Energy/Credit/Currency Crisis Open Thread

In what feels like the middle of a multi-round heavyweight bout, the world financial markets continue to be buffeted tonight, following the recent trend of lower equities, stronger dollar (vs Euro, SF and Sterling), sinking energy and commodities prices and considerably less confidence in the overall system than in weeks prior. has historically focused on the biophysical aspects of a world economy based on energy (and occasionally the human aspects that impact energy demand). Most research here attempts to predict what world oil and gas production might look like in a future where depletion inexorably overtakes technology, and the costs of procuring large amounts of quality fuels continue to increase. However, the spiralling of recent events make it likely that, at least for a time, be it a week - or several years - oil and gas depletion might be more than offset by the reduction in demand due to the manifold implications of the reduction in global financial leverage and resulting credit contractions and dislocations in the real economy. The linkages between finance and energy are becoming more direct, but I'm quite certain there are many under the surface we are yet unaware of.

Below are a few article links followed by some open ended questions. Please deposit data, charts and links of relevance.

From Nouriel Roubini's article in Forbes:

In a solvency and credit crisis that goes well beyond illiquidity, no one is lending to counter-parties as no one trusts any counter-party (even the safest ones), and everyone is hoarding the liquidity that is injected by central banks. And since this liquidity goes only to banks and major broker-dealers, the rest of the shadow banking system has no access to this liquidity as the credit transmission mechanisms are blocked.

From Bloomberg, on European Union Leaders Stop Short of Regional Plan on Bailouts:

Sarkozy said that ``all actors'' must be supervised, including rating firms and hedge funds. Executive-pay systems must also be reviewed, he said.

``We want a new world to come out of this,'' Sarkozy said. ``We want to set up the basis for a capitalism of entrepreneurs, not speculators.''

Anticipating increased spending, declining tax revenue, and government bank takeovers, they called for ``greater flexibility'' in the application of European Union competition and budget rules.

And in addition to an earlier announcement that Germany would guarantee all bank depositors (much like Ireland announced last week), HYPO did get a 50 billion Euro government led bailout. This on the heels of BNP Paribas buying out Fortis earlier today.

Tonight the Euro continues to weaken, and is now at levels not seen since late 2004. It is difficult to keep tabs on all that is happening, both globally, nationally, and locally. My personal view of our future continues to be a probabilistic distribution of many possible outcomes, the odds and timing of each, periodically adjusted based on the actions and feedbacks of important world actors. The 'public' is likely to become as important an actor as any.

The odds that peak oil is now behind us are now (in my opinion) nearly 100%. The odds of global economic expansion (and growth) now being over are also high (this has been oft-analyzed but here is a good overview of the reasoning). Whether we will have inflation or deflation of 'money' (as opposed to the four real capitals: natural, built, social and human), is still an open question and depends on what path world central banks choose. History suggest that the news has been so bad for so long that we are due some respite from concerted central bank intervention that props up confidence and the markets for a time. But history has been based on growing energy surplus, and ultimate confidence that one will get a return OF capital in addition to a return ON capital. Thus, the current financial/energy landscape may accelerate the popular modern timing of exchanging bank digits for real capital from the end of ones career, to somewhat earlier. Yes, this time it may be different.

Recent events are certainly stirring the pot of possibilities - here are a few questions for general discussion: (no right or wrong answers...;-)

- If/when the dollar rally ends will the oil sell-off end as well? Or do they have fundamentally different causes? (Here I would suggest that oil selloff is largely capital flow/hedge fund driven, and dollar rally has been largely flight to quality and repayment of debt denominated in dollars and leverage is mandatorily reduced.) (Note: Dollar rally vs Euro is 82% correlated with rise in 30 Yr Treasury prices

-What impact would a demise of the Euro have on the future for energy? (Note: tonights ECB call for 'greater flexibility' does not seem consistent with formal limits on borrowing and fiscal deficits by EU members under the Stabilization Pact)

-Will the fall out from the credit crisis cement peak 'energy'? (Presumably, we are headed for a depression and concomitant demand reduction - will the time gap brought about by credit crisis in creating/financing of new energy infrastructure now be overtaken by ongoing depletion in coal, nuclear, and oil industries?)

-Given what is happening, would a 'fast-crash' scenario be, in many respects, preferred to a long drawn out slow crash? (In the sense that a fast crash leaves more quality resources in the ground, and creates enough pain and recognition that our current 'ends' are not the best way to spend our remaining fossil energy surplus?)

-If Peak Oil means the end of growth (I think this likely but not certain), what do people do with IRA's/401ks that aren't due to be redeemed for 10-30 years?

-Would a concerted 100 basis point global ease this week do anything?

-What other Black Swans could make this situation better, or worse?

It seems (at least one) genie is out of the bottle. The time to ask comfortable questions and get comfortable answers may be passed. But uncomfortable answers probably still have a window.

I imagine there will be some growth in some companies for a while as supply chains shorten and patterns of consumption change. More of this will be zero sum than we are used to (More business at the expense of of others rather than as a result of overall growth). I think the realization of Peak oil and resource limits will come when the financial issues subside and the recovery runs into a wall.

Perhaps we see world wide competition for growth at what will prove a zenith - and we witness an interim phase before decline?
Investment, such as it has been in the energy industries, has neither called forth significant energy growth, except perhaps coal, nor a uniform economic (industrial) growth world-wide. China and Russia and India have 'grown' but alongside some very dodgy (consequent?) financial arithmetic in N America and Europe.
My guess is that on a world plateau we are seeing competition for growth,with winners and losers - beginning to approach zero sum. This 'competition for growth' phase anticipates any overall decline, and will see fewer countries achieving growth, before the next phase of overall decline?
We ain't seen anything yet.

My guess is that on a world plateau we are seeing competition for growth,with winners and losers - beginning to approach zero sum.

I think there is a lot of room for growth, at least world-wide. We can all be more like Japan, and Japan isn't optimal by any means.

The problem I have with stats like these is that $/kWh, or kWh/$ have not to my mind been shown to be constant across different sectors of the economy. They probably vary a lot for different activities. And dollars probably embody more than energy, although energy is probably a significant component.

To a large extent then, what we see on graphs like this will depend on what mix of economic activities are conducted domestically in each country, and what is imported. Japan, for instance, does not do a lot of primary energy extraction domestically.

To a large extent then, what we see on graphs like this will depend on what mix of economic activities are conducted domestically in each country, and what is imported.

Well, in the US, transportation is 28% of energy consumption, and in Japan it is only 23%, even though Japan make do with half the energy consumption per capita. There are similar figures for residential use, where 68% of US consumption is devoted to lightning or area heating/cooling, and where ditto for commercial is 48%. These consumption patterns and differences are inherently domestic - it is not stuff you import or export where lots of energy has been sunk.

If anything, I think Japan's industry is quite heavy. Ship-building, automobiles, steel... Sure, they do not do a lot of energy extraction domestically, but such extraction's energy consumption hardly seems to show up in a total energy breakdown of US consumption either. (The main item may be oil refining at 16% of industry's 33% of total.) For Canada, though, I think you have a point, as they have unconventional oil and uranium ore and actually export a lot.

Thanks for your response. It's good to know that the effect is minor - I had wondered about the extent to which economies apparently becoming more energy efficient was due to "off-shoring" the more energy intensive parts of the economic chain.

China oil usage is up but how much of that is just transfer from economies like the US?
I cannot agree more.

I'll stay out of the discussion started by mistermarko regarding the importation of raw materials and export of finished products. But regarding Japan's lower energy use for transportation and heating/cooling, we must bear in mind the differences between Japan, which is a bit smaller than California and the US regarding size (and therefore travel distance) and climate. Using Kansas City and Tokyo as representative of the national average, Japan has a seasonal temp range of 50F (85-35) whereas the US has a range of 75F (90-15) Much more cooling and especially heating is required in the US continental climate vs. Japan's maritime climate.

We cannot all be more like Japan. Japan functions by importing commodities and exporting finished products. In a global economic downturn demand for such produce (which does not include food or energy) decreases, so one countries export gain is necessarily another's export loss. Japan will be keen to hold on to their share. Any other countries trying to emulate them will face a battle (so to speak).

Japan imports a lot of commodities from Australia, but that hasn't pushed down out GDP/kW. This graph shows that its possible to have a high GDP/capita without being an energy glutton. Europe and Japan have high energy prices and high efficiency standards. Australia, Canada and US have a lot of room for further improvement.
Then again we could try to become more like KSA, Russia, S Africa, by keeping energy prices low and "waste baby waste". Who are those poor sods below S Africa? ( Iraq?).

Japan functions by importing commodities and exporting finished products. In a global economic downturn demand for such produce (which does not include food or energy) decreases, so one countries export gain is necessarily another's export loss.

Mistermarko, the downturn is temporary, whatever you may believe. Think like this instead: When it is too expensive to buy extreme gas guzzlers, what do you do? Well, you probably pimp your small car more instead!

Growth is a function of technical progress and sound economic policies. Energy plays a role, of course, but there is a lot of room to rearrange current energy consumption to allow for added growth. We need not even force it - markets will take care of this by themselves. (Of course, it would help if the US slowly introduced European gas taxes, but I realize this won't happen.)

Jeppen, the first Great Depression was temporary - it ended with the Japanese invasion of China in 1937 and the German invasion of Poland in 1939. You say 'there is a lot of room to rearrange current energy consumption to allow for added growth.' This does not contradict my point, the economic problem is not rearranging current energy consumption, it is coping with falling energy consumption. And energy consumption is falling because energy has become too expensive. Economic growth could only take place in this situation if society and industry became more energy efficient and at the moment this is not happening enough. However, I agree with you that growth is (sometimes) a function of technical progress; but nothing short of molecular engineering will get us out of this predicament. On that note:

Mistermarko, oil use per capita has actually fallen 10% since 1980, so we are already coping with falling energy consumption in some sense. During this time, average world GDP per capita has risen around 50% in constant prices.

Granted, the fossil oil per capita will decline faster after peak oil, but as I have argued in other comments, I believe we will cope quite well.

(Sorry, but I don't understand the relevance of your reference to molecular engineering.)

The Global Footprint Network gives the 2003 global biocapacity per capita at 1.8 hectares, the global footprint per capita at 2.2 hectares (the deficit representing resource depletion) ... Japan's 2003 footprint at 4.4 hectares, and biocapacity at 0.7.

By contrast the US 2003 footprint is estimated at 9.6 hectares, and biocapacity at 4.7 hectares.

So while Japan can't live on the current footprint of Japan's economy without importing most of its commodity or embedded resources per capita, on the GFN estimates (and the caution is needed that footprint estimates are intrinsically rough estimates), the US could do, and have resource to export, unfinished or embedded, on top.

I think very few folks will want to be like Japan once oil scarcity becomes an issue. Unless Japan finds a real way to transport goods by sail that economy is in a horrible position.

Coal did the job for some time, I believe.

Room for growth?
Well, maybe.
The slices might still depend on the size of the cake.
Japan hit some kind of 'growth' ceiling for over a decade (also involved dodgy financial arithmetic) but has nudged up somewhat recently. Is Japan's ability to engage with recent China something to do with this recent bit of growth? China is now Japan's biggest trading partner, overtaking USA. Also Japan's relationship with China seems to have turned on a sixpence (dime) this year - agreement on exploration and development of previously disputed gas offshore.
Global competition and the ability (the race) to command resources?
(We used to talk about limiting factors analysis in process control but it gets difficult on the global scene, what with changing balances between manufacturing and services within GDP - also, how much competitive 'advantage' [sic] does USA get from its presumably larger allocation of GDP to non-discretionary petroleum transport kWh?)

The "growth ceiling" was mostly a drought in domestic investment in productive capacity, as Japanese industry shifted from roughly 90% domestic content of production to roughly 60%.

However that shift was largely outsourcing production stages that could be handled well in a labor intensive way in South East Asia and China ... the "outsourcing of material and energy" was the foundation of Japanese heavy industry for its initial post-WWII growth industries of steel and ship building, continuing into the second stage with motor vehicles.

So we understand that various factors due to deregulation and corruption within the financial industry likely lead to the crisis that the USA is facing. But then you have to ask: Is that enough for Europe to dive head first into the same predicament? Germany and England appear to be tumbling at the monent.

1. Does Europe show the same trend to deregulation that the USA has?
2. Does Europe have too much invested in the USA?
3. Are these just all multi-national firms and the problem is not radiating from the USA but is global?
4. Is it all based on the latest oil shock?

High oil prices are uncomfortable, but IMO had little to do with our economic crisis. The crisis was entirely on account of trillions of debt collapsing; debt = money, collapsing money supply = deflation. What happened in dotcom was also involved collapsing debt, but a relatively minor amount as vaporware companies went bust... very few employees lost jobs. The numbers are so large this time that, as we can see, major banks worldwide are collapsing. Eurozone countries now guaranteeing bank deposits will find themselves bk, not least Iceland where bank debt = 7x gdp.
Seven fattish years followed by seven lean ones... if we're lucky, peak oil to be in full bloom as we try to get out. GD had cheap oil and a relatively young work force, we won't.

Ah, so you say, eh? Hmmm...
The mortgage credit crisis is not only due to subprime lending: even the giant government-sponsored enterprises Fannie Mae and Freddy Mac are seeing their portfolio values decimated by defaults. But these defaults are not random: they have a very clear pattern that has mysteriously been overlooked by the financial services sector. Mortgage defaults occur in places where the need to drive is very high — strolling suburbs with little or no transit service. Urban areas with compact, walkable neighborhoods and good transit services have been largely immune from the credit crisis. What date we have suggests that the lower the auto transportation cost associated with living in a certain neighborhood, the lower the probability of default.

And from 2005 - prescient: Rising Gas Prices Kill the Suburbs?

Once Americans start to realize that high-cost gas is here to stay, more home owners, including young families, will want to live in central cities and there will be a push for more public transportation, predicts Stuart Gabriel, director of the Lusk Center, a real estate think tank at the University of Southern California. In the Los Angeles area, Gabriel says that KB is leading the way to a new type of neighborhood that will give the city European-type higher density.



That first link gives a notion of proof to something that I've been thinking about for a while.

While it's tough to directly link oil prices to the credit/mortgage crisis, it makes sense that it would be a catalyst.

