this time of year.

CNN headline: "Oil prices rally after surprise weakness in inventories."

Bear Stearns fiasco and Negative Petroleum Report...time for the PPT to get to work and turn the market around.

They will have their work cut out for them today!!

What I'm wondering is why it's a "surprise" weakness in inventories. They've been warning us since May that gasoline was going to be a problem this summer.

Imports had been strong, attracted by high prices. But prices have started to wane. I haven't been keeping as close tabs on it lately, but this week's import numbers look pretty weak to me. I suspect we are back in record low gasoline inventory territory.

Today I wrote a very short blurb on the report:


And a couple of others:



But nothing seems to be diminishing demand.

Over the last four weeks, motor gasoline demand has averaged over 9.6 million barrels
per day, or 1.3 percent above the same period last year.

Prices too steady in most markets...public apathetic. I guess we really need a big spike to even plateau demand to last year's levels.

Not much to stop high oil prices unless high prices will reduce demand. Not much new supply growth only new projects to replace part of existing declines.

The largest drop came in reformulated gasoline, that includes ethanol blended gasoline.

Have not seen a recession in gasoline spending yet. Total petroleum stock imports up 1.6% YOY.

Domestic petroleum production down .8% YOY.
Domestic natural gas liquids production up 8.4% YOY.

As petroleum products supplied per day was in an upward trend, stocks in the average range are not particularly comforting as consumption was yet rising.

Better pray that no hurricanes hit the refineries on the Gulf Coast, or we're looking at $4-$5 gasoline
Bob Ebersole

I believe that rampant inflation will cause everything you are talking about. No hurricanes nessisary.

Printing so much money masks the underlying problems.

I think TPTB are praying for a hurricane so they have something to blame it all on.

Pray all day for Cantarell to revive yet it is dieing.

Jack Crooks at Black Swan Trading.com has worked up two interesting charts showing the DJIA adjusted for the fall in the dollar. To view charts go to link. Crooks writes a finincial column for Asia Times On Line...Link below and excerpts...


snip...FX Trading –stocks adjusted by the dollar!
In case you missed it, unlikely unless you've been visiting another planet lately, the stock market is on a tear. The Dow Jones Industrial Average poked its head above the 14,000 barrier on Tuesday, but settled in for the night just below the rarified mark.

The Dow and the Transports have once again confirmed there is more to go on the upside, no matter the increasing frequency of nosebleeds.

Thinking about this, and thinking about the dollar as we always do (occupational hazard), we wondered what the Dow Jones Industrial Average would look like if we adjusted it for the fall in the dollar. So, that's what we did.

In the chart below it shows the Dow Jones Industrial Average (black line) compared to the Dow Jones Industrial Average Multiplied by the US$ Index (red line), both are a monthly price series. What we noticed is despite the very nice surge in the unadjusted Dow, when adjusted for the falling dollar it is still well off its old highs made back in May 2000 ...snip...

Anyone care to offer some conjectures, implications, guesses, or logic ...

Our attempts are these:
1. Stocks represent ownership of real assets in the real world. And said assets (just like gold) should reflect "real purchasing power". Thus, a falling dollar means said assets should go higher, all things being equal (ceteris paribus for the economic literati among us).
2. International investors see the Dow as cheap thanks to said dollar demise.
3. The P in P/E (price earnings ratio) is bid higher precisely because the E in the equation is rising thanks to a falling dollar. And of the E generated from overseas sales relative to domestic tends to rise because currency translation benefits back into dollars. When the collective Ps for multinationals (which are a very big part of the Dow) are bid up, the index follows in kind.

The $14,000 question is: Does the Dow get hammered if the dollar ever stages a rebound? Over to you on that one!

Below is the same chart above with our hero, the dollar, overlaid in blue:


Look at my comment above; central bank money printing is a proxy for devaluation of a country's currency.

We will experience inflation, not deflation. There may be some "dis-inflation" sprinkled in there for fun and to keep investors on their toes, but there will be no massive deflation/crash.

This is why individuals who pulled out of the stock market to place the cash under their pillows and going to quickly be sitting on a pile of worthless paper.

Even in Zimbabwe with hyper-inflation, those who kept invested in the Zimbabwe stock market would have at least help mantain their purchasing power.

I read some of the less technical, more mainstream energy related message boards. Most of them are filled to the brim with conspiracy theories and crying over increased fuel prices. After reading these two gems, I just had to share:

Maybe we should spend more effort and enthusiasm blaming ourselves for ignoring warnings over the past 20 years, than looking to blame everyone else. Conspiracy theories are convenient tools for deflecting blame.

Granted that others (government, oil companies, etc.) could have done more to increase vehicle fuel efficiency, develop alternate energy sources, reduce imports, increase refinery capacity among other things, BUT we could have done our part too. We could have reduced consumption and limited our "unnecessary" driving habits. We are now paying for our refusal to heed the warnings of years past.

But we Americans have always felt that those things which this country provides are our "right" rather than a privilege. With that kind of thinking, we always insist that everything else change, rather than looking at what we can change about ourselves and our habits. There is enough "blame" to go around for all involved. Lets try sharing that burden rather than trying to deflect it.


