occam's razor dictates that people who said they wanted "a new pearl harbor" must have had a motive for making their "new pearl harbor" happen, especially in view of the fact that, shortly afterward, they were installed into positions from which they could make their "new pearl harbor" happen, and shortly after that, their "new pearl harbor" did happen.

If you want to believe in a conspiracy, then no one will be able to convince you otherwise.

This is no longer an adequate response. The US gov't and media FORCED everyone to become conspiracy theorists on 9-11. They presented a conspiracy theory to explain the events of that day, and then turned around and asked people NOT to believe in conspiracy theories! There is no one, I dare say, who believes 9-11 was a series of unfortunate accidents. It's obvious by now what happened.

Now, saying that conspiracy theories in general can't automatically discounted is not the same as buying into any particular one. Crises are endemic to capitalism, and there's no need to invoke conspiracy to explain them. And I don't think this meltdown was planned either. It doesn't seem to have benefitted politically those who might have orchestrated it.

On the other hand, the bailout plan was drafted before the meltdown, so it would seem that there was at least contingency planning. The Patriot Act, the Military Commissions Act, and several other pieces of legislation ALL point to significant amounts of contingency planning, scenario spinning. The 47 billion intelligence budget (not including the military) isn't spent entirely on video games.

Also, the collapse in energy prices has temporarily shifted some of the balance of power back to the US. I suspect that this too might have been at least foreseen.

Anyway, how much conspiracy has been an element in this whole thing is a fascinating subject, not easily fathomed.

Jeff Rubin: Oil Prices Caused the Current Recession.

I say: Huge number of the exploration dry wells is a root of high Oil Prices.
Today, as it was decade years before, oil companies have drilled mostly dry exploration wells. Drilling success rate doesn’t overcome 25% on average. It means that three dry wells go to waste from four drilled. It means also that discovery occurs much slowly then if success rate significantly rise. Using Seismo-electromagnetic (SEM) phenomenon in oil deposits it is possible to triple world oil discoveries every year for same money and time-frame with 75% success rate.
Initiating of SEM phenomenon to detect of hydrocarbon deposits has the steps of simultaneously action an electromagnetic field and a seismic wave in investigated geological region so that an electromagnetic signal originates by vibrating of hydrocarbon deposit surface excited by the electromagnetic field and travels from the surface. For details see www.phenomenon-in-oil-accummulation.weebly.com

I don't argue with creationists either. I consider it to be a complete waste of time. Most of those whom I've observed arguing with creationists aren't biologists, but are people who get their info from talkorigins.com. This website is pretty good but its PTB have their pet biases & misconceptions. When I hear these biases & misconceptions being parroted by those who do argue with creationists, it becomes apparent where they get their info. In the past, when I've objected to or corrected these biases & misconceptions, I've often ended up arguing with the anti-creationists, which gives the impression that I'm a creationist myself or at least sympathetic with their ideas. I've given up on trying to instruct people online and in fact have given up the landline, DSL & internet at home. Simplify, simplify.

The religious nuts are sure in their knowledge-they know the age of the universe, heaven follows life on Earth (for the chosen), etc. etc.-they aren't interested in any info that might shake their rock solid belief system-just like you.

The science professor who called creationists "Idiots" was speaking out of frustration, not informed thinking. I'm not saying I blame him, I don't. But I think it is very important for scientists to understand exactly what is going on in these arguments. I've seen a LOT of these confrontations. I work in evolutionary biology; paleontology to be precise.

There are two fundamentally different methods of reasoning which have been handed down to us (from the classical Greeks) that allow us to examine the world in which we live; the dialectical and the rhetorical. The dialectical line of inquiry (scientific method; question, experiment, review data, conclusion) is the language of science. The rhetorical line of inquiry (argumentation based only upon the abstract and the logical) is the language of the legal profession, the church, philosophy.

Both of these lines of questioning are very powerful analytical tools, but they operate by two entirely different rule books. For a scientist (a dialectician) to debate a creationist (a rhetorician) is akin to a boxer agreeing to fight a samurai.

Real world examples of the devastating effect of rhetoric used against the dialectic abound. My favorite was the example of how quickly and effectively Johnny Conchran destroyed the credibility of the forensic DNA evidence submitted by the prosecution in the O.J. Simpson trial. With only a few skillfully constructed logical ideas the rhetorician demolished the prosecution's argument; game, set, match, O.J. NOT guilty!