It'd be nice to see the source and evidence that Goldstein has, but he basically confirmed my theory. That when you take at-risk mortgage borrowers who are already teetering on the edge of being able to pay for necessities and their credit card and mortgage payment at the same time, and raise the most vital necessity of them all in order to make that money (gas), those at-risk borrowers find themself over the cliff and in the deep end.

Multiply that by the number of sub-prime at-risk mortgages, and package them together and sell them off to investment banks whose mystery borrowers default, and down the hill it goes...

I suppose this may be obvious to some people. But it is not obvious to those outside of the loop.

The problem I see with the growing demand for public transport is that most transit planners and engineers are far too excited about building their pet projects than trying to squeeze the most out of scarce public funding. I predict that some cities will spend the next decade building expensive rail lines while they disintegrate because they have no money for schools, bus service, medical care, etc. We simply can't afford urban mega-projects since public entities will be strapped for financing AND the benefits will be isolated to very few of urban dwellers. The best hope we have is instituting means to better exploit the carrying capacity of cars (we have a huge fleet and the urban environment accommodates them now without any retrofitting), get people on bicycles and their feet, and build electric-based transit modes that don't require new rights of way. ROW acquisition is very expensive and the streets will be less and less busy with cars as we move on into the long-term effects of peak oil. Of course, every city is in a different position and has different assets. Here in Seattle, a fleet of 159 electric trolley buses serves over 75,000 riders a day. It could be expanded at $4-5 million a mile and given greater priority over other traffic. However, our region is more interested in building light rail (tunnels, elevated portions, etc) at $300 million a mile and leaving the buses stuck in traffic. By the time that light rail project is done (15 years; 2023) millions may have already fled to the rural areas in order to survive.

WHT, here's my 2 cents worth. Finance is truly global, it is far easier to move a few electrons than physically ship any piece of goods. From my PC with a few clicks I can transfer money around the globe in a search for the best returns or higher security. IMHO banks have embraced globalism for more than most other businesses and will have offices in all major banking centres, London and New York being the major dealing centres. We have thus seen banks being failed-out in both the US and Europe.

This weekend the previous weekend's fail-out of Fortis bank itself failed following continued withdrawal of funds, with the Dutch government nationalising part and the remainder being taken over by BNP (French bank). On Sunday Germany's Merkel guaranteed all German savings, a day after she rebuked Ireland for doing much the same thing, previously she vetoed French efforts to launch a pan-EU rescue package! A week is a long time in finance.

Leverage by European banks is in many cases even higher than that of US banks, in some cases the amount of "assets" (loans, CDs, crap...) being several times the GDP of the home country. Some European countries also have housing bubbles. What has caused all this?

Many years of low interest rates has driven people to look for higher returns using ever more complex methods and greater leverage. I have even read Japanese housewives have borrowed money to gamble in the Yen carry trade! Higher returns only really come at the expense of higher risks but this seems to have been overlooked until recently (cheap money forcing out prudence??). IMHO this process of slicing and dicing, passing the buck, writing insurance that would not be called has been done all round the world wherever gambling is allowed. So "does Europe have too much invested in the USA?" not really because the problem is not isolated to the US, it's only a problem if or when it goes wrong:-) It's similar to writing insurance policies at too low a rate, i.e. works fine when there are few claims but goes horribly wrong when there are many claims. The US being a huge economy impacts on the global economy and it seems perhaps more excesses were made, e.g. NINJA loans.

"Are these just all multi-national firms and the problem is not radiating from the USA but is global?" Many multi-national firms are being affected but also any entity that needs to be able to borrow money, e.g. to smooth out income vs expenses, the state of California, retailers often pay rents quarterly... Hundreds of billions have been taken out of the capital markets and this is having a big impact. Of course there are some multi-national firms that are cash rich and rarely need to borrow. They are ideally placed to capitalise. Warren Buffett says “In my adult lifetime, I don’t think I’ve ever seen people as fearful”.

What's going to happen next? I would expect the central banks to try lower interest rates. Will it work? no because it doesn't address the root cause and the base rates are no reflection of what people are having to pay.

"Is it all based on the latest oil shock?" No, it would have happened anyway just like previous "panics". Of course the speeding bullet of infinite growth is going to run into the wall of declining EROEI and cause more problems.

Kind of a perfect storm

For quite a while, at least 10 years, I've been convinced that an economic collapse would precede the worst of an energy crisis. Colin Campbell has talked about this off and on for some years now. It shouldn't surprise anyone, although the particular way the economic scene plays out is impossible to anticipate, beyond causing mayhem and impoverishing possibly billions of people.

I took some time last night to watch End Of Suburbia" again. From 2003. Kunstler, Ruppert, Bakhtiari, Deffeyes were all right on target. There's a little snippet with Deffeyes describing the economic ramifications in words that perfectly fit today's scene. Deffeyes argues that the economic meltdown is the energy meltdown. Thermodynamics. I do agree as well that we are at the point where predictions beyond mayhem can no longer be made.

cfm in Gray, ME

Four years ago I started showing End of Suburbia around town, which led to the formation of a local NGO here that I am still active in. I have many copies of this film and was thinking about handing them out and reshowing it since people tend to give credence to those who are able to predict the future!

With a few small modifications, I think you've outlined things nicely.

- If/when the dollar rally ends the oil sell-off will end as well.
- a demise of the Euro would have an impact on the future for energy.
- the fall out from the credit crisis will cement peak 'energy.'
- Peak Oil means the end of growth. What do people do with IRA's/401ks that aren't due to be redeemed for 10-30 years?
- a concerted 100 basis point global ease this week wouldn't do anything.

This one, however, is the wrong question since we aren't likely able to steer things one way or the other, at least not intentionally. Also modified:

- Given what is happening, would a 'fast-crash' scenario be, in many respects, more likely than a long drawn out slow crash?


The idea behind the 700 billion bail out is that the government takes over bad assets. Then the economy grows, the assets regain their value and the government sells them. Without energy the only thing that will grow will be the money supply creating another inflationary bubble that will also crash. Here are some wild possibilities that could divert energy from the world economic system back into America:

An Alan Drake rail system could divert wealth from OPEC/energy exporters and keep it America, and grow the economy.

A collapse in the dollar relative Chinese Yuan that could spur the growth of American manufacturing.

The mass manufacture of a cheap electric car --but this could be a techno dream.

The only questions are is America in too much debt for any of the above to happen, and will we go through a inflationary depression first? I wonder if it is possible that civilization will not collapse because of this: Instead of requiring energy based growth from fossil fuels we can somehow mutter along by not transferring wealth away-- by building a train system for example.

Personally, in my mind's eye I cannot see a clear vision of how far things will fall. There are so many variables. The biggest variable isn't even economic, it's the climate. A sudden flip in the climate in either direction and all bets are off. Is that going to happen or not? That's the $64,000 dollar question. The only way around this is to assume climate's rate of change will be no more drastic than it has been in, say, the last decade. But that appears to be an obviously false assumption given indicator after indicator is being realized decades, even a full century, faster than ever anticipated. But let's take our assumption and go with it.

We must anticipate major dislocations with the rate of change we have seen so far. More droughts, more heat waves, more freak storms, more flooding, more lost coastline, more Katrinas and Galvestons. Given we have not been able to restore any of the places facing major disruptions this far despite - until recently - a supposedly strong economy, we must anticipate further destruction will be met with even less renewal afterward. This equates to massive population disruptions when considering a century time scale.

And we've gotten to the economic and political meltdown yet. How do we deal with the economic meltdown? I think you have to ask first, how deep will it be? At minimum, we are seeing a massive realignment in the financial industry. Personally, I'd liquidate it completely. It has no role to play in a sustainable economy. The wealth they have is paper, not real. It's only important as long as debt exists. Easy: eliminate debt. Forgive it all. But liquidate the financial industry down to zero. The only remaining banks must be that: A place to save, nothing more. But I'm drifting.

Housing prices have at minimum two more years of free fall. Banks are failing and will continue to. Well, not failing, but being gobbled up. With nothing to buy with, service industries are going to disappear/consolidate. That's 70% of the economy. How much of it is useful? That's how much might remain when all is said and done. I've no way to guess what that percentage might be. (It might be something for Gail to look into and post on.) Regardless of what that number is, does anyone see the manufacturing base rebuilding at anywhere near the rate the service industry contracts? No. That's a lot of people with no work at a time when the only tool our government has to deal with it is more debt, more dollars printed to provide food, make-work and shelter for many millions of families.

When we start to talk about spending programs to put people back to work, what do we build? Where? Do we spend any money on the Hurricane Coast knowing we can't rebuild what is already there? Do we spend money all along the southern tier knowing there's not the water to support it given the droughts expected there, and those already existing? Etc. Before we start building intercity rail we should have a national dialogue of just what the nation's going to look like in 50 years. Even with that effort we would likely end up building a lot of rail to nowhere. Without it, we almost certainly will.

As I said, when I put all the puzzle pieces out on the table I have a hard time seeing what the picture is/will be long term. I had told my wife this time period would be crucial, and it has been. The next step is the next 30 days and the election. Yes, I know in many ways the election will be immaterial, but in others it may be significant. Actually, the House and Senate elections will tell us more than the Presidential will. If we see some Velvet Revolutions occur, i.e. some incumbents tossed and out-of-nowhere populist candidates voted in, then there may be hope this slide into chaos can be constructively managed by the people becoming mobilized, activist and reasserting our authority.


In Ruminations from the Garden I suggested that our reaction to Peak Oil would probably hasten rather than put off the event. Peak Oil by my definition is about production, not how much oil remains in the ground.

Consider what effect the outbreak of a major war (and the ones we now fight are not major wars) might have on those transporting fuel across oceans and moreso, through critical choke points.

Someone on Kunstler's website suggested that 700 billion would have been enough to revamp the entire US rail system, providing electric powered transit by train to every city of 50,000 or above.

Instead we gave it to the people that authored the condition we now are in.

I don't know if the figures are right, but it is obvious that rather than make changes we should be making we've decided to fight over dwindling resources.

The tragedy is that we need to use the oil we have left to build alternative infrastructure (while we still can). Today we have backhoes, bull dozers and semi-trucks to move materials. Imagine what it will be like to make those changes absent fuel to run those machines.

Also, with an economy based on perpetual growth, we must at least consider that it was a plateau of oil and other energy supplies that caused the economic turmoil, rather than the other way around.

That's about $7,700 per household. I posited quite a while back you could get every household in the US well on the way to energy self-sufficiency with that much money.


A home brew windmill can be made for $1,000 or less.

A home brew set of solar panels can be built for the same.

A home/apartment could be well on the way to being, or be completely, super-insulated.

A "winter" apartment could certainly be set up for a lot less than $7,700.



How would that help out the liquid fuel crisis? Unless you are the in Northeast the money people would save on electricity and natural gas could possibly be spent on transportation fuel making the oil situation worse. Jevon's paradox. Oh well, at least no one would freeze to death while they are starving to death because diesel shortages hold up food deliveries to the markets.

How would that help out the liquid fuel crisis?

Luckily for me, I didn't say it would. What it would do, however, is what you state: give a layer of security to households and make them slightly less dependent on what TPTB do.

That said, it would help with the liquid fuel crisis by freeing up significant energy for such things as electrified rail, hybrids and electric cars/vehicles. That, in turn would free up more fuel for long-haul, heating, etc.

There are a number of short-range electric vehicles being built, as has been discussed here many times before. What's wrong with a nation of golf carts?


I think golf carts are probably more stupid than bikes, but still a million times better than cars. So why not give $7000 to people for golf carts then, instead of giving it to people for home brewed windmills so they end up buying golf carts?

It was a tongue-in-cheek comment. But I also said for people to use for the solution that works for them. If a golf cart/electric vehicle does more for them, and the climate, then why not?


What's wrong with a nation of golf carts?

Realisticly probably nothing. Alan's projects would have been better.
As peoples' capital is vaporized they'll undoubtedly turn to whatever works again but at a lower energy level.
When $4. gasoline hit a whole bunch of decrepit old Hondas got drug out and repaired.

Recently I brought one of my electric bikes to a flea market along with a bunch of components. There was a ton of interest. It sold pretty easily and 10 or so people rode it around.

Alan's projects would have been better.

A la The Hirsch Report, 20 years ago, yes. Now? Not so much. Alan's plan is also not universally helpful. Some people really don't move around much, and rail will never be going to the small, out of the way towns. My plan, now, would literally help every home in the country, and at a pretty cheap price, too.


"and rail will never be going to the small, out of the way towns"
It sure does in Europe. Rail used to go to many tiny villages. What isnt accesed by rail can get connected from the railway station by public buses. A railroad system for almost all personal transportation was built in europe over a hundred years ago and worked perfectly well until cars became cheaper and more convenient. If you could build rail transportation in an economy without oil in the 1850's why not now?

The US ain't Europe,put simply. It's not laid out the same. The densities are lower and the distances longer. Virtually no village in Europe is very far from another. Use Google Earth and take a gander at the vast stretches with not much in them.

The NASA night lights pic tells the tale.


Understood about the tounge in cheek, but that viewpoint does underly our myopia.

The Railroad sold our 25 miles of spur for a couple of million dollars. Most routes out of our little valley are over a mountain pass. There were in fact no good roads in when the area was built up with industry and a population much higher than it is now.

The cost of maintaining roads vs. a rail line are very high, not to mention the fuel costs to use them vs. rail will become prohibitive. Basically a rail line vs. roads mean the area could carry on some commerce. (ie. lumber, cattle, minerals, foodstuffs, supplies, people mover) Without efficient transport the extremity is cut off.

If city dwellers believe they can suvive w/o inputs from outside on their own sunlight input and resources they can't. For the USA it's rebuild rail or hit the road.

wondering why train tracks cost so damn much

Doesn't seem like any solid reason why they should they are just two sticks of electrified metal on a grade.

Maybe all the R&D has been going into high speed rail to compete with airplanes instead of extremely affordable low speed rail to compete with cars...

Well, certainly, if you don't use high speed rail, you can relax the requirements on curvature and slopes, but you still have to cut into hills, build bridges, dig tunnels and so on. And the ground must still be bought and so prepared that it doesn't move at all in decades, neither naturally nor when the train races over it. Then I guess that in order to compete with cars, you need to make up for the fact that the train doesn't take you door to door, so the train would need to be faster. And to maximize speed and throughput, two sets of rails are preferred. It all adds up.

The financing for roads has been unfairly biased, as against rail, in many countries.
Both in direct subsidy and via financial and legislative means the scales have been tipped, certainly in both the US and UK.

