DrumBeat: October 29, 2008

Jeremy Leggett - Time for an energy bail-out: Peak oil is just five years away, and we must start to plan now to avert a truly ruinous crisis

If eight companies across a broad spectrum of UK industry had warned, five years ago, that a ruinous credit crunch would hit the global economy this year, might the government have taken the warning seriously? Might UK leadership in damage limitation have been proactive, rather than reactive? Could a softer landing and a faster recovery have been possible as a result?

Today, eight British companies are warning of a ruinous oil crunch five years from now. We warn that the global peak of oil production will arrive unexpectedly early, resulting in not just a global energy crisis, but potentially the withholding of exports by oil producers and energy famine in oil-importing countries. Previously unimaginable policy interventions in financial markets have suddenly become imperative, and similar interventions in energy markets today may be worth their weight in gold tomorrow, in terms of economic and social damage avoided, especially as this would also help tackle climate change.

US energy sector on presidential candidates' plans


"Neither has an energy policy that is completely fleshed out yet. Obama wants to drill on existing land. McCain wants to drill on other lands.

The most important thing any president can do is to keep their eye on the ball. We need to prepare for 'peak oil'. We need to drill in a lot of places we don't now. We need to do everything Republicans and everything Democrats want."

Russian Oil Output May Fall 1.5% Next Year, Lukoil's Fedun Says

(Bloomberg) -- Russian oil output may fall 1.5 percent next year as the country struggles with aging fields, OAO Lukoil Deputy Chief Executive Officer Leonid Fedun told a conference in Moscow today.

Output in Russia's oil heartland of western Siberia is flagging as older fields mature and companies invest in harder- to-reach regions to tap deposits. In July, parliament approved tax breaks championed by Prime Minister Vladimir Putin to spur investment in national production.

Oil prices are way down. The boom has bust (for now).

Feast or famine — boom or bust as oil workers call it — is the way of the world for the oil industry.

Lower oil prices may help the world find more

The world might not be able to get enough oil out of the ground.

That is the gloomy conclusion of an upcoming report from the authoritative International Energy Agency, according to the Financial Times. Ironically, the best cure for this problem may be lower prices.

W. Africa Crude-Nigerian oil offered at lower diffs

LONDON (Reuters) - Nigerian light-sweet crude oil premiums for December loading are lower month-on-month as demand from the United States and Asia has fallen and refinery margins have tightened, traders said on Wednesday.

Investors Plan 1st Non-Petrobras Brazil Refinery in 5 Decades

(Bloomberg) -- British, Spanish, Brazilian and Persian Gulf investors plan to build a $3 billion refinery in Brazil, the first in the country by a company other than state-controlled Petroleo Brasileiro SA in five decades.

Angola cuts benchmark oil price to $55 in '09 budget

LISBON (Reuters) - Angola has cut the proposed benchmark oil price in its draft 2009 budget to $55 per barrel from $65, state-owned news agency Angop reported on Wednesday citing a draft document.

Vancouver municipal candidates should brush up on peak oil

I was stunned that none of these three candidates could explain what peak oil was, let alone tell the audience whether or not they would respond to this issue if they were elected.

Food, not zombies

I recently read the Church of the Latter Day Saints’ “Preparedness Manual,” which the Mormon Church distributes to its members. The manual is a detailed and thoughtful plan on how to stockpile food and supplies, and develop the necessary skills to survive the_______(fill in the blank: zombie apocalypse, economic collapse, assault of the New World Order, nuclear holocaust, peak oil crisis, electro-magnetic pulse terrorist attack, etc.).

The Mormon community isn’t proposing to live out a video game- and movie-fueled juvenile fantasy, nor does it promote the stereotypical survivalist, an assault weapon-hoarding loner in full tactical battle gear. Instead, it puts forth a method for prospering in a world that has proven to be volatile and unpredictable, and where prosperity is a fickle friend to comfortable nations. But the methods are still a bit, um, insular and extremist.

Time to build a new civilization

"The maximum happiness for the greatest number of people," which should be the essential objective of democracy, has been forgotten. Today's materialism is based on greed, which is now threatening the future of mankind and the globe. The current financial meltdown is one clear example. The deterioration of the environment is another.

Mahatma Gandhi said, “The earth can provide for every one’s need, but not for every one’s greed.” This may explain the problems encountered by globalization.

So-called GDP economics ignores all the important values that cannot be quantified and converted into monetary values, such as culture, tradition, family and social justice. And it makes a major mistake in regarding natural resources as “income” and not as “capital,” which requires preservation. Because of this mistake, economic growth is seriously damaging the environment.

Amid economic crisis, wind power spins more slowly: Many of the big players who were drawn to alternative energy by tax credits are now sidelined or kaput.

On Michigan’s ‘thumb,’ a broad peninsula whose gusts make it one of the best places in the US to site a wind farm, Noble Environmental Power has erected 30 huge wind turbines – 16 more will finish the job.

But the project was hit by a financial gale last month when key underwriter Lehman Brothers went bankrupt. With Lehman out, Noble was forced to sell in a hurry. Three more Lehman-financed wind-power projects in New York are also in doubt, according to published reports.

America’s credit crisis is shaking up not only smaller alternative energy sectors like solar and geothermal, but also the largest renewable electricity sector – wind power.

Brazil ethanol, sugar sector sees hard times ahead

SAO PAULO (Reuters) - The global credit crunch delivered the latest punch to the gut of Brazil's ethanol and sugar industry, which has been struggling with low margins over the past couple of years.

The bright prospects of some years ago seem to have folded according to producers and analysts participating in the annual Datagro Sugar and Ethanol Conference in Sao Paulo this week.

Oil technology still key, even at low prices: execs

HOUSTON (Reuters) - Lower oil prices could slow the most difficult drilling projects, but energy companies will keep spending on new technology to stay competitive and prepare for the future, executives said at a conference Tuesday.

"Some really challenging projects might be postponed, but I don't think, in the long run, we'll lose anything," said Lars Ostlund, who markets high-tech oilfield tubing for Sandvik. "The need for oil and gas is so huge."

Oilsands still viable, Suncor CEO says

CALGARY–The chief executive of Suncor Energy Inc. says he disagrees with the doom-and-gloom notion that falling crude oil prices have rendered the company's oilsands projects uneconomic.

"There seem to be a lot of misunderstandings and panic in the market," Rick George told an analyst conference call to discuss the company's third-quarter results on Wednesday.

Oil could remain low for over a year - BP economist

LONDON (Reuters) - World oil prices are likely to remain low for another 12-18 months if the global economic crisis continues to cut demand for oil, the group chief economist at BP said on Tuesday.

'We should expect oil price volatility and low oil prices for 12-18 months until economic recovery helps prices to rise,' said BP's Christof Ruhl at the Oil & Money conference in London.

Gazprom's oil arm trims oil output forecast for 2008

MOSCOW (RIA Novosti) - Gazprom Neft, the oil arm of energy giant Gazprom, said on Wednesday it had revised its 2008 oil output forecast down from 31.7 million tons (232 million barrels) to 31.2 million tons (229 million barrels).

Gazprom Neft Deputy General Director Vadim Yakovlev said the forecast had been cut due to falling oil prices and unsuccessful geological prospecting at some oil deposits.

Robert Bryce: Is Big Oil for Obama?

Among Democrats, it is widely accepted that George Bush and Dick Cheney are in the tank for Big Oil. Yet some of the leading players in the U.S. energy business can’t wait for them to leave office.

Palin: despite oil dip, energy steps still needed

WASHINGTON (Reuters) - Republican vice presidential candidate Sarah Palin, seeking to underscore her expertise on energy issues, said on Wednesday a drop in oil prices should not dissuade the United States from taking steps for greater energy independence.

Hydraulic hybrids? UPS orders a few

ATLANTA - By now we've all heard of hybrid vehicles, but there's a lesser known variation: hydraulic hybrids, or HHVs. The technology delivers significant reductions in fuel use and pollution, and delivery giant UPS Inc. has made the first commercial purchase.

Gas sinks to 3-year low

Gasoline prices in 42-day, 37% decline, as oil prices and fuel consumption continue to fall.

The temples of doom

"We think we are different," says Jared Diamond, the American evolutionary biologist. "In fact...all of those powerful societies of the past thought that they too were unique, right up to the moment of their collapse." The Maya, like us, were at the apex of their power when things began to unravel, he says. As stock markets zigzag into uncharted territory and ice caps continue to melt, it is a view increasingly echoed by scholars and commentators.

What, then, is the story of the Maya? And what lessons does it hold for us? According to Diamond's thesis, this: the ancients built a very clever and advanced society but were undone by their own success. Populations grew and stretched natural resources to breaking point. Political elites failed to resolve the escalating economic problems and the system collapsed. There was no need for an external cataclysm or a plague. What did for the Maya was a slow-boiling environmental-driven crisis that its leaders failed to recognise and resolve until too late.

PM Putin suggests Russia, China ditch dollar in trade deals

MOSCOW (RIA Novosti) - Russian Prime Minister Vladimir Putin proposed on Tuesday that Russia and China gradually switch over to national currency payments in bilateral trade, expected to total $50 billion in 2008.

"We should consider improving the payment system for bilateral trade, including by gradually adopting a broader use of national currencies," Putin told a bilateral economic forum.

He admitted the task would be tough, but said it was necessary amid the current problems with the dollar-based global economy.

Kuwait parliament votes to guarantee bank deposits

Kuwait's parliament passed a law Wednesday fully guaranteeing all deposits in Kuwaiti and foreign banks operating in the oil-rich state.

The move was needed to calm nerves after a major bank incurred steep losses in derivatives.

LUKoil plans to increase oil, gas production in 2009

MOSCOW (RIA Novosti) - LUKoil, Russia's largest independent oil producer, intends to increase oil production by 1.5% and natural gas production by 3-4% in 2009, the company's vice president, Leonid Fedun, said on Wednesday.

Speaking at a UBS conference, Fedun said: "Next year, we will increase oil production by 1.5% and natural gas by 3-4%."

Electric cars are a big chance for China - McKinsey

BEIJING (Reuters) - China should push electric cars to curb its dependence on imported oil and foreign automobile technology, although they offer smaller cuts in carbon emissions than alternatives like hybrids, McKinsey and Company said.

In two decades it could create a world-leading industry and a domestic market alone worth up to 1.5 trillion yuan ($219.4 billion), even if less than a third of drivers go electric, the consulting firm said on Wednesday in a report, "China Charges Up".

The Most Radical Thing You Can Do: Staying home as a necessity and a right

We are going to have to stay home a lot more in the future. For us that’s about giving things up. But the situation looks quite different from the other side of all our divides. The indigenous central Mexicans who are driven by poverty to migrate have begun to insist that among the human rights that matter is the right to stay home. So reports David Bacon, who through photographs and words has become one of the great chroniclers of the plight of migrant labor in our time. “Today the right to travel to seek work is a matter of survival,” he writes. “But this June in Juxtlahuaca, in the heart of Oaxaca’s Mixteca region, dozens of farmers left their fields, and women weavers their looms, to talk about another right, the right to stay home. . . . In Spanish, Mixteco, and Triqui, people repeated one phrase over and over: the derecho de no migrar — the right to not migrate. Asserting this right challenges not just inequality and exploitation facing migrants, but the very reasons why people have to migrate to begin with.” Seldom mentioned in all the furor over undocumented immigrants in this country is the fact that most of these indigenous and mestizo people would be quite happy not to emigrate if they could earn a decent living at home; many of them are just working until they earn enough to lay the foundations for a decent life in their place of origin, or to support the rest of a family that remains behind.

LUKOIL says Russia could trim output, join OPEC

MOSCOW (Reuters) - A vice-president of Russian oil major LUKOIL said on Wednesday the Russian oil industry's future hinges on close cooperation with OPEC and said the country could cut production to help OPEC prop up prices.

The comment by Leonid Fedun at a conference in Moscow came as a big surprise after his boss, the head of LUKOIL Vagit Alekperov, said earlier this month Russia should not join OPEC as it would damage its oil industry.

"We are seeing that Russia and OPEC are beginning to cooperate. I believe the future of the Russian industry and price stability hinges on close cooperation with OPEC," he said.

OPEC oil output rising in Oct - Petrologistics

LONDON (Reuters) - OPEC's oil output in October is expected to rise by 200,000 barrels per day to 31.9 million bpd because of higher supplies from Iraq, industry consultant Petrologistics said on Wednesday.

The estimate also indicates that the Organization of the Petroleum Exporting Countries, excluding Iraq, is trimming output back to official target levels, in line with a Sept. 10 agreement to prop up prices.

Output from the 12 OPEC members with supply targets -- all except Iraq -- is expected to average 29.59 million bpd, little changed from 29.56 million bpd in September and less than their target of 29.67 million bpd.

Oil's Big Players Have an Edge

If oil-industry executives were stars on reality TV, right now they would be making the jump from "Joe Millionaire" to "Survivor."

The price of Nymex crude oil has fallen from a high of $145 a barrel in July to below $64 today. From the perspective of oil producers, however, the drop is far worse.

Paul Sankey, an analyst at Deutsche Bank, reckons that some smaller, mature onshore U.S. fields need a price of about $80 a barrel to meet their running costs. In effect, they have seen their profit drop from $65 a barrel at the market's peak to less than zero.

Israel Trying for Russian Gas Deal

(IsraelNN.com) Director General Chezi Kugler of the Ministry of Infrastructure led a clandestine delegation to Russia to negotiate a deal for natural gas with GazProm, reported Globes. Kugler was the only official from the ministry on the trip.

U.N. pays out $889M from Iraqi oil fund

GENEVA (AP) — The U.N. panel overseeing compensation for victims of Iraq's 1990 invasion of Kuwait said Wednesday it has paid a $888.6 million installment from Iraqi oil funds to cover losses and damages suffered by governments and private companies.

The U.N. Compensation Commission said the money will go to 13 claimants in Kuwait, two in Saudi Arabia and one in the U.S.

Pakistan: Industrial zones allowed to have own power plants

LAHORE: All Industrial zones in the province of Punjab were Tuesday allowed to have their own power production plants so that they could be to cope with ongoing energy crisis.

India likely to face diesel shortage in Nov-March

NEW DELHI: India is likely to face a shortage of 2.5 million tonne of diesel during the November-March period, which would have to be met either through imports or from Reliance Industries' only-for-exports refinery. “The oil companies have told us that they will have a deficit of 2.5 million tonne from now till March,'' said Mr S Sundareshan, Additional Secretary, Ministry of Petroleum and Natural Gas.

Do we need oil from outer space?

MOSCOW. (Andrei Kislyakov for RIA Novosti) - Scientists from the Royal Observatory in Edinburgh said, judging by the chemical composition of stars in the Milky Way, our galaxy could contain anywhere between 300 and 38,000 highly developed extraterrestrial civilizations potentially capable of contacting Planet Earth.

Although current generations are unlikely to shake hands with little green men from Mars, humankind has already discovered sizeable mineral deposits on other planets. But should we pin any hopes on them?

GM global sales plunge

NEW YORK (CNNMoney.com) -- General Motors reported sharply lower global sales as weakness in the nation's leading automaker's domestic sales spread to overseas markets.

GM reported that overall sales were down 11.4% worldwide in the third quarter compared to the same period a year earlier.

That was a much steeper decline than the 2.9% drop seen in first half of the year.

Sen. Hillary Rodham Clinton and Rep. John M. McHugh: Steps to help New Yorkers face winter

We are proposing a refundable tax credit for middle-class homeowners and renters to help defray the rising cost of home heating. The Home Energy Affordability Tax Relief (HEATR) Act will provide a $500 refundable tax credit for individuals and families who spend more than $1,500 on home heating costs during the coming winter season. Those who spend below $1,500 would receive a credit equal to one-third of their heating costs. That's more money that individuals and families can use to pay for necessities other than home heating.

Trouble Awaits Nuclear Investors

Nuclear power plants have high start-up costs, making their viability closely tied to the cost of other energy sources. India itself has made significant natural gas finds in the past three years, offering a cheaper and cleaner power source. Moreover, foreign investment will be harder to find in coming years, particularly given existing concerns--based on Enron's highly unsuccessful efforts to participate in India's power sector during the 1990s--that return on investment is not secure.

Duke Energy to help finance Cincinnati streetcar initiative

The city of Cincinnati has secured a $3.5 million contribution to its streetcar initiative as part of settlement of an electric-rate case with Duke Energy.

Seaweed "efficient and reliable" biomass fuel, claim researchers

Researchers at the Scottish Association for Marine Science (SAMS) have hailed seaweed as a possible feedstock for biomass energy production.

The Obama factor

The Obama energy agenda is a laundry list of subsidies, regulations and laws to force the United States off imported oil and move it toward "energy independence." That, says the Obama platform, "will require far more than the same Washington gimmicks." The new Washington gimmicks -- which could include putting oil company CEOs in jail for gouging consumers -- involve massive redirection of government resources to undermine market forces. The kind of policies that delivered the Fannie Mae/Freddie Macmortgage crisis would be brought to energy.

A farm for all

When Tim and Megan Toben have a potluck dinner, they wind up with more than casseroles and hastily store-bought desserts. Maybe it's because of the company they keep --people who appreciate good food and often grow at least some of what they eat.

Or maybe it's because bringing a pre-fab entree would feel sacrilegious while dining before a blazing bonfire, a few feet away from their organic garden, biodiesel conversion station, windmill, solar panel and their three goats -- a big draw for the other kids who frequent the Pickards Mountain Eco-Institute in Chapel Hill.