The best read on this subject is the book by the famous American philosopher, Robert Pirsig, "Zen and the Art of Motorcycle Maintenance". It is a book every scientist needs to read and understand backwards and forwards. NEVER argue with a skilled rhetorician using dialectical argumentation; you will be sliced up faster than you can say, "evolutionary and developmental biology".

I feel the very same way about conspiracy theory wingnuts.

You totally abandon logic here. You have no choice but to become a conspiracy theorist after 9-11. The gov't forces you to adopt one or another conspiracy theory. And then it tells you not to believe in conspiracy theories! It is one of the greatest insults to the public intelligence of all time.

Ilargi wrote about the possible creation of financial chaos for averting peak oil in the October 9 Debt Rattle, in a much more articulate fashion than Deffeyes's recent venture.

There’s something I first wrote about years ago, and have left alone most of the time since. It exposes me to conspiracy theory claims, and that just takes away from more serious issues. Today, I’ll revive it. I don’t really care much what anybody says, never have, I simply figured it’s more productive to talk about things that can actually help people. And I have, as many will confirm.

But today the New York Times comes with a comprehensive overview of Alan Greenspan’s tenure at the Fed. So here goes.

When Marion King Hubbert introduced his Peak Oil theory for the US and the world (he didn’t name it that) in 1956, the general assumption is that it was dismissed across the board, that none of the folks in charge paid much attention.

My assumption is that they did. I think they jumped on it like a bunch of pouncing tigers, because if Hubbert was right, power itself would be at stake. And power needs to look ahead, power needs to be pro-active, it can’t afford to just react to events. Power also doesn’t rhyme with visibility, so we’re not talking about the presidents et al you see, they are mere hand puppets.

If Hubbert was right 50 years ago, the wizards behind the curtain reasoned, American society would be a whole new and different game. If oil supplies were sure to go down year after year at a certain point, the whole society would change, and not just a little bit.

Rubin says that defaulting mortgages are only a symptom of the high oil prices. We should be blaming the underlying cause--higher oil prices--rather than the symptom.

Conversely there would not be nearly as many defaults if people weren't coerced into precarious positions which was caused by the housing bubble mania. High oil prices surely did assist but there would still be massive defaults without just because of the dynamics of a massive asset bubble. Turns out people are not to keen on keeping property that is worth half as much when they bought it and did not put money down. Who would've known?

The whole fantasy that something as complex as a nation of 300 million people can be successfully regulated by a small group of ordinary mortals is amazing. Now imagine orwellian task of centrally managing the whole globe. Economy just happens to be a substantial yet very small part of that complexity. There are no supermen in D.C, they happen only in comic books.

Here is a short article on the real effects of most regulations...

Since the bailout bill passed, I have been frequently disturbed to hear “experts” wrongly blaming the free market for our recent economic problems and calling for more regulation. In fact, further regulation can only make things worse.

It is important to understand that regulators are not omniscient. It is not feasible for them to anticipate every possible thing that could go wrong with whatever industry or activity they are regulating. They are making their best guesses when formulating rules. It is often difficult for those being regulated to understand the many complex rules they are expected to follow. Very wealthy corporations hire attorneys who may discover a myriad of loopholes to exploit and render the spirit of the regulations null and void. For this reason, heavy regulation favors big business against those small businesses who cannot afford high-priced attorneys.

The other problem is the trust that people blindly put in regulations, and the moral hazard this creates. Too many people trust government regulators so completely that they abdicate their own common sense to these government bureaucrats. They trust that if something violates no law, it must be safe. How many scams have “It’s perfectly legal” as a hypnotic selling point, luring in the gullible? Many people did not understand the financial house of cards that are derivatives, but since they were legal and promised a great return, people invested. It is much the same in any area rife with government involvement. Many feel that just because their children are getting good grades at a government school, they are getting a good education. After all, they are passing the government-mandated litmus test. But, this does not guarantee educational excellence. Neither is it always the case that a child who does NOT achieve good marks in school is going to be unsuccessful in life. Is your drinking water safe, just because the government says it is? Is the internet going to magically become safer for your children if the government approves regulations on it? I would caution any parent against believing this would be the case. Nothing should take the place of your own common sense and due diligence.