What's happening in the credit/currency has more to do with cash flows (or lack therof) at the investment bank level than anywhere else. The cycle includes the Treasury - Central Bank - Investment/Commercial Bank - Hedge Fund - Agency Reporting; this requires a high level of money flow from 'investments' such as raiding 3d party government treasuries via currency speculation or by speculating in and collecting fees for placement of 'securities' that aren't and don't. The structure is little more than a glorified Panzi Scheme. Flows of money are needed to pay off the originating participants in the scheme which perpetuates itself through liquidity from the Central Banks.

This financing cirus is only peripherally involved with production.

Investments here have been directed mainly toward financing the outsourcing of labor and the avoidance of environmental controls. Little capital trickles down past the gatekeepers in the Investment/Commerical Bank - Hedge Fund sectors.

Theoretically, capital could be freed from these sectors and put to better use. On the other, this capital is largely synthetic, it exists mainly in Agency reports ... to goose money supply, which is the source of cash used to fuel the cycle.

The challenge is to create an alternative banking system that is geared toward productive investment. Unfortunately, the serious issue is less the availability of capital, per se. The accelerating consolidation of the commercial banks makes funding anything ... extraordinarily difficult ... with fewer and fewer funding alternatives. In today's environment, ANY lending is risky. If there are only a handful of lenders with similar institutional viewpoints, financing a (risky) oil platform or a (risky) solar panel factory through bank loans or even debt issuance ... will be hard.

Consolidation of and bankruptcy of investment banks is putting debt issuance in the ambit of the same handful of mega- super- giant- banks.

Similarly daunting is the consolidation in the energy industry and the trend toward these companies becoming 'financial services- like' companies such as GE. Despite Warren Buffett's investment last week, it is more than possible that GE will fail due to their exposure to bad real estate bets in the credit markets and in related problems in the short term debt market. The Majors have their own problems with the debt markets and their stock buyback programs ... don't look like good investments at this time.

In the US

"...all of the biggest, oldest Wall Street banks, plus the largest insurance company (in the world) plus the two largest mortgage companies (Fannie and Freddie), plus the entire money market, plus the largest S&L (WaMu) and the fouth-largest bank (Wachovia), all failed in the span of three weeks.

The rest of the thousands of institutions worldwide are mortally wounded will be toppling over soon..."

The EU is having it's own banking meltdown.

Germany just announced it will back stop it's banks, but not those in Ireland, Greece, Iceland, Spain...

It's every country for themselves...

Peak Oil is Way down the list of worries at the moment for most Western industrial nations.

And Global Climate Change is down below that.

In eco-kook Seattle I've had lots of folks ask me about Global Climate Change and for years I've always told them that we have three very big problems to worry about and we need to worry about them in order of occurrence. The day before a hurricane hits is not the time to install drip irrigation because you're concerned about a potential drought next summer. For several years it's been clear that the big 3 would appear in the following order

  1. financial meltdown
  2. peak oil
  3. global climate change

(I'd also put war and overpopulation on the list and whether they appear at the top or the bottom depends on where you live.)

So now the financial meltdown has people's attention. (I accept that the meltdown might be driven by peak oil. Unfortunately, that is not how most see it.) It is my hope that the steps people (are forced to) take in dealing with the financial meltdown will also help out with 2. and 3. on the list -- consume less, save more, develop local community.

The best thing we can probably do for our friends and family right now is give good advice on how to deal with the current financial crisis in ways that also prepare them for peak oil. And of course, those efforts will also help out with climate change. It's about all we can do as individuals.

Happy Exploring for a simpler lifestyle.

-- Jon

I get tired of this false presumption about Climate Change.

1. financial meltdown
2. peak oil
3. global climate change

Defend it, please.

specifically which "false presumption about Climate Change" are you questioning? "climate change will be a problem"? (thats the only assumtion that i think is made when Jon put it on that list) -- however a further assumtion is needed if we are going to do anything "(suffiently motivated) mankind can alter the climate".

I believe the IPCC report conclusivly found that both of these assumtions are true, although some discussion remains over the relative magnitude of both changes. (ie, under buisness as usuall will we get closer to a 3 or 6 degree warming over the next 150 years; if we cut emisions to 0 tomorrow, would we plateau at a less than 2 degree warming).

Those 3 items appear to be listed in the order of appearance of impact, not the order in which action is needed.
the financial meltdown is happening now, so that clearly is the top of the list.

In some ways the problem is that even though the impact of both PO and global climate change will not be felt for "a while", so defining action now is hard.
(20-40 year lag in the climate change system, with long term equilibrium on the 1000 year timescale).

in a similar manner peak oil isn't quite a "now" problem (mostly due to decreasing demand from problem #1), but one which will become critical over (note: over, not starting in) the next 5 years or so, depending on where you fit in the spectrum of opinion, and most governments are definitely at the long (10-30 years) end of the spectrum at the moment.

having said all this, there are actions which would help solve all of them eg: invest in a public works to build a rail system - it would provide a. stable cash flow for the economy (which would help restore jobs and confidence, but i wouldn't want to go back to the loan 500% of everything ponzi scheme which is currently collapsing) b. it would reduce dependence on oil, both in the short term (people near the new rails can commute), and the long term (long distance goods transport by train is competitive (if you have no subsidies)) c. the long term replacement of cars/trucks with trains would aid in reducing reliance on oil.

Sorry that this ended up being a little more of a ramble than I intended.

My two bit comment on all this is that I dont think for one moment that any of this is a surprise to Paulson et al. They have some of the sharpest brains on staff and they know what they are doing.

The conclusion therefore is that (at least at this stage) deleveraging is moving according to plan.

We will see more consolidations of financial institutions that are too big to fail, additional Fed loans and assistance where they deem it to be helpful, bankrupcies galore, and a concurrent selling of commodity futures to close these as an escape hatch for people trying to preserve wealth. They want you to put your money in treasuries.

I presume the end game will be some sort of new financial world order with a new fiat currency. (French president Sarkozy said as much tonight).


King Henry has a couple of new 'bazookas' in his pants.

One is, he can force Any bank in the US into disclosing their Level 3 toxic assets anytime he pleases. This will bankrupt many instantly.

Paulson could give them several choices, at his discretion.

They could 'Voluntarily' agree to sell their good assets to FOH (Friends of Hank) at a price He decides, or face sudden death.

They could 'Voluntarily' agree to be merged/absorbed by a FOH, on His terms, or face sudden death.

They could 'Voluntarily' lend most of their depositors funds to FOH, on His terms, or face sudden death.

After all, US banks under this new bill don't need to have ANY reserves, so why not 'lend' them to Friends of Hank.

In short, King Henry will personally merge all the banks in the US into Any damn new combinations he damn well please, and NO ONE can question it in court or out of court.

Game, Set, Match

...or face sudden death.

Once several banks suffer "sudden death", Paulson will be constrained by the panic he creates.

The neo-con percieved risk of Obama becoming president may be the fly in the ointment. Or will there be a Shock Doctrine solution to this. If the last 3 weeks have seen big changes in the world, the next 6 weeks may prove to be the biggest and best we have ever seen.

My thought is that Peak Oil is in the backseat for a while. I've often commented that a Great Recession would drag things out and when the peak finally did occur, it would be obstructed by the general malaise caused by the GR.

In fewer words, the argument will be there is an oil shortage because the drillers can't get credit. The reason will always change, but the results will be the same. No mainstream acceptance of PO in the next decade. Unless, of course, you think King Paulson and his cast of clowns can somehow pull this economic rabbit out of his Fed funded hat.

In a personal note, I got my second solar array hooked up to a battery pack this weekend. I ran AC thoughout the house which runs from the batteries. (The first array is a grid tie and does me no good when the power is out.) Now I keep a generous battery backup for my daughter's medical equipment and can literally switch the excess energy to power my office and lights. Now the meter spins backwards even faster (although it's digit and doesn't spin).

If you have any excess capital of your own, you may consider investing in things that won't be available when it's too late. Whatever happens globally, it's out of our control now. Preparation is your only friend.

The vast majority stand, looking west toward the sunset; nice sure, but a little smokey. A few of us sniff something's wrong and turn to see the "peak-aware" folk working madly on their shelter as the storm approaches from the east.

Those few of us that turn, should we grab our own hammers and shovels? If we tap the shoulder's of loved ones, but they continue to gaze upon the smoky horizon, should we leave them or simply shrugg our shoulders and keep them company?

"Preparation is your only friend"... Great if you don't have friends.

Regards, Matt B
Still stuck in quicksand

Thanks for that post, Joe (or Matt, sorry). Captures the dissonance one feels when reviewing recent economic events and the "landscape" in which one happens to live. One of the benefits of TOD is that you get to listen to people who are "walking the walk" instead of just talking/thinking about it. You are your own lifeboat...get started on it.

Thanks Seadragon,

I'm fast approaching my first anniversary here and still I find myself sneaking into the study and typing these words. I listen intently to MSM, where my wife and friends get their info, waiting for the exponential-growth snowball to gather enough size and momentum to be noticed (I know of course it won't until it's too late). I'm no teacher and a poor orator, with an IQ at least thirty or forty points below any of you TODers. A frustrating thing, but I live with it. I know my limits.

Though I've always lived a moderately thrifty lifestyle, self-skilling myself over the years - even bought a 150cc motorbike a few months ago - I cannot see my immediate circle of family and friends joining me in a "lifeboat" anytime soon. And to sit in one on my own (with the kids, yes; but the wife?) seems...

Tough and quick decisions will be needed one day, I guess.

Regards, Matt B
Our Fed (in Aus) has just dropped interest rates by 100 points. Guess that means another ten years at least of BAU, in the eyes of most Aussie home-owners. That's the talk on MSM right now.

In a previous life (pre- constraints mentality) I was involved in dozens of serious, legitimate new tech startups as an Industrial Designer.

For the most part these were the folks who had done their homework. A few could be debunked after a few easy minutes on google. Yes, I know my touting Steorn as my first post made me seem like a rube but believe me I was not easily swayed.

I did CAD and prototypes and was a very effective front man with presentations.

The projects that WERE real, and the investor groups that excelled had amazing intelligence sources to draw on for due diligence.

I am absolutely certain that a large share of the economic dislocation (understatement) we are experiencing is due to the fact that the physical LIMITATIONS, which are absolute and unavoidable, are beginning to be factored in.

This is particularly scary because I am convinced that CorpAmerica and Global BigCorp as a whole are beginning to get the meme.

Don't get me wrong, I don't think PO is standard consideration but those who are tasked to understand what the big picture is (what I used to do to a certain degree, and what Gail and her colleagues do) in order for entities to position themselves to profit from or at least continue to be competitive in their industry with, are learning fast.

Bottom line is it's about how do I, Big Corp, survive, not about how do we as a society address this huge issue. I can only imagine the dislocation as the limitations are mainstream.

Maybe its appropriate for corporations to have the same rights as people because they certainly act and respond in the same lame ass way.

Yeah, how is Steorn doing?

Hello TODers,

Recall my numerous earlier postings on Morocco's phosphates, Tantan, and postPeak sealane control. As most already know: North America is projected to go into phosphate deficit [57-page PDF Warning]:
Rome, 2008
Current world fertilizer trends and outlook to 2011/12

[page 11]: ..It is expected that America will continue to be a net importer of nitrogen and that the region will move into increasing phosphate deficit during the outlook period while remaining a primary supplier of potash...

IMO, phosphorus [element P] is part of the key strategic Elements of NPK & sulfur. Please draw your own conclusions to the following links:
October 5, 2008
AFRICOM Base In Tan Tan Confirmed

..Negotiations, which were kept secret to mitigate regional political sensitivities, namely of Algeria and Libya, between the Moroccan government and AFRICOM Commanding General, General William E. Ward, to secure a location in Cap Draa in the Tan Tan region have been ongoing. Cap Draa as a host to AFRICOM has finally been confirmed by reliable US sources. This confirmation was reported this week by a number of international and national media outlets. The base in Cap Draa will be operational in 2011.
U.S. AFRICOM Denies Base to Be Located in Morocco
Published Sunday, October 05, 2008

The newly established United States African Command's (AFRICOM) main base will not be established in Morocco, despite weekend reports in Moroccan news outlets, The Media Line has revealed.

Recent reports from Morocco indicated that work had already begun on the establishment of a military base in southern Morocco, in the port city Tantan, opposite Lanzarote, one of the Canary Islands.

According to the reports, negotiations between the U.S. and Moroccan governments began last year, although the latter denied it. The Moroccan news outlets further revealed that by 2011 the Tantan port would be used by American fleets, in addition to being a transit station for U.S. forces on their way to Afghanistan and Iraq.

"I have seen this press report and it is incorrect," Vince Crawley, a spokesman with AFRICOM, told The Media Line.
Obviously, I have no way to tell what is the truth going forward as I suspect it would be highly classified, and the US Census Bureau already suppresses the USGS data.

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

I haven't kept up with the phosphorous issue but know it to be a critical non-energy input. If you would be so kind to collate your links, data, info and conclusions into a guest post 'Peak Phospate?' or some such so that we have it on its own thread for easy reference, that would be great.

Bob, that would make a fabulous post.

Hello Nate & Aangel,

Thxs for responding. It would take me some time as I am quite disorganized and computer challenged [among many other below-average tendencies], but I will see what I can do. In the meantime: here is another weblink teaser segment that shows problems in the I-NPK supply chain:
Changes in Retail Fertilizer Market Impact Producers

..The remaining manufacturers are no longer willing to absorb this inventory price risk. Retailers have been required to place orders and pay for product prior to manufacture. In essence manufacturers have pushed the inventory price risk down the chain to wholesalers and retailers. Because there is no effective way to hedge fertilizer products, there is no good mechanism for retailers to manage the inventory price risk they are forced to accept.

Some of the added inventory risk has been absorbed at the wholesale and retail levels. But doing that is very similar to holding an un-hedged grain inventory; a large risk that few are willing or able to undertake. The magnitude of this risk has increased twofold or in some cases threefold as fertilizer prices have skyrocketed. Those who lend operating capital to retailers for inventory financing are no longer willing to do so under these circumstances.

..But going forward producers will face the added risk of product or supply availability. With retailers unable to afford financing large inventories of un-priced fertilizer there is no assurance that enough product will be available when demand is high. If producers do not place an order and price the product well in advance, it may not be available when they need it.
Of course, as evidenced by other weblinks: this has now progressed to where the farmers themselves now have to accept allocated supply and/or now pre-order and pre-pay far in advance of actual later need.