Science and Politics

As America begins its quest to remove its dependence on fossil fuels, debate has reignited over how prominent the role of nuclear power should be in the nation’s energy future.

Falling oil production 'is greater threat to Britain than terrorism'

The Peak Oil group warned in a report that the country could begin feeling the effects of a severe lack of oil within five years, as oil-producing countries will be forced to wind down production due to diminished reserves.

Jeremy Leggett, the chairman of the Peak Oil Group and the executive chairman of the alternative energy company Solarcentury, said there was still time for the Government to act to protect the country from the impact of reduced oil supplies by reducing the economy's dependence on the fuel.

Mr Leggett, who is a former oil company executive, said: "Society has become oil-dependent to its rivets. "What we are warning of is a peak in production beyond which will be a fall, potentially a rapid fall, and that will mean a global energy crisis if the analysis is correct."

IEA Statement on Unauthorised Press Coverage of World Energy Outlook 2008

The Financial Times carried a cover page article this morning and a second article on page 4 allegedly reporting on the findings of the forthcoming WEO 2008. This article was drafted without any consultation with the IEA. It appears to be based on an early version of a draft from several months ago that was subsequently revised and updated. The numbers in the article can be misleading and should not be quoted or considered to be official IEA results. We are dismayed that such a comprehensive and important IEA report was made public without our input and verification.

The IEA will present the final and accurate results of the World Energy Outlook 2008 officially as planned at a press conference in London on 12 November. At that time, we will be happy to discuss the results and their implications for the global energy and climate in full detail.

Record rig costs will jeopardise deepwater oil projects

With oil at $60 per barrel, some deepwater projects in Brazil, the Gulf of Mexico and West Africa are looking uneconomic in a market when drilling rig and offshore vessel rates are at record levels, so something has to give, said Matthew Simmons, chairman of investment group Simmons & Co.

“Oil sands and gas shales in North America and deepwater projects do not work at $60 oil. The problems are oilfield service costs are too high and we need to change this for projects to go ahead,” Mr Simmons told Lloyd’s List at the Oil & Money Conference in London on Tuesday.

“Rig costs are so high and we cannot get enough spare capacity to lower costs. Even if more rigs are built, it is hard to recruit people, so crew costs are high.”

Russia '09 budget safe if oil averages $60

MOSCOW - Russia's 2009 budget is safe if oil price averages $60 a barrel, but for the following year budget revisions or the use of reserve funds may be necessary, deputy finance minister Dmitry Pankin said on Wednesday.

‘At $60 a barrel, the 2009 budget will be balanced, 2010 probably not,’ Pankin said.

‘Option one is to use the reserve fund, option two is to reconsider the budget.’

'Gazprom not deterred by financial woes'

Russian gas giant Gazprom is committed to its strategy of annual dividend rises and does not plan to scale back projects because of the financial crisis, chief financial officer Andrei Kruglov said today.

Mexico approves watered-down oil industry reform

MEXICO CITY – Mexico's Congress passed a watered-down energy industry reform Tuesday that enables private contractors to participate in the state-owned oil business but won't likely draw enough investment to reverse declining production in the third-largest oil supplier to the United States.

Oil companies cautiously count profits

HOUSTON - Record crude prices this summer are translating into huge profits, as BP and Occidental Petroleum showed Tuesday, but some energy companies are bracing for tougher times, keeping a closer tab on cash and cutting spending.

Jim Brown: Crude Prices Producing Caution

Another factor causing a decline in forecasts is the lack of financing. Many smaller firms rely on financing for their deals, expenses and infrastructure build outs. They go to the banks/brokers with a proven lease and borrow millions to drill it out, build the infrastructure and begin production. With credit lines locked or cancelled many of these firms have gone nearly dormant while waiting for the credit thaw. Some are doing cooperative deals with other companies to utilize equipment in exchange for participation. However, overall the exploration and development rush has cooled until prices begin to rise and credit lines return.

BP will cut more jobs despite soaring profits

LONDON (AFP) – Energy giant BP, fresh from unveiling an 83-percent jump in third-quarter net profits, is planning to cut more jobs than previously announced, the Financial Times reported on Wednesday.

The business daily quoted BP chief executive Tony Hayward as saying that he expected the total number of job cuts would be "materially higher" than the 5,000 already announced.

Indonesia mulls cut in fuel prices

JAKARTA (Xinhua) -- Indonesia is considering to lower fuel prices following the decline of global oil prices, according to a paper here Wednesday.

Mind-numbing oil

We're all so freaking doomed!

Saudi Aramco Cuts LPG Prices for November as Crude Oil Falls

(Bloomberg) -- Saudi Aramco, the largest supplier of liquefied petroleum gas to Asia, cut prices of cargoes loading in November after global crude oil benchmarks declined.

The Dhahran, Saudi Arabia-based company reduced the price of propane cargoes by $300, or 38 percent, to $490 a metric ton, said a company official who asked not to be identified. Aramco lowered the price of butane by $320, or 40 percent, to $490 a ton.

Sinopec Profit Falls 39% on Record Crude Oil Costs

(Bloomberg) -- China Petroleum & Chemical Corp., Asia's biggest oil refiner, said third-quarter profit fell 39 percent because an increase in the government's ceiling on retail fuel prices wasn't enough to cover record crude costs.

Ford hybrids' gauges sprout leaves, highlight fuel-efficient driving

Ford plans to announce Wednesday that the Zen-like instrument panels in its 2010 Ford Fusion and Mercury Milan gasoline-electric hybrid-power midsize sedans will include electronic display screens on which images of green leaves multiply when drivers are motoring in fuel-efficient fashion.

When drivers slide behind the wheel, the screens show grass, clouds and sky. The leaf images pop up in a corner of one of the screens when the engine starts.

Germany opens first offshore wind farm

BERLIN (AFP) – Germany opened its first offshore wind farm Tuesday which Environment Minister Sigmar Gabriel called a key step toward more reliance on renewable energy in Europe's biggest economy.

Gabriel pressed the start button at the Hooksiel complex some 500 metres (500 yards) off Germany's North Sea coast.

Keep up climate change fight amid financial crisis: wind group

BEIJING (AFP) – The head of the Global Wind Energy Council warned Tuesday of dire consequences if governments weakened their fight against climate change due to the global financial crisis.

"Don't take your eyes off the big picture, it's irresponsible," said Steve Sawyer, the council's secretary general, ahead of a major wind power conference starting Wednesday in Beijing.

"In the next two, three decades, it's critical for the survival of human civilisation as we know it," he said.

World threatened by ecological 'credit crunch': WWF

PARIS (AFP) – Reckless borrowing against Earth's exhausted bounty is driving the planet toward an ecological "credit crunch", the World Wildlife Fund warned on Wednesday.

Growing demands on natural capital -- such as forests, water, soil, air and biodiversity -- already outstrip the world's capacity to renew these resources by a third, according to the WWF's Living Planet Report.

China says coal addiction makes climate change fight hard

BEIJING (AFP) – China warned Wednesday its heavy dependence on coal to fuel its fast-growing economy made it difficult to control greenhouse gas emissions, but said fighting global warming remained imperative.

Releasing a policy paper on climate change, the Chinese government acknowledged the deep impact global warming had already made on the world's most populous nation -- and warned of much worse to come.

"Extreme climate phenomena, such as high temperatures, heavy precipitation and severe droughts, have increased in frequency and intensity," the so-called "White Paper" said.

If not alleviated, these phenomena will increase natural disasters, reduce grain yields and impact livestock raising, hampering the nation's efforts to feed its 1.3 billion people, it said.

LONDON (AFP) – Energy giant BP, fresh from unveiling an 83-percent jump in third-quarter net profits, is planning to cut more jobs than previously announced, the Financial Times reported on Wednesday.

This seems to me to be very wise. Oil companies should be planning for reduced demand, fewer refineries and an end to exploration activities as we wind down our use of oil.


Was that some 'extra-dry' sarcanol? It might be 'wise', ok.. but damn, it's cold! I have friends who worked on the 'Sopranos'.. union guys, and after a phenomenal first season, where the show was obviously taking off, the crew got pay cuts.

The business models that prevail right now might be 'economically justified and perfectly legal', but I won't be surprised to see guillotines sprouting up before long.



It seems to me that we should strive to have energy sector jobs being as small a fraction of total employment as possible as a general principle. This makes sense because we do better with more efficient energy production while the same cannot be said about lots of other activity: more efficient artists for example. That said, we are likely to see an increase in employment in the energy sector in the near term even though the time average is going to fall because the superior energy sources we have available for our transition off of oil have mostly upfront labor requirements. Manufacture and installation of wind turbines and solar panels is the main investment for these high EROEI energy sources and there is a lot less of process stuff like running oil platforms or refineries or gas pumps. So, most of the work happens upfront even though there is about a factor of two less work overall for the same amount of energy delivered.

Again, the basic equation is less effort spent on energy means greater overall prosperity. We happen to be at a point where we are seeing economic contraction at the same time that we have an opportunity to reverse that contraction by boosting green collar jobs. But, that glut of jobs won't last. It should, however, more than compensate for job losses during the wind down of the oil industry. Contraction of the oil industry does not mean contraction of the energy sector in the mid-term. BP is being responsible by letting people go when they can still meet their obligations for pensions and such. The oil sector should shed about 80% of its employment over the next 15 years or so. I expect that in many cases the current profits will have been blown on pointless exploration and employees will lose all their benefits along with their jobs.


I mostly agree with your perspective, except for the pension part. I don't see how any declining industry can support pension levels that were affordable based on projections of growth. The auto industry is the immediate case in point -- the lofty pensions that were somewhat affordable during the peak years made the Big 3 sluggish and disadvantaged in recent years as less-shackled foreign competitors successfully competed and innovated more adeptly than they could manage. Now that a global tide is going out the weight of pensions is heavier still, and may well driven all into bankruptcy.

I fear we will see this play out with social security as well, and even 401Ks, as a declining economy supported by current wage-earners cannot possibly support a growing population of retiring workers at the levels to which they had promised themselves. To the extent that money to fund a population is a function of cheap energy and productive labor, if those factors turn down drastically there will be less to go around, and those that are working will be increasingly less willing to provide for those who are not, regardless of past agreements.

I see no future where the retirement age will not move up while life expectancy moves down...and where partial-retirement (continuing to work part-time or returning to work to bridge declining support with increasing needs) won't become the norm.

Well, the point is that what we have to hand to replace oil is superior to oil in terms of EROEI so we should see improve prosperity compared to the present as a result of shifting off of oil. That is good for society wide pension programs. It is also possible for an industry to wind down responsibly, funding pensions based on planned decline. BP may be able to do this.

I expect that life expectancies will continue to increase, and, more importantly, people will remain healthy longer. So, I look for an increase in the retirement age getting set in the next ten years or so. Retiring at 72 or so pretty much clears up any issues with social security.


Retiring at 72 or so pretty much clears up any issues with social security.


I keep reading this kind of brain dead idea and I have to say it pisses me off. Since many others have suggested the same thing, this isn't directly directed towards you.

I, and several other TOD posters, are either close to 70 or over 70 and, perhaps, have a better idea of the feasibility of this. First, there are a lot of occupations that people have that are not physically viable at that age. Second, job stress is more difficult to deal with as you age. Third, assuming that the average retirement age is currently 62, that means a decade where younger people will lose their change for advancement as the old farts hang onto their jobs. Fourth, the reality is that older people have more health issues. Finally, it will make little sense to financially plan for a long term future. This, in turn, will impact a variety of financial entities.

Let's look at some real life examples:

My mom and dad retired at 62. He developed ALS when he was 66 and died at 68. My mom took care of him for those two years. Under the retire at 72 premise, would my mom have been compelled to keep on working and send him to a care home and, likely been wiped out financially and emotionally in the process?

In my case, I've had a variety of occupations ranging from research chemist to process development manager to plant manager to organic farmer to house designer and builder plus a few more. I know I could no longer build houses physically because I stop doing it when I was in my 40's for that reason. Same thing goes with farming on our small scale. Chemistry isn't too good right now as there have been many lay-offs. I mean, what's an old layed-off chemist supposed to do when there are likely no jobs?

I hope you get my drift in this.



What I am anticipating is that your dad would get sick later in life than he actually did if he were born later. This is the demographic trend. You are close to seventy and still thinking of work even if jobs are scarce. I expect that will be more common in the future as health trends look good. One way the the need to advance younger people is handled in some places is to have those past a certain age consult rather than take up titled positions. It is a little awkward. I don't think we should increase the retirement age if the health indicators are against it. But, they seem to be encouraging.



You are an anomaly according to Chris. Had your Dad been born later like only last year where he would still be a bouncing babe in excellent health, you are not really here except for some sort of time warp.


Chris: Please read your post before you hit the trigger.

Seriously though, I am in about the same shape. At 75, it can take all night to do what I used to do all night. I really hate to see these younger guys go off on some sort of tangent. What I really think is up is some sort of Soyant Green scenario where, you become a canned food product when you are no longer useful in the work force. Of course there are quite a few of us over aged well armed veterans that may not go for that idea.

Whichever future you wish to pick, it will be interesting.

I thought I had my meaning down clearly but I don't want to be misread on a fairly sensitive subject: People are liveing longer and staying healthier longer than they used to. Todd is apparently game for work near seventy while his father would not have been. All this is actually fairly statistical, but there is no reason not to bump up the retirement age if people are going to be living longer. As long as people still get a longer retirement than their parents, they are still "winning." Or getting an improved quality of life or whatever.

So, again, had Todd's father been born later, he would be more likely to live longer as well, on a statistical basis. If you don't read that in what I wrote, please try to see it in there now.


People are living longer and staying healthier longer than they used to.

There are so many flaws in your thinking, I am amazed you cannot see them. First, the point already made. "IF" is not at issue. There are plenty of people alive now to make your "if" pointless.

As for health, you are looking at current trends. In a very short period of time, all those trends will be reversing due to a much lower standard of living.


Though I agree about the sensitive nature of the topic, and I at least got to watch my parents enjoy 15 years of simple and modest retirement before they died. However, I have no expectation that I will be able to depend on social security even to the level they did, or that I will be able to hold on to meager investments and property at reasonable tax rates as they did.

I fully expect to have to work harder to acquire less, and to never be able to stop working, and yet I'll be happy if my kids (and grandkids?) can simply stay fed and have a decent life.

Life expectancy in the United States continues to increase. In
2004, American men could expect to live more than 3 years
longer, and women more than 1 year longer, than they did in


Or, for a white male of black female life expenctancy at birth has gone from about 68 to 77 between 1970 and 2004. So, if the retirement age increase from 65 for people born in 1970 to 70 for people born in 2004 the people born later get 7 years of retirement rather than 3 on average. That is still a good deal. You will work longer, but you will also have longer to enjoy the fruits of your labor.


umm, wait, so you're proposing that 10 million or so Americans will not retire but instead go into 'consulting'. where will their salaries come from? no offense to consultants, but I doubt that armies of them will create enough value in our already stressed economic environment to justify consulting salaries.

plus haven't I been reading about the life expectancy headed down in the US going forward? I thought with obesity and it's associated problems, it was pretty much agreed that the current generation of children and young adults will grow up with more health problems and shorter lives than their parents. is that not the case?

f*ck later retirement, if that was the deal when I started working, I should have been allowed to stay in 'high school' or some other state of non-responsibility for the same number of additional years that I'm now expected to work. we are told our whole lives that computers and technology, etc. will make us more efficient and our lives will be easier and we will have more free time. then now the new 'reality' is we are so f*cked in this country that we have to work MORE years than the generations who lacked computers, blackberrys, 30-billion-lines-of-code software, video conferencing and all the trappings of 'productivity'. wtf? they're all liars looking for longer-serving debt-slaves, that's all.

In government at least, consulting seems sometimes to be a way to try to pay people what they are worth for a while. One can be hired in at a competitive salary but then the promotion steps end up being a cap that is not found in the private sector. People who retire (mandatory) and then consult often begin to see a pay level more similar to their private sector opposite number.

Consulting may not be a good solution everywhere, but it might make sense where promotion and titles are important for younger workers.


Chris, I have to agree with Todd, even with longer lifespans most workers are physically and mentally buggered well before age 70. I hate to see politicians and corporate execs in their 60s who think that others enjoy working in later life. Newsflash, pollies work in A/C offices with plush leather seats but the millions of blue collar workers stand 8-10 hours/day on steel or concrete floors or out in the sun/rain.
I'm 45 and can hand unload 60t of cargo a day, but I see plenty of 30 somethings who struggle, they will have a hard time working in their 50s to the (current Australian) retirement age of 65, let alone their 70s.

Once the depression hits and the medical system starts to break down or be unavailable to most people, we will not live past our 50's. Problem solved. (I'm 70.)

mdsolar wrote:

what we have to hand to replace oil is superior to oil in terms of EROEI

My understanding is just the exact opposite. Most alternative primary energy sources, especially renewable ones, do not have high EROEI returns. Oil wa so special when it was first being developed because it was relatively easy to obtain, thus it offered a high EROEI. One clear manifestation of high EROEI is low cost, which the renewables do not yet exhibit. Where do you find the data to support your claim that there are liquid fuel alternatives to oil which have high EROEI?

E. Swanson

Where do you find the data to support your claim that there are liquid fuel alternatives to oil which have high EROEI?

That's not his claim.

His claim is that there are energy alternatives to fossil fuels that have higher EROEI, and that claim has been broadly supported by several articles on The Oil Drum which have looked into it.