These principles explain why the free market works so much better than a centrally planned economy. With central planning, everything shifts from one’s own judgment about safety, wisdom and relative benefits of a behavior, to the discretion of government bureaucrats. The question then becomes “what can I get away with,” and there will always be advantages for those who can afford lawyers to find the loopholes. The result then is that bad behavior, that would quickly fail under the free market, is propped up, protected and perpetuated, and sometimes good behavior is actually discouraged.

link here
Regulation can actually benefit big business and corporate greed, while simultaneously killing small businesses that are the backbone of our now faltering economy. This is why I get so upset every time someone claims regulation can resolve the crisis that we are in. Rather, it will only exacerbate it.

...gold-plated turds...

aha!

so the whole financial system of america was based on tactics that were sure to kill the goose that shat the golden turds...

that smacks to me of foreknowledge of something that was gonna kill the goose that shat the golden turds, anyhow.

There are two distinct types of professional money guys. The sell-side, who have engineers build complex financial products so the salesforce can sell them for big commissions, and the buy-side, who have portfolio managers invest people's money in the lots of things including the afore mentioned goldishturds. The buy-side guys are competing with each other for client investment dollars based on their performance with those dollars. The real culprits are on the buy-side.

I have been on the buy-side of the money biz for twenty plus years and I have seen this play out over and over. If the sell-side makes something complicated and tells the buy-side that it is so difficult to understand that few players on the buy-side can handle the complexity, buy-siders will buy it with every penny they have.

A good part of the recent epidemic of insanity has to do with the engineering metrics that buy-siders use to evaluate risk. Asset risk has been quantified in investment science as volatility: how much price moves around. According to volatility measures, assets like junk bonds have a lower risk than treasury bonds. That sounds kind of silly, but mathmatically it is usually true. "Usually" being somewhat of an important word here. A junk bond like XYZ Steel Co might normally trade at a yield of 8% or 4% higher than a corresponding 4% yield treasury bond. When the economy is booming and XYZ is doing well, their bonds might trade at 3% higher than a treasury instrument, but since the economy is booming, the treasury trades at 5% due to inflation fears. Since my CFA training tells me that 5+3=8, I know that the treasury has been volatile, but the junk bond hasn't moved an inch. If the economy slides into a mild recession, the inflation risk declines and the treasury yield dips to 3%, while the XYZ junk bond needs a yield 5% over the treasury to cover the extra risk. Once again, the treasury has been whipsawed, but the lovely little junk bond is still priced to yield 8%. And there you have it: under Modern Portfolio Theory government issued bonds are too risky to own.

Obviously needs some touching up, don't you think?

We don't need any conspiracy theories.

"need" is a funny word, isnt it?

if we're willing to accept being manipulated by predators, who conspire with each other to maintain their power over us, well, then, we dont "need" to know that those predators are conspiring.

There's a disconnect between posters on TOD who are anthropocentrist technocopians & those who are ecocentrist agrarians of one sort or another. These two contingents often talk past one another. The former just can't understand why the latter can't get all excited over visions of electric trains & thorium reactors & peddle wheelbarrows, etc. The latter can't understand why the former don't realize that that kind of thinking is what got us in this mess in the first place. So it goes...

Many people may be ignoring the elephant in the room here. Peak oil may mark the death of capitalism, or at least capitalism as we know it today.

Robert Heilbroner makes the following observations about the nature of capitalism:

Capitalism as a regime has more than one identifying characteristic. But its central, driving characteristic is surely its need constantly to accumulate, to seek avenues for the investment of capital in order to create more capital. In slightly different terms this is a formulation every businesman would agree with. It is the profit motive, expansion, growth. Using another vocabulary, it is the belief in the primary role of investment that the economics profession in general takes. The imperative for capital formation, growth--accumulation is the term that I prefer--is central because capitalism depends on that in order to reproduce and preseve its entire sociopolitical structure.

Robert L. Heilbroner, Behind the Veil of Economics

I think many non-economists can see that capitalism is in crisis. As we have seen recently with the price of oil, capitalism's underlying mechanism--free markets--are not at all rational, but vulnerable to emotional buying and selling. When it comes to peering into the future, or evaluating risk, they do an even worse job. If we define economics as the process by which society marshalls and coordinates the activities required for its provisioning, I think most non-economists can see that capitalism has become dysfunctional.