A true 'pull system': where a farmer coughs up the cash [plus takes the un-hedged pricing risk], that is then computer transferred back down the supply chain-->simplified, the miners in Saskatchewan and Morocco won't move until their paycheck clears, then the long FF/I-NPK latency wait until the finished product is finally delivered to the farm.

The other analogy I have used to help explain a 'pull system' and the cropping cycle: imagine a family having to forecast, order, prepay, then wait for a year's supply of food that will finally start being home delivered six months from now. Yikes!

Alternative 'wishful thinking': a Star-Trek 'beam me down Scotty' transporter would make it really easy to move these megatons to every spot on the globe as required. That would be the ideal 'push system'.

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

Well here's something that might alleviate the pressure on phosphorus. Corn prices have fallen into the low $4/bushel range.

Natural gas prices have fallen into unprofitable zones--I can almost hear brakes being applied to further drilling for oil as oil producers brace for another irrational screwing.

Talk about suicidal behavior...

For the record this is not a matter of supply and demand controlling our economy but instead, price fixing.

When I pulled thru the scales at ADM with a thousand bushels of corn this afternoon(on my last trip of the day) I glanced at the market close prices posted on the window so each driver could see them.

Corn was at exactly $4.00 bu/ for Dec delivery and somewhat less for Oct...maybe $3.7x....

Soybeans were down more sharply even.

It appears the commodities in grain are taking a real beating right now.

This makes it about a dollar and fifty down from the last days close for the fall of corn in Dec. delivery.


Nice one below this morning from a farmer friend in UK responding to a query from me.

** According to the U.S. Department of Agriculture’s (USDA) Economic Research Service, the average cost to grow a metric ton of wheat in the U.S. this season will be more than US$295 **
Hi Phil,
sounds about right; we're a bit more efficient in UK but estimate around £130 is needed for wheat.
The fertiliser price isn't coming down with oil prices as there is a widespread shortage of production capacity.
Boats are still sitting in the channel phoning round for the highest price before they decide where to sell.
Typical chemical prices are 45% up and fuel hasn't dropped much; still high 50s per litre.

Hello Phil Harris,

Remember that the 'low fruit' of the high grades ores of phosphate and potash are depleting just like FFs, too. So this double-whammy effect postPeak forces a rising unaffordability floor as the plummeting ERoEIs of both FFs + NPK work against the required global supply chain to distribute I-NPK to the final, discrete square footage of topsoil application.

I urge readers to not focus on the price, but the unaffordability. If we are heading into severe deflation: yes, the price will go down, but the unaffordability still rises. If we are heading into hyper-inflation: the fast rising I-NPK price just makes the unaffordability more obvious.

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


I've been following your comments for a long time. I think you are 100% correct.

How do you propose one acquire I-NPK or its components to hold for the long term either for later use or future bartering item?

Thank you in advance and please keep preaching!

When Merril moved Potash Corp. from a buy, directly to a sell, the stock tanked 25% (along with a major hit to the TSX).

The explanation given was that credit to farmers was rapidly drying up thus artificially destroying demand, which sounds entirely plausible, but raises some serious food supply issues as a byproduct of the credit crisis.

Ongoing pork barrel subsidies to the agricultural sector in the US have produced vast amounts of high fructose corn syrup and protein meal byproducts, largely used in the fast food, junk food and highly processed foods industries.

As we are seeing now, these areas are highly sensitive to discretionary spending so they will likely contract rapidly, as they so richly deserve.

That said, it does not address the potential problems of general food production, which are nowhere near as elastic.

If, as you say, affordability is the issue, or availability, due to credit constraints, this has the same effect as physical supply destruction, but on a much shorter time scale.

Reduction in nutrient supplements means a reduction in yields and economic returns and on it goes. To break the log jam would require yet more government intervention.

Not being able to buy a new car, or pay your credit cards is one thing; Not being able to eat is quite another.

The Ag business is not my thing, so consider these opinions as questioning rather than assertive. I would appreciate any feedback on whether I am close to the mark or not.

Yeah, I wanna vote for a Potash/Ag post that would cover all these issues, preferably by Bob, as well.

This week is the "witching hour" for the global economy. Things can go very wrong very quickly right now. Quarterly earnings must be released. Everyone knows that if the "mark to market" rule is suspended that it changes nothing except allowing banks to deliberately hide bad paper for which they are obligated.

There are two ways out of this current mess - continue the sham and inflate more or call a spade a spade and watch the entire house of cards come down. Those of you who have made your bets on the civility and nobility of homo sapiens in any and all circumstances may have the opportunity to bet your lives on that notion. I wish you the best of luck. You will need it.

I was very influenced by a series of posts by Infomagic (who I think was Nick Chase) and his series titled Charlotte's Web approaching Y2K. I know it's still out there but I don't know if it is accessible. The essential premise was that compounding failure rates lead to collapse.

This is, essentially, what we are facing in the financial sector - even a 0.5% failure rate among institutions, funds, et. al., given their number, leads to a collapse of the "system" as "failures" compound and cascade.

IMO, there is no escape from collapse of the financial sector and everything related to it including 401's, IRAs, etc. And this, of course, leads, ultimately, to the collapse of state, regional and local governments.


There is a name I remember well.csy2k.[Lo,these many years].

Now we see if there was a bit of wisdom there.

Honestly,that is what put me on the road to a self sufficient little micro spread.Preping became a way of life.Now I get to see how well the ideas I had will work.

Watching events unfold with great trepidation... Big question is inflation or deflation coming, we'll know soon I think. Recent events have made deflation much more likely it seems. I will be greatly surprised if we avoid a Depression. The debt may be too large to be monetized.

One thought I had is it that seems the talk on the internet has gained a lot of credibility. Many sites have been predicting the meltdown for years. We were right about the financial system and are right about PO too. The deniers can no longer say the financial system is sound, can they continue to deny PO as well?

The deniers can no longer say the financial system is sound, can they continue to deny PO as well?

Unfortunately, yes. Even though the root causes of economic meltdown are related to energy, it is quite possible that Peak Oil NEVER is realized as a mainstream fact. Each year some war, some economic crisis, some sell-off from oil highs, some damaged infrastructure, some hurricane, will combine with the majority's belief system to 'rationalize' an excuse that 'if it weren't for X, we would be at 100 mbpd' or some such.

The reason this is a problem is that we will continue to address the wrong fundamental drivers, and instead address 'credit crisis' or 'hurricane preparedness' or whatever the surface issue-du-jour will be. Heres the rub: IF we had an enormous energy surplus waiting in the wings, then we could let things fail, realign, reinvigorate, then start over. Since we don't have growing energy surplus (though we still have a great deal of absolute energy), we will waste a large% of it trying to get the economy back on the track it was previously on, which in reality, instead of success, would be a long term failure.

Oh to look 3 steps ahead, collectively...

So let me get this straight.

The economic meltdown is a swift, hard kick to the crotch that makes you crumple to the ground.

Peak oil is the big, burly guy that then lays on top of you and prevents you from standing up again.

And since you didn't work out (ie. early, proactive mitigation) and are a 98 pound weakling, you run the risk of either being smothered (fast crash) or starving to death (slow grind) since you will likely never get the big, burly guy off of you.

Sound about right?

Pretty much.
Except the big burly guy is kind of stupid so he might leave you for dead and thus give you another chance to create a diet appropriate for 98 pound people.

May I?

The economic meltdown is the guy in the expensive suit who backhands you once or twice.

Peak Oil is a swift, hard kick to the crotch that makes you crumple to the ground.

Climate Change is the sadist who engages you in a nice, long torture session.

And since you didn't work out (ie. early, proactive mitigation) and are a 98 pound weakling, you run the risk of either going into cardiac arrest (fast crash) or being tortured to death (slow grind) since you will likely never get out of the dungeon.

Creative License available for viewing on demand.



Please use Climate Disruption.

Change was coined by the spin doctor's so it wouldn't seem so bad.

You are correct. It was created by the Bush Administration, in fact, but I'm not going to waste my time spitting into the wind. It's enough to have the beautiful irony that their spin turned on them and bit them in the ass - as well as it actually being more accurate than "Global Warming."


Thanks for responding Nate. It's very hard to find the right attitude at this moment. I am prone to pessimism anyway, but I can't see anything positive after the passage of the bailout. I would add, ( although it may be implied in your comments ) that there will be no money for mitigation after this fiasco.

I guess advocating reducing consumption and conserving energy is the only action that can be taken that might get a response. Perhaps Alan has some ideas on what could be done given the economic climate?

Strewth. If you guys are pessimistic, how's an Average Joe Newbie supposed to feel?

Since we are using playground analogies;

Average joe is supposed to look on from the side lines and do nothing, hopeing the bug burley dude doesn't notice you.

See Todd's post, below. This is a wakeup call, in many respects. The tide is out: those who have been swimming naked (i.e., most of us) are exposed, and our "betters" are frantically trying to prop up the BAU system. If you can ignore this, you can ignore anything.

One thought I had is it that seems the talk (meltdown) on the internet has gained a lot of credibility.

Clint, the following IS NOT directed at you:

Talk is cheap. Posting is cheap. Talking the walk is cheap. Everything except actually doing something is cheap. And, that is the key.

Who the hell cares about credibility? Why the hell do people rely upon others to define their reality? Isn't this the key? People can't or don't want to interpret data; even imperfect data as we do on TOD.

What we have is a brain dead nation of people who can quote the latest sports statistics or the newest make-up combination but can't figure out that they may be part of a dieoff or live like serfs.

Rant off.


For an excellent overview of the depths of the credit crisis worldwide, especially as it applies to the housing market, see Of Two Minds dated October 6, 2008.

We are at the start of a deflationary cycle, and all commodities, including oil, will decline in price. There have also been hints in various Web pages (now lost to memory) that the recent decline in oil prices is also related to selling in order to get much needed cash due to credit seizing up.

I could not disagree more.

Nate, on the other hand, got it right:

It is difficult to keep tabs on all that is happening, both globally, nationally, and locally. My personal view of our future continues to be a probabilistic distribution of many possible outcomes, the odds and timing of each, periodically adjusted based on the actions and feedbacks of important world actors. The 'public' is likely to become as important an actor as any.

...Whether we will have inflation or deflation of 'money' (as opposed to the four real capitals: natural, built, social and human), is still an open question and depends on what path world central banks choose.

Also, the future (and especially immediate future assuming we go into a world-wide recession) price of oil will largely depend on what OPEC and Russia decide to do--whether they decide to curtail oil production.

It boggles my mind how people like ourselves, so far down on the information and decision-making chain, can come up with so many pat little theories and predictions. This is not to say that your opinion is not just as valuable as the next guy's, including an army of babbling brain-dead pundits and economists that we are exposed to on a daily basis on the main stream media, it is. What it does say is that Ludwig Wittgenstein was correct when he said that the unknown, after all, is "truly unknown."

It's not up to just the central banks though. That's a falsehood. The central banks can print (create) money but they can't get banks to loan that money. The alternative for central banks is to have their controlling governments give the money away to consumers instead of to banks. But what's the odds of that actually happening? I'd personally say that it's close to zero.

Consequently, we have the current situation - the central banks of the world added almost $1 trillion dollars in the last 2 weeks to the global economy and it all VANISHED. The banks are sitting on it, refusing to lend, because risks are perceived as too high and because the banks are undercapitalized anyway.

There are other alternatives, as Sweden demonstrated in the 90's.
They took shares and often a controlling interest in the banks for bailing them out, and so could determine their lending policies.

It is only Paulson taking Dictatorial control to bail out his buddies whilst doing nothing for liquidity or the economy which is causing the blockage.

I agree that the problem is complex as all multivariate non-linear systems are, but that does not mean that first order factors can not provide significant insight.

One example is Greenspan, in his last official address, denied the housing bubble and then mollified the statement by saying if there was one, it would be minor with a soft landing.

Mr Chairman was likely not ignorant of the fundamentals but chose to ignore them, for whatever reason. On the other hand, I met many people over a pint or a coffee that saw the spending and credit habits of most people, coupled with skyrocketing house prices and rightly concluded that a crash was not only likely, but inevitable. Timing, of course, was much more vague. That said, Score: Corner Pub 1, Wall Street 0.

For my money, spending my time on sites like TOD and using simple common sense is infinitely more valuable than 1000 talking heads that are emotionally and/or financially invested in the status quo.

While the path ahead is uncertain, I know where not to go, which is a significant advantage.

OK -- we are at the early stages of the bursting of the largest credit bubble in human history. That would imply a shrinking US economy -- a slowing world economy and asset deflation. That will pull down oil consumption and oil prices -- and re-order priorities away from energy -- as governments try to play crisis management without understanding any root causes.

That could be followed by monetary re/in-flation -- and a weak dollar -- that makes imported oil expensive for Americans -- but capital to become more self sufficient will be hard to find.

2009 means trillion dollar +++ deficits. Will we borrow it or print it? High interest rates are a threat to asset prices in an environment of massive leverage. The FED would LOVE to inflate our way out of unmanageable debt -- but I think import prices for needed goods (like oil) will be check mate -- and game over.

Thereafter peak oil will prevent a recovery.

Edward Charles Ponzi Jr
Bennington VT

Agreed. Simple math is all it takes. Let's begin with an assumption or two few will argue with to any great degree.

1. Alternatives "oils" will stop being produced before most (any?) any of the grades of regular crude.

2. Crude will therefore continue to be produced at max capacity even as demand falls as there are only 74 million being produced and decline will be taking its toll, keeping production below or equal to demand for the foreseeable future.

3. This downturn will rival the Great Depression in length even if we consider it in isolation and as if none of the other elements of The Perfect Storm were present.

Thus, we will use another 270,000,000,000 barrels of the generally agreed upon 2,000,000,000,000 we have available. This will leave us at 63% depletion just as we are attempting to come out of the depression.

Listen to the pretty Stewardess of Doom and do as you're told. You all know where to put your head and what to kiss goodbye.



1. Alternatives "oils" will stop being produced before most (any?) any of the grades of regular crude.

2. Crude will therefore continue to be produced at max capacity even as demand falls as there are only 74 million being produced and decline will be taking its toll, keeping production below or equal to demand for the foreseeable future.

