FOMC: The Chicken, The Egg or The Kitchen Sink?

Today the FOMC announced both a zero (or near zero) interest rate policy, but also that they would be buying debt of troubled companies directly, and forcing interest rates lower for consumers and businesses.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability,” the Federal Open Market Committee said today in a statement in Washington. “Weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time.”

Stocks rallied over 300 points, the Euro soared against the dollar to 1.40 (was at 1.24 2 weeks ago), yet oil, arguably with natural gas the most important asset class in the world, sank 90 cents, just $2 above multi-year lows. Another example of where there seem to be correlations until there aren't.

From CNN:

As a result, the Federal Reserve's balance sheet has exploded since mid-September, more than doubling to $2.3 trillion from less than $1 trillion before Lehman Brothers' collapse ignited the lending crisis.

In addition to the usual scratch-your-head and wonder type questions, like who is going to finance this, and which countries might be first to NOT purchase treasuries under 1%, how can we increases 'savings' with interest rates at zero?, and how is this different from other currency crisis precedents, I was struck by 2 misplaced (but confident) assumptions in the FOMC language:

1)That their statement implies they understand WHAT 'sustainable' means, given our energy and natural capital balance sheets and:

2)They are preserving price stability in the wrong asset class. Perhaps they should double or triple energy prices and put a floor on THEM rather than attempt the perpetuate the 'natural law' taught in business schools and brokerage firms that equities go up 10% per annum on average... Equities are part of financial assets which are just a marker for the intersection of natural resource extraction and technology. I.e. they are throwing the life preserver to the wrong victim floundering in the water...

Does sustainable mean without debt? How can we have growth without debt/credit? Is this just another in a series of band-aids until the economy is righted, THEN we bring in the 'good' policies? Perhaps the Fed needs some heterodox economists on staff? How many at the Federal Reserve meetings understand the Four Capitals?

One has to wonder if the kitchen sink is next (and if it has a lien).

Great points!

"Sustainable" here I believe is being used more for its warm-and-fuzzy associations than for any actual denotative meaning from whatever dictionary--heterodox, orthodox, or box of rocks.

I'm afraid that, given his picks for cabinet...Obama will continue down these utterly hopeless paths to "grow" ourselves out of decline. But we will certainly see ever more pretty language like "sustainable" to make us all feel better about the whole thing.

I'm afraid that "sustainable" will acquire a negative connotation, similar to the what the current administration did to the word "freedom." Of course, very little that humans do is actually sustainable, especially when scaled up to a 6.5 billion population. Oh, and my vote is for "kitchen sink." I'd have more confidence in the FOMC if they would admit that they don't really know, at all, what they're doing, and how to solve the problems (assuming they can be solved at all, of course).

"Sustainable" here I believe is being used more for its warm-and-fuzzy associations than for any actual denotative meaning from whatever dictionary--heterodox, orthodox, or box of rocks.

That's the conventional way sustainable is used by anything from wind proponents(what's sustainable about an energy source that's totally dependent on natural gas to provide usable electricity?) to organic farmers(what's sustainable about farming dependent on nearby conventional farms for "herd immunity" from pest? What's sustainable about being dependent on fossilized bat poo and an army of cows that can't exist without conventional farming?).

Maybe they mean it. Negative growth is sustainable...

All the Fed, and just about everyone, else cares about is maintaining/restoring business as usual. There is no hope as long as this paradigm remains unchanged. On top of that, there isn't even a societal consensus as to what changes should be made. In fact, I'm sure a majority of people want things to remain just as they are/were.

Dark, dark days are ahead.


Todd I think you're right. Here are some random thoughts on the nat gas/oil situation that might some day form into a post....

Many agree that the world economy will continue to head south. But in addition to the energy experts being blindsided by finance, the finance experts (read: FOMC, treasury, hedge funds) are going to be blindsided by energy. Few on Wall Street (or in Government) understand the energetic and environmental constraints that form the boundaries of our modern sociopolitical system (until about 5 years ago, I was part of this group). We may now be, as has oft been discussed on this site, standing on the precipice of the natural gas cliff. If the $26 trillion energy investment that the IEA suggests we need in order to meet future oil demand does not occur, the observed global decline rate for oil will approximate the natural decline approaching 8-10% (since majority of newer fields are offshore and/or small, the decline rate might even be higher.)
Oil prices for some time have been below the marginal cost. Below is a slide from a recent Horizon Oil presentation (using CERA data), showing marginal full cycle replacement costs for oil. I assume that full cycle costs include costs for planning, development, operations and field abandonment.