One of today's news articles posted a poll which indicates that most respondents blame the oil companies (43%) for the high gas prices. But what is most distressing to me is that only 13% of respondents blame "supply and demand," and worse yet, only 4% blame drivers ("US"). According to this poll, we are not taking any of the responsibility. We are deflecting blame--makes no sense to me. Granted the poll is small, but it is indicative of our thinking.

Source of the Poll:
Source: Quinnipiac University Polling Institute
Methodology: Telephone interviews with 1,711 registered American voters, conducted from Jun. 5 to Jun. 11, 2007. Margin of error is 2.5 per cent.

Personal responsibility and doing personal research? BAH! We can't have any of that. The above post got mostly negative responses, including this incredible one:

It is true that "we" are to blame to a degree in that "we" are the ones who drive the gas guzzlers.However "we" are really guilty of following the trends advocated by society,the media who pushed the ideal of a fast life in the racy cars,Suvs etc.It was so easy to follow that life style easy loans to buy the cars and the big oilbarons pushed the way of life with ads showing the grand life on the road.
Now "we" are faced with an oil problem high prices,goughing,and we must reconsider our lifestyle.Many of us can not afford to get rid of that Suv,but must continue to drive to work from the suburb that was said to be the "be all' in the media.But the oilbarons continue to reap the high profits.
We read the apologists every day saying it is our fault!The big oilbarons are sweet and innicent being pilloried for our excesses.They have, they say, no fault for making big bucks,it is jost free entroprise.They do not want to consider it a system running amuck.They let their ambassidors speak for them in gasbuddy pleading their cause!!!

Between the rationalizing excuses of the second post and the poll in the first post, I see little reason to be optimistic about how the public will respond when the prices really start to skyrocket. I suspect Kunstler is correct about the monsterous leaders that the public will turn to since they're going to want someone to blame and there will surely be some sicko power hungry opportunist waiting in the wings to exploit that for their own gain.

See - Iran riots at gas stations, Pakistan riots at power stations...etc.

Increase by an order of magnitude. These people will blame anyone and everyone except themselves for the problems that are coming.

I find it saddening to think of the irreplaceable infrastructure that will be lost to these fools when they get violent.

All too soon.

I have to agree with this 100%. The US public does not have the character to effectively rise to the occasion. We can talk around it all day long, but it is the elephant in the room.

That certainly reflects the mood on the Gas Buddy discussion forum. It's a scary thing to read.

But it's not just a rationalizing excuse. The capitalist system of our time absolutely required that we live beyond our means to inflate stock values. The advertisers worked damn hard to teach us from the age we started watching TV. Media brainwashing is going to work on a certain % of citizens, and the more sophisticated it gets, the larger the % will be. The entire structure of modern finance and commerce assume that we will obey, and we did. How long have the oil companies known there was an incipient supply problem and said nothing? As long as the tobacco companies knew their product caused cancer and lied about it and modified it to make it more addictive?

I was away from the computer earlier this week. On the "Ask TOD: Legislative Sausage" thread (now Page 2) I just wrote the following response:

If someone's goal is as fast and as hard an economic collapse, social disruption & chaos and die-off as possible, then my goals are in direct contradiction of those goals.

Before significant mitigation can be put in place, society and our economies will be forced to deal with ever declining liquid fuels. So there will be an upper limit (rapidly declining) in conventional oil available.

It is unlikely that we will have to resources to pursue all proposed "solutions" (many or even most will be as worthless such as ethanol). Several "solutions" will make Global Warming worse and massively degrade the environment. CTL, tar sands and oil shale spring to mind.

My proposed solutions will reduce GW (trading 20 BTUs of diesel for 1 BTU of electricity seems like a good idea to me). They will also stop Urban Sprawl and probably reverse it, leaving more farmland for "later".

IMHO, society cannot fully fund crash programs in all areas. To the extent that Electrification of Transportation is funded, there is less funding for CTL, with the associated strip mining, massive CO2 release, etc.

And after TSHFT, I have seen photos of bamboo carts in Cambodia running down abandoned rail lines. When two meet, the pax of both get out and lift the lighter one off the tracks, let the heavier one pass, and put the lighter one back on. Long lived assets of today will still have some value tomorrow. And Urban Rail can run under terrible conditions. The day after the SF earthquake (in 1903 ?) streetcar lines were running again with makeshift poles, crude forcing of rails where distorted by the earthquake, etc.

There is a basic efficiency of steel wheels on steel rail that societies with even minimal resources will try to use. And they can last for centuries.

At some point, the US WILL start trying to mitigate lower quantities of oil. My proposals seem to be the most benign available.

For example, "Step Four - Promote More Transportation Bicycling". Yes, more bicycles and bicycling may slow the rate of die-off in total collapse. Is that a good or bad thing ? As noted above, I think a good thing. And doing things to promote more bicycling seem to have benign environmental impacts.

Society would be better off re-striping streets (taking lanes from rubber tires), re-timing stop lights with a "bike green" 2.5 seconds before a car green light and adding bike racks and a "rent-a-bike" program than building one more CTL plant.

Best Hopes for a Manageable and Properly Managed Decline,


In my judgment is was worth bringing this point up again rather than let it sit on a dying thread.