What direction will history take now? Will we replace the market (capitalist) economy with a command (centrally planned) economy? Will we end up with a mixture of the two? Will we revert to a traditional (primarily agriculturally-based, perhaps subsistence) economy? Or will some brilliant thinker conceptualize some entrely new economic regime?

Whatever happens, it would be a mistake to think the capitalist ideologues will go away without a fight. They are now being forced to confront the same bleak truth that the Marxist ideologues were forced to confront only a few decades ago. Their theories join the wreckage of other passing scientisms, dashed to pieces on the rocky shores of history and human nature.

Reinhold Niebuhr warned over half a century ago that the "powers of human self-deception are seemingly endless." We have "dreamed of a 'scientific' approach to all human problems," clinging to "the pretension that a community, governed by prudence, using covert rather than overt forms of power, and attaining a certain harmony of balanced competitive forces, has achieved an ideal social harmony. A society in which the power factors are obscured is assumed to be a 'rational' rather than coercive one."

As Niebuhr goes on to explain:

It is frequently assumed that human nature can be manipulated by methods analogous to those used in physical nature. Furthermore it is generally taken for granted that the highest ends of life can be fulfilled in man's historic existence. This confidence makes for utopian visions of historical possibilities on the one hand and for rather materialistic conceptions of human ends on the other. All concepts of immorality are dismissed as the fruit of wishful thinking.

Reinhold Niebuhr, The Irony of American History

Capitalism thus suffered the same fatal flaw as Marxism: it was "incapable of recognizing all the corruptions of ambition and power which would creep inevitably into its paradise of innocency."

The loss of innocence is now clarion to all except the most committed of capitalist ideologues, which includes almost all economists indoctrinated in American universities as well as businessmen and financiers who benefit from the existing economic regime. But outside of these insular enclaves, rank and file Americans are rapidly awakening to the fact that something is terribly dysfunctional with their capitalistic economy. As Niebuhr tells us: "The force and danger of self-interest in human affairs are too obvious to remain long obscure to those who are not too blinded by either theory or interest to see the obvious."

He really doesn't talk about why oil prices went up in the first place, at least in this article. I haven't read many of his other articles.

I do know he is "peak oil" aware. I also know that he, or someone on his staff, is reading TOD. Some of the graphs in a natural gas article in the same PDF are from a TOD post I wrote (with proper attribution)!

I'm playing Devil's Advocate here because I see this as a weak point in getting people to recognize peak as the issue.

To get out of recession, we will need to use more resources.

This isn't necessarily true as efficiency could help, we could gain productivity from negawatts for instance. However, Rubin's top chart shows recessions vs oil price, and from Gail's statement we at least need to consider overall energy consumption. Ideally we'd have the major energy source's use (oil, gas, coal, nuke) and their costs compared to the recession data. After that then maybe we can figure out (WAG) some value for the efficiency variable or it might not be big enough to matter.

Oil peaked, but the overall energy vs economy picture needs to be put together to get a better understanding of the impact. Economists will claim substitution so we need to show how that there is really not enough to substitute.

(2) lack of credit to expand the use of resource.

I thought the Rubin was arguing that the transfer of wealth to the oil exporters was a problem because they were saving it. It seems that there might be an argument for them to be more proactive in propping up the bubble with easy credit, so to speak. :)

Oh, and since I've gotten silly, don't forget to project the development of a miracle energy source sometime before 2020 on any forward looking total energy chart. We can't forget the technology will save the day. ;)

a Greater Depression...

...that will last until somebody makes a breakthrough in fusion, or some complete white swan pops up... or possibly, furever'n'ever.

I'm in 100% agreement Don this was my own take on the matter.

Stopping expansion is very different from reducing consumption. As you point out and I have on the reduction side money itself is fungible so cutting costs cross a wide spectrum of activities. And also as you point out you can cut costs in a lot of areas before you see significant declines in oil consumption.

Understand this is different from the decline in consumption from the death of growth industries such as housing.
I'm sure we will see further real declines in oil usage as various industries falter if this will result in demand pulling back enough to cause low prices is open for debate but at best its temporary.