His claim is further that those alternative energy sources can displace oil, even if they don't 1-for-1 replace it. The difference is minor, but crucial: even though electricity cannot be used in your car to replace oil, electrified rail or electric cars can displace demand for oil, giving a very similar result in the long run.

If you want to attack his claim, what you need to focus on is the tacit assumption that oil-burning tasks have electricity-driven equivalents.

I agree that oil-burning tasks have similar electricity driven systems. Surely, the end result should be used as the metric, not just EROEI of the primary energy source. And, lets not compare the low efficiency use of oil with the high tech "equivalent" without considering the rest of the system. Of course, one would like to make the comparison using the best diesel hybrid drive vehicle, something which is not yet available in the market, but which would be the obvious alternative to the pure electric drive.

For some sort of personal transportation, there's the problem of batteries, which require energy to manufacturer and then recycle at end-of-life. A pure battery driven vehicle is going to be heavier and will likely have less cargo space or carrying capacity than a similarly sized IC equivalent. With wind and solar PV, there's the problem of intermittent supply, which means that recharging the batteries in a pure electric vehicle may not be as simple as plugging the cord into the charging station at night.

Don't get me wrong, I'm in favor of solar and wind energy. I live in a solar heated house, but there are times when the sun doesn't shine, such as yesterday, when we had clouds and snow showers almost all day. Low temperature solar thermal systems can cheaply provide more than half the thermal energy needed, but attempting to go all solar implies a much larger system and some dedicated thermal storage. Otherwise, there will still be a need for backup, which I provide with propane. My eventual goal is to use wood for backup heat, but that may not be an option in a higher density location, such as a city, where air quality problems could result.

I think that low temperature solar thermal ALREADY offers cheaper energy compared with oil, especially when oil begins to become scarce after Peak Oil. Certainly, my system was very cheap, being constructed of commonly available materials on site by yours truly. I worry that focusing on high tech PV and wind with centralized power generation and distribution may hide the immediate benefits of low temp solar thermal systems from the public, which could delay their adoption by people who will need them.

E. Swanson

In so far as we need new generation to replace oil consumed for transportation, gas and wind are in the lead currently. Central gerneration with gas together with a plug in hybrid is likely more efficient, well-to-wheels, than oil and an ICE because the combined cycle gas generator is about 60% efficient. Wind is better still and may take over from gas as the lead source of new generation capacity soon. Solar becomes competitive with coal at about 2015 so it is also important in the mix and may start to beat wind in annual additions of new generating capacity around 2020 or so. The additional generating capacity needed to replace oil consumed in transportation is not all that large so it is not a big deal getting that together. The bigger deal is getting satisfactory vehicles to plug in. GM has selected a battery supplier for its 2010 release so things seem to be moving along: http://www.wwj.com/Report--Compact-Power-Wins-Volt-Battery-Battle/3210223


My understanding is that EROEI of imported oil is now around 15. Wind is at least at 20 (usually higher) and solar PV can be expected to achieve 30 next year. Further, the energy produced by wind and solar can be used much more efficiently than energy derived from oil. So, we should expect increased prosperity as we get off of oil.


Speaking of solar:


SolarCity CEO Lyndon Rive told Green Wombat that First Solar’s more economical panels will allow the company to expand to the East Coast and other areas that do not heavily subsidize solar. SolarCity installs solar panels at no cost to the homeowner and then leases them back for a monthly charge. “What matters is not efficiency but cost per kilowatt-hour,” Rive says, noting that solar programs like California’s reduce rebates to panel makers as the number of installations increase. “We need solutions that address declining subsidies.”

What is the netback for capital invested in wind or solar?

EROIE has to be >1 to use anything as a source of energy - that is the only criterion.

What is important for an alternative source of energy to oil is that it has the same cost as, or is cheaper than, oil.

The reason that the world has been able to consume ever more oil and hence grow our economies is that the oil has become ever more affordable.

Affordability is not just the price, it is the price relative to income - for most of the world's population oil at the current price is completely unaffordable.

Any viable alternative to oil will have to do the same, ie. get ever more affordable - IMO mathematically impossible, and unlikely, especially in the short term.

I agree. Now all we need are some employers that see the elderly as valuable for something besides giving out shopping carts at Sprawl-Mart.

"House Democrats contemplate abolishing 401(k) tax breaks"


This is not the dem's favorite rag but I thought it would fit this thread. It's motive I believe is the destruction of savings by the current financial debacle...constituents seeing retirement going up in smoke. Guaranteeing 3% + inflation bonus? Take a ticket-take a seat behind the financial welfare line.

In short, I guess significant policy changes that will benefit alt energy are officially on the back burner. Unfortunately.

In the old days when we got pissed, we painted signs and hit the streets. Any plans? Otherwise I'll see you at Walmart.

"Ya better start swimmin' or you'll sink like a stone..." Dylan

How is this different than Social Security today? Pay money in, it disappears into gov't bonds.

The amazing thing is that this is probably cheap money for the gov't, since they probably won't be getting money at 3% premium for much longer from the open market.

This will also sound the death knell for stocks. With no more money flowing in via 401K contributions, and money flowing out to boomers, the funding of stocks overall will be significantly less.

I don't think the US government has any choice but to tap pension and retirement accounts. The US treasury gravy train has been funded by a vicious circle -- Americans buy oil plus goods from Asia, the Asian exporters and the petrostates turn around and re-invest those dollars in US Treasuries.

The first half of that circle has been shut down. Of necessity, the second half will shut down as well. The US is going to need to float trillions in new (and old, rolled over) debt every year for the next 4 or 5 years. In a world-wide economic downturn, where is the money going to come from? The Saudis, Chinese, Russians, et. al. are going to be draining their Sovereign Wealth Funds to keep their governments going, not looking for places to put new dollars.

To feed the debt addiction the govt will first force retirement accounts into government debt. That will work for a while, but eventually the only option I can think of is to turn to the Fed, the lender of last resort.

I actually thought they would regulate investment funds "for the good of the investors" into having large holdings of gov't bonds. This new approach skips the icing and goes for the cake, cutting out the middle man entirely.

Why not nix social security as a middle-man as well? All those holdings are IOU T-bills anyway, right?

Argentina: The Sequel

This will also sound the death knell for stocks. With no more money flowing in via 401K contributions, and money flowing out to boomers, the funding of stocks overall will be significantly less.

Great point. That's one of several reasons it won't fly IMO.

As I read it, this idea differs from SS because it would be a strict account of your contributions with beneficiary benefit I presume as opposed to a defined amount that goes in and more or less comes out depending upon how long you live. Still it's a subtle difference.

And no money or political will for PO solutions.

This is step one. Once it is in place, step two will be a mandatory transfer of all existing 401K, 403B, and IRA balances into these new accounts. Step three will be to regulate who can take out what when, rationing retirees to a uniform, minimum monthly allowance. Step four will be for the FedGov to "borrow" the balances to help fund the federal deficit, just like they "borrow" the Social Security Trust Fund balances now.

USA = Argentina

My wife and I started socking away as much money as we could into our IRAs as soon as they first came out in the mid 1970s, then into 401Ks and 403Bs when those became options. While we scrimped and saved, living in rented housing, owning cheap and old cars, and me taking the bus to work, all of our friends were living large in expensive suburban houses and cars, looking down on us and wondering what was wrong with us for not living their kind of lifestyle.

So this, now, is to be our reward for our prudence and frugality?

Cue up "Don't Cry For Me, Argentina"!

NABET OR IA ? There is always a pay differential for the longer employment "Deal Memo". If you work in the Biz, you know that. Why whine about it. I worked NABET and IA for 10 years in Features and commercial work. It's all "Who's your Buddy".

It is wise to shut down otherwise needed systems, in the same way the body weakens and becomes comatose when bleeding to death.

I think the better example is that we don't need a large buggy whip industry anymore. Oil is going the same way.


Actually, my guess is that the buggy whip industry is going to make a HUGE comeback post-peak oil...

I doubt it. I saw some amazing horse training a year or so ago. You don't need whips, spurs or really anything like that. But, I doubt we'll see a big uptick in horse and buggy anyway. EVs are way more efficient than ICEs and ICEs are only about as efficient as horses so we'll be taking a larger step up.


It struck me that a horse has the same performance curve as an EV. They can both do 40 miles in a day and they are spent. Or they can go 40mph for a furlong and a half and they are spent.

I guess the big news is the FT article and subsequent denial by the IEA. Just doing some simple calculations but at a 9% depletion rate, the world needs to find 6.72 million barrels per day just to stay even. That's what? around 1.5 Saudi Arabia's in 2 years just to keep even???

Currently conventional oil production is around 70 million barrels per day. That works out to about 6.4 million barrels per day each year just to stay even.

The 2nd FT article contains lots of stuff that is worth pondering.


Worldwide, conventional crude oil production alone barely increases, from 70.4m b/d in 2007 to 75.2m b/d in 2030, as almost all the additional capacity from new oilfields is offset by declines in output at existing fields, says the report.

Non-conventional oil, such as that produced from Canada's oil sands or Venezuela's extra heavy oil, is expected to play "an important role in counterbalancing the decline in production from existing fields".

The global supply of non-conventional oil is projected to increase from 1.7m b/d in 2007 to 8.8m b/d in 2030. Canadian oil sands projects make by far the largest contribution, totalling 4m b/d.

But it is unclear how much of that increase in expensive non-conventional oil, particularly in Canada, will become reality, as the draft report was written before the worst of the financial crisis.

Just reading the article, but this particular quote caught my eye.

The draft report has found that the planet is far from running out of oil, as some so-called "peak oil" theorists argued. But it also finds that output from the world'soil fields, some of them discovered more than 30 years ago, is declining much faster than previously thought. That means the oil industry will need to invest more than expected.

Since WHEN did peak oilers say that the world will ever run out of oil? It's a matter of flow rates!! For god's sake, what will it take to get the message through? The elusive obvious is what the MSM is suffering from.

The IEA's position, that a larger number of smaller conventional fields will offset the decline from a smaller number of older larger fields, is contradicted by what we have seen in regions like Texas and the North Sea:


The major oil companies have no defense regarding Texas and the North Sea--two regions developed by private companies, using the best available technology, with virtually no restrictions on drilling.

As you noted, we do not stop finding oil post-peak, but what we can't do is offset the declines from the older, larger oil fields.

Thanks westexas, I've seen some of your presentations online regarding the export land model, where you gave a talk to a bunch of scientists (can't remember what the place or site was). very enlightening and scary as well. If according to what I gather from your previous posts, the decline rate is accelerating, so next year we could well see a 10-14% depletion rate? e.g. Indonesia and the North Sea, oh and not to forget mexico!

I presented our (Khebab & Brown) work at Sandia Labs:


Minor note. The depletion rate is the percentage of URR that we use in a given year. The decline rate is the rate of change in production or net oil exports. The data table that Datamunger compiled showed a -1.1%/year net export decline rate worldwide for 2006 and -2.2%/year for 2007 (EIA). 2008 may be more or less flat, or show a small decline from 2007, but I suspect that the 2009 net export decline, and subsequent declines, will be pretty vicious.

What was the reaction of the scientists at Sandia Labs? I am still astounded at the complacency world governments have shown to this. Here in Australia it's pretty much a non-issue. Wouldn't something as important as this warrant the attention of intelligence agencies such as the CIA, NSA, MI5, Mossad?

I am assuming that oil was the key reason for the Iraq invasion but even those oil fields will begin their long decline at some point!

A politician it seems can not seem to utter "conserve" , "use less" or think further than an election cycle.

We're going to see the three key stages of truth unfold over the next few years.

1) Denial - we're still stuck on this one
2) Anger - Oh boy
3) Accepted as self evident - "The folks at the oildrum told us so!"

I think that the scientists at Sandia by and large pretty much accepted our core premise that net exports would decline much faster than world oil production declines--especially since I tried to emphasize the quantitative modeling aspect.

Some of the offshore fields were being brought in at 50,000 or 100,000 barrels per day, some might produce in excess of 1,000,000 barrels a day. Kashagan is a giant scheduled to produce in excess of a million barrels a day if they can get pipeline capacity, there is a Saudi project in excess of a million barrels a day, the Azeri ACG field is supposed to reach a million barrels a day. Tupi is scheduled to produce a million barrels a day. There are four giant fields for you, three of them virgin. So much oil was being produced; OPEC had to cut back for fear of bankruptcy. There are many natural gas projects that will produce liquids byproducts. Its not over till its over. The South China Sea is really seeing some drilling action and the area's oil production has been increasing. They found two more fields in the Philippines, one had a 130 meter oil column, the company drilled two for two discoveries and had eighteen more oil prospects it had not drilled. The Philippines an oil producer? It might be the beginning of oil declines. It does not seem to be fair to call 3 million barrels of OPEC spare capacity to be depleted oil fields incapable of ever being produced. If the price of oil goes above $120 dollars Athabasca tar sands might become a four million barrel a day field, on its way to producing eight million barrels, a giant bigger than Ghawar. If Venezuela ever gets its act together they might send the price of oil down further. They would rather sell it drop by drop, except they cannot get much for a drop of oil. If that is not enough. You might get BTU's for pennies on the dollar with king coal or yellow cake. The high plains wind corridor might yield more than cellulosic ethanol without stripping the earth of its herbage and trees.

And I just drilled a successful 1.5 mile stepout to a shallow oil field in West Central Texas. I wonder if we can reverse the 36 year decline in Texas oil production? Or perhaps the reality is that while we don't stop finding oil in post-peak regions, we can't offset the declines in the older, larger oil fields.

In any case, we shall see what the 2008 and subsequent data show, but have seen two years of accelerating net export decline rates worldwide, with Mexico perhaps showing as much as a -30%/year net export decline rate this year, and with Norway and Venezuela probably showing double digit declines, with Russia showing a probably significant net export decline. While Saudi Arabia is showing a year over year increase in exports, I estimate that their 2008 net exports will be about 700,000 bpd below their 2005 rate.

WT, you've found Ghawar 2, I'm sure of it!

In seriousness, I myself am still wondering if some producers weren't overproducing their fields before the oil price crashed. The pressure to produce more must have been tremendous during late 2007/early 2008. If they did that, it might delay the peak but hasten the decline rate.


P.S. Does anybody know how one might go about examining if that has happened? Is there a signature in individual field production numbers that might be looked for?

If [and it won't happen] you had plots on the gas to oil ratios for enough wells / oilfields, a good analyst might be able to discern whether too big straws were being used to suck out the oil. [A big pop in GORs could indicate at least a localized excessive drop in pressure around the well bore sufficient to bring some of the associated gas out of solution.]

As an aside, in some low permeability reservoirs with decent pressures (but not enough to flow without artificial lift) and reasonably high GORs, this can lead to a "gas lock" situation where the bottom hole pump is temporarily in a gas bubble with no fluid entry into the wellbore.

Hope that helped.

Yes, it did. Thanks!

Actually, I'd go for Russia as the real test of the ELM.. never mind that it was looking like Russia had hit its second peak this year before the economic turbulence hit. Goodness knows what'll happen if ongoing investment dries up.

Our outlook for Russian net oil exports (note that their absolute production peak was back in the Eighties, on a broad production plateau centered roughly on 1984):

(January, 2008)

Russia’s initial 10 year projected production decline rate is -5.1%/year ±2%. The projected rate of increase in consumption, which is heavily weighted toward recent consumption and therefore on the low side, is +0.3% ±0.8%. The initial 10 year projected net export decline rate is -8.2%/year, ±4%. Our middle case shows Russia approaching zero net exports in 2024, within a range from 2018 to 2029.

We believe that Russia’s recent rebound in production was primarily a result of Russia making up for what was not produced following the collapse of the Soviet Union, and based on our mathematical model, Russia has now “caught up” to where its post-1984 cumulative production should have been.

The Russian frontier basins are a wild card, but I suspect that they are to Russia as Alaska is to the US--helpful, but no panacea.

BTW, we showed the projected overall initial 10 year net export decline rates. The model suggests--although actual year to year data points can be pretty chaotic--that year to year net export decline rates tend to accelerate with time.

For example, consider Venezuela. The 1998 year over year net export decline rate was -3.7%/year. The overall 10 year decline rate from 1997 to 2007 was -4.6%/year, while the 2007 net export decline rate (from 2006) was -10.2%/year. So, the year over year 2007 net export decline rate was about three times the year over year 1998 net export decline rate.

Any idea on how much of the Venezuelian decline is due to above ground factors?.. and how much is due to below ground reality?

I think that the accelerating net export decline rate is a primarily a function of three things: (1) A decline in conventional production (which started prior to Chavez coming to power); (2) Chavez coming to power (which had a detrimental effect on both conventional and unconventional production); (3) A rapid increase in consumption.


Speaking of #3 (increase in consumption), did anyone see Deffeyes' latest post at his PO website? Interesting theory.

There was much discussion in Saturday's DrumBeat.

R-squared also covered it.

If the article is an accurate reflection of the contents of the report, it's very disappointing. The solution is money. Like Deffeyes likes to say: "The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground."

This was supposed to be the report where the IEA broke free from the political pressure of the US. :-/

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground."

Hey isn't this the reason they put "In God We Trust" on the US dollar :-) Drill Baby Drill! Amen.

The solution is money

There is definitely a sense in which this is true.....because money represents a claim on human effort, talent and other capital.

It can't put oil in the ground and, if the market is left to itself, I doubt the investment they envision would be made. But what happens if governments start putting really muscle into production? What happens if they become obsessed by it?