Best Hopes,


Agree that it is worth keeping this discussion going.... though it is difficult to keep it focused.

As I commented on the rail topic featured article last week, implementation strategies require a detailed discussion. In my case I was arguing for the desirability of private rail as a means of travel. Regardless of ownership (public/private/hybrid), the truth remains that there is a big gap between concept and final goal.

Implementing an idea is where the work and risk lay.

Here is the kicker: the power to tax is the power to destroy. Yes, really. Any winning approach (to peak-oil transition-effort legislation) will have to make judicious use of tax money. I agree with you that we can't afford to try everything in depth, though we can certainly do R&D on a wide variety of ideas.

The power to change exists within the local community. Certainly Portland, SLC, and Denver are charging ahead, while some cities are essentially standing still (Houston, Atlanta, and a whole bunch of medium sized cities such as Kansas City, Colorado Springs, Las Vegas etc.) or barely creeping forward (LA, San Diego, Phoenix).

Having re-settled in California I can tell you that the real challenge is to change the minds and hearts of people, not in coming up with good ideas. There are lots of good ideas here... and lots of bad ones too. Yet the fundamental change in lifestyles required is too much to do in one step. This really his a multi-generational problem.

The US is composed of 50 States, each with the fundamental responsibility to act as a state (laws and law enforcement, funding, protection of citizens.) And yet how many state legislators are working to help their respective states remain safe and prosperous in the age of shrinking oil production? E.g., with Texas' recent coffer abundance why could they have not at least begun to look at intra-state rail?

WT has become famous here for preaching his ELP philosophy... which is about personal responsibility. With whatever little time in the day we have left after economizing and localizing, could I suggest one spend that time influencing your local community and then your state officials in building a more efficient future?


You've slurred us a little here in the Lone Star State. The NAFTA Corridor highway has plans and designs for high speed rail. The City of Houston is currently buying Right Of Way for more light rail, and Dallas is expanding their's too. There are two new nuclear reactors being designed at Bay City for the South Texas Nuclear Project, plus we have more installed wind turbines than any state in the US. We educate more geologists, petroleum engineers, landmen and chemical engineers at our university system than any other state, and Texas A&M and UT Bureau of Economic Geology have active research programs in Tertiary production techniques.
That doesn't mean we can sit on our laurels, but we are in fact doing more than most states.

Come to the ASPO convention Oct. 17-20 in Houston. You'll be pleasantly suprised!
Bob Ebersole

Hello TODers,

Study: Americans Don't Understand Others

Rugged American individualism could hinder our ability to understand other peoples' point of view, a new study suggests.

And in contrast, the researchers found that Chinese are more skilled at understanding other people's perspectives, possibly because they live in a more "collectivist" society.

"This cultural difference affects the way we communicate," said study co-author and cognitive psychologist Boaz Keysar of the University of Chicago.
Sadly, we humans won't even begin to take the time to understand an opposing viewpoint once the negative energy game truly begins--It is ERoEI-easier and much more time-efficient to undeniably impose our viewpoint with a weapon.

EDIT: for further clarification and elaboration:

For example: Did Timothy McVeigh take the time to gain some appreciation of the toddlers in the Murrah Building Preschool? Do Jihadis get to know their victims on a first name basis before they hit the detonators? Do Predator UAV gunships disperse Valentine greeting leaflets or Hellfire missiles?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?


Here's an alternate explanation to "rugged individualism":

Americans spend so much time watching the tube and playing video games that they've lost (or never learned) the social interaction skills that enable someone to communicate with others. Sort of a media induced autism.

Timothy McVeigh was a sociopath and never learned the skills to appreciate his victims as humans, and was trained out of any natural sympathy by his military experience. Same thing is true about the helicopter gunners-the military makes a point of recruiting kids inured to killing by video games.

Human relationships take practice, not just instincts.

Bob Ebersole

Hello Oilmanbob,

Thxs for responding. I keep thinking back to the Youtube video of the Battle of Kruger:


My guess is that the watering hole is the only one for miles around [habitat in negative energy mode]--grazing animals had no choice but to instinctively go there. No body language, no communication really needed as satisfying thirst was the Liebig minimum for the African water buffalo. The lions and crocs were quite desperate for food as evidenced by the short attack timelines and willingness for battle to hold onto their captured prize. No discussion required--they just all played it out from a pure power perspective.

Your Quote: "Human relationships take practice, not just instincts."

Very true, no doubt. But when we don't have the energetic luxury to foster these relationships-- we will revert to our genetic-driven instincts. Recall Tadeusz Borowski, #119198:


Alternatively, Peakoil Outreach is our best hope IMO:

REQUIEM by Jay Hanson

"If there is any hope at all, it is that people will come to understand the key systems in their world and then find the courage to make the hard decisions necessary for survival. We must find political means to abandon the competitive, consumptive social system -- or we shall perish."
Even a Military Major says the same thing:

From page 32 of PDF:

"Only if our leaders – and the American people – are armed with facts and information can we make the rational decisions necessary to prepare for what lies ahead."