Not necessarily. New, higher marginal cost oil projects will be scrapped before old, (low EROI) but with fixed costs already paid tar sands, heavy oil, etc. projects.

And when you say 'cheers' I assume you mean it in a relative fitness sort of way...

I'm not sure you're making a distinction the use of "most" doesn't cover. Besides your newer marginal cost projects are largely deep sea, aren't they? I've understood they tend to flame out much faster than land-based wells. No?

I don't understand your comment on the use of "cheers." I am using it in the "Bye!" sort of way...

Cheers ( <-- Like that! )

Something that will be important to keep an eye on is the CDS auction of Fannie and Freddie on Monday. Apparently nothing this big has been done before and who knows what the outcome will be. Lehman Brothers follows later in the week I believe. If I understand what's happening, a whole lot of people are going to have to make good on a whole lot of bets that they've just lost. Where's that money going to come from in this environment?

add 3rdqtr reports on Mon/Wed/Fri and this may be the last week of a +10000 Dow we ever see...

Aside from fiat money 'willed into existence' as debt by the FED, the only real money left in the US consists of deposits in banks, otherwise known as 'savings' in more innocent times.

Probably around 8 Trillion dollars.

The 'Last Honey Pot' for the Bankstas' of Wall St to gamble away.

They're going to eat the Seed Corn.

America's remaining Wad of Cash (bank deposits) will be seized by Treasury for one last Roll in the Hay at the brothel.

The last of the America's real money that should have gone to Alt energy infrastructure, boinked away like a Lost Weekend in Tijuana.

Who get the worm at the bottom of this Tequila bottle?

Trying to see how far this can be simplified:

  1. The banking (and "shadow banking") system is fubar. It will be down for a while. It's not a minor upgrade needed, but a complete system redesign and redeployment
  2. The real wealth (and real poverty) of the world is the same as before this happened - minus the value of having a working banking system
  3. Whether by peak oil or too-expensive oil or terrorist-funding oil arguments, we're going to see alt-energy as Pres. Obama's main works program - however distributed over public and private sectors
  4. Assuming we can come up with the manpower and materials for the buildout, we can feed that manpower (US agriculture ain't failing yet), and house it (hell, we've got housing for millions standing empty)

So, being simple, I see the problems, but I don't in a macro sense see the problem. We can do this. We've got no choice but to do this. The millions of guys who have been knocking together homes for the last decade can easily gain the skills to knock together windmills and so on. The factories idled from auto parts production can be repurposed. We can save fuel by essentially shutting down the airlines, and get better acquainted with virtual meeting tech.... Etc.

Is it a tough road? Sure. But it's also an adventure. The risk of collapse can be the occasion to rise. Again, I see the problems, but I don't see the problem. We're not that dumb, we're not that incapable, we can do this.

True, but a whole lot of zero's and one's are going to be different on millions of hard drives, and this imaginary wealth will evaporate.
Other than that, most molecular arrangements will remain the same.

If 'We're not that dumb, we're not that incapable' how do we get this Total Banking Meltdown (TBM), apply collective intelligent design? :>)

Hey hey whit,

You're right about the situation and the solution.

I see the problems, but I don't in a macro sense see the problem.

The problem we have has absolutely nothing to do with money or energy or the environment. The Greater Depression, Peak Oil, and Climate Change are the symptoms of the problem. The problem is that humanity in its present manifestation has almost no ability to deal with certain issues. We can mobilize giant armies at the drop of a hat, but the 50+ years Hubbert gave us to think about peak oil didn't do us much good. We have a collective action problem and an inability to make good long term plans built into several aspects of our society and into the various institutions that constitute the world we live in.

The reason we won't see your proposal manifest into reality is that the system that got us into this mess is the same system we are counting on to get us out of this mess.

We have a collective action problem and an inability to make good long term plans built into several aspects of our society and into the various institutions that constitute the world we live in.

Thanks for the clarification. I agree. There is a psychological and cultural (sociological) problem. We need to become fully modern to deal with this (where "modern" is specific to now, not some previous modernity). We need personal and social transformations. Given those the means to handle our challenges are at hand.

Okay, so how did the Cultural Revolution work out? Right, societal transformations under pressure don't always work out. French Revolution? Great risk there. But, and here is our great advantage, as a culture America has already played at it. Who we need to become now is in large part who we pretended we were becoming during the countercultural period of the late sixties and early seventies. Large shifts can happen, especially in a free market for culture, facilitated by modern media - now not yesterday's modern media, but discussions like ours here - which are far saner and better founded than even the best of the underground papers 1970ish.

What this economic meltdown means, at the social and psychological levels, is that the counter-countercultural "conservatism" of the last several decades is over. The ideals played with by the counterculture - self-sufficiency, frugality, green tech and a more communal allotment of wealth that allows less to go farther - are now not just favored, but required by reality. Good culture can be contagious, particularly when it meshes well with necessity and opportunity. At this point, in regards to cultural transformation, the necessity outweighs the risk - not just on an abstract or futurist level, as has been the case for some time, but at the level of most families and individuals.

Watching the political polling, it looks like a majority this time around gets it.

I agree. Let there be a pandemic of re-vitalized culture! Go to and/or and see if there's a local group in your area. Or go to the new Transition US networking site: Or join/set up a church group or neighborhood council.

I believe it is *now*, when things are more precarious and uncertain, that we have a greater power to effect positive change. A "wait and see" approach is the poorer choice.

I agree that we do not have long-term planning ability. Probably for good reason - how many hundreds of thousands of years did we exist as a hunter gatherer culture subject to a fairly slow rate of change? Old social habits do not change with inertia like that. The average level of intelligence has not risen much either, IMO - just a lot more ignorant and frightened people waiting for stampede.

However, I think the fundamental driver for all the current financial meltdowns is population growth exceeding the resource base. Even with energy related shortages increasing in frequency and severity, we continue to mate and reproduce beyond overshoot. In fact, I would not be surprised if there is an added accelerating factor beyond the exponential that encourages afterburner mating from perceived instability, shortages, potential famines, etc.

How many hundreds of thousands of years did we exist as a hunter gatherer culture subject to a fairly slow rate of change?

Homo sapiens is between 130,000 and 200,000 years old, according to the fossil record and the genetic record, respectively. Humans were hunter-gatherers until about 10,000 years ago, so for something like 120,000 to 190,000 years.

Back To The Future Meets Life On Mars, Or Another Age Of Surrealism

In about one week, ABC Television is going to pilot a new TV series called “Life On Mars”. The Series is actually not new in the true sense, being an attempted remake of a BBC British TV series. The basic premise of the show concerns a New York City police detective who is hit by a car resulting in him being transported back to the year 1973.

It is fascinating that ABC believes that such a story would be interesting to an American audience at this time. While the show attempts to depict the world of 1973 as so alien to the viewer as to be viewed as “Life On Mars”, the fact is that we have all seemingly been thrown back to the world of 1973 when it comes to energy issues, the economy and the world geopolitical situation. The parallels are so numerous and similar as to be uncanny.

In 1973 the United States was under the administration of an obviously corrupt and inept Presidency. The two candidates who would soon campaign to replace him were an old Republican insider and a young seemingly sincere Democratic novice from outside the normal circle of power.

The U.S. was attempting to extricate itself from an unpopular expensive and ill conceived war that had been poorly planned and poorly executed if it was needed at all, a subject that is debated to this day.

U.S. oil production had peaked only a few years before in approximately 1970. Despite years of attempting to increase U.S. oil production back to the old levels, and pages of political rhetoric claiming that doing so would be easy enough with tax and regulation changes, it was never to be. U.S. oil production did occasionally increase year on year, but never again approached the old peak. The U.S. economy was slung by force into the world oil competition for oil.

The U.S. and world economic system was in disarray in 1973, as the collapse of the Bretton Woods financial system, the worldwide system of currency and money, collapsed, leaving speculators and other forces to decide the value of world currencies. To this day there has been no codified structure of currency management designed to replace it, and it is pretty much every nation and investor for themselves.

In 1973, although people at the time did not know it, they were to face in the coming decade a stock market that would lose more than half its value inflation adjusted. It is staggering to think of now, but if you were saving for your kindergarten child’s college education, you could achieve your goals by investing in Certificates of Deposit at your local bank and not by investing in “risk” capital markets such as stocks or bonds. The U.S. would face double digit unemployment rates, double digit inflation rates and double digit interest rates all at the same time. Millions would lose homes, cars, careers and marriages. Dozens of companies with a heritage going back to the birth of industrialism would be wiped out. Potential futures would be destroyed as an era of declining expectations took hold. The infamous magazine cover from the 1970’s proclaimed the end:

Energy issues moved to the front of the national and world agenda, as the industrialized world suffered a decade long “energy shock”. Europe suffered terribly, with no developed home resources. The North Sea production of oil was still all “projections” in those days and many were convinced that drilling for oil and gas in that hostile environment would be far too expensive if it could be done at all. The U.S. began a long decline in per capita petroleum consumption in 1978:

Total U.S. consumption of petroleum would be lower in 1998 that it had been in 1978:

As the cost of finding oil and gas spiked to an all time high in the late 1970’s:

In the late 1970’s, horsepower of autos declined while fuel mileage climbed, as the Americans learned to live in a world of limits:

Total U.S. energy consumption actually declined between 1972 and 1982 before rebounding:

What no one could have foreseen in the 1970’s was the world that would come to pass in the 1980’s and 1990’s, the era of greatest wealth production in known world history. It was an era driven by a combination of technological advance, not retreat, by credit and by sheer desperation.

Dwight D. Eisenhower once gave his account of how troops landing on a beach behave thusly, “They land, they are pinned down, being picked off by snipers. The tide is going to come in and drown them in a few hours. They are dying where they are, and the rest will die where they are if they stay. So one at a time, and then a few and then small groups start deciding ‘we might as well try to move, we will die here anyway.’ And so they move, first a few, and then more, and then whole battalions. It is an incredible thing to see.”

It is the fate of our species on Earth, that if we are to avoid death, even for awhile, we must move forward.
And so we will.
Roger Conner Jr.

JPY/EUR cross has rallied 5 yen already tonight. (meaning dollar is selling off vs yen but rallying vs Euro). Very curious that country with debt-to-gdp ratio of 182% and no inidigenous fossil fuels is becoming the (short term) currency of choice...even gold is down....(23:43 CST)

It could very well be a long and slow correction, the US and Eurozone govts are just buying time. We're in the midst of a deflationary depression.

Just looking at the US debt to GDP graph, the credit bubble lasted 26 years and rose from 106% of GDP to the 360% it is today. Generally bubbles take as long to unwind as they do to wind up, whose to say but we could be in the midst of a multi decade deflation?

The TED spread looks especially scary. There is no trust, places like Dubai had to get bailed out by Abu Dhabi to the tune of 15 billion dollars.

People are flocking to the YEN for it's "perceived" safety. The AUD has fallen sharply here.

People are flocking to the YEN for it's "perceived" safety.

The perception is based on a long history. At various times in the 90s, the US and other European nations implored the Japanese to engage in various money printing schemes to juice their economy. They did dabble in it now and then but, in the main, were quite timid. Their central bank simply won't risk inflating away the savings of the populace even if it means slower growth.

The Fed, of course, has different ideas (to some extent).

It's possible to over-emphasize the importance of who has oil and who doesn't. The important thing, if you don't have it, is to have something to trade for it and to be busy figuring out how to do with less. The Japanese score decently on both those issues.

I was going to say "they're sitting on a lot of cash," but you fleshed it out much better.

"People are flocking to the YEN for it's "perceived" safety."

Nope. People had shorted the YEN and now have to close those shorts: lots of funds/investors had borrowed in yen, sold the yen for USD/EUR and invested those USD/EUR in the US/European stock markets, mechanism aka "carry trade". As their investments are falling fast, they are rushing to unwind that trade, meaning selling USD/EUR for yen to pay back the original loan.

What some people are shorting furiously is gold and silver in the physical market. How can anyone seeing the metal lease rates at say there's no manipulation?

I'm reminded of this quote from "Network":

"There is only one holistic system of systems, one vast and immane, interwoven, interacting, multivariate, multinational dominion of dollars. Petro-dollars, electro-dollars, multi-dollars, reichmarks, rins, rubles, pounds, and shekels. It is the international system of currency which determines the totality of life on this planet. That is the natural order of things today. That is the atomic and subatomic and galactic structure of things today!"

Energy crisis? Just contract the economy and it is not an issue.

I don't how useful this is to people but I'll mention it anyway.....

One way of getting a quick read on the world economy is to take a peek at the Dow Jones World Stock Index. Contains 6400 companies but unfortunately there is only a couple of years worth of data.

BTW, as I write this the Japanese Nikkei index is trading at levels first breached in the summer of 1984.

As I write this, Asian markets are collapsing across the board, down anywhere from 3%-5.5%. The global financial markets are giving a big thumbs down to Paulson's rescue plan.

Meanwhile, the Hypo Real Estate AG rescue plan appears to have imploded. The European Union could very well be ripped to shreds by this as the Union never had the treaty obligations to help one another in really bad times. The Union was a "good times only" political construct. It has no teeth. And in order to stay in office, the politicians in each nation will revert to national action. Further they will continue to blame the US for overvalued real estate when Europe's real estate was far, far worse!

Someone needs to find their magic wand and wave it real soon now, or we will all be experiencing the onset of the Greater Depression.

There is no magic wand, the markets are going to their true value. Earnings are falling sharply, the credit crisis means companies can't fund their operations and long term plans, P/E ratios are simply far too high yet.

The greater depression will come and it has been made worse by all the govt intervention, that distorts and dislocates scarce resources and time. The artificially low interest rates of the Greenspan years has resulted in more than just the credit crunch.

A lot of the smartest minds have been/were diverted to enter finance rather than alternative technology, geology, mining etc where they could've proved far more useful than just pushing paper around.

The monumental excesses of the last 20 years will result in a cleansing. People will learn to live with less, save more and realize that to get something you must first earn it.

Sorry for not adding a smiley in the prior post. Those who know me know that I don't believe in magic wands, unicorns, or banking bailouts. But there have been many on this blog who repeatedly chant that the government will save us. I'm still waiting for this salvation to appear as every year since 2005 has gotten steadily worse.