For instance, what happens if the US gov decides to do Tainter and invest a trillion in oil shale? It would be a money-loser and a big drag on society. But it would raise production (unsustainably) for a while.

[Welcome to the wonders of a planned economy]

"The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground."

Actually, if that is what economists say then, for many years to come, they are correct - until every field in the world has the maximum possible number of profitable oil wells - when there are no more places to drill then they will be wrong, at that point geology takes control of the flows not man.

Sadly, in the real world companies have to make a profit which limits the flow of oil to what people can afford to buy - so a sensible economist wouldn't actually say that - just like a sensible peak oiler would never say that oil is running out!

"annual decline rate is 9.1 per cent"

"even with investment, the annual rate of output decline is 6.4 per cent"

Don't bother with the feel-good words, those two 'facts' are sufficient to say one word to most businessmen and politicians - trouble.

They are saying that even with expected investment they can only shallow the dive by 3%. What that says is that a game-changing investment is necessary to keep things flat - and people know that's not coming. Those that have wit will read it as it should be, while the reporters pick up on the pretty headlines.

Did you expect them to come out and say the sky is falling?

To me those numbers are very bad. The basically say that even without exportland and the other multipliers the decline rate is going to be too fast for society to adapt to successfully.

Could I suggest that we pull together a press release for the day this report comes out, letting reporters have so commentary on what this means and why they should be shouting 'hold the front page'?

i wonder if this sucker wasn't leaked out like the political trial balloons.

No, this was probably some version of report handed by staff up the bureaucratic chain, which is now being re-done to make all things palatable. I mean these numbers are worse than what people write here. Anyway, the IEA has no better numbers than anyone else and its a bureaucracy that protects the interests which give it survival, just like an oil company.

It could also be that someone in the rank and file who was tired of watching his or her hard work being massaged and manipulated to the point of being misleading decided enough was enough and leaked it himself or herself.

If they come out with numbers which are substantially different from the 9.1% and 6.4% then people will cry foul. This leak tends to force the hand of those in a management role at the IEA.

In my experience such leaks tend not to come from the coal face but from a manager/director level playing a strategic game, usually against someone else with a conflicting desire. That's particularly true when you see it was the FT it got leaked to, not an industry journal.

My guess, given the current date and the proposes publication date, is that the message has been watered down significantly and someone has waited to the last minute to leak the earlier, more correct figures. The aim is to ensure they either revise the report quickly to be more inline with previous numbers, or run the risk that the FT 'compares and contrasts' - unfavourably for IEA bigwigs. The IEA hasn't got time to concoct a plausible fake story why they've changed things, their best bet is the truth with a spin.

No wonder they're spitting blood.

No wonder they're spitting blood.

I believe "dismayed" was the term they used!

Typical straw-man argument. They intentionally misrepresent peak oil so they can "prove" that they were right.

I suppose for the masses the argument might seem somewhat convincing.

Once the terminal decline has really set in, I expect them to give it all a different name and still insist that peak oil was wrong all along.

By now it should be obvious that the "ignorance" is deliberate--

Since WHEN did peak oilers say that the world will ever run out of oil? It's a matter of flow rates!! For god's sake, what will it take to get the message through? The elusive obvious is what the MSM is suffering from.

There is no apparent intention to devise a rational transition to declining oil availability-- on the contrary, there is an obvious intent to maintain conflict, confusion and uncertainty in the general public. This is one of the tenets of "disaster capitalism", I believe. The "shock doctrine" prefers to use real natural disasters to increase profits, but in the absence of a hurricane, man-made disasters can be made to suffice.

Actually the last paragraph of the 2nd article nails it...

"There is considerable uncertainty about future cost, the level of oil prices to make a new investment attractive, changes in regulatory and fiscal regimes and the depletion policies of resource-rich countries to support new investments," [the report] says.

There is definitely plenty of hard-to-access oil left. But the level of investment required to keep production up is very high and very likely unrealistic.

If it really is from several months ago...that would be at or near last summer's peak in oil prices. Perhaps they thought that high price would drive exploration.

The "real" report could be more realistic. Oil is cheaper now, and perhaps even worse, the credit crunch is making it hard for smaller oil companies to fund their activities.

Is this quote true from from the Mogambo Guru article on Atimes? Stunning if it is!

China, which is already the world's second-largest energy user, "increased crude-oil imports to a record last month, taking advantage of falling prices, as domestic refining capacity climbed. Crude imports surged 46% to 20 million metric tons or 4.87 million barrels a day in September from a year earlier."

Yes, it's true.

But part of that might be pent up demand and a response to lower prices, as the article notes. Oil's on sale! Time to fill up the SPR!

It looks we're well past peak in terms of NET energy IMO. All the articles now state that more and more non-conventional oil is needed but fail to state the energy EROEI. I mean it's such a simple concept, how can I get it and Daniel Yergin at CERA can't? or for that matter oil execs? (Ok, Ok I know why, i've read Nate's posts on this but leaves me exasperated at the mind numbing denial out there regarding the most important event of this century - unless aliens land)

I don't think Yergin is in denial. His 1979/1982 Harvard-sponsored study on oil and energy make it pretty clear that he is capable of a sound understanding of the fundamentals. The truth is that CERA's raison d'etre is an intrinsically disreputable one: Disinformation.

Sustaining this rate of increase would have China sucking up 100% of oil exports by 2014.

What a chance if you got the cash on hand.

I would also love to know how much in contracts at current cheap prices the Chinese are taking on.

In fact, I would love to know how much in forward contracts EVERYBODY is taking on.

If major oil users such as airlines and trucking companies are locking in anywhere near current prices, they can reduce the economic impact of future price increases for years out into the future.

I have been astonished that no one is now talking "hoarding" oil, nat gas and propane. They wanted to hoard at twice the price, but now they don't?

I have heard several people I know say they wish they had a large storage tank to hoard cheap oil and propane. When I pointed up that you not only would need the tank you would also need the money to fill it, they just kind of grinned. I told them to buy all the contracts they could afford at these prices, but the fact is, most small players simply don't have the money. The Chinese, on the other hand should have it, and I am assuming the hedge funds and other big players also do. Right now, this is not an oil crisis so much as it is a money crisis. The rich will have their oil and plenty of it.


The rich will have their oil and plenty of it.

...assuming the producers are stupid and/or desperate enough to make long-term deals at these low prices.

some of the producers may be forced to hedge at these lower prices by their bankers. and the "bankers" may also be a counterparty to these hedges.

damn those bankers........oh, i forgot, the us govt is borrowing $250 billion to buy bank equities. what a circus.

what a circus...

more clowns

"... Already long ago, from when we sold our vote to no man,
the People have abdicated our duties; for the People who once upon a time
handed out military command, high civil office, legions — everything, now
restrains itself and anxiously hopes for just two things:
bread and circuses..."
(Juvenal, circa 100 AD)

So what do we all make of this? Is 9% the real number, and is whatever lower number that will reported next month as the "official" number a politically correct lie? Or what???

If 9% is real, then that is truly dark news. If even 10% of the world were paying attention and understood what that implies, there would be blood in the streets worldwide. The most extreme doomers are suddenly looking a lot less extreme.

Is 9% the real number?

If you do a detailed analysis of EIA data, allowing for megaprojects coming on-line at the time producers say they did, IMO it's probably not far off, extraction techniques increasingly used since the 1980s have steep post-peak decline rates!

Do you trust the data? ... or do you think, like most official data, it might be 'economical with the truth' to some extent and putting a rosy glow on the past situation? Along the lines of 'the fundamentals are sound' even though it's obvious from things like price that they aren't!

You had better hope that the exporters do actually invest in adequate new production - or the 'net exports' decline will be very steep indeed!

Just doing some simple calculations but at a 9% depletion rate, the world needs to find 6.72 million barrels per day just to stay even. That's what? around 1.5 Saudi Arabia's in 2 years just to keep even???

We'll have to just invade 1.5 Saudi Arbias every two years and we should be OK... Mission Accomplished. Oh, and if the rest of the world wants to have some, too bad...

A possible scenario down the road that will turn even more Americans on to Prozac: the American public continues to pay for the military occupation of Iraq, yet an increasing % of Iraq oil is sold to China.

Definition of Ownership Society - Cheap Oil, meets cheap labor with profits accrued by Wall Street.

The US will never allow that to happen - at least as long as they maintain their presence there, which I still firmly maintain will be for decades to come, come hell or high water. Keep in mind: Whoever is in power in Iraq as long as the US are there are US puppets.

The US will never allow that to happen

They already have:

"The majority of [Iraq's] oil exports go to refineries in Asia, including China and India."

Why do people insist on treating their gut feelings as if they were known facts? Thanks to the internet, it takes all of 12 seconds to check!

It seems heterodox economists are getting a little more air time these days.

One of those dissident economists, Nassim Nicholas Taleb, and his mentor, mathematician Benoit Mandelbrot, were featured recently in this PBS interview, giving some reasons why free market orthodoxy has failed in its predictions:


A little background might be in order. Christopher Hayes gives a brief synopsis of just what the orthodox vs. heterodox debate is all about here:

The Birth of Orthodoxy
The term "heterodox"--like, say, "infidel"--is necessarily imprecise; it categorizes people by what they don't believe rather than what they do. In the case of heterodox economists, what they don't believe is the neoclassical model that anchors the economics profession. Classical economics refers to the theories laid out by Adam Smith and David Ricardo in the eighteenth and nineteenth centuries, which emphasized the power of the "invisible hand" of the market to promote the division of labor and economic growth…

A hundred years after Smith, a group of "neoclassical" economists came along and added a few key features to his account, which continue to ground the field to this day--that humans are rational, utility-maximizing agents with fixed preferences, that they make decisions "at the margins" and that the mechanisms of supply and demand (operating free of government interference) will lead to a general equilibrium whereby resources are allocated efficiently….

[In the 1940s and '50s the work of Paul Samuelson to Kenneth Arrow] stressed the ways in which markets, functioning on their own without interference, tended to an interdependence described as "general equilibrium." In their wake came a parade of libertarian economists, like Milton Friedman and his Chicago School colleagues, who pushed the neoclassical model…to fully embrace the logical extremes of a world of self-interested rational actors--a back-to-the-future gambit dubbed the "new classical" economics.

In terms of the implications for the relative value of market and nonmarket forces in allocating resources, the new classical view didn't differ substantially from Adam Smith's original contention. In the same way classical economics was born as a brief for laissez-faire capitalism, against the prevailing interventionist mercantilism of the day, the new classical model reaffirmed the value of markets in the wake of Keynes's critiques.

And it came to dovetail quite neatly with a worldview that has dominated the past thirty years of globalization, which Notre Dame heterodox economist David Ruccio succinctly summed up to me as one in which "markets, private property and minimal government will achieve maximum welfare."


In the 1960s Mandelbrot came to the conclusion that the simplistic worldview upon which neoliberal and libertarian economics are based—a world of rational, and predictable, human actors--doesn’t exist. His insight was that “the world moves in fits and starts, especially the human world:”

Clouds are not spheres, mountains are not cones, coastlines are not circles, and bark is not smooth, nor does lightning travel in a straight line.
—Mandelbrot, in his introduction to The Fractal Geometry of Nature


After the stock market crash of 1987, Taleb came to the same conclusion. He put forth his theory about “black swans”--essentially unpredictable events that, until they occur, are considered to be ”impossible.”

When the interviewer, Paul Solman, presses Taleb on why it’s different this time, why things are so much direr now than what they were say, in the 1930s, Taleb responds:

Let me tell you why it’s not like before. Look at what’s happening. The world has become so fragile that a small shortage of oil, small, can lead to the price going from $25 to $150…

We live in a world that is way too complicated for our traditional economic structure. It’s not as resilient as it used to be, we don’t have slack, it’s over optimized.

Mandelbrot elaborates on this theme:

The word turbulence is one which actually is common to physics and to social sciences, to economics. Everything which involves turbulence is enormously more complicated, not just a little bit more complicated, not just one more year of schooling, enormously more complicated.

(And when Solmon indicates that turbulence is the same phenomenon that makes weather forecasting so difficult, Mandelbrot responds:)

Precisely, in fact the basis of weather forecasting is…seeing the storm coming, not predicting that the storm will form. The behavior of economic phenomena is far more complicated than the behavior of liquids or gasses….

Tools have been developed which assume that changes are always very small. If one of them comes nothing bad happens. If several of them come together very bad things can happen. And the theory does not take account of that. And the theory doesn’t take account of very large and sudden changes in anything. The theory thinks that things move slowly, gradually, and can be corrected as they change, when in fact they may change extremely brutally.

And Taleb goes on to conclude that:

Of all the books you read on globalization, they talk about efficiency, all that stuff, they don’t get the point. The network effect of that globalization means that a shock in the system (such as oil demand bumping up against supply?) can have much larger consequences.

Both of Taleb's books have brilliant insights. Fooled by randomness and the Black Swan. Would highly recommend them to all TOD readers!

Would Taleb consider Canterell a Black Swan event? Some say the size of the oil reservoir is coupled to a meteor impact crater. Since no one could predict a meteor impact leading to a huge reservoir, then perhaps it is a Black Swan. But I looked at the reservoir size distribution for the Mexico region and it fits within the realm of possibility. http://mobjectivist.blogspot.com/2008/10/estimating-urr-from-dispersive-...
Visit that link and go to the graph for Mexico and you can see Canterell as the Rank=1 datapoint. This is fascinating stuff.

The impact some 65 million years BP is said to have caused a massive die off known as the Cretaceous–Tertiary extinction event. The resulting crater location is thought to have been at the northern edge of the Yucatan Peninsula and was named the Chicxulub crater. Here's a comment about the results of drilling into the crater.

As I recall, the crustal disruption from the impact may have caused the formation of the trap where the oil was found at Canterell. Of course, there are other oil reservoirs which have been found in the Gulf of Mexico, so it's not likely that the impact actually created the oil, only provided a place for it to be concentrated. One can imagine that there are other such oil traps yet to be found.

E. Swanson

Excellent DS!!! Keep it coming. I think many of us need a quick course in nonclassical economics at the moment. In does tend to add some sense to the chaos we are seeing in the system today.

One of those dissident economists, Nassim Nicholas Taleb

Listen to Taleb in this podcast (mp3) of his theories:
Taleb on Black Swans

IMO, mainstream economics went astray when it began to use calculus in its models and built models based on calculus. While very good for astronomy and some engineering applications, calculus limits prediction and explanation to incremental changes, "marginal" thinking. Conventional economics (with a few exceptions) is based on marginal thinking, and basic concepts such as price elasticity of demand only work in a marginal world where parameters do not turn into variables.

Neither John Maynard Keynes nor Milton Friedman used much calculus, and that is one reason I'm impressed by both of them.

Econometrics, which is equivalent to astrology, is also based on marginal thinking.

In general, mainstream economics can handle comparative statics in a world that does not change too much or too fast. Mainstream economics is helpless when it comes to dynamics or "lumpy" changes. True, there is cost-benefit analysis, but that is a rather feeble tool of economics, because there is no agreement on how to count either costs or benefits--or even which ones should be counted at all.

It is not quite right to say that mainstream economics is the emperor who has no clothes. A more apt metaphor is that the "clothes" of mainstream economics provides no protection against extreme changes of heat or cold.

Fairly perceptive. Why not finish the dissertation?

I've lost interest in academic achievements and instead work on writing my memoirs. Also, many (but not all) of the points I was trying to make in 1968 have been developed by other heterodox economists.


Robert Nadeau,


the science historian, has a very different take than yours:

The 19th-century creators of neoclassical economics—the theory that now serves as the basis for coordinating activities in the global market system—are credited with transforming their field into a scientific discipline. But what is not widely known is that these now legendary economists—William Stanley Jevons, Léon Walras, Maria Edgeworth and Vilfredo Pareto—developed their theories by adapting equations from 19th-century physics that eventually became obsolete.


Nadeau goes on to explain that the mathematical theories used by mainstream economists are predicated on the following “unscientific” assumptions:

• The market system is a closed circular flow between production and consumption, with no inlets or outlets.

• Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.

• The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.

• The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.

• There are no biophysical limits to the growth of market systems.

He then concludes:

If the environmental crisis did not exist, the fact that neoclassical economic theory provides a coherent basis for managing economic activities in market systems could be viewed as sufficient justification for its widespread applications. But because the crisis does exist, this theory can no longer be regarded as useful even in pragmatic or utilitarian terms because it fails to meet what must now be viewed as a fundamental requirement of any economic theory—the extent to which this theory allows economic activities to be coordinated in environmentally responsible ways on a worldwide scale. Because neoclassical economics does not even acknowledge the costs of environmental problems and the limits to economic growth, it constitutes one of the greatest barriers to combating climate change and other threats to the planet. It is imperative that economists devise new theories that will take all the realities of our global system into account.

Neoclassical economics is necessarily incomplete, first because it rejects the important insights of John Maynard Keynes, and second because it rejects (or does not notice) complexity economics. For a brief elucidation of what complexity economics is, just Google the term.

By the way, I agree with your statements and quotations above, but I also stand by my position that the adoption of calculus as both a descriptive and predictive tool is what set mainstream economics on a wrong path. Of course, the model was nineteenth century physics--which used calculus as its most powerful tool.

Economists feel superior to sociologists because they use more calculus:-)


I don’t see many heterodox economists rushing out to give Freidman a free get-out-of-jail card. Quite the contrary, I think casting him as the anti-Christ might be more in line with the consensus sentiment amongst the dissidents.