Time will tell if we will wisely choose to optimize our decline using Asimov's Foundation concepts of predictive collapse and directed decline. If we TODers can somehow help make an additional one million people and 10,000 additional species to the other side of the Bottleneck--I will have considered our efforts to be a roaring success.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Is the Phoenix air any lighter today, Bob?

Hello JoulesBurn,

LOL! The air will get much lighter from massive heat if you can imagine a 5 mile wide urban flamefront driven by this rapidly moving duststorm. Recall my earlier speculative postings on this whereby my future Phx imitates the WWII Dresden firestorm.

Once my Asphalt Wonderland is a postPeak ghost town and cannot afford firemen anymore: what can possibly arise from the mythical Phoenix's ashes if they are deeply covered by sand dunes?

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

'The city of Tanis was buried in a sandstorm that lasted an entire year; wiped clean by the wrath of God!' - Raiders of the Lost Ark

Hey Bob!
I may be in Tucson then Phx in Sept or Oct, partly on a job, partly to see my Father-in-Law-in-Glendale. If the timing works out, want to have lunch?

Bob Fiske in Portland, Maine

PS, I've got 2 Wheelbarrows running now! Largely recycled from Kids' bikes, bedframe steel (great material, very available), Nordic Track Parts, etc, etc.. One is for rocks, gravel, kids and coolers up in the woods, and the other is for camera gear in Portland. I can move a 75 pound kit around easily with one hand, leaving the other one free for my coffee!!

Jokuhl - I have been reading your posts and I too believe in human powered solutions (have a couple patents during my industrial design period, not that that means anything). I would encourage you to explore the TRAVOIS.


It is pulled rather than pushed and there are many advantages. Add a wheel (Pat Pend ) and you will be amazed that this is not a product available in all your local WalMarts.

Transfers from bike, to walking, to running. Slide poles until wheel is in middle and put a person on either end and you have an all terrain gurney capable of moving great weight over any surface.

Great word, Soup!
I'm looking up all the twists and turns around Trabajo, Travail, Travel, and Travois.. the Latin Tripalium, or 'Three poles has connections with Shoeing horses, and with torture.

I always thought Trouble was a cognate of Travail, but it comes from Turbulum, or confusion, so the American Heritage Dictionary tells me.. Ahh, for a proper OED!

Yeah, I'll have to try that.. but I'm having a lot of fun with my wheels! My 'Big Barrow' is going to be the RockShaw, which will have hefty wheels and two long poles which will help us lift stones in a 'comealong' setup, and then roll them with the wheels that were the lifting fulcrum.. we'll see.. but thanks for the link!


Bob,the only reason I have any conversations about peak,and ideas to deal with the comeing "phase-change"in our society is
that....maybe a few will hear the truth when spoken,and act.I can only hope.

totoneila wrote:

Time will tell if we will wisely choose to optimize our decline using Asimov's Foundation concepts of predictive collapse and directed decline. If we TODers can somehow help make an additional one million people and 10,000 additional species to the other side of the Bottleneck--I will have considered our efforts to be a roaring success.

Got any references on "Asimov's Foundation concepts of predictive collapse and directed decline"?

There are some people (see Endgame by Derrick Jensen) who draw the conclusion from their own Hari Seldon kind of analysis that bringing down the industrial infrastructure by any means necessary is what is required, to avoid worse failures.

Usually these are eco-system failures that are contemplated (there is a lot more concern for species extinction in these writings than one sees on TOD). But you could also argue from some model or other that to maximize the eventual sustainable human population (rather than peak population followed by die-off), it is necessary that economic growth rates go negative, to prevent even worse overshoot and collapse.

As an example, model take LTG. Here is a quote from Limits To Growth: The 30-Year Update on p. 178, (after going through a scary list of "you know your world is in overshoot when you see these symptoms" -- yikes!)

Listing these causes of overshoot and collapse also gives a list of ways to avoid them. To change the system so that it is sustainable and manageable, the same structural features have to be reversed:

  • Growth in population and capital must be slowed and eventually stopped by human decisions enacted in anticipation of future problems rather than by feedback from external limits that have already been exceeded.
  • Throughputs of energy and materials must be reduced... ecological footprint must be reduced...
  • Sources and sinks must be conserved and, where possible, restored.
  • Signals must be improved and reactions speeded up; society must look farther ahead...
  • Erosion must be prevented and, ... reversed.

I don't think the LTG authors have anything like industrial sabotage in mind.

But you never know what some folks will do.

Don't try to predict the future. Get ready for it.

TOD will have nearly zero impact on that process, Bob. While this is a delightful site for pure theory and statistical number crunching, the site editors and contributors have made clear that discussions that diverge from those areas into areas that might actually make a difference are not welcome. All that is welcome here are efforts to save the entirety of humanity. Anything less is implicitly forbidden.

And that is because if they succeed then they can claim social standing for having been there early. In other words, TOD, besides its number crunching, is an exercise in social standing and social validation. Acknowledging anything other than some form of success in mitigating this crisis destroys any social standing and social validation that might be gained by being first to "cry wolf" thus it is not allowed.

If you want to make a difference, Bob, I suggest you find another outlet than The Oil Drum.