From what I have read it appears that the government could have saved us from this financial crisis. Regulations could have prevented the incredibly greedy human beings that decided to give loans to people who couldn't afford them (they had run out of people who could afford them), and then get fake insurance to "guarantee them" which allowed S&P and Moodys to give top ratings to junk offerings that were then sold on Wall Street to unsuspecting investors. They were issuing mortgages that were so pathetic that banks were starting to see something for the first time ever - borrowers defaulting on their first mortgage payment.

Greed can get people to work harder, which is the good part of capitalism. But it can also lead people to take part in fraud as what happened here and other bad practices. Although you won't hear the talking heads talking about fraud. It's all about "bad data" and "bad analysis". Although the one guy on 60 minutes did say that they called it "swap" instead of insurance so they could get around regulations that they had to have money available for the insurance.

Imagine a loan - called NINA for "No Income verification and No Asset verification" ending up not just being issued, but sold as part of a package of loans that were rated AAA. Who was it that said "The love of money is the root of all evil"?

"the government could have saved us" could have, should have, would have, if only...
if only hey had understood the problem and what was coming, just like PO, population, climate catastrophe.

i fully expect to hear many calls for government regulation to save us from this ever happening again. Regardless of what laws are passed in the fullness of time they will be changed as memories dim and people think it's a new paradigm and greed exceeds fear:-(

Right now the European stocks are doing ok, but Asian stocks are taking a beating. Here's an interesting article getting a lot of traffic this evening: Now Wall Street may shun $700bn bail-out. Long story short it says a lot of firms are going to try avoiding the bailout funds because,

"...Wall Street analysts, believe the addition of so many terms to the bill might deter potential participants.

One of the least attractive elements is a section designed to curb executive pay at banks that participate in the bail-out package. These include limiting stock-related pay and banning 'golden parachutes' for executives.

'I think this hodge-podge of regulations and rules will be enough to put many [chief executives] off participating,' Caldwell said.

Sources close to Goldman Sachs and Merrill Lynch indicated the banks might choose not to participate in the bail-out as there is a growing view on Wall Street that the market may be bottoming out."

Bottoming out? ROFL!! The credit markets are frozen, unemployment according to U-6, the broadest measure of unemployment is 11%, stocks continue to decline, earnings are falling, global energy crisis approaching like a freight train and public and political insanity across the world regarding the banking crisis. The ponzi scheme called fiat money is breaking down.

Que up sound track of Wile E Coyote, in mid air beyond cliff, plunging down to the floor of the canyon.

We need to invent some new terms for what is going on right now:

  • Business cycle
  • Inventory Correction
  • Slowdown
  • Downturn
  • Recession
  • Depression
  • Coyote

A Coyote event occurs when large numbers of people suddenly realize that the stock market, the banking system, and the real economy are only supported by thin air.

Coyotes have three stages:

  1. Uhhhh...ohhhh...
  2. Aaaarrrrr...gggg...hhhhh....
  3. SsssPppppLllllAaaaaTttttt!!!!

We are now starting The Great Coyote of 2008.

Right now the European stocks are doing ok,..

What market are you looking at? The Swiss market is off 4%. So is the Swedish. Spain & Italy off 3+%. Still waiting for data on the CAC, FTSE and DAX.

knightrd had posted before the European markets had opened.

My mistake. :)

(although it does not do for casual conversation), the economy is being drawn and quartered.

There are two paradigms wherein strongly opposing forces exist and everybody loses:

1. Crude exports of -2.2% last year, -1.1% the year before (and then some, due to decreasing EROEI.), - fueling the repayment of loans + interest.

(EROEI must be exorbitantly low overall this year and last, between drilling, shipbuilding, and such, but I have no idea of the magnitude of this energy expenditure when compared to the energy already used in the process of extraction. On the bright side, the energy that has gone into the drilling fleets is stuck there, and has the potential to produce positive results. Better than a million new SUVs.)

(even loans without interest will default handsomely in a shrinking-enough economy. but i digress)


2. Large government expenditures/debts (particularly as regards my America) being paid on the back of a weak economy (more or less perpetually weakening, if we've already peaked).

I have this nagging intuitive thought (of the kind that are hardly ever wrong) that the problems, right now, are due to PO (see point one, above). Noone around me sees it as such, and I think they think I am a little silly for drawing such a direct line to it. Though I think most readers here do, too. And that colors my view. I honestly don't think the people around me care to color the future ugly, even if it is. I can't blame them.

Prediction: We inflate the dollar to accomodate these pressures. Government funding and debt, and any non-exporting sectors of the American economy are sliced to a fraction of their previous worth, on the by and by, via one somewhat controllable mechanism. Any deflation will be (has been) masked by massive inflationary pressures.

second prediction: We survive. Scientists pull through once the intellectual and economic resources of the world are, of necessity, put to good use in solving the immutable problems of resource and energy scarcity: If we fail to do so, these inhuman problems will produce inhuman results.

talk about a catapult that needs building. While we're still playing with fire and hooting like monkeys.

I think other factors (minus war) outside of 1. and 2. above will prove to be of orders of magnitude lower in effect. We have created a world on paper, and I just can't see any way around those two paradoxes outside of war (i.e. forcibly changing the rules of the game) or severe inflation.

(although I have to admit I NEVER saw a 700 billion dollar bailout coming either. I just thought they'd change the rules of capitalization to allow assets to be ever-more leveraged upon.)

Sorry I can't post charts or references. and sorry I can only synopsise. Thanks all for all your awesome work.

My view is that we will have several years of contracting economic activity as the markets try to unwind the excess values created with the most recent binge of credit expansion (focused mainly on real estate). The historic rate of growth for real estate prices has been 3.5% or doubling every 20 years, and clearly values are still well above that level in most markets.

Unemployment likely will be very high. I think electric utilities will not only postpone any expansion plans that they might have had, but will be hard pressed to adequately maintain their present infrastructure; maintenance deferral is one way to cope with inadequate cash flow.

If you look back at the 1930's many electric utility companies went into bankruptcy. As an industry, they are heavily leveraged.

So when the economy eventually attempts to rebound, and runs up against oil supply constraints, electric utilities will be again hard pressed to maintain their systems, this time from oil supply constraints.

Remember Richard Duncan described that we would first experience depression along the lines of the 1930's and later it would degenerate into something unprecedented with the proximate cause of the second collapse being failure of the electric grid (lights out).

It will be interesting, for example, to see how far T. Boone Pickens gets with his giant wind farm proposal now that we are moving into hard economic times. I would be surprised to see his project get off the ground anytime soon, and many other moves into alternatives likely will suffer also.

Yes sounds about right, I can't remember his name right now, but I remember reading on TOD about the Iranian scientist who worked for Iran's national oil company, spelling out the crisis from 2006-2020. There were four distinct stages, T1 to T4. Each one getting progressively worse. We still have some time left in T1 to shelter ourselves from T2-T4. The long descent has begun as explained by John Greer on his blog/

Samsam Bahktari [now deceased]-->a good man. Had more 'nads than all of OPEC and IEA put together.

EDIT: oops, here is one link for any interested TOD newbies:

Nate, isn't the doomsday scenarios dependent on ever lower EROIs coupled with a need for liquid fuels? But wind power has an EROI of about 25, so what you are saying is basically that batteries will continue being impractical AND that electricity can't be converted into liquid fuels with an efficiency of 40% or something, yielding an EROI of 10. I think it can.

1)It could, but in addition to fixed/marginal EROI being important EROI vs time lag is also important. We can't have a 25:1 technology at .006% of world energy and energy of a different quality (electricity) and expect it to save our situation unless we have a) 10-20 years of transition time b)political and financial capital to effect the transition

2)those wind numbers by and large did not include integration into the grid, which would lower the numbers - how much I am uncertain.

Nate, we don't need a specific transition time to do this. We "only" need to continually keep pace with demand increases and oil depletion by curbing wasteful liquids consumption and doing CTL, sugarcane ethanol, wind-to-hydrogen-to-methanol and so on.

I think these strategies will be implemented automatically by market forces in response to increased oil prices, and that they will keep long-term oil prices below $200 and EROI at 10+. Then technology will start decreasing the price and increase EROI from there.

I don't think you read my addiction post. This is not as simple as a plug-n-play BTU problem. There are real actors involved, and they have become habituated, both literally and figuratively, to a certain neural feedback routine in their daily lives. And the politicians are going to see this and provide knee jerk responses.

The time for what you suggest was 15 or 20 years ago. Scaling of the type you suggest will actually accelerate the use of high quality energy in the near term leaving less for regular society - this has been written about in dozens of articles here. One book that graphically depicted this phenomenon is "Beyond Oil" (Gever et al).

I hope I'm mistaken, but think not.

Nate, thanks for your reply. Admittedly, I've not read that post, so I'll go find it.

There are real actors involved, and they have become habituated, both literally and figuratively, to a certain neural feedback routine in their daily lives. And the politicians are going to see this and provide knee jerk responses.

Do you know about the Weight Watchers and their point system? Having listened to people following the method, I've come to the conclusion that some of its attractiveness stems from people actually thinking it is fun to beat the system - "if I save some yellow points here that doesn't matter much, I can eat a red point later, and THIS food is SO cheap in points" and so on.

So, people can be really addicted and at the same time take pleasure in getting the most out of a resource constrained environment. It has already begun, actually, with people creating their own hybrids and so on. Conservation will become a major trend and its potential is huge.

Also, regarding politicians - the public actually demands investments at times like this. "Drill, baby, drill!" might not be the smartest reaction there is, but it IS a call for investments.

My outlook is positive - I am convinced we will be able to cope and scale alternatives at a pace that stabilizes the liquids prices.

If and when the dust settles there are a few things we could do to start again, this time down the right path. For one thing we need to recognize that energy flow is what keeps the wheels turning. Nothing else matters as much. Any deficiencies of some particular kinds of atoms or molecules can be alleviated with sufficient energy for extraction and transport.

With that recognition, and also recognizing that growth is not the objective of economic systems (rather, maintenance of the means of production for human needs is), we should develop an energy standard for currency (a global currency). Money is just a token for an amount of energy available to do useful work. Or at least it was at the time of its origin. Today we have lost track of what money means and have fixed on it as an end in itself.

Of course we need to define 'useful work' in such a way that the overall system can be sustainable into the indefinite future. Not all work accomplished today is really very useful in this sense. Similarly the meaning of 'available' has to be clearly understood. Oil in the ground, for example, does not make its energy content available just by being there. It is only available after pumping and processing to meet the requirements of our prime movers. It is the net energy that counts.

There are, of course, many other factors in the economy. As Nate has enumerated there are other forms of capital to consider. But every single form of capital, including human knowledge and understanding are bought with the flow of energy. In order to turn human knowledge into action it takes an amplification process (small energy flows modulating large energy flows). It takes energy to even maintain human knowledge just as it takes energy to maintain the human body.

If money is defined in this way, and a standard unit is chosen, then it will be impossible for nations/governments to create money out of thin air. There can only be as much money in circulation as there is provable reserves of usable energy. We measure this quantity now, only in separate domains (e.g. hydro vs. coal-fired vs. usable fuels in storage, etc.) A new national accounts system of energy aggregations would be needed.

One useful outcome from such a scheme is that we will always be borrowing from past savings (energy in the tank) as opposed to future expectations. The debacle in the financial markets now is largely due to creating phony money (through loaning against expected growth and inflation in values - as in housing prices). As long as aggregate net energy production was going up we were able to get away with it. But now net energy production is at least in a plateau and no great new wealth can be produced. Some of that energy is needed for maintenance. We've wasted a huge amount over the years producing non-necessary/useful things that only consume energy and do not contribute to new energy production. And a lot of those were bought on credit based on future expectations of growth.

Then there have been the truly tragic expenditures of energy on the destruction of our fellow humans. The energy wasted in war is a disgrace to a supposed sapient species.

The connection between energy available to do useful work and the global financial system is fundamental. Deregulation may have enabled the loosening of restraint on borrowing against the future, thus amplifying the leveraging effect (the bubble), but it is the slow down in energy flow through that is causing the swiftness and severity of the effects of deleveraging. Contraction is absolutely the effect we should expect as energy flow further slows.

How we unwise humans will react to the constriction of our supposed freedoms to be profligate is still up in the air. Experiences from the thirties may be a clue. They had a real come-down after the Roaring Twenties. But given the attitudes today, the population concentrations, and the ease of acquiring weapons, I am fearful.

Question Everything


"If money is defined in this way, and a standard unit is chosen, then it will be impossible for nations/governments to create money out of thin air."
This is pretty much the gold standard, the amount of gold above the ground is vastly more than the amount extracted every year and it takes considerable effort to extract more, what has been extracted is almost all available.

To avoid the current problems it is not necessary to link the currency to an amount of energy, just to something that cannot readily be changed. IMHO we could just create a fixed amount of curency not even directly linked to anything and not change that amount. How about 1/1000 oz of gold equivalent equals one Globo? Since currencies can easily be priced in gold it eases the job of deriving an exchange rate from legacy currencies to Globos.

Growth would come about by efficiencies and hence prices would tend to fall over time rather than increase. Of course debt would thus effectively increase in value and this is why governments would hugely dislike this type of system since it deters them from promising things today at the expense of tomorrow to be paid in depreciated currency.

The first thing I would like to see is a ban on political contributions from anyone other than private individuals. Here's just one example, apparently Freddie and Fanny contributed over $100m, what the heck for, how could this possibly have benefited society?

This has a similar effect as the gold standard. But you can't use gold to do work. At best you could use it to purchase energy but then you have to price energy in gold! You can't eat gold. You may be right that adopting a gold standard might have avoided the current situation. Thank you Richard Nixon, for that.

But why just apply a band aid when you can heal the disease. The energy standard solves many more problems (see my blogs for some of them) than just a material standard could solve.


1) From July-September, Lombard Street Research estimated that M3, the US money supply was contracting at it's fastest rate ever recorded. Considering all the frantic monetary expansion undertaken by the FED, EU, etc. from Aug07 to Jul08, a contraction in the broad monetary base is equally extraordinary and unexpected.

2) This contraction in the monetary base was the manifestation of money destroyed via bad debts, repayment of existing loans without new private loans or financial issues taking their place etc.

3) Sooner or later, that contraction in the balance sheets of mega-size corporations, funds and billionaires was bound to create a traumatic economic catastropghe: Enter Lehman Bros, AIG, Fortis Bank, Hypor Real Estate etc.

4) Oil prices neatly tracked the direction and slope of this crash in the US monetary base. For much of this year, corn had a 1:1 relationship with oil prices and it tracked oil down from its early July record highs of around $7.50/bushel to near $5.13/bushel by late August. Other commodities, though not as strongly affected by oil and the shrinking monetary base, also tracked the money supply downwards.