Here’s a take from Taleb that echoes some of what you are saying:

I worked on Wall Street for close to two decades in trading and risk management of derivatives. I noticed that while portfolio models got worse and worse in tracking reality, their use kept increasing as if nothing was happening. Why? Because in the past 15 years business schools accelerated their teaching of portfolio theory as a replacement for our experiences. It looks like science, and they have been brainwashing more than 100,000 students a year. There is no way my experiences can be transmitted to the next generation because of these schools. We've had fiascoes in finance that they need to neglect because they contradict their models. The problem may also be the Nobel in economics that gave a stamp to these junky theories. Someone needs to make the Nobel committee account for this, for the damage to society - and I hope to do so.


And here’s another by a more obscure dissident economist, Deirdre McCloskey:

I am merely saying that economists want to be involved in an intelligent inquiry into the world. If so, the field as a whole must theorize and observe. Both. This is not controversial. An economist at a leading graduate program listening to me will now burst out with: “Great! I entirely agree: theorize and observe, though of course as you admit we can specialize in one or the other as long as the whole field does both. And that, Deirdre, is exactly what we already do, on a massive scale. And we do it very well, if I don’t say so myself. We do very sophisticated mathematical theorizing, such as in the Mas-Collel, Whinston, and Green textbook (1995), and then we test the theory in the world using very tricky econometrics, such as Jeffrey M. Wooldridge, Econometric Analysis of Cross Section and Panel Data, (2001). You can see the results in any journal of economics. Some of it is pure theory, some econometrics. Theorize and observe.”

To which I say: Bosh. She and her colleagues, when they are being most highbrow and Science-proud, don’t really do either theorizing or observing. Economics in its most prestigious and academically published versions engages in two activities, qualitative theorems and statistical significance, which look like theorizing and observing, and have (apparently) the same tough math and tough statistics that actual theorizing and actual observing would have. But neither of them is what it claims to be. Qualitative theorems are not theorizing in a sense that would have to do with a double-virtued inquiry into the world. In the same sense, statistical significance is not observing…

It is not difficult to explain to outsiders what is so dramatically, insanely, sinfully wrong with the two leading methods in high-level economics, qualitative theorems and statistical significance. It is very difficult to explain it to insiders, because the insiders cannot believe that methods in which they have been elaborately trained and which are used by the people they admire most are simply unscientific nonsense, having literally nothing to do with whatever actual scientific contribution (and I repeat, it is considerable) that economics makes to the understanding of society. So they simply can’t grasp arguments that are plain to people not socialized in economics.


But both Taleb and McCloskey are all about undoing the damage wrought by Friedman and the ideologically obsessed school he created. I don’t see how you can possibly disassociate Friedman from this, from the entire anti-scientific pseudoscience that he fathered and then nurtured his entire life.

Milton Friedman's two main policy recommendations have never been tried:

1. Monetarism, which implies getting rid of the Fed and having a simple rule for monetary expansion in accordance with expected real economic growth.

2. The negative income tax, which implies getting rid of our mishmash of welfare programs and letting the Internal Revenue Service redistribute income.

IMO it is quite unfair to criticize Milton Friedman when neither of his big proposals has ever been tried. Personally, I'm a big fan of the negative income tax, and I think that monetarism might work better than anything else (gold, discretionary monetary policy) that has been tried.

Early in his career Friedman advocated 100% reserve banking in place of fractional reserve banking--another radical idea that has never been tried.

Like I said the other day, Barry Ritholtz over at The Big Picture has, over the last month or so, painstakingly put together the evidentiary case that thoroughly debunks what you are saying.

And then there's this. Again, I'll let one of the dissidents (though not an economist) answer you, because they can do it so much better than I can:

The End of Libertarianism: The financial collapse proves that its ideology makes no sense.

A source of mild entertainment amid the financial carnage has been watching libertarians scurrying to explain how the global financial crisis is the result of too much government intervention rather than too little. One line of argument casts as villain the Community Reinvestment Act, which prevents banks from "redlining" minority neighborhoods as not creditworthy. Another theory blames Fannie Mae and Freddie Mac for causing the trouble by subsidizing and securitizing mortgages with an implicit government guarantee. An alternative thesis is that past bailouts encouraged investors to behave recklessly in anticipation of a taxpayer rescue.

There are rebuttals to these claims and rejoinders to the rebuttals. But to summarize, the libertarian apologetics fall wildly short of providing any convincing explanation for what went wrong. The argument as a whole is reminiscent of wearying dorm-room debates that took place circa 1989 about whether the fall of the Soviet bloc demonstrated the failure of communism. Academic Marxists were never going to be convinced that anything that happened in the real world could invalidate their belief system. Utopians of the right, libertarians are just as convinced that their ideas have yet to be tried, and that they would work beautifully if we could only just have a do-over of human history. Like all true ideologues, they find a way to interpret mounting evidence of error as proof that they were right all along.


IMO Kunstler made a good point the other day when he pointed out the reluctance to use the words "fraud" or "swindle". You can't realistically blame libertarians for widespread corporate fraud, protected and sponsored by government power. Paulson, Moody's, Rubin, boards of financial firms, pension fund managers, SEC, FBI, etc.etc. -none of these are representing a libertarian agenda in any way. Corruption is not necessarily a libertarian trait.

Corruption is not necessarily a libertarian trait.

Ordinary theft and robbery are not necessarily libertarian traits, either. However, if you try to operate a society with no police or courts or prosecutors or jails, you should not be at all surprised if you see quite a lot of theft and robbery.

If you operate them with dirty cops and crooked prosecutors and rubber-stamp judges, you will do no better.

It's not "more regulations", it's "a few simple but enforced regulations" that we need. A growing morass of regulations, taxes, and incentives just makes money for bureaucrats and lawyers. Some solid bounds, simple markets, and value clarity would do wonders for the US economy, even during a down-turn.

I am puzzled as to why you keep wanting to demonize Milton Friedman. He was a heterodox economist who broke with the post-Keyensian synthesis that is mainstream macroeconomics. He called for radical changes, which I've indicated.

You can be against mainstream economics, or you can be against Milton Friedman's proposals, but it is inconsistent to be against both.

Let me repeat: Milton Friedman's monetarism has never been tried. It might work, and my guess is that it probably would.

Milton Friedman's negative income tax is probably the best idea in income redistribution to come by in the past hundred years. IMO, it is the best way to deal with declining average real incomes that will come with declining net oil exports.

Now, specifically, what do you have against these ideas?

Well again, Don, I'll just let one of those young heterodox economists respond to you, because like I say, they can do it so much better than I can:

Every first-year graduate student learns the First Fundamental Theorem of Welfare Economics, which says essentially that provided a long list of conditions are satisfied, a market equilibrium is efficient in a particular way--that is, you cannot make someone better off without making someone else worse off. Now you can read the theorem in two, radically different ways. One is to say: "There you have it! We knew Adam Smith was right all along, but here it is stated in mathematically precise way and proved to everyone's satisfaction. Now let the government get out of the way and have the markets work their magic." The other is to say: "Wow, hold on! You mean we need so many conditions for markets to produce efficient outcomes? No externalities, no returns to scale, no market power, markets for everything and for every point in time... I better get my theorems of the second-best straight!"

If you are the first kind of person... Well, I have never understood how you could be the first kind of person if you have also understood the First Fundamental Theorem of Welfare Economics.


And by the way, Keynesians, as Steve Waldman pointed out in the quote I used in my response to writerman, are not really all that terribly heterodox.

And then of course there’s this, by Paul Krugman, who, according to you, is “as mainstream as mainstream economics can get”:

Monetarism was a powerful force in economic debate for about three decades after Friedman first propounded the doctrine in his 1959 book A Program for Monetary Stability. Today, however, it is a shadow of its former self, for two main reasons.

First, when the United States and the United Kingdom tried to put monetarism into practice at the end of the 1970s, both experienced dismal results: in each country steady growth in the money supply failed to prevent severe recessions. The Federal Reserve officially adopted Friedman-type monetary targets in 1979, but effectively abandoned them in 1982 when the unemployment rate went into double digits. This abandonment was made official in 1984, and ever since then the Fed has engaged in precisely the sort of discretionary fine-tuning that Friedman decried. For example, the Fed responded to the 2001 recession by slashing interest rates and allowing the money supply to grow at rates that sometimes exceeded 10 percent per year. Once the Fed was satisfied that the recovery was solid, it reversed course, raising interest rates and allowing growth in the money supply to drop to zero.

Second, since the early 1980s the Federal Reserve and its counterparts in other countries have done a reasonably good job, undermining Friedman's portrayal of central bankers as irredeemable bunglers. Inflation has stayed low, recessions—except in Japan, of which more in a second—have been relatively brief and shallow. And all this happened in spite of fluctuations in the money supply that horrified monetarists, and led them—Friedman included—to predict disasters that failed to materialize. As David Warsh of The Boston Globe pointed out in 1992, "Friedman blunted his lance forecasting inflation in the 1980s, when he was deeply, frequently wrong."

By 2004, the Economic Report of the President, written by the very conservative economists of the Bush administration, could nonetheless make the highly anti-monetarist declaration that "aggressive monetary policy"—not stable, steady-as-you-go, but aggressive—"can reduce the depth of a recession."


Krugman then goes on to recount Japan's lost decade of the 90s and concludes:

In effect, Japan in the Nineties offered a fresh opportunity to test the views of Friedman and Keynes regarding the effectiveness of monetary policy in depression conditions. And the results clearly supported Keynes's pessimism rather than Friedman's optimism.

Do you believe that the Fed and other central banks have done a good job over the past eight years? Regardless of what Krugman says, look at the EVIDENCE. Central banks in general and the Fed in particular have done a horrible job over the past eight years. Monetarism would have worked much better.

Although monetarism was never truly put into place in the U.S. (There was discretionary monetary policy used during all of the periods and in all of the places Krugman mentions. Just check the data.), when there was a partial approach to monetarism we had a lot more price stability than we do now.

Of course Krugman is hostile to Friedman's idea of monetarism. Krugman is an activist, a neo-Keynesian, and he's into fiddling with monetary or fiscal policy all the time.

By the way, if monetarism and Friedman's version of libertarianism (not a pure form, by the way) were in force we never would have bailed out the banks, the brokers, AIG and all the rest. Friedman belived in a capitalism where you were rewarded for good decisions and punished for bad ones. He never advocated a bailout in his life. Don't you think we would be better off if we just let the bad apples fail, let the damage fall where it may, and let well-managed organizations step into the gap by the failure of the poorly managed behemoths?

OK, let’s look at the evidence. What the evidence shows is that, beginning in 2005, Greenspan tried to put the brakes on an economy that was speeding out of control, and he did this with the sole use of monetary policy. But one of those impossible Black Swan events occurred: He was slamming on the brakes, but they didn’t work, and the economy continued to speed out of control. At this point he should have stepped in and used his regulatory authority to rein in the banks and the shadow banking system. But Greenspan is a libertarian, a disciple of Milton Freidman’s. So this was ideologically unpalatable for him. So he just let the runaway train continue speeding on down the tracks.

The Fed has two monetary tools at its disposal. It can (1) control the monetary base and (2) control the Federal Funds Rate. Those are the only two monetary tools in the Fed’s toolbox. It has no others. If you know of any others, please do enlighten me.

(1) Federal Funds Rate
In the following report on page 9 is a graph which plots the Federal Funds Rate from 1991 to 2008:

FOMC Intended Federal Funds Rate, Discount Rate, and Primary Credit Rate


When the dot-com bust came in 2000, you can see where Greenspan lowered the Federal Funds Rate from 6.5% to 1%. Then in 2004, when the economy began to heat up, he raised it to 5.5%, where he left it until the late summer of 2007, when our current economic problems began and Bernanke once again dropped it.

(2) Monetary base

If you look at a plot of the Monetary Base on page 5, you see the same pattern.

Adjusted Monetary Base

When the dot-com bust came in 2000, you can see where Greenspan rapidly increased the monetary base. Then in 2002 he began lowering it until by the end of 2007 it was only increasing by 1% or so.

The Black Swan

But then what Taleb calls one of those Black Swan events occurred. Greenspan was applying the brakes, increasing interest rates and decreasing the monetary base, using all the tools in his monetary tool kit, but the money supply just kept on going through the roof. This can be seen in the graph of M2 on page 3.

M2 and MZM

From Jan 2005 to the summer the money supply grew from $6.4 trillion to $7.4 trillion. What was going on? The brakes weren’t working!

I’m slamming on the brakes but the economy’s still speeding out of control! What’s going on?

Well here’s what was going on. U.S. private banks and the shadow banking system were getting money directly from China and other foreign countries. They were completely bypassing the Fed.

This had never happened before! In his 40 years of experience Greenspan had never seen anything like this before.

In the following report on page 4 is a graph of financial assets owned by the foreign sector:


Between 2004 and 2006 the financial assets owned by the foreign sector increased from about $400 billion to about $1.7 trillion.

What that means is that foreign actors, probably mostly sovereign actors, were purchasing U.S. financial assets directly from U.S. private banks and the shadow banking system.

What could Greenspan do?

So what could have Greenspan done to stop this runaway train?

The answer is quite simple. He and the SEC chief could have stepped in and regulated the behavior of the banks and the shadow banking system.

But Greenspan is a libertarian, as is Cox, so this was not an acceptable course of action. Greenspan was of the conviction that any and all economic problems could be solved by tinkering with monetary policy. He was wrong. So the train just kept speeding out of control until in the summer of 2007 it finally went flying off the tracks.

What Greenspan could have done--and did not do--was to adhere to the monetarist rule. If he had followed monetarist policies the credit boom (and hence bust) positively could not have happened. Greenspan was using discretionary monetary policy all the time, which is directly against monetarism.

By the way, Alan Greenspan is a disciple of Ayn Rand rather than Milton Friedman. Friedman would (and while he was alive did) severely citicize Greenspan's disasterous decisions at the Fed.

Bernanke is another advocate of discretionary monetary policy and bailouts, bailouts, and yet more bailouts. Milton Friedman never advocated any bailout during his long and productive life. No follower of Friedman would advocate bailouts.

Thus, the weight of Friedman's thinking on current policy makers is approximately zilch.

Hi Don. Glad you're back ... but do you actually think Ayn Rand would not have despised Greenie for what he became? Unless the man thinks of himself as a variant of the John Galt of Francisco D'Anconia characters from Atlas Shrugged, it is hard to picture how he could still see himself as an "Objectivist." No follower of Rand (unless acting as agent to hasten a collapse) would ever advocate bailouts either or see floods of fiat money as the universal cure for any economic ill. I'm not certain which notable economist Greenspan most resembles. Maybe Alfred E. Neuman.

Rand had great respect for the pillars of industry, but it is doubtful she would support a organized group of shysters bilking the masses of their assets via a massive Ponzi scheme.

My view is that the US has a continuing problem with transparency and a lack of viability of "rating" institutions. We had the same basic problem with stock analysts during the dot-com era, audit accountants with Enron, and bond ratings now -- collusion and conflict of interest between raters and the rated.

The finance bubble would not have risen if the simpler debts were all rated junk at issue, and relative risks were properly re-assessed. The more complex derivatives really should be unrated, and un-rateable, as a pure risk investment.

Krugman also explains why monetarism matters so much to libertarians:

Why does this matter? Monetary policy is a highly technocratic, mostly apolitical form of government intervention in the economy. If the Fed decides to increase the money supply, all it does is purchase some government bonds from private banks, paying for the bonds by crediting the banks' reserve accounts—in effect, all the Fed has to do is print some more monetary base. By contrast, fiscal policy involves the government much more deeply in the economy, often in a value-laden way: if politicians decide to use public works to promote employment, they need to decide what to build and where. Economists with a free-market bent, then, tend to want to believe that monetary policy is all that's needed; those with a desire to see a more active government tend to believe that fiscal policy is essential....

Why did historical disputes about the role of monetary policy in the 1930s matter so much in the 1960s? Partly because they fed into Friedman's broader anti-government agenda...


I am puzzled as to why you keep wanting to demonize Milton Friedman. He was a heterodox economist who broke with the post-Keyensian synthesis that is mainstream macroeconomics. He called for radical changes, which I've indicated.

Out of interest, have you read Naomi Klein's "The Shock Doctrine"?

Not yet, but it is on my "hold" list at the library. I am familiar with some of Klein's recent articles that can be accessed online, and I think she is onto something.

In light of recent events in the financial world, it would not surprise me to see a second edition of "Shock Doctrine" coming out pretty soon.

From your other comments, you won't like what she has to say about Chile and Argentina.

While I agree that Libertarians are generally utopian, they are right that the current markets in the US are not free markets in the laissez faire sense of the term. The Fed represent government intervention and interference on a massive scale, and the Fed is demonstrably a large part of the reason we have the problems we have now.

Now, that does not mean I believe free markets work the way Libertarians do. I do not. But "crony capitalism" is not free market capitalism.

The problem with regulation is that regulation doesn't work. It doesn't work because the amount of money sloshing around the system is enough to corrupt the regulators. It is enough to corrupt the lawmakers and the executive branch as well. Just look anywhere in the US government for evidence of that.

Deregulation doesn't work either, of course. That is the current conundrum.

This is why the US has turned into what is essentially a one-party corporatist state. I suspect the only way a capitalist system can be stable is if you prevent the concentration of wealth in too few hands. Maybe if money is more widely distributed, it will be unable to reach critical mass and to begin to distort the system. Of course, I'm not sure it is possible to have a capitalist system that prevents the concentration of wealth.