Ghawar Is Dying as we slide Into the Grey Zone
"The greatest shortcoming of the human race is our inability to understand the exponential function.

Can we hope that you follow your own advice?

Exactly the attitude that has turned the Oildrum into a meaningless debating society.

Interestingly enough, Leanan herself made similar comments minus the social standing observations. Neither you nor anyone else attacked her because she is part of the staff here and attacking the staff is another point that is considered bad form.

Ghawar Is Dying as we slide Into the Grey Zone
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett

Neither you nor anyone else attacked her because she is part of the staff here and attacking the staff is another point that is considered bad form.

There is nothing at all wrong - and in fact I encourage - attacking the arguments of the staff. I think I have made it clear that it's the personal attacks (on anyone) that I have a problem with.

As for TOD affecting social change, I think it is a very good sounding board for ideas. There are also a lot of influential people who do read TOD (I know because I have been contacted offline), so there is a chance to have a voice. Do you think if Stuart wasn't writing for TOD that he would have been consulted on the NPC report? Whether they listened to him is a different matter, but it is opening up some doors to affect change.

And make no mistake, that's the only reason I am here. I have turned down numerous opportunities to make money as a result of the exposure I have had here. I tell people time and time again that what I want is to push energy policy in a responsible direction.

I wish you the best of luck, Robert, but after two years it appears to me that there are two sorts of people reading this forum (other than those simply interested in peak oil). The first category are those that are not in a position to make policy but are in a position to try to profit from this particular resource scarcity. You and I both know those people are here.

The second category includes some of those who can make policy but I do not believe they are reading TOD to make policy decisions. Instead, just as Bodman did, they are listening to the enemy, i.e. you and others here, and then constructing answers intending to discredit the enemy. That is exactly what the NPC report does. It glosses over real problems, says a few words about some of the most useless solutions, then shills for more business as usual.

You are not changing policy that I can see, Robert. So we get back to my original question. How far along in this process do we go before you conclude the existing social order cannot be saved, that you have a responsibility directly to your wife and children, and that you decide to focus on that instead? As I have asked elsewhere, I'm betting that most here have never even asked themselves that question. You may have though. You tend to think things further through than others. I'd ask you to expound on that theme but here is probably not the right place to do that and would likely be met with a rather chilly reception.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

How far along in this process do we go before you conclude the existing social order cannot be saved, that you have a responsibility directly to your wife and children, and that you decide to focus on that instead?

A bit of a conundrum, Eh?
Acknowledging this opens the pandora box.

How far along in this process do we go before you conclude the existing social order cannot be saved, that you have a responsibility directly to your wife and children, and that you decide to focus on that instead?

Those priorities are the reasons I have made the choices I have made over the past few years. I am trying to earn money in a field that I see as crucial in the years ahead - which means the job security will be very high. So, I take that money and buy arable land in locations that I believe are well-positioned for the future. I intend to give ourselves some options - a better chance - if some of the worst case scenarios come true. Besides that, I grew up on a ranch in the country. I love the outdoors. This is my insurance policy. I have evaluated my own personal circumstances and come to the conclusion that what I am doing is the fastest route to that insurance policy.

At the same time - but as my second priority - I try to influence energy policy. In a big world with many different views on where we should go, that makes for slow progress. But I have seen little successes. People contact me all the time for advice, or to evaluate their ideas on sustainability. Some have been good. I always try to point people in what I consider the right direction. Whether it ultimately matters - I can't say at this point. But it feels right to me.

Since I haven't said it before, many thanks RR for your time and lucid thinking & analysis.

Speaking for myself, I have no idea what sort of difference I will be able to make, but I may be able to make one, and in a way you'd want. I'll try.

There are a lot more than just greedy people and enemies of the planet reading here....

Hate to do this(post) but I will anyway.

If you will recall , I didn't attack , but I most assuredly tried my best to gain an understanding of just exactly what TOD was really all about , under the covers ,so to speak.

While it is a good debating site, and worth the time to fast scan on occasion, as I do often, I do find it sadly lacking in that they made it obvious that they are not concerned with the 'masses' but more so with influencing the politicos and scientific community(to fix the upcoming crisis).

The line is 'survivaliast are an embarassement to the staff'. Or words very very close to that.

This was never refuted. It was not an attack. I just wanted to know if it was worth my time and effort posting and commenting on TOD. It wasn't.

I did therefore 'call them out' and I was glad to do so for now I can use that time to far greater advantage.

I now live in a 900 sq. ft.which is part of a pole barn on my own land. I own it outright the land and all fixtures to it. I am completely in control of my future. I am NOT going to be holding my breath in anticipation of some political hack or scientific guru,welded to the backbone to a commercial enterprise and screwing society in the azz whilst the merchandisers and execs send every last job overseas.

That is what the politicos and scientificos have given us. Our azzes in our hands.

I go my own way. I don't expect many to do the same.
I don't want to waste precious hours on bullshit.

Without a Drumbeat for debating, this site would lose most of its members. That debating however happens to be where the wasted time is.

Once its obvious what our future is then the rest here is just fun and games. The reality is your answer to the same

"Knowing this what are YOU going to do?"