Marginal Full Cycle Cost (Source: Horizon Oil Presentation Slide #17/ Original data from CERA)

On the way to its high of over $148 per barrel (Jan 09 contract), oil companies, biofuel companies, tar sand companies, shale oil companies, and a not insignificant number of 'snake-oil' companies made investments based on a continued high oil price regime.

But nat gas another story...

We hear rumours that the first wells in Haynesville by Chesapeake were more like science experiments, designed to have high flows, but extremely fast decline. The drop in prices is causing the cost of new wells (leaving aside the issue of getting available financing) uneconomic. Already 200+rigs (out of 1600) have been laid down due to low prices. Every day we hear more about capital budgets being slashed and projects being scrapped. Based on degree heating days, withdrawals should be far in excess of years prior, yet they are smaller, due ostensibly to drops in industrial demand. If this continues fully half or 3/4 of our nat gas rigs will be temporarily brought offline. Since 50-60% of total gas production is of recent origin in the Barnett and other shales that deplete north of 60%+plus the first year, one could argue that the decline rate in the 2006 EOG graph above is (very) conservative - we might be looking at 40-50% first year overall decline rates. Which means no drilling would imply we'd be down to 36% of current production in 2yrs time. Of course, the optimists will say that nat gas prices will then rise and we can bring the rigs back online - but a) there is a lag and b)the price yo-yo will get increasingly shorter and more vicious as we pass energy break even. If these low natural gas prices last much longer, Aubrey McClendon's statement that the rig count could go down to as many as 400 rigs will come true.

Here are some of the historical oildrum posts on net energy, increasing costs of North American Natural Gas, and the related issues:

I humbly suggest reading the first essay I wrote on this site; Parable of the Sasquatches, that is a lay example of the impact of stealth energy decline on an 'economy':
A Net Energy Parable - Why is EROI Important?


An Update on the Energy Return on Canadian Natural Gas
At $100 Oil, What Can the Scientist Say to the Investor?
Peak Oil - Why Smart Folks Disagree - Part II
Ten Fundamental Truths about Net Energy
The North American Red Queen - Our Natural Gas Treadmill
Energy From Wind - A Discussion of the EROI Research
The Energy Return on Time
Natural Gas and Complacency
The Marginal BTU -The Return of the Red Queen

By focusing on the stock market, instead of the energy markets, we are putting the cart before the horse or the chicken before the egg. To use a poker metaphor, in less than 3 years time, the Fed's chips won't have any 'fold credibility'. Come up with any analogy you can that focuses on ostensible problem while ignoring the real issues.

If the Fed is going to print money to bail us out, use it to put a floor on nat gas and oil prices, otherwise our goose is cooked.

The story that I think may be applicable is "Jack and the Bean Stalk". We are focused on getting the goose back in operation - ie the golden eggs, but where is the guy that has the cow?

In addition to the energy experts being blindsided by finance, the finance experts (read: FOMC, treasury, hedge funds) are going to be blindsided by energy.

It's not only energy or only energy and finance. It's everything; it's resources of all kinds. We're in overshoot and the floor has already dropped away. You're fox number 10,000,001 and there are only 10,001 rabbits. What are you going to do, plant more rabbit food? Nor will your six foot antlers help.

cfm in Gray, ME - dark days indeed.

My friend would advise me to "antler up" and take out a few million foxes so I can have more rabbits for myself and my family. I just don't think I have the stomach for it.


I have to say I think it doesn't matter what the Fed does with the money. I understand your rationale but the best it might do is buy a little energy time.

Society is going to devolve via cascading defaults. Standards of living ...and consumption...have to fall and they will act as a feedback loop making things progressively worse.

I happen to be re-reading _Living the Good Life_ by the Nearings. For better or worse, society will have to live far more frugally while being satisfied with more free time to pursue personal/group interests - not stuff. Then there is Ecotpoia and the hippies.