In the really be picture what Don is talking about is a move from a Debt based society to one based on cash. What I really believe will happen over the next several years is that the consumer will repudiate debt.

This will happen first with large long term debts such as housing and cars thence to credit card debt. Most of these people will do it by defaulting and more important they will not re-enter the debt markets.
Some of course will do this by paying off debts. The next step will be that more and more people will be forced to save some money to act as a cushion as debt cannot be used.

Companies will follow a similar process with some failing some saving etc across the regular or daily economy we are and will continue to see debt being repudiated.

However the system cannot handle this and the defaults would have destroyed it plus the above situation results in a stagnant economy. To counter this we will continue to see more and more debt that should have been defaulted on taken over by our governments. They will issue ever more debt to attempt to restart the economy.
So the very last debt junkie the governments will refuse to change repudiate the use of debt.

So whats probably really happening is as borrowers either become unable to borrow or refuse to borrow the governments simply attempt to borrow for everyone in essence.

We are not getting true debt deflation but concentration of debt most of no or little value on the open market.

Right now we have raging arguments over the internet as to which way our economy will crumble and the choices are deflation or hyper-inflation.

My opinion is neither instead I think our world economy will simply stop the real economy if you will is unable to take on any debt and the governments will eventually become insolvent and finally be cut off from being able to issue more debt. So in a sense it just stops the governments become unable to pump the economy they are setting on a huge pile of debt and the normal economy has reduced itself to a sort of cash/daily economy thats stagnant.

Thus the Greater Depression is probably going to be the result of a financial system thats incapable of operating its stuck if you will having suffered from several years debt concentration.

If you start looking at our financial system as a grid similar to the electric grid and we think about the spectacular failures that have happened to our grids I think we will see a similar event take out our financial system.

Its really just a information network and one day it will suffer from a cascading failure scenario as some transfer fails to happen and initiates a cascade of failed transactions. Nothing can go forward because know one understands the current state of the financial system. People don't pay a lot of attention to the vast amounts of money that move on short duration time scales. In fact our current financial crisis can be seen to be rooted in this sort of network failure. The flow of money stopped.

The reason I think it ends this way is simply because the underlying cause is the creation of a moral hazard.

Peak Oil results in a declining economy regardless of what people say about efficiency we are still dealing with a world that is poorer every year in a critical basic resource. Since efficiency gains suffer from declining returns the more you save the harder it is to save you are forced to actually reduce. Maintaining our fiat currencies requires endless growth. The moral hazard is that the governments have taken on the role of debtor and lender of last resort to prop up our economies agianst this relentless truth. The worlds population is happy to play this game and engage in it in hopes that the ever growing mountain of debt will result in short term personal gains.

Eventually some player becomes unwilling our unable to play the game the Moral Hazard explodes and people are forced to account for the debts.

http://en.wikipedia.org/wiki/Moral_hazard

Again if you look at our current situation the Moral Hazards that have been created are immense so it makes sense that moral hazard will probably be our undoing.

My best guess is that over the next few years people will be increasingly faced with decisions that have no positive outcome i.e every action results in a loss. This is because the underlying moral hazard has effectively removed the chance of making choices that are positive over the short term or long term. Once we reach the stage that effectively every move is negative the system has no choice but to not make any move thus it simply stops.

Now I've actually not been able to find and example of a systematic crash created by taking the option of choosing moral hazard as a solution. We certainly have Japan as and example however I can't see that this applies to the case of choosing the moral hazard solution globally. Just like peak oil in the US is probably not a perfect model for world peak.

We can guess that the fall of the Roman Empire can readily be modeled as the rise of moral hazard but the time scales for the fall of Rome and our own economy are radically different making it difficult to use them as a model.

Maybe a better example is the repeated looting of the treasury by the Kings of the Middle Ages esp England.

This is a good example that attempts to discuss it.

http://distributism.blogspot.com/2008/03/bear-steans-and-moral-hazard.html

Also I think that rise of moral hazard is tightly linked to the key failure of capitalism which is concentration of wealth. They are effectively the same problem. The moral hazard comes from the failure of concentrated capitol to be effectively redeployed i.e socialization of losses. This is coupled with socialistic programs to subdue the masses creating all sorts of miss allocation. The perfect example is the immense amount of interference by the government in the housing markets ever since the last depression. The real welfare program in the US was the subsidizing of the home owner. Social programs don't hold a candle to the tax monies spent on supporting WT's iron triangle. And of course on top of this we added the military-industrial complex.