Save a freezer full of food? Pay off your debts? Plant two tomato plants in your back yard? Fill your coffee table with 'green' magazines? Save money? Feed the squirrels? Buy an air rifle? Put another lock on the front door? Your toast. Learn to accept that and then....? Well read more on TOD.
But don't listen to the survivalist. Bunch of nutcases!
Embarrassing nutcases.

I have no rancor about this(well a tad). I just want to read about survivable solutions and not about failed scenarios involving technology that is far far too late and politicians that could care less.

Airdale-and wasting time right now that I shoudn't be..

Whereas Grey Zone's answer is to be extremely detached and jaded, in a quest for the apex of Antisocial-Sitting.. just so that there's no mistaken assumption that he was in any way concerned with Social Standing.

'A rock feels no pain.. and an Island Never Cries..'

Another non sequitur. TOD serves certain purposes. Effecting massive social change is not one of those. Tell me all about the massive social change that TOD has wrought in its two years so far. I'll wait but not hold my breath.

On the other hand, TOD does do a valuable service by providing excellent statistical analysis and raw data about peak oil. Hence my comment to Bob that if he wants to effect social change, then TOD is not the place to accomplish that change. Of course, if he wishes to access peak oil data and analysis of that data, then TOD remains an excellent site.

You might endeavor to understand that difference.

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

That difference isn't hard to get. I don't expect the changes due to TOD to be even measurable, but I do think they are significant and useful. As much as there are a range of related ideas always moving through, from politics and economics to alternatives large and small, for me, this site is more about communicating and dealing with each other, not unrelated to Totoniela's links about Americans' isolation from each other. I think the web is still isolating in many ways, but I'll take the connections I can get from it, and not forget to have both a lot of personal contact here at home, and also to put the ideas I chew over on this site and others into real action, so it's not just theory-ad-infinitum.

It's your comments about people's motives here being Social Standing, and casting yourself as 'the rebel who DARES to challenge the seated lords and the implicit rules of the site' that casts your otherwise intelligent comments in a petty and sour light. It's like Chimp's theories about 'fitness' and social order.. it comes off as a Hollywood fantasy.

Yea and verily, though, methinks 'endeavour' added a soupspoon of academe' to that last post! Huzzah! (ie, that kind of word choice makes you sound like a boob.. stop it.)

So now we descend into the personal attacks because I used a word you don't like? Boob? This is so cliche and per form for any internet based forum that all I can do is laugh. Surely you can do better than that? I've seen it before many times and undoubtedly will see it again but I did expect better of you, jokuhl.

Further, I never said everyone's motives here were social standing. I said that was true about most of the editors and contributors but if you wish to place yourself in that category, be my guest. I am also certain though that such an observation is not true of all of the editors/contributors, just the majority. The important point is that the editors and contributors as a whole set the tone and purpose of the site and therefore certain topics will be welcome here and others not.

But surely you knew all this anyway before you decided run off on a tangent, right?

"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone

TOD will have nearly zero impact on that process, Bob.

I feel the impact or effect is more subtle. I don't expect to see CNN banners quoting TOD probably. But. Like Dylan did in music in the early 60's (showing my age), Most didn't care for him at the time, No real impact on the Public. BUT, BUT he DID impact THE Changers of the time and his stuff got amplified many fold. Many didn't even know the lyrics or song was written or affected by Dylan.

My point is for instance, If you read the new Stratfor article.

Security Memo: Mexico is Imploding
Stratfor Intellegence


You can't help but wonder if they had read the article and comments of this TOD item.

Mexico: A Nation-State Dissolves?

Kunstler mentions TOD in many articles.

Richard Rainwater undoubtedly has dropped in and read.

We don't KNOW who is reading this stuff.

But I REALLY feel some important types are reading this stuff.

Will joe sixpack wake up from the impact? Probably Not.


....the site editors and contributors have made clear that discussions that diverge from those areas into areas that might actually make a difference are not welcome. All that is welcome here are efforts to save the entirety of humanity. Anything less is implicitly forbidden...

I have had similar thoughts, although I don’t agree with GreyZone’s next paragraph.

The response to ‘peak oil’ must be societal and cultural, and is thus a deeply political matter. It is politics in its brute form.

Maybe about 70%?, of posts on this forum implicitly or explicitly deny that ‘new energies’, ‘tech breakthroughs’, etc., arguing against your typical cornucopist, will compensate for the depletion of ‘oil’ (vagueness is deliberate.)

Well and good, I am here because I share that pov, have done so for a very long time. That in no way invalidates the knowledge, proposals and real life efforts of people like Alan, nor does it speak against solar enthusiasts, nor even against some technotopists, or wild and wooly optimists, nor individuals who just figure they will head for the hills and live with the birds, oh but not the bees..

However, it does point to a sort of dead-end, perhaps rather tempered and mild, doomerism, that while based on correct facts, if these can be said to exist, flounders about with no place to go. Let me illustrate, ex:

1) US Suburbia will die; or it will not because of organic gardens, solar panels, bio-fuels (fill in more...); that is as may be; but how are collective decisions to be taken?

2) Joe-6 and my esteemed, highly educated and competent colleagues seem unaware of ‘peak oil’, or are informed in some measure yet unwilling to imagine the implications. It is important to get the ‘message out’ - I agree entirely.