And what about his proposals to eliminate licensing procedeures for doctors and abolishing the Food and Drug Adminstration?

As Paul Krugman says, these are "considered outlandish even by most conservatives."


Face it, the guy was an ideologically driven zealot, completely divorced from reality.

Rather than criticizing a man in what amounts to the ad hominem fallacy, you would do much better to read some of what Milton Friedman actually wrote; then you would have first-hand knowledge of his ideas. Among his other virtues, Milton Friedman was an exceptionally good writer, which is a rare trait among economists. I suggest you begin with the work "A Monetary History of the U.S." which Friedman authored along with Ana Schwartz.

The appeal to authority of economists such as Paul Krugman (who is as mainstream as mainstream economics can get) is an example of fallacious appeal to authority.

"... have never been tried."


Clean-room theoretical verification has been tried. His followers have wiped out economies and started from a clean slate in many cases.

Monetarism was not tried in Chile, nor was the negative income tax.
Monetarism most emphatically has not been tried in Argentina, nor has the negative income tax. Neither monetarism nor the negative income tax has been tried in the Phillipines.

I do not know where you are getting your information from. It is true that some economists educated at the University of Chicago did do some advising to some of the governments in the country you have mentioned, but no country anywhere has implemented monetarism and replaced central banks with simple rules. Indeed, the reason Chile and Argentina keep getting into so much trouble is that they do NOT adhere to monetarism, but instead they keep inflating their currencies to deal with big fiscal deficits.

So it looks like the Chicago boys screwed up the countries that they were "experimenting" with.

No, the countries screwed themselves up with policies that were about as far from monetarism as you can get. Take a good hard look at the monetary history of Argentina: It is almost the ideal case of what happens when you overinflate the money supply using discretionary monetary policy.

Argentina was veering close to a populist government and the corps would have none of that.

You remind me of a poster on another forum I used to participate in. His stance was that the School of the Americas had no responsibility for the atrocities committed by its graduates. You seem to have a similar view of Friedman.


(deleted) (I misunderstood for those who caught the post)

Is it possible for the Fed to buy treasury debt directly - rather than in the secondary bond market?

i.e. can the Fed participate in treasury bond auctions?

I'm pretty sure the Fed can directly participate in Treasury bond auctions, but it never does so. Instead it uses a couple of dozen or so dealers to engage in Open Market Operations. Monetary policy is mostly done through Open Market Operations, and changes in the discount rate or the federal funds rate are mainly a way of communicating to the public that the Fed is tightening money or easing money. Thus today's rate cut was a signal that the Fed is going to use Open Market Operations to get short-term rates down to the desired levels.

I haven't seen the term "qualitative theorems" used before. Could you equate a "qualitative theorem" to a heuristic? If so, I would agree completely with Dierdre's observations.

Hi Don Sailorman,

I don't think Calculus should be taken as the culprit. IMO nothing is particularly wrong with the mathematical tool as such. One does not need to study only "differential" increments on the dynamics of a system just because the foundations of calculus use differentials. One can describe highly complex interconnected systems (with differential equations) that are subject to discrete changes (with discrete or random functions and with stochastic calculus).

A different question is whether these are difficult problems or not. Of course, try to model anything complex (for instance the 3-bodies problem) and your calculus goes astray. So any calculus used in Economics necessarily makes simplifications. My point is that whether one uses discrete mathematics, fractals or calculus won't make much of a difference. It just happens that the system is too complicated. The point where neo-classical economists went wrong was when people lost sight of their assumptions. That's where modeling and science are supposed to be rigorous: "Assuming I use these calculus tools, and these simplistic unrealistic assumptions I reach these conclusions. Did it help? maybe", but one must not lose humility as these orthodox economists did with their blatantly simplistic approximations.

Nadeu is so wrong on these assumptions... Wow...

• The market system is a closed circular flow between production and consumption, with no inlets or outlets.

Oh, and oil just appears from my butt because I work hard enough? The inputs from the environment are neglected, as well as our outputs (i.e. pollution) to the environment.

• Natural resources exist in a domain that is separate and distinct from a closed market system, and the economic value of these resources can be determined only by the dynamics that operate within this system.

Natural resources drive the market system. Anyone who argues differently needs to look at where everything comes from in the market system... eventually, they reach the ultimte input of the environment.

• The costs of damage to the external natural environment by economic activities must be treated as costs that lie outside the closed market system or as costs that cannot be included in the pricing mechanisms that operate within the system.

Expanding on what was mentioned above, if the resource base is depleted or destroyed, then the ultimate input for the market system is negatively affected.

• The external resources of nature are largely inexhaustible, and those that are not can be replaced by other resources or by technologies that minimize the use of the exhaustible resources or that rely on other resources.

And Texas Crude is also virtually inexhaustible. This then relies on the faith that other replaceable technologies exist... So, in this logic, if I run out of food can I use a food 'replacement' like dirt or wood? Would my body find this acceptable...?

• There are no biophysical limits to the growth of market systems.

There is no such thing as a system without limits. The world is finite, the universe is finite...

The fundamental flaw of Nadeau is that he fails to recognize that human economic activity and the environment are intimately related, and in fact the environment is the foundation of human economic activity.

Yeah, if Nadeau's theories form the cornerstone of economics then we're screwed...

I think you misunderstand. Nadeau doesn't believe those things. He is criticizing mainstream economics for building on those unscientific assumptions.

Extreme apologies. (Times like these I wish I could re-edit).

I take slight issue with that statement in terms of oil depletion. The problem with oil depletion models is that they are all heuristics. A good working model that uses simple stochastic calculus works wonders on helping our understanding as well as potentially enhancing our predictions. In economics the key is to have a good model. You can't blame the lack of a good model on calulus though. I have a few comments on the link upthread I referred to upthread http://mobjectivist.blogspot.com/2008/10/estimating-urr-from-dispersive-...

I do blame the lack of good models on the excessive use of calculus in mainstream economics. Why? Because using calculus all the time steers one into marginalist models and away from complexity and chaos.
Also, the use of elaborate models based on calculus tends to create closed circular-flow systems that ignore the uniqueness of natural resources and also the problem of environmental wastes.

I will only agree up to the point of incorporating feedback loops. Uo to that point, using calculus to describe oil depletion flows is perfectly valid. i.e. all the flows and reserves are basically the results of using differential calculus. This is stuff that only a few people on TOD know how to do very well. Once the oil enters the marketplace is where all the feedback loops set in. Up to then it is a probability and statistics bean counting exercise which relies heavily on differential calculus. Perhaps not very complex but calculus nevertheless.

Economics has been using really high powered calculus and statistics since the nineteen thirties. Lagrangian multipliers, bordered hessians, etc.

In my opinion this heavy reliance on sophisticated mathematical tools in economics has led to numerous fallacies of misplaced precision.

I'm a big fan of chaos theory and complexity economics.

OK, fine regarding the misplaced precision. For now, I am more interested in the math behind oil depletion. In this area, I see nothing but heuristics, apart from what Khebab and I are trying to work on. And these are not academic exercises either, as we have practical and pragmatic interests in the subject. And no chaos theory for me either. It doesn't square, this excessive "qualitative theorizing" on ecomonics and "nada" math theorizing on peak oil. What's up with that?

Sailorman, sorry to insist, but I'm not sure I understand your point.
Chaos theory IS studied mostly with calculus. (It started studying simple differential equations with Poincaré and Lorentz). It's not calculus but the assumptions in the models you critisize.

Lagrangian multipliers and bordered hessians are first year physics concepts... not PhD material, so no, orthodox Economics doesn't use very complex tools (and interpertation is key, not the tool. "misplaced precision" is the scientist's problem).

Complexity economics also uses calculus tools. And there is nothing such as 19th century physics different from current methods. There are the problems solved in the 19th century, and the methods used, but the physics are the exact same (no relativity or quantum mechanics here). With computers, harder non-linear off-equilibrium problems were tackled, but it's still the good old calculus answering more complex questions. In fact you use the same classical physics for complexity economics... but you incorporate more detail and complexity.

We will have to agree to disagree here. I know a lot of economists, and I know what overreliance on calculus has done to them. Calculus works fine to describe much of physics, but it just does not work in the social sciences (including economics) because of discontinuities.

In economics, expectations can change on a dime, and you really cannot differentiate changes of this nature. By the way, economists use diffential equations and difference equations all the time.

As I understand complexity theory, you can do it either with or without calculus, and, again in my understanding, the theoretical underpinnings of chaos theory do not depend on the axioms of calculus.

Also, economists misues calculus very frequently by differentiating discontinuous data.

We certainly agree that "calculus is misused" by economists. The origin of this misuse is hard to evaluate. Certainly the mathematical tools condition your style of research (as you point out) but I think the lack of humility and scientific honesty plays a significant role too. In that respect it is encouraging to see how people try (very often) to distinguish assumptions and opinions from facts or models, etc, on this site. Mathematics (Calculus or other branches) lend themselves to describe some social/economic behaviour, but the scope is very limited (and whatever the math branch there's a lot of guess-work). As was pointed out I also believe that mathematical models end up conditioning the behaviour of economic agents making it even harder to distinguish a "correct" model from a model shaping the market.

Concerning Oil depletion, Hubble, ... of course modeling is useful and we all recognize the limitations: A sudden financial crisis, a new technology, changes of paradigm in society, wars, investment strategies, etc are hard to incorporate in depletion models but they affect it. But I think we all understand that depletion curves are to be taken with a grain of salt. They help us make risk assessments and we know they will change as new feedback kicks in. If someone pretends to know how oil production will evolve for the next 20 years you can be sure he believes too much in his models. If he tells you there could be trouble if this and that assumption turn out to be true, then you have to weigh those assumptions for yourself and reach your own conclusions.

Thanks all for this discussion-- this is the sort of commentary that keeps me coming back to TOD. I learn so much!

It seems to me that calculus and statistics is mainly useful for describing steady, predictable, incremental change in some property of huge numbers of identical particles -- like electrons or photons.

It doesn't seem to make much sense for describing the trajectory or behavior of large complex systems (like human beings) that are enmeshed in larger, complex systems (like economies) -- whose degrees of freedom can neither be numbered nor predicted. So Sailorman's critique makes a lot of sense. Statistics is widely used in medicine -- and often allows whoever writes the paper to prove almost anything he or she wants to prove, and I can't see how economics is much different.

On the other hand, complex mathematics can be used cynically to bamboozle and mystify -- and also to hide the fact that what is really going on in our economy is a complex casino gamble, which to some degree is intended to be that way. Guile, wile, and deception have been major tools in the human arsenal for a very long time -- quite reasonable for a creature that has big brains and small teeth and claws.

Mathematical economics could theoretically be used to improve everyone's life at the expense of maximum accumulation to the few. That would be a rational choice. Or it could be used to enrich the few at the expense of the many. That also would be a rational choice.

Current events (and much history) support my suspicion that much of modern economics is a deliberate political tool, not the musings of some bumbling, addled professors. Of course, it's a huge field, and so I suppose all of that is in there.

But where does oil depletion fit in to this scheme?

I try to use many of the concepts of mathematical physics, i.e. ensembles of particles, but try to put a unique spin on it. Right now my analysis using what I refer to as Dispersion Theory is showing a lot of promise. Yet if oil depletion in someone's mind resembles economics, then I must be bamboozling and mystifying.

I don't think this is the case because I have yet to put any real complexity regarding human decision making into the models.

But where does oil depletion fit in to this [anti-calculus, anti-economist] scheme?

To drill, or not to drill?
That is a question that seeks a discrete answer and not one of disectable continuum.

In the end it is human beings who make economic yes or no decisions about whether it is worthwhile to haul a rig to a particular spot (or erect an offshore platform over a given patch of blue ocean) in hopes of striking more black gold.

Hubbert's Curve says that increasingly the answer will be "no" as more and more of the cheap low hanging fruit stuff has been extracted and the chance of hitting a new mega-field decreases, especially on a finite planet with a fixed geological history.

Calculus assumes a smooth function (no discreteness, no discontinuities) that stretches out from here to infinity and beyond. So once you put on your calculus glasses it becomes hard to see how the price of oil plummeting one day discontinuously on the markets down to $60/bbl can cause humans to discretely say, "No,I won't drill here and now, I'm pulling my cash out of this project and investing it elsewhere" or how oil prices rocketing another day towards $200 can cause humans to discretely say, "Yes, I will drill here and now even though the geo-experts say the chances of hitting it big are less than 50% because greed and the dream of a jackpot are driving my irrational decision making centers".

The world is a complex, chaotic place. Sometimes continuum based mathematics simply cannot model the world properly.

Dear Downsouth,

Thanks for posting this stuff. I've always found orthodox economic theory enormously frustrating. Way back in highschool I was very sceptical about the concept of the invisible hand, perhaps not so much the way Adam Smith used it, so much as the way it was used by economists and politicians.

I kind of felt the at the invisible hand was really a form of sleight of hand or cheating. It seemed that one could hide all the problems with the inadequacy of ones theories, all one didn't understand, or know, inside this very flexible concept and almost forget about it, at least so long as the economy was functioning reasonably well.

For me economics seemed like a mix of political ideology and religious faith, at least at the macro-economic level.

I don't think we understand the way the economy works. I don't believe Smith, Ricardo, Marx or Keynes, did either. They understood parts of it, but not the whole. The whole is perhaps not-understandable, or rather intensely complex and unpredictable.

Now, in this 'crisis' we seem to be seeing our economists and leaders losing control of a system they don't really understand. The economic system may well be chaotic and turbulent at its very core, and unstable and contradictory. What appears to be periods of 'stability' and 'growth' are perhaps only respites between 'meltdown' and 'chaos', which might turn out to be the 'natural' state for advanced market economies.

Classical Economics is a fairy tale only children or capitalist believe. Any smart 10 year old can explain why it won't work, and one cannot expand indefinitely into a finite world.
The neoclassical Friedman types live in a world so detached from reality, it makes children's book writers blush.
The power of story and myth over critical thinking is a evolutionary trait that brought fitness in the past, but is a liability today, along with classical economics.

Maybe Wittgenstein was on to something when he said that what is unknown, is "truly unknown."

--from Daniel Yankelovich, Coming to Public Judgment

For me economics seemed like a mix of political ideology and religious faith, at least at the macro-economic level.


Insofar as religion and politics are both used as instuments of social control, there’s another heterodox economist, Steve Waldman, that makes a similar argument:

Perhaps orthodox economics isn't even trying to describe how the world works. Perhaps the project is really about how the world should work. If life can imitate art, why couldn't life imitate a model?

Here's a famous bit from Marx:

The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left no other nexus between people than naked self-interest, than callous "cash payment". It has drowned out the most heavenly ecstacies of religious fervor, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation.

So, as a writer, this guy is a bit overwrought. But there is a powerful idea here. Marx does not claim that human beings are "naturally" given to egotistical calculation. Instead he claims that however "man" might have been, social change is possible that transforms him into what we now refer to as a "rational maximizer". The assumptions of neoclassical economics are not a priori true in this view, but they can be made true.

Think about that. Mull it over. And while you do, let a photomontage play upon your inner eye. Here's Adam Smith, with his beneficient invisible hand. Now David Ricardo is explaining why selfish nations trade, and how trade has no losers but makes everybody better off, and interdependent. Slip forward in time and admire the elegant theorems of Coase, Arrow, and Debreu. This is a happy story. This is a great story. If only Marx were right, if only human beings could become something like efficient, selfish, rational maximizers, then we can prove, prove, that we would end up with the best of all possible worlds, by a certain definition.

Viewed in this light, the vehemence of the orthodox project makes a certain sense. It is not interesting to harp on the fact that people are not as they ought to be, and therefore our theorems and models don't accurately describe the world. We know that. We build models to make sense of the deviations, so we can correct the "market failure", the human flaw. Our job is not to describe the world as it is, but to understand how it is different from what it ought to be, and to fix it. The "MIT Keynesians" are open to using government to remedy human error, while more traditional neoclassicals view the Leviathan as a wildcard too large and dangerous to risk. They imagine that some more decentralized process — something more like the dynamic Marx himself described — could effect the necessary transformation. Both groups agree, though, that the project is to make the hopeful logic of economics actually work in this messy and often hopeless world.

What would a "heterodox economist" have to offer here? Those weird lefties who, contra Marx, think that Homo Economicus is so unreal as to be irrelevant, who view the world through prisms of power, institution, race, caste, or gender, amount to nothing more or less than fatalists. It is not the accuracy of alternative descriptions that is at issue, but where they lead — conflict, grievance, and struggle. For heterodox economists the end of history is where it began, nature red in tooth and claw.

By the way, I write not to bury but to praise. I think Marx was right about the transformational nature of capitalism, about its capacity to hew egotistical calculators out of flesh, blood, and claw. I sit at my desk surrounded by health insurance forms, bank and brokerage statements, tax documents. My colleagues come from everywhere, from I don't know where, I can't keep track of whether a hundred years ago their grandparents tried to kill my grandparents or vice versa. The orthodox, or bourgeois, project has succeeded marvelously, and for all that has been lost (and much has been lost), I am glad of it. I'll go with the neoclassicals or with the MIT Keynesians, whatever. Whatever works.

But (more Marx) orthodox economics contains the seeds of its own destruction if it fails to recognize the degree of its own delusion. When Ricardo's lovely story is not in fact working out, we should admit that to ourselves. Our goal is to create the preconditions whereby our optimistic models would actually predict. If we have failed to do that, then clinging to the behaviors that our models prescribe may lead to outcomes, um, inconsistent with general welfare. We may have to fly by the seat of our pants for a while, and then try again to get it — that is, us — right.