Thus although our current fiat currency regime is capable of preventing direct deflation or hyper-inflation as a failure mode it does so by embracing the most insidious and final failure mode which is a moral failure induced stopping of the world economy as it can no longer operate without recognizing large losses.

If you look back on history this situation has been building since the end of the Roman Empire only new avenues of growth from the discovery of the America's and opening of trade with Asia have allowed us to dodge the bullet. In fact this suggests that instead of looking at the collapse of western civilizations as a guide we should look at India, Japan and Chinese histories since these economies routinely collapsed and in general at least from my understanding they may be the perfect examples of economic collapse from the final triumph of Moral Hazard over capitalism.

Fantastic pdf covering a wide array of societies.

http://www.bwl.uni-kiel.de/ifs/lehre/pdf/ss07/sem_economic%20systems/SEM...

Whats clear to me is that in all cases the theme is introduction of a snowballing moral hazard situation that eventually results in money no longer functioning in its most primitive role which is as and way to smooth barter. Thus the assertion that we fail by simply not performing needed transactions as moral hazard's make it impossible to ascertain the value of the money used in the exchange.

If Obama were to implement Islamic economics, I'm sure we'd never hear the end of it.

Memmel

Possibly 'misread' is the wrong word, though I was careful not to specify intentionally or accidentally. I am not a conspiracist (given an action was caused by either conspiracy or stupidity, 99% of the time its stupidity) but I should not be surprised that no main stream economist has gone further back into the genesis of the situation, it was caused by excessive credit but why was that allowed? Having said that if it was about Oil this would require admission that Iraq was about Oil wouldn't it, Startrekking I can see Greenspan now, "I'll keep the economy running cap'n but the dilithium bankers wont take much more!"

Neven

Gail

Yes, but like all failures it is a combination of factors, I don't think interest rates were dropped specifically to create a housing bubble, more that lower interest rates caused a growth in property as an investment, CDO's were then created so that financial institutions could join in on the bonanza, that then cause a disconnect between the reality of the lending and payment ability, the rest is history. I read somewhere that one banker became aware of the problem when the mechanic servicing his BMW complained that he couldn't pay his mortgage, a social synapse was formed.
Politicians played their part as you have mentioned, getting on the bandwagon that this was in fact a "good thing"...but did lack of net energy initiate it?

Neven

I suspect that no-one individually bore much theoretical risk, but the quant models opened up the entire system to a new kind of risk. Risk which, at the time, was just one of two black swans waiting to happen.

So we understand that oil production was increasing for many years, an actual increase in energy entering the system. Which was somewhat matched by increasing amounts of money which represented that petroleum energy.

We here at TOD also understand that many people confuse the abstraction of money for the things it actually represents.

So when oil production leveled off, there were no more actual increases in energy entering the economic machine. That was one black swan most people didn't see, the lack of petroleum energy. They saw more of the lack of money, less of the lack of things the money represents.

So, of course, the solution became to pump more money into the system, in the form of increased credit.

One black swan was the leveling off and imminent decline of petroleum production that we've all been screaming about for the past several years. The second black swan was the common misunderstanding that it is the flow of money that defines the economy, instead of the economy being defined as the exchange of finite energy, goods, and services.

I also suspect the second black swan has historically contributed to the collapse of fiat money systems in general.

The leveling off of oil production when we were expecting and acting as if it would continually increase is like attempting to run a marathon and then discovering you're bleeding. I know it's a grisly analogy that I keep using when describing our current situation, bleeding to death, but I think it's apt.

Our solution was to pump more money into the system to make us run even harder. This also has the unfortunate effect of losing blood at an even greater rate, because as the blood gets pumped harder, more is lost through the wound.

How about the most obvious cause: that Dubya, the neocons, and the US Republican party collectively were not intelligent enough to overcome their instinctive political prejudices. They really believed that the Iraqis would not be willing or able to provide enough violent resistance to completely sabotage their plans to profit from the occupation. In short - the last desperate gamble failed.