But once clued in and convinced, what are they to do? Vote for Giuliani or Obama or Hillary? Refuse to drive their kids to school? Give up plastic bags for jute?

In Switzerland, demonstrate against the new planned gas-to-electricity plants, put forward by a Socialist Minister, who is up to speed and no dope?

What is needed is systemic change and that is terribly, probably insuperably, difficult. Some press should be devoted to that, some discussion..

Ok I will shut up now.

Battle at Kruger = Most. Bad. Ass. Video. Ever.


What's interesting is the subtle prosocial sentence at the beginning of the Yahoo! article.

Rugged American individualism could hinder our ability to understand other peoples' point of view, a new study suggests.

I see MSM shill here, and by extension the mitigation of the paper's impact. It would be interesting to see if the author uses the same phrase in the paper.

Home of the Brave ?

I guess most still open the envelopes with the credit card statements.

Forget about the free part.

This is true and partially genetic. There was a Scientific American(I think) article about this topic - when shown a picture of a tiger in a jungle scene Asians spend time putting the tiger in context with the scene while Europeans look more at the tiger. They suspect its evolutionary pressure on Asians from the organization required for large scale rice cultivation, which sprang up thousands of years before similar activities in the west.

I wish I had a link for this ...

Whenever I hear this I think...of course, everything of any substance is made there.

All that industry creates pollutants...but really we just moved the pollution to them so we could have a cleaner backyard.

Who is to blame?

The question is, did China move so fast to become the world's dominant industrial power because that was the only way to survive in a world that has no middle class. Nations either have very high or very low per capita incomes. In-between, it seems bad things happen, like collapsing banking systems. China had to make that big jump from $1000 per capital to $10,000 per capita before the bridge collapsed.

Now what was the reason for the hurry? Reporters would hear from unnamed sources that Beijing feared uprisings from its workers and farmers if it didn't produce 30 million new higher-paying urban jobs per year. But that's been an issue for 20 years, and the unrest has been manageable. In fact the government wanted to slow the economy down the last 10 years, fearing inflation, yet has failed to do so.

I think the reason for the speedup to over 10% annual growth after 2000 was the leadership's realization that it didn't just have to stay ahead of its people's discontent, but America's discontent. If any of them read Cheney's Project for a New American Century, they would have seen that he would target China for destruction as soon as the scale of its ambitions became obvious. So China had to do it all at once, before the US could respond with sanctions and blockades and puppet states and bases. The price it paid was the loss of the chance to build a more sustainable consumption model before the masses got hooked. It also remains to be seen whether lending the US $200 billion a year really makes China stronger.

Well who is 'we'. I am not the manager of a multinational company. I didn't vote for massive primary job reductions.

Maybe its Macs fault:


Though I'm sure he meant no harm.

Really Govs should only allow regulated trade

More from Zimbabwe

Shoe polish, dishwashing liquid and light bulbs were the three most plentiful products in a major supermarket in my home town by this weekend.

Almost none of the basics of daily life are available a fortnight after enforced price cuts....

no rice, flour, maize meal, margarine, meat, milk or eggs. No salt, sugar, biscuits, porridge, dried fish, dried beans or powdered milk. No soap, candles or matches...

Most buses and public transport vehicles had stopped operating as fuel supplies ran out and transporters were ordered to charge prices way below their costs.

The government price cutting task force have now announced that medicines are next in line to have prices cut and a cold panic is spreading amongst people on life preserving medicines - as supplies of drugs run down and are not replaced, how will they survive?


Following the decomposition here...

Zim. is a great example of exxagerating a problem through horrible mismanagement (not unlike New Orleans/Katrina).

What was the expectation of the officials who decided to force price reductions in a country with runaway inflation?

Sure the merchants obliged (vs. punishment/death) but now are they forced to replentish those stocks, not likely and truly un-enforceable.

So, the great leader(s) of Zim., shoved the country down a couple more steps into the abyss of absolute anarchy and chaos.

I'm quite intrigued by the Goldman Sachs improved design of the trusty spike. The old design had a sharp point at the top with rapidly retreating sides, but the new improved model, rolled out about May 2005, seems to have only one side to it. Somehow I find that kind a little harder to drive home.

Apart from the natural gas spike following Hurricane Katrina, which Wall Street seemed to figure was of the new type - see Amaranth et al - the spikes now are rather consistently one sided with a similar downward spike in the US dollar.

While we may not have a new plan of attack, we seem to have one for its larger cousin the spike. How the economy will respond to the new and blunter instrument is my point.

So it's off to war, to beat out of poor OPEC all the reserves they said they had and must be hiding along with the weapons of mass destruction and Al Qaeda comic books. Ali KaBlam!

I hear the wily bastards have pumped their entire petroleum reserves into tanker trucks and are driving them around the countryside in an effort to evade our inspectors.

RE: Flying High Pond Scum (main link above)

Any ideas or comments on this story?

I've viewed algal biofuel production as beset by 2 problems-contamination by other species in mass culture, and harvesting-in addition to yield/scalability.