The WWF Living Planet report 2008 can be found here , worth a look at. We're well beyond the carrying capacity of the planet it seems.

Orders for big-ticket items rise

NEW YORK (CNNMoney.com) -- New orders for manufactured big-ticket items rose in September, the government said Wednesday, surprising economists and indicating some resilience in the manufacturing sector.

Looks like transportation was the hot category.

And this is probably not good news for the stock market:

More companies may end 401(k) match

As the economic slump deepens, more companies are expected to join General Motors in suspending matches of contributions to their employees' 401(k) retirement accounts.

This is going to be brutal if it passes:

Mass. to vote on abolishing income tax

If voters approve Question 1 on Tuesday, both sides agree, its impact will reverberate from the state treasury to the bank accounts of the working class. Abolishing the income tax could strip the state of $12 billion or more a year — nearly half its $28 billion budget, experts say.

"We've never seen a tax elimination that would have that effect," says David Brunori, a public policy professor at George Washington University. Only California's Proposition 13, a sweeping 1978 initiative that limited property taxes, came close, he says. "You're looking at … Draconian cuts to public services."

Of course, we may be looking at Draconian cuts anyway:

States forced to cut health coverage for poor

Economic troubles are forcing states to scale back safety-net health-coverage programs — even as they brace for more residents who will need help paying for care.

From Bloomberg:

GDP Report

Advance figures on gross domestic product, due from the Commerce Department tomorrow, may show the economy contracted at a 0.5 percent annual rate from July through September, according to a Bloomberg survey. It would be the second drop in a year and the biggest since the 2001 recession.

Auto-industry figures released this month show September purchases of cars and light trucks in the U.S. fell 27 percent, making for the worst sales month since 1991.

General Motors Corp., the largest U.S. automaker, said this week that it plans to halt production for a week at car plants in Kentucky and Michigan.

(emphasis added)

It will be interesting to see what Shadowstats shows the real figure to be - probably something more like -2.5%?

Summary of Weekly Petroleum Data for the Week Ending October 24, 2008

U.S. crude oil refinery inputs averaged nearly 14.9 million barrels per day during the week ending October 24, up 289 thousand barrels per day from the previous week's average. Refineries operated at 85.3 percent of their operable capacity last week. Gasoline production dropped last week, averaging 8.8 million barrels per day. Distillate fuel production remained flat last week, averaging 4.4 million barrels per day.

U.S. crude oil imports averaged 10.3 million barrels per day last week, down 63 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged 10.3 million barrels per day, 475 thousand barrels per day above the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 831 thousand barrels per day. Distillate fuel imports averaged 273 thousand barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 0.5 million barrels from the previous week. At 311.9 million barrels, U.S. crude oil inventories are in the upper half of the average range for this time of year. Total motor gasoline inventories decreased by 1.5 million barrels last week, and are near the lower boundary of the average range. Both finished gasoline inventories and gasoline blending components inventories decreased last week. Distillate fuel inventories rose by 2.3 million barrels, and are in the lower half of the average range for this time of year. Propane/propylene inventories decreased by 0.7 million barrels last week and remain below the lower limit of the average range. Total commercial petroleum inventories increased by 6.7 million barrels last week, and are in the lower half of the average range for this time of year.

And here is what they were expecting:

The Energy Department will likely report a 1.5 million barrel boost in crude oil reserves on Wednesday for the week ended Oct. 24, according to a survey by Platts, the energy information arm of McGraw-Hill Cos.

...Platts also expects gasoline stockpiles to rise by 900,000 million barrels, distillate stocks to jump by 1 million barrels and refineries to increase capacity by 0.3 percent to 85.1 percent.

Distillates better than expected, crude and gasoline worse. But I doubt traders will be paying much attention, with so much else going on.

For me the big news is "Total Products Supplied", which at 18.878 mln.bpd is down 7.8% from last year. In last week report it was down 8.5% vs last year.

I read that as demand slowly rebounding spurred by lower prices. Next weeks will be interesting - when will we hit the supply ceiling again? If OPEC is disciplined in maintaining it's cut(s) we might be back to the 100$ sometime by the end of the year.

anybody have any real insight as to why crude is up $ 6 ?

Because KSA threatened to do something drastic if the price did not rise soon?

Hold their breath and turn blue?

No my friend. Withhold our oil and watch us turn blue.

They're crediting the stock market rallies in Asia:

Oil settles above $67

Weak dollar and global market rebound help lift oil prices, offsetting government supply report and Fed rate cut.

Though who really knows.

Sounds like at least some people are starting to think about supply:

Concern about falling demand in a slow economy has driven the price of oil down 57% since it peaked near $150 a barrel in mid-July. But many analysts are now expressing concern that the dramatic slide in oil prices may result in a future price shock when demand for energy eventually returns.

"Supply is really suffering," said Ray Carbone, president of New York-based commodities trading firm Paramount Options.

"When demand comes back, we're not going to have enough to meet demand." Carbone said. "And that could propel prices even higher than they were in July."


Commodities are up generally today about 6.5% (S&P GSCI). Looks like some bottom fishing going on as much as anything.

Several countries that were short on dollars have been lent dollars by the Fed, with which they are buying commodities (again).

This also explains the weaker dollar in the past day.

WASHINGTON, Oct 29 (Reuters) - The U.S. Federal Reserve on Wednesday established four new currency swap lines of $30 billion each with Brazil, Mexico, South Korea and Singapore, broadening its efforts to ease U.S. dollar funding shortages around the world.

In a statement released in Washington, the Fed said the new temporary reciprocal currency arrangements have been authorized with corresponding central banks and monetary authorities through April 30.

"These facilities, like those already established with other central banks, are designed to help improve liquidity conditions in global financial markets and to mitigate the spread of difficulties in obtaining U.S. dollar funding in fundamentally sound and well-managed economies," the Fed said

The decision comes a day after the Fed on Tuesday established a $15 billion swap line with the Reserve Bank of New Zealand. The Fed now has 13 swap lines with foreign central banks.



I keep gett'n schooled @ TOD.

I had to look up "swap line" and found this definition at:


A currency swap is a transaction where two parties exchange an agreed amount of two currencies while at the same time agreeing to unwind the currency exchange at a future date.

Not really a loan if the exchange rates hold but with a rising dollar we lose again, right?

Also kind of scary:

he Fed in mid-October lifted all limits on swaps with the European Central Bank, the Bank of England, the Bank of Japan and the Swiss National Bank. It also is maintaining swap lines with the central banks of Canada, Norway, Australia, Sweden and New Zealand.

(emphasis mine)

How do you know these countries were commodity buyers?

They are technically loans, but are really closer to bailouts - similar to the Fed's lending to the big banks in exchange for toxic paper collateral. The massive flight of capital has left the countries nearly broke and with depreciated currencies, so they can't buy much of anything (especially since thay have to come up with dollars for many imports).

Another article about a new $100B IMF bailout fund:

The IMF's new program, called the Short Term Liquidity Facility, would be used largely to pad a country's reserves, which could help the recipient defend its currency. But the funds could also be used to help recapitalize banks or cover import bills.


Over much of 2008, WTI spot price and the Dow Jones Industrial Average were not strongly correlated:

An R2 of 0.16 is pretty pathetic, and a 2nd-order polynomial did not do much better.

However, for the time period 02 Sep - 28 Oct 2008, WTI spot and the DJIA have been much better correlated:

An R2 of 0.83 is fairly strong. In following the intraday numbers during the oil price collapse, especially during the financial market crisis over the past month, it has seemed like WTI has followed the market trends fairly closely: Dow up, WTI spot up. Dow down, WTI spot down. As to why this has been the case, there are those who are probably better positioned to explain. This is an invitation for the econominded folks to join the conversation: I'm curious myself.

If WTI and the DJIA are still coupled, then maybe the price climb today is a reflection of the big gains on the Dow yesterday. Then again, maybe not, because the correspondence appeared much more direct in past days (shorter lag).

The Dow is down 135 as I write this (16:00 ET), yet WTI is up around $68/bbl. Perhaps a new "trend" has started in just the past couple of days: WTI spot my be starting to decouple from the value of the market indexes. If this is the case, then I suspect bottom in terms of WTI price has arrived, and the next upward swing may soon be underway. I believe that this decoupling might signal a sustained elevation in the price of oil because I suspect that the fundamentals (and probably OPEC in a rough sense) actually support a higher price than $70/bbl, even with all the global market turmoil underway.

We'll see...



Denninger argues that we're far from the bottom. He's thinking S&P 450.

Here is an analysis of the Dow Jones adjusted for inflation for some selected years to give a flavour of where the markets fall to, depending on how much of past growth you think is illusory:

Personally, considering the degree of debt, I doubt a bottom until at least 3000, with the current rally being one of the typically large bear market bounces - most of the biggest one day moves have been during recessions, and there are a lot of funds sloshing desperately around.

From Financial Sense

Interestingly S&P analysts have recently downgraded their earnings forecasts for the S&P 500 to $48.50 for 2009. This is well below the March 28 estimate of $81.50 for the same period. The most recent estimate still puts the S&P 500 P/E ratio at a historically expensive level of 18. A reversion back to recessionary levels of say 8 would suggest that the S&P 500 could drop to as low as 388 or lower. Interestingly the S&P 500 put in a huge double top at the 1500 level over the period 2000 and 2007 with a bottom at the 800 mark in 2003. Based on traditional technical analysis measures this would suggest a possible low-point of 50 for the S&P 500. Impossible you say. Well this is not far off the equivalent 400 level for the Dow that Robert Prechter has been suggesting for some years now.

I don't analyze by P/E, Elliot Waves, or guaging recessions. I look at money flows, technical behavior and how various stock groups interact. Taking all these things together, I get the feeling this down move is somewhere in the middle.

In a debt driven bear, there is a domino process that occurs where the more volatile market followers do a free fall first. Then, the more stable, fundamentally solid stocks begin a technical breakdown and follow the first waves down. As gross as the damage has been so far, there is a long list of huge fund darlings that are just now beginning their dive. Strong bears eventually crush nearly everything.

This decline is a margin market debt unwind compounded with the unprecedented mortgage debt unwind and also every other kind of debt unwind conceivable. So it can not reasonably be compared to past declines, where you did not have a simultaneous consumer led recession and market debt collapse, coincident with every other kind of global debt collapse.

On the bright side, this decline seems to be progressing much faster than the others in history. So we may be at 500 on the S&P 500 by Christmas, the bottom will be in, and we will all crawl out of our bunkers!

Wow - nice analysis; that's the kind of thing I was looking for yesterday. If I remember correctly, Denninger isn't even Peak Oil-aware, right?

Denninger argues that we're far from the bottom. He's thinking S&P 450.

Thinking purely in terms of trends and cycles, that number would be about right as that's where the S&P was when the booms started.


In regard to the story on the collapse of the Mayan Civilization there is a body of thought that considers that it was brought about by climate change at the beginning of the Medieval Warming period.

The sudden demise is one of the greatest archeological mysteries of our time. What caused the collapse of the great Maya civilization?

The answer, say researchers, is climate change. According to a new study published in the current issue of Science, a long period of dry climate, punctuated by three intense droughts, led to the end of the Maya society. "Climate change is to blame for one of the most catastrophic collapses in human history," said Gerald Haug, a professor of geology at the University of Potsdam, Germany, and one of the study's authors."

I have quoted from Richardson Gill's book on the subject in a number of posts since it describes some of the consequences of a failure of a resource that society had come to depend on. Since we are starting to see the droughts in CA that also occurred back in those times, (among other things decimating the bison herds) there are additional lessons, if we are willing to learn them. One of which perhaps is that in such times it was better to live in the Mid West (since this was the time that the Cahokia Civilization flourished) and I note that this year was the first year that I can remember that I had to mow the grass all summer, and that it did not die off in August.

This more recent article from the same source might be more apropos:

Maya May Have Caused Civilization-Ending Climate Change

Self-induced drought and climate change may have caused the destruction of the Maya civilization, say scientists working with new satellite technology that monitors Central America's environment.

Actually, my guess is that Tainter is probably right. Random events like earthquakes, droughts, and tsunamis do not cause societies to collapse. Rather, "declining marginal returns" eventually renders them unable to deal with challenges they handled easily in the past.

And Malthus would point out that over-population guarantees operation at the limits of marginality. Once there, the system becomes unstable and even arbitrarily small events can have arbitrarily large consequences.

Well we could argue if an increasing succession of droughts of long lasting duration (they ran up to 40-years) could be called random, when they fit into an overall climate change that we saw back then.

If one looks at the response of government to the ongoing drought situations in parts of the U.S. it is very much short-term oriented, and it may have been the case back then also. Hence, I guess, I disagree with the premise, though obviously, in a drier climate the resource may well deplete - though if one looks at other civilizations in the same boat, in earlier long-period droughts one does see efforts to solve the problem, until the lack of rain for too long proved devastating.

Sorry I picked the earlier, rather than later ref, comes from being in a hurry on the way to a class (which, for your amusement is on unconventional drilling technology for oilwells and other things), and which will include (albeit prematurely) the data from the Financial Times - for which much thanks.

How much does the atmosphere weigh?

5.5 quadrillion (55 followed by 14 zeros) tons

In my opinion your post does not help forward the climate change issue.

Greenhouse gases are components of the atmosphere that contribute to the greenhouse effect. Without the greenhouse effect the Earth would be uninhabitable;[1] in its absence, the mean temperature of the earth would be about -19 °C (-2 °F, 254 K) rather than the present mean temperature of about 15 °C (59 °F, 288 K)[2].

Greenhouse gases include in the order of relative abundance water vapor, carbon dioxide, methane, nitrous oxide, and ozone. The majority of greenhouse gases come mostly from natural sources but are also contributed to by human activity.

Water vapor is a naturally occurring greenhouse gas and accounts for the largest percentage of the greenhouse effect, between 36% and 66% [13]. Water vapor concentrations fluctuate regionally, but human activity does not directly affect water vapor concentrations except at local scales (for example, near irrigated fields).

Since the beginning of the Industrial Revolution, the concentrations of many of the greenhouse gases have increased. The concentration of CO2 has increased by about 100 ppm (i.e., from 280 ppm to 380 ppm). The first 50 ppm increase took place in about 200 years, from the start of the Industrial Revolution to around 1973; the next 50 ppm increase took place in about 33 years, from 1973 to 2006.

wikipedia, greenhouse gas

composition of the atmosphere

Nitrogen 78.084%
Oxygen 20.946%
Argon 0.934%
Carbon dioxide 0.038%
Water vapor about 1%
Other 0.002%

earth's atmosphere wikipedia

so, if water vapor, at a concentration of 1% in the atmosphere, contributes max 66% of the greenhouse effect that warms the planet enough to make it habitable, that must mean that the other 34% of the warming (34% minimum) comes from the other greenhouse gases, of which co2 is present in concentrations of .038%.

does that tell you anything about the potency of co2 as a greenhouse gas? does the fact that we are injecting 25 billion tons of co2 per year into the atmosphere have anything to do with the warming?

The problem is CO2 is a VERY small part of the atmosphere - maybe it's better to concentrate on the rate of change in CO2 concentration which is what might cause any net warming?

The problem is CO2 is a VERY small part of the atmosphere

The first two constituents, N2 and O2 are bi-atomic molecules. They have no absorption bands in the infrared, so they are transparent to infrared. Argon is a nobel gas (single atom molecules), and therefore also lacks absorption bands in the infrared. Now we get to the triatomic (or above molecules) CO2, H2O and CH4 NO2. All these have rotaional absorption bands in the infrared, and hence are not transparent to infrared. In terms of the greenhouse effect, the major atmospheric constituents have no effect. Water is the dominant GHG. It is important for climate change, because it's atmospheric concentration rises roughly exponentially with temperature. An increase in CO2, raises the temperature a bit, then more water evaporates (and clouds don't form until higher water vapor concentration at higher temp), and that multiplies the effect of the CO2 induced warming. Bcause the absorption occurs at discrete wavelengths, which have a distinct shape, the amount of warming scales as the logarithm of concentration. The change from 180ppm to 360ppm (ice age conditions to about a decade ago) has the same overall effect as a change from 360ppm to 720ppm. This stuff is all well known physics. The fact that increasing concentrations of these gases have a warming effect (and the size of that effect) are quite well known. What the atmosphere does with the extra heat is the complicated part.

Hello TODers,

I wonder when Disneyland & McDonalds will team up to feature Mickey as a Happy Meal.."Oh Mickey, your so fine, Oh Mickey, Oh Mickey!"

World's hungry turns to rats in Global Food Crisis

The global food crisis continues to fuel food price inflation and send many into hunger and despair. Around the world, solutions are being sought to the urgent need for more and cheaper food. Right now there are 862 million undernourished people around the world (FAO), and U.N. Secretary General Ban Ki-moon has called for food production to increase 50 percent by 2030 just to meet rising demand.

The crisis is forcing many countries to turn to other food sources to feed their populations. As the price of poultry, cows, sheep, pigs and seafood rises, rodents are coming more and more into the picture.