5) The US dollar's recent strength is probably due to a very perverse reason: With the supply of US dollars shrinking relative to that of other currencies, an odd sort of relative dollar scarcity develops, pushing its value upwards, even though the macroeconomic fundamentals are an absolute horror show.

6) There are two reasons why a $700B sum was taken from America's working people and given to Wall Street gangsters, I mean bankers :)
Aside from providing lush corporate welfare for billionaires (when we could be creating high speed rail systems, repaving roads, etc), by using tax money instead of merely printing up more funds, this partly mitigates the hyperinflationary potential of this economic insanity.

7) The supply-demand fundamentals for oil and gas have not really changed. Even if deflation ensues, at some point, the overall price level will fall far more than oil prices, leading to a net real increase in the cost of energy. Moreover, when ever the world is ready to climb out of this economic pit, it will find that monetary reflation and debt cancellaltion do not get you very far if you can't keep the lights on at a reasonably low cost.

In relation to your first point, other sources of M3 are showing continuing monetary expansion, using a reconstructed M3.
M3 about 16% year on year.
M3 about 14% year on year

The Lombard Street Research was described in this link

Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959. "Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.

On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July. This is below the rate of inflation, implying a shrinkage in real terms.

The growth in bank loans has turned negative to a halt since March. "It's obviously worrying. People either can't borrow, or don't want to borrow even if they can," said Mr Stein.

Lombard's research is misleading with respect to M3. First, they say that M3 fell by almost $50bn in July. While it's true that it probably fell, as a percentage of a total M3, it was 0.36% and only for one month, hardly a trend.

Second, they use a three month basis which can show sudden short term changes.

Lombard's three month M3 growth rate chart is below.

I strongly recommend measuring the M3 growth rate, on a year on year basis. The chart below is from and shows M3 running at about 14%/yr which is indicating money supply inflation.

Lombard's statement about growth in bank loans turning negative seems reasonable. There has been a huge reduction in US credit growth rate. US credit growth rates have fallen from over 9%/yr earlier in 2008, down to about 6%/yr now. As the credit growth rate has been falling, this exerts a deflation pressure on asset values, for example houses.

However, total credit is still growing, at the beginning of the year, total credit was about $28 trillion, now it's closing in on $29 trillion.

The difficulty in working out what is going on happens due to the interaction of several competing influences:
Two Nate mentioned, the energy crisis, or more properly perhaps at the moment the liquid fuel crisis, and the financial crisis, but there is also a third element, the fall of the hegemonic power, the US.

It appears to me that especially for American observers this fall obscures the extent of troubles elsewhere, and more specifically causes some exaggeration of the extent of problems in the world at large.

This is not, of course, to say that everything is just great elsewhere, but the extent of problems does vary, and many of the factors which cause concern in America are different at least, some places worse, in others better, than in the US.

For instance, personal indebtedness and suburban sprawl are far less in France than the US, so if those are held to be problems, as I would certainly agree, then this must mitigate the problem in France to some degree and give more possibility of effective response.

The stand out example though is China.
They can be hard hit by a collapse in the US with vast amounts of capital and their biggest market lost.
It is perhaps difficult though to see why any of this should lead to a collapse.
They save a large proportion of their income, not a small proportion, train huge numbers of engineers, have recent experience of re-cycling human waste to agriculture - the list goes on.

Perhaps most importantly, the collapse of the export market would free vast resources, which could be turned, albeit with great difficulty, to the production of other energy resources, new technology investment in better batteries, etc.
Even in the respect of impact on the environment and feeding the population, the population of China will be falling shortly reducing the strain.

I can't see a persuasive rationale short of nuclear war for total Chinese collapse.

The fall of easy money investment opportunities also leads to companies eyeing up more conservative investment opportunities, for instance there appears to be much more interest now in the UK in investing in the grid - a relatively safe option:

Unfortunately, things are likely to be great deal worse in some areas than in the States, notably in Africa, but the overall point I wish to argue is that responses and impact arelikely to have huge variability.

I think the Chinese version of this crisis will be the important one to watch for most of the world's population. The regime has many powers that it has allowed to go dormant so as to encourage the new capitalists. Those capitalists are running to Beijing screaming for help now so that roadblock is out of the way.

But the regime always makes its moves with an eye towards retaining ultimate control. Does it have the guts to decentralize rural government? How will it maintain food supplies? Will it unleash the power of the Internet by cranking out $100 Negroponte laptops with wireless for all the kiddies, or will it stick to censorship?

I read that there are sweatshops in China where kids play Warcraft or one of those other massive role-playing games because it allows you to exchange points for tiny amounts of real money. Myriad implications there, but to keep it concrete, what if there were Chinese government sweatshops where thousands of kids were winning gold coins on ebay one or two at a time to hide the buyup from the markets?

China sounds like an alternative-energy disaster area. Wind and sun in the west, population and typhoons in the east, earthquakes at any time. Maybe they can grow seaweed off their south coast and take some pressure off the food and energy crisis that way, but I can't think of anything else.

I am not sure I follow you.
China has excellent renewable resources, and is the number one in many of them.
Here are the wind resources, which are far from confined to the West:

Solar resources are also extensive in the South, including in many highly populated areas, and indeed is the biggest user of residential solar thermal power in the World by a very long way.

They are also number one in producing electric bikes, having around 60 million on the streets.

By 2020 they plan to have around 100GW of nuclear power built or under construction, as much as the total in the US, and by then should have 10 nuclear production lines capable of turning out around 10-20 nuclear power plants a year, in addition to their production of Pebble bed reactors:

This is similar to the present coal build, and is in addition to PV solar power, where again China is the number 1 producer, and costs are likely to be competitive with grid by around 2015.

A few months ago, I saw an interview with the CEO of Vestas, the world's leading wind turbine manufacturer.

He said that there were 13 new competitors from China versus zero from the US.

BTW, there was an interview last night with a demographer. Some observations:

  • Russia, Japan, and Germany are in terminal decline
  • Europe needs Turkey much more than Turkey needs Europe
  • Eastern Europe has lots of people in their 20's but almost nobody younger than 20
  • Brazil and Vietnam are entering optimal demographics for economic growth
  • India has a huge bulge of young people entering the workforce - it will remain a low wage country
  • China will soon face a labour shortage; the Chinese middle class will have rapidly rising standard of living; labour intensive work will be outsourced to India

I wonder if 850 billion dollars loaned to USA wind turbine manufacturers would get anything built-possibly even a few employees would be hired. I guess it makes more sense to cut a cheque to the King and let him park his butt at the craps table.

I tend to agree that China is in a position to come out on top of this when it comes to energy. Not only is the government leading a comprehensive effort to increasse inland energy production, they are also extreamly proficiant in utilizing state political power to strike deals with oilproducing countries where politics rather than market seems to beof more importance. This last point is also true when it comes to a range of other natural resources that China needs to grow.

I think this is the beginning of an era where deals between national state rather than markets will increasingly determine the "price" in transactions of real goods and services. I see an area of political power increasing while corporate power will be decreasing, for good and for bad. It will be the end of Reaganomics and the beginning of a state dominated economy, be it totalitarian as in China or democratic as in India.

I also see the current financial crisis as milestone representing the decline of western dominance of the world. Yeah... the west still has the most nukes and other weapons of mass destruction... but certainly not the most real economic productive capacity! We all know that those weapons if used would destroy ourselves as well as the ones we attack, so they are basically only usable as a potential threat or deterrent and not really usable to resolve a global struggle for political dominance.

China, India and the other emerging economies of Asia has since many years dominated industrial production, and has by far the most modern and competitive industrial infrastructure.

I think the best approach for those who live in the west is to take a good look at ourselves and our capabilities. Where do we still have competetive advantages and strategic resources? How can we utilize those to stay somewhat relevant in the future world economy and how can we forge national and regional strategies to be self sufficient when it comes to the essentials of life such as food, transportation, housing and healthcare?

Chinese agriculture is far fronm sustainable and they have severe water problems in the north.

They also have a demographic nightmare brewing.

Honestly, I think the more overpopulated a place the less well it will ride out the current downturns. Feeding 1.3 billion people is not easy under the best of circumstances.

At present China is rapidly increasing the food consumption of their people, hence the strains.
However, relatively recently they had a very basic diet, and economic strains are likely to set them back to simpler ways - and much of the infrastructure to do so remains intact.

I am not sure what demographic nightmare you are referring to, the fact that there are a lot of people in China or that it will be decreasing rapidly in the near future due to a low birthrate.

If your diagnosis is that the problems are due to a large population, then a combination of giving up the ongoing move to a Western diet and meat consumption and a falling population within a few years would seem to bid fair to mitigate it.

They also still have a rigorous system of control, and should great deprivation of a segment of the population, say the old, be needed, they would likely be able to enforce it.

Aging population due to one child policy

By 2030 or so 1/3rd their population will be retirement age. So it's not a large population per-se, but an aging large population.

Water crisis and depletion of aquifers

China brutalizes their environment worse then virtually anyone...

The obvious solution when it comes to food would be for russia to increase the production. There are lots of large rivers and arable land near the transsiberian railroad that is connected to China. What if they make a deal: Pay in form of money, agricultural machinery and even labour force to be supplied with large amounts of food.

The greenhouse effect should produce both warmer summers and warmer winters along with increased rainfall - resulting in better conditions for agriculture in the russian innland.

I am considering moving to siberia to exploit this obvious oportunity.

China has a population which is currently growing at a low rate. It will stabilise and begin to fall shortly- demographic momentum make this a sure thing.

Although there are environmental strains, a considerable reserve capacity is built in - the Chinese eat better than they ever have, and some reversion to eating less meat would mean that less output is needed.

The savings rate in China is also very high, so that capital resources can be thrown at any problems which become pressing.
Within 20 years the rural population will be largely the old, just like in Japan.

Economic pressure in the West and in Australasia also seem likely to mean that a less meat-intensive diet will be adopted, which would free vast resources to export grain to solvent customers like China.

They also have the consumer goods production to become a priority customer for whatever oil is available, and presumably a rapidly appreciating currency to buy it.

If some of the problems faced by the West, and the world in general, are rising populations, inadequate savings and investment, together with difficulties in maintaining social control in the likely coming shortages, I find it very difficult to see how China is not comparatively very favourably placed.

I agree pretty well with your opening remarks upthread about the unevenness of growth/depression effects world-wide. Like you I also guess that China will adapt. The critical issue of stability is probably within their capability as they make pragmatic mutually satisfactory deals with regional neighbours and secure access to critical resources globally. Though they are vulnerable to climate disruption and to screwing up their environment, particularly their agricultural environment, and to wasting resources in prestige construction and other 'wannabe'stuff, they are likely to try not to pauperise the majority of the 23% of the workforce engaged in agriculture and who mostly still live in villages.
For an account of a high yielding (10t - 12t/ha) cereal-based Yangtze village system at high population density (modern problems to 1993 and solutions), an abstract and part paper is available at
(Payment is required for full paper - I possess a hard copy)

Cheers Phil.
If you have resources, financial and otherwise, then a lot of possibilities open up to work around problems, although everything is far from hunky-dory in China.

One other consideration is that China has obviously got to provide for security in an increasingly dangerous world, but this seems unlikely to bankrupt them as it helped to bankrupt Russia, as it seems likely that the capabilities of the US will be greatly reduced shortly, firstly by financial constraints and then also by oil, which the US military's way of warfare uses more than their competitors.

Vulnerabilities are already appearing in Britain's defences:

The supersonic ‘Blackjack’ jet flew completely undetected to within just 20 miles from Hull in one of the worst breaches of British security since the end of the Cold War.
RAF radar eventually picked up the plane, but the only two pairs of fighter jets used for air alerts were on other duties.
The embarrassing breach late last year has called into question Britain's defence capabilities after four jet squadrons were cut from the RAF’s budget four years ago.

what seems likely to be a rapid collapse in the West's capabilities mean that China, and maybe Russia if oil prices don't sink too far, can reach a new position of strategic strength at little extra cost.
In China's case this will also free up still more money for dealing with energy and environmental issues.

I am currently at the World Conservation Congress in Barcelona, where there is a whole thread on energy and the links between energy and biodiversity conservation. (I'm actually doing an ethnographic research project here.) The energy themes that are popping out are related to climate change, the production of biofuels, and the idea of sustainable use; I'll post in more detail later.

More information, including a call for comments on a working paper on Energy, Ecosystems and Livelihoods, available at

If any TODers are here or if you have special insights on the energy/conservation biology nexus, let me know. My email is tmaclin (at) uga (dot) edu.

As I write this, oil just broke below $90 to $89.85. Did all of our hedge fund friends get out in time? I worry about those guys, they are such hard working straight shootin' gents...hehehe :-)


The "death" of the commodities boom?

I personally know several financial advisors who herded their clients into commodities as shelter from the subprime storm. Once more, betting with the crowd has proven painful to this date.


Anybody know of a good source for up-to-date steel commodity prices?

I am trying to put together a chart showing the changes in steel pricing over the last few years (5 would be great, 10 better). I can find older prices, but nothing for the last few months...

Here's a link to some commodity futures contracts, but iron is a little different because it is traded direct from buyer to seller, no futures market.

Nate: Great article. Since everything has already been thoroughly articulated and I rarely contribute anything of value, I wish to add something that people may find useful. Whats happening now is what everyone anticipated, albeit with every concievable variation and hypothetical sequence of events. Chief among them being, economic meltdown masking PO.

Heres my offer; When man first entered into agrarian endeavors, he was somber when planting and celebrated only during or after the harvest. This was predetermined from the beginning and totally predictable. There was no guarantee the sowing or cultivation would produce a bountiful harvest or any harvest at all. Recently, with the advent of cheap, abundant energy, man has cheated the Gods. Today a baby is born, people rejoice. Today, a person dies and people mourn. This is backwards and counterproductive....see (Alan/from/the/bigeasy) for his take on it. When man discovered this cheap energy he rejoiced, now when its depleted and he mourns...Again, this is backwards.

I say, REJOICE, the man that just died, was over 100 years old. Let each one present take their turn at the pulpit. Speak of how the deceased was full of energy, how he was kind and gave of his all. Tell lies of how in his life, nothing was squandered. Speak to the benefits he brought others. Exaggerate the eulogy untill everyone squirms in the pews. Speak honestly of how he will be missed by all, but refrain from negative memories and sentiments. Then lets bury him, say a few last words, and move on.