Is that the book where some professionals move to the country and pursue a 'barbell' strategy? E.g. work 4-5 hours 'outside' and 4-5 hours using their 'heads'? Such balance is appealing - at least to me..(I currently use my head too mcuh..:-)

Yes, that's what the Nearings (Helen and Scott) did first in Vermont staring in the early 1930's at Forest Farm (for 20 years) in the Green Mountains and then on coastal Maine which occurred after the book was published.

Nate, also know that Scott Nearing wrote about war and oil way back when WWI and WWII were closely linked to petroleum, even though folks did not like to talk about it then.

Nearing also wrote too frankly about child labor abuse. One of the key donors to Penn State at the time happened to abuse children -- use them as de facto slaves -- and had Nearing fired and blackballed from academia.

Rather than slink away whimpering, the Nearings simply lived the good life and taught many young people who heard about their "good Life" through reading or else word of mouth. These (primarily) young people would travel to the nearings farms -- first in Vermont, as I recall, then later in Maine -- to learn by working on the farm and then joining in discussions led mostly by Scott Nearing.

Nearing taught at the farm and also accepted some speaking engagements until he was quite aged and no longer able to do so.

Helen's book "Loving and Leaving the Good Life" is a superb overview, and the photos of their farms and projects ar wonderful.

Some good things really renew the soul. I find that "Loving and Leaving the Good Life" is a reflection of an elderly person remembering her lifelong companion and lover and a wonderful uncompromising teacher who mostly taught by walking the walk. Their lives effectively repudiate much of our current culture and give an example of a better way.

Incidentally, Penn State retracted its ban of Nearing after he was quite old, and admitted their wrong-doing and apologized. Of course this was long after the damage was done to his academic career, for however that matters.

The Fed and all would not seem to have any common ground with such people as the Nearings.

I seem to be living the barbell life now, though with the winter setting in a bit too much computer time ;)

I am going to read a book about the European plague. Apparently some good insights on how populations deal with mass death and social chaos.

Hi Jason,
What book might that be? Always on the prowl for new reading material. Thanks in advance.


If you are interested in the media, and why you should not trust it, I'd suggest Escaping Plato's Cave: How America's Blindness of the World Threatens Our Survival by Mort Rosenblum, 2007, ISBN 0-312-36440-7

The title comes from Plato's reference to the shadows on a cave wall that its inhabitants mistook for reality.

I haven't finished it yet but it makes me want to throw up.


PS Some friends of friends know Mort in France where he lives and say he is really a straight shooter.

Thanks Todd, I'm definitely going to check this one out.

Looks like a (anecdotally interesting) cross between Dark Ages America and Manufacturing Consent

For the reader interested in anatomy of plagues, the life story of Nostradamus and his "real" work as a doctor ministering to victims. Difficult to find any good books among all the nonsense, and I can't recall what book it was that I read. Will try to follow up.

"I think it doesn't matter what the Fed does with the money. I understand your rationale but the best it might do is buy a little energy time.

Society is going to devolve via cascading defaults."

all they can do is structure/guide the falls; & yes maybe gain a little time. Course most within the FED circle thinks they can pull the right levers to keep the 'plane flying'- ain't gonna happen.

Nate i think proposes we lay her down w/ what little planning time we have to minimize the damage.


Nate, I hope you do develop this into a post. Great charts and I think a critical bit of analysis. Well done.

Thanks Nate good graphs I've been trying to say the same thing myself.

The situation might be worse then your suggesting because of this.

I've posted it several times this is a defcon 5 event that seems to be slipping by unnoticed.
One prediction I had made about the future as energy became scarce is that we would see energy prices trend towards the same price minus a fairly fixed discount for the various types. Thus coal and NG would begin to follow oil in
pricing with various fixed discounts depending on the value. Obviously I did not expect a steep decline in oil
prices to potentially set this system up but how it starts is not all that important.

What is important is that we may see oil and NG maintain this small spread in prices going forward.
This sort of tight spread is what I think will signal that we have entered into peak energy where partial substitution of oil for NG or coal for NG no longer provides a steep discount. This is not saying that we won't see various substitutions but that no energy source will be substantially cheaper than another.