..Cameroon’s first commercial cane rat farm opened this year in the capital, Yaounde. It is meant to be a training farm to show others how to commercially raise cane rat for food. The feisty rats are very large, the size of a small dog. They are said to taste “succulent, tender, sweet.” Cameroonian rat-meat entrepreneurs are also very ambitious, telling the BBC they want to win people over to cane rat meat around the world. One day, they would like to see cane rat as an acceptable meat that can be served on airplanes and in the finest restaurants.
I suspect that day will come much sooner than most Cornucopians are presently contemplating...Will Thanksgiving feature a roasted and stuffed capybara?

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

In my misspent youth, I helped distribute free rat-salad sandwiches at a fair in Manila. Someone thought encouraging people to eat rats would help with pest control. (Rats are a huge rice pest.) Didn't get many takers.

OK, I'm dying for some personal context here. When was this, and how old are you? I had envisioned a 40-ish post-modern pragmatic intellectual, maybe with a liberal arts degree but burned out from industry and living a simpler life supported by a working spouse or a windfall cash bonanza.

This posting sounds more like a 60's-style social experiment, and that adds 20 years to my mental picture, making you a semi-retired ex-activist who maybe ended up as cog in the machine while raising a family and is now returning to a quiet activism.

I'm sure both views are wrong, but I just gotta have some mental image to put with the diligent drumbeat and peak oil editorial work.....

You're right. Both views are wrong. :)

I'm just surprised that you still have a job, with all of the time spent on here. Whenever you mention your co-workers, I think: do they know what she's up to on that computer all day? You must get your work done, but it seems like you have two full time jobs.

Termed efficiency. We'll all be wearing more than one hat soon.

The mystery deepens! I'll take a guess, mid twenties? loves books and chocolate and quiet personality, deep thinker. LOL.

"Will Thanksgiving feature a roasted and stuffed capybara?"

I prefer agouti :-)

How long till we start raising humans for food, Bob? You know, long pork.

2000. Generation Z are the proto-Eloi. Don't tell anyone.

Not capybara, nor turkey.

Our "traditional" (last 6 years) fare for Thanksgiving is peacock, 2 this year.

Does it taste like chicken?



The link to Mogambo's latest rant really shocked me. Did anyone else miss this news:

"...Bloomberg.com where they reported that China, which is already the world's second-largest energy user, "increased crude-oil imports to a record last month, taking advantage of falling prices, as domestic refining capacity climbed. Crude imports surged 46% to 20 million metric tons or 4.87 million barrels a day in September from a year earlier." Imports of oil went up by almost half! Half! In a year!"

Yikes! With China demand up and with this growth rate we're in real trouble if the US economy gets its' feet back.

No, that news was not missed. It was posted in the DrumBeat a couple of weeks ago. It's also discussed upthread today.

The Financial Times has reported that they have a leaked copy of the soon to be released IEA oil field review.

World will struggle to meet oil demand
By Carola Hoyos and Javier Blas in London
Published: October 28 2008 23:32 | Last updated: October 28 2008 23:32


Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook, a draft of which has been obtained by the Financial Times.


The agency says even with investment, the annual rate of output decline is 6.4 per cent.

Damn... 9.1%!!!

Time to revise those decline models boys.

And ASPO (Colin Campbell) is still forecasting a 1.65% per year decline rate (2010: 82 mbpd to 2030: 55 mbpd). I go with Campbell.

Simmons defines the gross decline rate as the decline from existing wells, without workovers, enhanced recovery etc. He defines the net decline rate as the gross decline rate, plus the workovers, enhanced recovery and new wells. I gather that the IEA is more or less talking about two types of gross decline rates, from existing wells. I gather that the -6.4%/year number is after things like enchanced recovery, but before new wells.

In any case, the IEA is apparently (in the draft version) forecasting an annual net increase in production of about 0.8%/year. Cambell is talking about a -1.65%/year net decline rate.

In any case, the IEA is apparently (in the draft version) forecasting an annual net increase in production of about 0.8%/year.

Not for conventional oil. Here's the quote:

Worldwide, conventional crude oil production alone barely increases, from 70.4m b/d in 2007 to 75.2m b/d in 2030, as almost all the additional capacity from new oilfields is offset by declines in output at existing fields, says the report.


That's an increase of 4.8 million barrels per day over 23 years which works out to an increase of only .3% per year. Flat for all intents and purposes given the uncertainties in such a projection.

That's actually a pretty long plateau they are projecting.

IMO IEA forecasts need to be interpreted or translated as the agency (though somewhat more credible than the EIA) has an obvious political component. Were the IEA actually attempting to be as accurate as possible, 50% of the forecasts would miss on the high side and 50% on the low side. The fact that their forecasts have always been found to be overly optimistic (and this has not materially adjusted their subsequent forecasting) indicates that the inherent optimistic bias must be accounted for. In this case, if the bias built in is 10%, they are projecting conventional of 67.5 in 2030 (i.e. post peak).

I gather that the -6.4%/year number is after things like enchanced recovery, but before new wells.

Possibly. But I suspect that they could mean after enhanced recovery and new wells in existing fields, but before new fields.

For comparison, see this IEA presentation from July 1 of this year.


On page 23 they project a global decline rate of 5%. So the real news here may boil down to increasing their projected decline rate from 5% to 6.4%. Bad. But not as bad as I was thinking last night.

Just 10 minutes untill the Fed reveals if it lowers the Fed rate. Ben Bernanke will probably speak. The music should be "Benny and the Jets"

Bah..Bah...Bah...benny and the jets
Hey kids, shake it loose together
The spotlight's hitting something
That's been known to change the weather
We'll kill the fatted calf tonight

So stick around
You're gonna hear electric music
Solid walls of sound

Say, Barack and Johnny, have you seen them yet
But they're so spaced out, Bennie and the Jets
Oh but they're weird and they're wonderful
Oh Bennie she's really keen
She's got electric boots a mohair suit
You know I read it in the Wallstreet magazine
Bah bah bah Bennie and the Jets

A half point---
Fed is saving the last bullet for a headshot on themselves.

When they cut it to zero, this will be fully symbolic of the US economy and the people responsible for running it.


The closer the rate gets to zero the less effect it has on the economy. These cuts do nothing to improve the credit worthiness of borrowers. The banks have been stung by a few very large borrowers who made risky investments with borrowed money. To improve the situation requires money going directly to the bottom of the economic pyramid. That 700 billion would have been better invested in checks of a few thousand bucks to every man, women, and child in the country. Businesses are suffering from a lack of customers but those at the peak of the pyramid refuse to look down and see how much they have undercut themselves over the past several decades.

Solar panels cause global warming

a greenhouse gas emitted during the production of solar panels and HDTVs, nitrogen trifluoride (NF3) that is used for cleaning some parts of the gadgets, is about 17,000 times more potent a greenhouse gas than carbon dioxide

The present 5,400 tons in the atmosphere - that will stay there for 700+ years - creates the equivalent warming of all Finland's CO2 emissions

solar panels produce about the same percentage of the global energy as Finland, it is reasonable to guess that the state-of-the-art solar panels that would replace fossil fuels would cause a comparable amount of warming per Joule as fossil fuels


He kinda overlooked the part where if you increased the amount of NF3 in the atmosphere by One Thousand Times it would be equivalent to increasing CO2 by 3 ppm.


Did he actually read the UC San Diego press release before he put this in his blog? Nitrogen trifluoride is one of a number of gases used in the manufacture of LCD displays as well as other flat panel devices, so I imagine this use dwarfs that for PV panels. Its atmospheric concentration has gone from 0.02 ppt to 0.454 ppt in 30 years, but another man made gas used in electrical industries, sulfur hexafluoride is 22200 times CO2 global warming potential and is at 6.5 ppt, and has increased by 50% in ten years. NF3 is interesting as an addition to the minor man made greenhouse gases and because it was not included in Kyoto but it will have only a minor effect compared with CO2, methane and nitrous oxide increases.

And because NF3 is a very specialized chemical (thats why only 5400tons have accumulated), the overall cost to reduce its emmisions shouldn't be very great. It is just that prior to this report no-one worried about it or tracked it.

Consumers Feel the Next Crisis: It’s Credit Cards

After years of flooding Americans with credit card offers and sky-high credit lines, lenders are sharply curtailing both, just as an eroding economy squeezes consumers.

The pullback is affecting even creditworthy consumers and threatens an already beleaguered banking industry with another wave of heavy losses after an era in which it reaped near record gains from the business of easy credit that it helped create.

In addition to the bad economy, they're having trouble selling their bonds, they're having to pay higher interest to borrow money, and legislation reining them in for past abuse looms.

And after a century of publication, Christian Science Monitor is ending their dead-tree version:

Christian Science Paper to End Daily Print Edition

After a century of continuous publication, The Christian Science Monitor will abandon its weekday print edition and appear online only, its publisher announced Tuesday. The cost-cutting measure makes The Monitor the first national newspaper to largely give up on print.

Jeez. Stocks took off like scalded cat.

And then plummeted, like sheep that roost in trees...


Masturbation: Ben masturbating Wall Street. Got Viagra??

Time for some genuine British humor:



Yes, very similar to what you see on the heart monitors of terminal patients -- since we're into graphic metaphors. :)

It's just hedge funds in terminal decline, a desperate last ditch attempt at survival - driving the prices down by short selling - then getting squeeezed by massive price rises as they are forced to cover.

A market only for the seriously wounded - for more normal mortals a time to watch from the sidelines, if you must buy more shares wait until there is a definite bottom, not just a dead cat bounce - have patience, don't be greedy, your time will come.

In light of discussion downthread about Nassim Taleb and the narrative fallacy, what story about "market fundamentals" can we concoct to explain the Dow bunch rocketing +250 one minute and diving -350 the next minute? (Count the gray line boxes in the graph, each is 50 points)

Maybe someone has discovered a flaw in automated buy/sell systems?

China is interested in electric cars. They've got a good railway network, and the workers to build more. So here's an idea. Define standards for electric cars so that they can easily be loaded on/off trains for trips between cities. Cars would be recharged on the way. Automatic payment system: just drive on, drive off. A system where people use their own car for seating would probably be more popular than one where they had to travel in a railway carriage, however it would need to be possible for passengers to safely get out during the trip and go to the bathroom/restaurant/etc

During the 70s oil price spike my parents used to put their car on the train between Sydney and Melbourne. That was done in a manual way then which wouldn't scale too well.

Wow, Did I ever get today wrong. I figured the market would at the very least be UNCH. I personally was looking for a modest 50 0r 100 point gain on the DOW to show that yesterday was no head fake.

I suppose I could claim a consolation prize, the comp was nearly UNCH at +2.53% the Russ 1000 was +2.59%
The RUSS 2000 was + 3.94% The RUSS 3000 was +2.79%
The NWX was +1.55% The XAX was UNCH at +0.18% The DJT transports +1.02% The NAS was +.47%

The Wilshire 4500 or 5000 were tech UNCH

This had to be more fear from retail investors than I could anticipate. I still believe momentum will go forward into the first quarter of 2009, retail sales and retail negative news will not trouble retail investors or institutional fund managers....who can't see bad retail numbers coming?

All in all I don't view todays miniscule loss on the Dow or S&P as indicative that yesterday was a head fake.

Does this sound like I should write prospectus reviews for fund managers?....hahahahah

I see a number of people here are highly impressed with Taleb who is in great demand on the lecture circuit nowadays. Taleb is a mathematician. His work mostly deals with risk models that were/are being used by hedge funds and investment banks and the like. In effect he tells us what we already know; not that unexpected events happen but that an unexpected major event can have consequences that wipe out entirely all the gains or losses of a long series of predictable day-to-day events.
He holds in distain most of the mathematical models that Wall Street uses but, for all of his pontifications he really doesn’t leave you with much, if any, useful information to act upon.

For example, his suggestion to have your money in only two kinds of investments - those as safe as possible and those as risky as possible the mix being 90% Treasuries and 10% equities. The equities should be the riskiest as possible seems to me as a lousy way to invest. I am certainly glad my 92 year old mother didn’t follow that model as well as myself. Please note further that he used his insights to start his own hedge fund that failed shortly thereafter.

Finally, many economists have analyzed markets quite well; Tanta at Calculated Risk certainly has been on top of housing and its effect on the economy for quite some time. Others, too, have never been to kind current economic modeling. I’ll leave you all with Arnold Kling’s thoughts:

"My main beef with economists is that standard macroeconomics does such a poor job of describing what is going on. The textbooks models are pretty much useless. Where in the textbooks is "liquidity preference" a demand for Treasury securities? Where in the textbooks does it say that injecting capital into banks is a policy tool?
Graduate macro is even worse. Have the courses that use representative-agent models solving Euler equations been abolished? Have the professors teaching those courses been fired? Why not?
I have always thought that the issue of the relationship between financial markets and the "real economy" was really deep. I thought that it was a critical part of macroeconomic theory that was poorly developed. But the economics profession for the past thirty years instead focused on producing stochastic calculus porn to satisfy young men's urge for mathematical masturbation."

But, for all of his pontifications he [Nassim Taleb of "Black swan" fame] really doesn’t leave you with much, if any, useful information to act upon.

I beg to differ.
He leaves us with analysis tools, like the idea of mistrusting "the narrative" and the idea that not all things fall neatly under the Gaussian distribution curve.

I agree- Taleb is working one level down, and still coming from a fixed perspective that has been colored by his conditions as a mathematician and trader.
He needs to climb one level on, and be truly baffled by what he sees. I enjoyed both his books, but was somewhat shocked by his limited naive views on certain subjects.
But he is valuable in showing the power of random events, even if he frames then from his conditioning and education.

He leaves us with analysis tools, like the idea of mistrusting "the narrative" and the idea that not all things fall neatly under the Gaussian distribution curve.

For all my depletion analysis, I don't think I have invoke the Normal once. It's a crutch, when you invoke the normal to describe arbitrary behavior, it means you don't understand what is going on.

In the PBS interview above it seems Taleb and Mandelbrot understand the economic situation pretty well, especially having to do with complexity. Mandelbrot as a mathematician would not enter into the fray except to say that economics are more complex than weather forecasting. Hello!

"the mix being 90% Treasuries and 10% equities". That's not quite accurate. What he actually says is that 10% should be in speculative leveraged bets (options) (such as a venture capital style portfolio). The idea is to give a medium risk but with a positive exposure to a black swan. He's trying to point out that 60% stocks and 40% bonds is NOT medium risk like all these investment advisors keep telling us. The book was written about 2 years ago, so he might have a different take on where the 10% should be today.

He freely admits it's a strategy that's at odds with how human beings are wired. You have to accept lots of little losses to be positioned for the big gain. This is in contrast to the normal method of going after lots of little gains but being exposed to the complete wipeout. Picking up pennies in front of a steamroller.

"I am certainly glad my 92 year old mother didn’t follow that model as well as myself" Remember, we haven't really seen a black swan event impact the markets yet. I don't know what model you and your grandmother are following but ask yourself if you'll still be glad if a real meltdown occurs, like worldwide shutdown of the stock markets for a couple of weeks as Roubini is worried about. Or how about a bird flu pandemic, or a nuclear exchange in the Middle East? And those are just the things we can imagine, the true black swans are the ones we can't even imagine.

I'm not familiar with the hedge fund you mention, but he does claim to have already made his 'take this job and shove it' fortune using his strategy.

Mahatma Gandhi said, “The earth can provide for every one’s need, but not for every one’s greed.” This may explain the problems encountered by globalization.

With great and sincere respect, I beg to differ: the earth can provide for everyone's need only if there are not too many of us. But then too, under proper circumstances it would not be a need to have more than 1.5 or whatever children -- it would be greed.

I think when Mahatma Gandhi said that the earth had only 2 billion people and India around 350 million.

I also think Gandhi was speaking in a spiritual sense. A "Gaia" sense where he recognizes connections we contemporary folks seem to have forgotten.

Since most here would agree we are resource constrained due to Peak Oil and such, I sometimes wonder why there is not more discussion about downsizing the human body. It seems to me that if people where half as big and ate half as much, life could continue for some time as resources theoretically would last twice as long.

Isn't this how China and India survived over the centuries? We see that mice seem to be able to survive better than rats partly because of their smaller size.

If people could be miniaturized, we might put off the day of reckoning. Tiny houses and tiny cars with tiny people could enable growth in numbers to continue while actual physical consumption stayed the same.

Perhaps we should limit marriage licenses to people under 5 feet tall as a first step.

On the strength of the leaked IEA report, I went long oil today. Well that and the general belief that a slight uncrunching of credit is at hand (which should boost demand down the road).

I'll consider myself to have made a mistake if oil goes below $50 and stays there. My time horizon, though, is quite long (10 years or $200 oil, whichever comes first).

I went long the AG's, namely Soybeans, Corn and Wheat last Friday.
Also on Friday I went long oil as well as Mosaic.

You are a better man than me and are getting paid for your bravery. That took guts.

How did you go long? Did you buy futures, call options on futures or USO or oil company stocks?

The only way I can "go long" is to buy a full tank of gas instead of just a half.

Livin' on the edge...

So, have we seen a bottom in the price of crude? WTI almost up to $70 tonight.

It is memmel I believe who has been predicting 160 oil by years end.

Hello TODers,

Another weblink showing how I-NPK mfgs can shutdown their factories to keep JIT inventory low and prices high--I bet the global oil exporters wish they could cooperate this effectively.

30 October 2008: Silvinit Will Cut Output

Silvinit said it would cut output to support the price of the raw material used to make fertilizer.

The firm will bring forward maintenance to the end of this year to help "stabilize the situation on the potash market globally," the company said Wednesday.

Acron, the country's third-largest maker of nitrogen-based crop nutrients, said Wednesday that it would halve output. (Bloomberg)