Lets have closure, so that we can continue. Stay for the baked beans and casserole if you wish, but don't hesitate too long. Theres work to be done, planting, cultivating, maintenance, harvesting. Where the deceased went, all will follow eventually. And everyone goes knowing, they will get a party also.

Alan...tell the band to strike up, "Oh When The Saints" and tell em too play it loud, ask the sax man too jazz it up, as soon as they finish burning those funny ciggeretts.


nice sentiments but the major problem is that everybody wants the party while they are still alive and 'to hell with the hangover': that pretty much sums up how we are in this mess...


I enjoy your stuff Neph', some pretty cool poetry a few days ago, the role of the storyteller will no doubt see a revival.

Met a fella, story tella
(true story - got thrown off a plane for being a public risk, had to sleep the night in the airport)
Met a fella, story tella

We are going to really appreciate those one-dollar DVDs in the dollar stores until our players stop working.


It seems to me that were the IMF to be asked to set policy it would urge austerity to reduce borrowing and increase savings. But, in a global crisis we seem to want to increase borrowing, at least short term. That means that the IMF prescriptions would need to be modified to increase savings even more. One way to do this would be to drive the price of oil down to around $20/barrel so that less wealth is devoted to chasing a disappearing resource. The 'drill booboo drill' thing can only make oil more expensive since we've already burned through our high quality resources. No drilling can be done at $20/barrel. The way to get to $20/barrel oil is to ensure that we only use existing oil wells in the future. This can be done through unilateral action on the part of the US for a decade at least just by rapidly cutting consumption. It seems to me that the economic prescription for the current crisis is conservation of oil and conversion to renewable energy.


"It seems to me that were the IMF to be asked to set policy it would urge austerity to reduce borrowing and increase savings."

If you read "confessions of an economic hitman", then you will find that the role of the IMF is actually quite the opposite.

Poor countries are encouraged to take on ridiculous amounts of debt knowing full well that they will not be able to pay it back.

Once the country defaults on the debt, we demand our "pound of flesh" in return (i.e. loot their natural resources).

The austerity they urge is as a condition to getting a loan I guess. You are correct that the IMF is very pro development and especially development of natural resources. I have not read the book but I have heard a number of interviews with the author.

Still austerity can be chosen rather than forced to accomplish certain goals and what I suggest as the place to best take austerity measures in in oil consumption because we will see such a large benefit in price.


How about reviving the negotiations to reduce conventional weapons in Europe, but extend it to other regions?

I know, I know, Hitler and all that. But we have spy satellites to verify now. How many lives did we save after the Washington Naval Limitation treaty because public money was spent on useful dams instead of more battleships to be sunk at Pearl Harbor? Those dams created electricity for small businesses.

Our National Guard is going to have its hands full at home soon, and we could revive the CCC, which was overseen by the Regular Army.

On WorldEnergy.TV at the you can see a 30 minute new TV show with Matt Simmons where he gives his opinion on the financial crisis and the gasoline shortage.

Someone better tell Dubai there is I crisis going on; I don't think they realise. This is simply astounding. All credit to the engineers:

but analysts say this new project is dazzling evidence of its confidence in the face of the credit crunch and worries about global recession.

The Chrysler Building was finished just in time for the Crash. The Empire State was finished in the depths of the Depression. After that, all the big action moved to public dams.

They'll get what's coming.


I have read that GDP is some complex function of Total Energy available to society. In an attempt to simplify I created a model that showed total energy as a rough parabola (Note the energy falls off more steeply Post Peak due to the affects of EROEI>0).

Onto this I mapped a generic business cycle. I also made this cycle shorter post peak as I find it likely that 'dead wood' will be weeded out much quicker in a depleting energy environment (i.e. bad business models will fail more quickly)...

The overall result is as follows -the data is just indicative and not intended to be accurate:

-Note how upswings in 'the good times' (increasing energy) are much greater than downswings -something that goes into reverse Post Peak. It would seem to suggest that recessions would be much more severe post peak. [Edit: I have taken out the word 'frequant' from this sentance as it was simply a result of my contraction of the business cycle length.]

-Comments welcome...

Regards, Nick.

It could be my imagination, but a few people I know who are realtors were VERY optimistic this weekend because of the bailout/rescue bill. I recceived an invitation to a community appreciation event, and have been repeatedly told that this bailout/rescue will reverse the residential housing sales slump; I didn't understand the hows and whys of their reasoning.

I mentioned this to a friend of mine last night and he said that yesterday's paper had something to the same effect, that the market was somehow "stablized" by this congressional action.

Meanwhile, I'm sitting here confused. Someone please explain.

The explanation is simple -they are salespeople and their job depends on 'bigging up' whatever it is they are selling. Like junkies they need a fix of really good news just to keep their sorry heads above the water these days but the lights have come on, the (debt) party is over and their time is numbered...


It's very confusing. My understanding is that the bailout bill is aiming at the credit crunch, it will take some time to be implemented. When implemented (a few weeks?), we should see a drop in the TED spread hopefully. The TED spread is rising again this morning:

However, we are only half through the housing bubble deflation, there is at least 18 months of drop in the housing market meaning more defaults.

Now, the stock market is another thing, they are reacting real time at broader economic indicators and also irrational fear.

Here is a good explanation:

Ah... yes... now I see.

Which nerd? Ron Paul? Nader?

I am gonna guess it's the nerd who was the editor of the Harvard Law Review and taught constitutional law at the University of Chicago.

Never mind my request (above) yesterday for an explanation, today they are taking depressing stuff. I guess it was all a temporary euphoria.

Mexico feels our fiscal pain

NUEVO LAREDO, Mexico — Economists have their numbers, and taco vendor Jorge Flores has his.

From a half-empty parking lot at an industrial park, Flores measures Mexico's economic health in terms of steaming hot tacos, orange sodas and scoops of fiery green salsa. And the taco index is looking shaky.

"I used to come here with 300 tacos and sell them all before noon. Now I sell 180 in the same time," he says, pointing out factories that have cut hours, stopped overtime and frozen hiring. "I don't even come here on weekends anymore."

Like many Mexicans, Flores fears that the U.S. economic crisis is beginning to spill over to Mexico, the United States' biggest trading partner after Canada and China. Migrants are sending home less money, banks are tightening their lending, and U.S. consumers are buying fewer cars, televisions and other Mexican-made products.

Leanan, I spent the night in Laredo last night, on my way back to my home in Mexico.

Just a little tidbit of annecdotal information you might find of interest:

Price of unleaded gasoline at the Pilot truck stop (as of last night) just north of Laredo--$2.95/galllon

And by the way, not to worry. Even though all the things you say are true--remesas down, oil exports in free fall, exports of manufactured goods to U.S. down and tourism in the dumpster because of the economy and escalating violence--the drug business is booming.

I don't have the figures right in front of me, but when I first moved to Mexico seven years ago drug exports to the U.S. brought in a little over $10 billion per year. Now they bring in over $23 billion per year.

What will happen to that market if the U.S. goes into a depression? It's hard to predict, but I suspect drug usage could actually go up.

Drugs sell themselves. I've been looking for something to invest in. I'm thinking about a liquor store.

Conventional wisdom is that "vice" usage go up during hard economic times. (alcohol, cigarettes, drugs, etc.) E.g., anheuser-busch stocks (BUD) were going up until about october.

Dow's down below 10,000. Who knew it was already the 29th?


Ok, can someone out there smarter than me explain the reasoning behind the Fed's new interest payments? Generally speaking, I feel like I understand why most of the things the Fed does at least superficially seem like they might make things look more stable, but this one I don't get at all.


Sharon Astyk

It does seem odd. Is it just an obfuscated way of transferring more money to the banks - recapitalising them through inflation)? That's what it seems like. It is very strange though, because you'd think that would encourage the banks to hoard more money, and lend less!

OBSERVATION: Financial institutions have lots of "value" reported on their balance sheets, but this value is frozen up in instruments that can't be sold at anywhere near that value. (Translation, I made up the value and I would have to 'fess up if I sold it.)

As a consequence, financial institutions have no cash to lend around to get things done. All of their cash went to the people who sold them their "valuable" assets.

FIRST RESPONSE: The Fed decided to lend financial insitutions cash while posting their "valuable" assets as collateral. The Fed invented new, large-scale ways of doing this and financial institutions maxed-out the opportunity. But they still didn't lend much cash around. The Big Question is: "can't" lend or "won't" lend?

CURRENT SITUATION: The Fed would like to believe that all of those "valuable" instruments really are valuable if we can just hang on long enough. The skeptics believe that there wasn't any value before and there won't be any value later - time to pay the piper.

The truth is somewhere in between. The Fed keeps trying to limp the system along, waiting to see if some of that "value" will materialize. Paying interest is a politically palatable way of pumping liquid cash into the system for awhile.

If the Fed lent money to the bank, who should be paying "interest" to whom? I still don't get it at all. Of course, I also don't get where the Fed gets all those trillions of funny-money to lend to the banks, let alone the "interest" to add on top of that. Unless it's all just fancy ways of saying "fire up the printing presses". But if so, how come the value of the dollar is going up (relative to most other currencies and relative to commodities)?

- befuddled in Vermont

I still don't get it at all.

Perhaps your confusion stems from thinking that there might be some "law of conservation of money" similar to the scientific principle concerning "conservation of mass and energy".

No. There is no such thing.

"Money" is a fictional thing that is conjured up wholly out of pure thin air. Before we humans walked this Earth there was no "money" and after we depart there will once again be no "money". It will vanish together with the Tooth Fairy and Santa Clause.

The people who run our government don't want you to know the secrets to how they make money (or sausages). So they hide their manufacturing operations behind a series of shells. Retail level banks are simply shell game fronts for the government itself. They fabricate more money (out of thin air) and inject it into the economy when the Fed wants to increase the "liquidity" of capital circulating in the economy and they suck it out of circulation just as easily when they want to reduce liquidity.

Look up FOMC, M1, M2, M3 using Google or the likes for more detailed information.

That said, there is nothing wrong with the concept of money per se. At the end of the day, "money" is a promise. The problem lies with the scheming dishonest people who make the promises in our current "new economy" and then don't live up to their promises (e.g, trust us, growth is good, greed is good, blind consumerism is good, gasoline is good, etc., etc.)

You gotta love the Tags Customers Associate with This Product:
"Dow, 30,000 by 2008" Why It's Different This Time

Russia MICEX down 20%:

Halted trading 3 times today? Surely that kind of action just makes the traders panic more?

There are some good articles on Bill Totten's weblog re the financial crisis.

I thought this one in particular was a lucid explanation:

Primer On Wall Street Meltdown

Mr. Bello makes a pretty good case that the current crisis has roots going back at least 30 years. He also implicitly calls out the connection to our ecological overshoot, of which peak-oil (and resource depletion in general) is one facet:

The problem with investing in financial sector operations is that it is tantamount to squeezing value out of already created value. It may create profit, yes, but it does not create new value - only industry, agricultural, trade, and services create new value. Because profit is not based on value that is created, investment operations become very volatile and prices of stocks, bonds, and other forms of investment can depart very radically from their real value - for instance, the stock of Internet startups that keep on rising, driven mainly by upwardly spiraling financial valuations, that then crash. Profits then depend on taking advantage of upward price departures from the value of commodities, then selling before reality enforces a "correction", that is a crash back to real values.

My take is that money must at some point be based on something that has actual value. When you peel back the layers of the onion you find that pretty much the only things that have real intrinsic value are resources extracted from the Earth, which by their very nature are finite in quantity. Money, on the other hand, is created from debt under our current system and can, by it's very nature, grow to infinity.

Not a good combination, even in the best of times.


This will make nuclear power very compelling with commodity prices crashing. Government backed loans with cheap concrete and steel should provide a big kick start for the new nuclear build. It might be what pulls parts of the US out of recession, especially the southeast. Each new plant will require probably a couple thousand jobs and most of that money will stay in this country/local economy. Even if the federal government doesn't give out loans, the states will to get the state economy going.

Enrollment in Nuclear Engineering programs in the US has risen from 500 in 1999 to 1900 in 2007. I bet that will accelerate even more.

UK considering partial nationalisation of banks

Mervyn King, governor of the Bank of England, who met Mr Cameron last week, is also thought to favour a recapitalisation plan to supplement the central bank’s own operations to boost liquidity to the financial system.

The scheme, which has echoes of a similar operation by the Swedish government in the early 1990s, would be available to all banks. In exchange for the capital injection, taxpayers might be protected through preferred shares or warrants, giving them generous dividends in future

Good God! The UK Government considering something which actually sounds reasonable!
Shome mishtak, shurely?

There is really no point in me coming to TOD anymore so, thanks for everything, Farewell

Appreciate your inputs morning star. Cheers!

See you on the other side of the apocalypse.

What? BBC is telling us the markets in Japan are crashing yet again. Looks like the other side may be only hours away... :-)

Please drop by with your insights again sometime. Like tomorrow. Fare thee well until next time.


Great thread, but if you want financial analysis, why not simply to to The .... Automatic .... Earth.

Did anyone at TOD ever answer as to why I&S were thrown out of TOD Canada?

Thank you,

I read TAE occasionally - it is very entertaining -Ilargi is a gifted writer. But there is little if no analysis there - just some commentary preceding other links. Also, I really lost some money I shouldn't have being short financial stocks 2 weeks ago -without such gifted writing, I mightn't have shorted some of the banks Ilargi wrote about! With those exceptions, I agree it is a pretty good clearinghouse for financial news and Ilargis rants are often enjoyable. For someone who doesn't know finance, its a pretty good summary page for me.

This is bigger picture stuff here. How do we reconstruct society etc etc. Though I am beginning to see that as less likely.

I don't remember I&S at TOD.

There is a wonderful piece in 'The Telegraph' regarding Galbraith's comments on the 1929 crash:

In the 1920s, says Galbraith, America’s economy had been weakened by “bad distribution of income... bad corporate structure... bad banking structure... dubious state of the foreign balance... and poor state of economic intelligence”. Who can say with certainty that today it is different? Who now wants to defend the promoters of a one-way bet on property? Any takers?

For those hoping that the stock market’s recent “correction” will be followed by a swift recovery, Galbraith puts a wealth warning on suckers’ rallies. “The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximise the suffering.”