This will eventually effect electricity prices and if I'm right we will find that switching to EV's and renewables at this late stage will just be more partial substitution. It may allow some growth but probably it won't result in a return to cheap energy of any sort. Bottom line is we will be a larger precentage of our overall money supply for energy and food. They will take a bigger piece of the economic pie. This of course means that the ability to expand will be weak or more probable negative.

Given Nates post on NG its fairly easy to conclude that we may have just reached this btu*quality parity condition for NG and Oil. If so then it follows that what I'm saying might come to pass and cheap energy of any form may simply become a thing of the past.

One reason for this of course is we have been doing partial substitution for decades we burn more coal now than ever and more NG and more oil. Certainly over time one source was substituted for the other for quality or price reason but partial substitution does not stop the relentless growth in the use of all energy sources it simply allows more growth.

Word has it that state government boilers in Wisconsin (large state facilities/campuses) have stopped ordering coal for the current winter heating season in favor of natural gas, a decision driven primarily by prices. Burn the good stuff now, we'll burn the coal later.

Whats interesting is the concept of partial substitution seems to be missing from the economics literature I can find.
I think thats just because I don't know how to look for the concept. Maybe Don Sailorman can address it.
I've sure its in the Economics literature its a pretty obvious concept.

As you point out it ties different energy sources together at certain price points. So at least for overall energy its tough to look at price alone. Also of course neither coal nor NG are evenly distributed but are large sources of energy in different areas so the interaction of coal/NG/oil is very regional while Oil is the most fungible of the three. Obviously the fact that the US and China have large coal reserves has played a role in keeping the price of oil down same for natural gas. Partial substitution is completely ignored by people that show how GDP has grown with less oil. The substitutes run out also. If you couple this with the known increase in velocity of money.

And again reference Nates original post you should have a strong desire for a stiff drink.

We used two trick to keep the US growing after it peaked in production. Significant partial substitution primarly NG for oil and using inflation to speed of the velocity of money to keep the economy revved up basically via a ever increasing credit bubble. Both trick ponies are about to be taken to the glue factory.

The substitutes run out also.

Energy efficiency doesn't run out. We will rather run into energy efficiency - there will be no choice left.

There are at least two other important ponies:

1) reduction of barriers to trade and investment which allowed producers to realize cost savings derived from international divisions of labor. These cost savings were passed along to consumers so that they could consume more, and

2) coming out of the last major recession (also caused by a rapid spike in the price of oil) production in a number of supergiant offshore fields came online. Demand fell as GDP shrank and efficiency measures bore fruit... but non-OPEC supply also increased drastically as Cantarell and some North Sea fields pumped out crude. This lead to the oil glut and drop in price. As an aside, I've heard more than once that it was Saudi Arabia increasing production and engaging in a price war that caused the price decline. This doesn't square at all with published numbers. Between '81 and '85 the price dropped from $93/bbl to $25/bbl, and SA production decreased by almost 7 Mbbls/day.

We can't ride either of these ponies again, and Nate's CERA Marginal Full Cycle Cost graph really hammers this home... There is 1) little investment capital for deep water or tar sands mega projects, and 2) little incentive to invest in such a project when prices are well below the point of breaking even.

None of this is surprising. It's Vietnam all over again.

American establishment makes the same sorts of mistakes over and over again. With repetition and the passage of time, the mistakes become ennobled. Failure becomes gilded with 'honor'. If we are damaged by our hubris or foolishness, we gain exalted status as 'victims'. We succeed best by falling on our faces.

It's always somebody else's fault.

Vietnam was a reaction to aggressive Soviet communism. Communism was a threat because the Great Depression almost destroyed American capitalism. The Great Depression was an outgrowth of the Great War. The Great War was the outcome of the breakdown of the olde order of European Monarchies. The olde order failed because of colonial requirement to 'spread civilization'. Colonialism wss an outgrowth of religious strife in Europe. So it went, so it goes.

We cannot go back far enough. The past reaches out into the future; it never lets go. How can our economy not get 'back to normal'? That 'normal' was a once- in- a- millenium collection of happy accidents can't register because the past tells us the path from itself - from the past, that is - is 'progress'. Since we are smarter and have more possessions than we did in the past, progress must still be working.