It seems they have gotten around the first two, or is the story deceiving. By culturing in sewage lagoons, they appear not to care about contamination, not sure of harvest-just that "chemical" methods may preclude some problems.

It would be nice to know the target species-even as whether it is unicelluar or filamentous.

World airline passenger load up 4.8% YOY with declining global oil consumption? Where's Roger Conner when you need him?

“Call for Posters” from ASPO-USA for Houston Conference

ASPO-USA is issuing a call for posters at the 2007 Houston World Oil Conference this fall. People selected to present posters will be able to register at the special rate of $150.00 including all meals and receptions.

Details http://www.aspo-usa.com/aspousa3/CallforPosters.cfm

This morning I just picked up a couple more crude call options; a DEC 2010 100 call at $2000 and a DEC 2011 100 call at $2600.

I'm a small investor, and this makes me nervous since it seems like few on this list are doing something similar. Still, it seems to make sense to me to "hedge" the rest of my life in this way... sort of like buying term life insurance on the oil markets.

I won't fall on hard times if these don't pay off; still, it's significant $ for me. I can't afford to risk margin calls on actual futures, in case there's some kind of volatility, so call options seemed the way to go. Obviously if the world collapses I won't be able to cash them in, but that will be a lesser issue at that point...

Any other novices plunging into this stuff?

Where do you make these trades? I bought USO last year as a hedge against TEOTWAWKI, and since things didn't get bad enough quickly enough, I lost some money (because during contango USO grinds slowly into dust, Google "uso oil drum dust" for details.)

I'd like to cash out of USO and buy real futures at the peak of 2007 summer/fall badness, but I don't know where is good.

Count me in on that too. I would be great if there was a good thread here from the point of view of investment options that are available. I know there are other sites that deal with this subject, but I think the brain trust here would provide a more balanced set of arguments.
I don't have the financial experience to contribute much in the way of useful advice but perhaps I'll start a new thread just by framing a few question that I'm sure are on a lot of peoples minds.


to hell with the markets.
buy hard assets

I understand that sentiment, but I think there's a need out there to make decisions about how to hold on to the value of monetary assets. Personally I already have enough land and other tangible assets. I have several hundred thousand dollars sitting in money markets because I'm too uncertain, (scared) about the future situation, (in no small part thanks to this site). I don't think the best idea is to convert that money into gold coins and ammunition, so I'm wondering if there is interest in a more full discussion of how to position monetary assets over the next several years so that they are not chewed up by inflation or other means of wealth destruction. I'm not looking for advice so much as for analysis. I feel I can decide on my own if I'm given a rational outline of the viable alternatives. Most of the blogging etc... done in this area is mostly about slanted advice and bridges for sale.


Old maxim; diversify to reduce risk. This means time average as well as buying a diverse set of stocks and bonds.

I would "buy wind" as part of my portfolio, but hydro seems a better buy for the secure part of my portfolio.

Brazil will suffer less than most post-Peak Oil. #2 ag exporter in the world (coffee, soybeans, cheap low quality beef, orange juice, etc.). Pretty close to energy self sufficient. Most electricity is hydro and CIG & CPL are on the NYSE (each half owned by a Brazilian state).

Several Canadian hydro plays, also Swiss & Austrian (OEVZY majority owned by Republic of Austria). Norsk Hydro was a good hydro play till they got involved with oil & gas :-) Majority owned by Kingdom of Norway.

Buying stock in half gov't owned company reduces upside but adds safety IMO.

COP best integrated major IMHO. Apache best single long term oil play. Encana best long term North American gas play. Several royalty choices (I chose BTE, now kind of regret that).

Railroads have done as well as oil. CP closed at 74 and opened at 90 due to hostile takeover, FLA also taken over at a GOOD profit.

I also like SWZ, closed end mutual fund that invests in Swiss stocks and now real estate, (I read their reasoning for Swiss real estate and I think it a good investment, unlike US).

I wish I could find more foreign railroads in stable areas.

Some nations will do better than the US, some sectors better than others. Canada will do better than the US, as will Brazil, France, Norway, Switzerland, etc. I like hydroelectric because they are durable (if variable) producers of energy. A REAL asset that produces real value.

There were very few "winners' from mid-1929 to 1934, but a few stocks retained most of their value.


Take a look at US based oil and gas royalty trusts. They pay about 8%-9%B dividends, plus they are a direct investment in a hard asset. There's no margin calls. Look at Sabine Royalty Trust and Permian Basin Royalty Trust.

I have invested in the following Canadian oil & natural gas royalty trusts: ERF, PWE and PWI.
They pay fat dividends every month with potential for capital gains; I am happy so far.
Also, the dividends are in Canadian dollars, so there is some hedge against the falling US dollar.

Who is your broker? My broker (cleartrade) told me that options are not available that far in the future. He quoted me $1850 for Dec 2009 call options with a strike price of $100.

You can message me offlist if you want my broker's name; I don't endorse them so won't put it up here... click on my screen name for my email address.

It seems to be a matter of literally having a
representative in the "pits". There are people who sell naked calls farther out, but there are so few of them that the bid-ask spread is pretty wide sometimes.

From my point of view, naked call options in the future are something to get while anyone WILL still sell them.