We need progress to escape from the past. We need it and we loathe it. Progress destroys the past ... or it appears to. At the same time, the past tells us where we have failed to make even more progress. The past is ironic, like a Marcel Duchamp artwork.

Our economy was Dada, with a dash of Surrealism. Now it is a train wreck.

The past tells us that running out of something essential to progress, like water or credit, is impossible because it has never happened before. Particularly to an advanced culture at the height of its power. This being a fact, such a running out can never happen in the future. Or, if it does, it is a temporary inconvenience. We can make simple adjustments with expedients.

In the past, the expedients have never worked. So ... they will this time! We've made progress since the last time we had to use expedients. Our Bosses will simply replace business credit with government loans. We will easily replace petroleum with ... peanut oil or corn or 'undiscovered reserves' or large, powerful rubber bands. We only need to resurrect that bit of the past where we took a wrong turn and ... things will get back to normal.

We just need to have faith in the 'system' ...

It looks from Nate's chart that natural gas automobiles aren't going be an expedient any time soon. How disappointing.

Said by steve from Virginia:
The past tells us that running out of something essential to progress, like water or credit, is impossible because it has never happened before.

I thought the decline and eventual fall of the Roman Empire had something to do with resource depletion, namely forests. The adage, he who ignores history is condemned to repeat it, is perhaps applicable.

Vietnam all over again.... We just need to have faith in the 'system' ...

Chris Hedges, The Best and Brightest Led America Off a Cliff

It looks from Nate's chart that natural gas automobiles aren't going be an expedient any time soon. How disappointing.

I dunno.  $9/mmBTU is about $1.10/gallon equivalent, not including the advantage from higher octane.  Depending how fast supply can be increased by drilling and how fast vehicles can be converted, gas could provide a ceiling on oil prices for a while.

sitting here wathching fridgid temps soak the entire country(and canada) and ng prices are stuck on $5.80/mmbtu.

The temps here in the northern tallgrass prairie are between -30 adn -20-- that's before windchill. Two days ago the wind was 45 mph- wind chills below -50.
How. Would. We. Survive. Without. Electricity?
Our Central Boiler (backyard wood boiler- feeds our 100 year old hot water radiator system) blew a fuse at the height of the blizzard. We had to turn on the back-up propane heat. We were snowed in and this is "life threatening" cold.

Peak oil/NG/aged electric grids-- my eyes are opened to the vulnerabilities. I look around at people merrily shopping, eating at restaurants and I see a different world than all of them. In the howling prairie winds I hear haunting wails from the future.

I think it's too early for that stiff drink suggested above! I'll go eat some of that fresh pineapple in the fridge and make another espresso. And I'll be grateful for both.

Very easy to survive that type of cold. I have done it for years. Just did it for a new client. Cost about $ 2K.

The solution is called SUPER INSULATION of your primary living space. Take a kitchen room and do an internal build out of 12 inches of insulation. Loss of 1 foot around the wall is really not that big a deal. Ceilings are wayyy too high anyway.. Learn to live off the floor. By that I mean shelves for everything, take advantage of all the wasted space over your head. Really, make a line on the wall 6 inches above your head height and put everything you can up that high..Why heat dead air???? You can heat a space 24 x 24 with a few candles and body heat. Simple heat exhanger for outside air...very easy to do. You waste too much time and energy running in circles. 100 year old boiler??? What is that crap???

Not meant to be critical, but, common sense and cut the waste. Your house is tooo big.
You gotta learn to live with the natural world, not force your way thru it.

Power Down.

the boiler is an outdoor wood fired madel and the 100 yr old part is the radiators. have they really made that much improvement in cast iron in 100 yrs ? methinks you didnt read the post carefully.

Yep, sure did. Cast iron radiators are replaced by copper tube fin units, much better.I have recycled those heavy cast iron things for years. Good scrap price from time to time. Like I said, if you need all the BTU's that an outside wood boiler burns up, (and it WILL WASTE most of it), then your living space for the winter is wayy tooo big. How much energy do you waste just thowing wood in the thing??? Cutting wood?? Hauling wood?? Stacking wood?? ( I can hear her now,,"FRED,, GET OUT THERE AND FEED THE BOILER, THE DAMN TEMPERATURE IS DOWN TO 70 DEGREES IN HERE!!" HA! More than you realize. Waste is a terrible thing, especially when you can actually be quite comfy for so little. Waste is one of the easiest things to fix. Gotta get out of that mindset of cheap (free) energy of the last 100 years and use the Big head, not the little one. Even if the wood were free, (the wood fairies left it on your doorstep?), an inside, small woodburner with outside intake air would be sooo much better in a super insulated room.

Like I said, very easy to live in severe weather of any type....mostly common sense.

Power Down


It's "MIKE, GET OUT THERE AND FEED...." Just kidding. Actually, we only have to feed it every other day in the coldest weather. It may be inefficient- but I can't tell. The roof is covered with a thin layer of snow (hasn't melted any) and the insulated pipe that lay the 15 feet between the boiler and our foundation was covered with snow and never melted any. We also have a heat exchanger that heat our household hot water. We unplugged the electric water heater last year and have never plugged it back in. Sweet.

We don't have a huge farmhouse-- heat about 800 square feet.

Citizen- I agree with the other poster that asked if there is some kind of manual for the 12 build out. Even if short, it would be good for getting the idea out.

p.s. Mike says the biggest inefficiency compared to an indoor stove is that it draws in cold, outdoor air.

But wouldn't an indoor stove need to take air from the warmer room? Surely this reduction of air pressure would draw colder air in from outside anyway?


Combustion air comes from outside!! Here is just one example from Vermont Castings,,check out their web site for more info. There are many Mfg of this type.

100 % Outside air connection, standard: An outside air connection with a 3 inch diameter equipment connection flange is standard with the stove. A 3-inch outside air kit is required to complete outside air installation.The 100% outside air connection ensures that all of the air necessary to support combustion in the stove is taken from the outside of the home. No room air is used to support the fire.

Ya gotta use Da Common Sense....

Power Down.

Folks, just wait until it is cold weather to split the wood. Then use an axe and wedge/sledge hammer. You will find that after about 10-15 minutes of whacking and banging trying to split the wood, you won't need to stoke the fire.

"He who chops his own wood warms himself twice."

Citizen and Jewish Farmer,

Thank you so much for your comments. I should explain that our boiler is just one year old- a highly efficient wood boiler. Amazing thing we hooked into the existing hot water heating system. We use the standing dead wood on our farm and surrounding farms-- we have about 5 years of wood. We've cut more than 1,000 gallons of propane using this. Our radiators are 100 years old-- huge iron things- 5 feet long where they survived the 1970's remodel. We don't heat the upstairs and kids sleep together.

Half the radiators were replace by worthless baseboards in a 1970's. These huge old radiators stay warm for hours. Our entire house was wrapped with Ty-Vek. The windows are a problem-- bad windows. Hope to replace soon.

Thank you both!

"build out of 12 inches of insulation"

This always seemed like a logical approach to me. Do you have any suggestions on how-to manuals for this kind of thing? Do you have preferences among the insulation types?

The north country is mostly heated by natural gas, I believe, and when shortages start kicking in a lot of people will be caught off guard. There are many ways to deal with cold, but for most people who have grown up in the age of plentiful,cheap fossil fuels, the kinds of strategies you and astyk are discussing are just way off the radar screen.

The whole north country has to implement an insulation programs and strategies for reducing the area that has to be heated in homes. Unfortunately, budgets are being drastically cut, so big new programs do not seem to be financially or politically possible.

What a mess.


Look for the one from about the Illinois build out.
The idea is to improve it over time. One window a year? One wall? Seal all the cracks?
Little things add up faster than you can imagine.

Tons of info for your situation. Waste not, want not.

Power Down.

Yeah, I'd also be interested. Am I right in thinking that mould may be an issue?

Mold is not an issue, unless you are taking a shower in the middle of the floor...or making cheese.

Thats what a heat exchanger is for....check out up.

Power Down.

Been there, done that. Its not so hard, just a lot of grunt work, and a lot of land fill.

I just reinsulated one of my rooms. Its an attic room with a low ceiling, which just got lower. What I did on the walls was strip out the drywall and old insulation, then because it was the cheap way to go, I filled the cavities with hand cut boards of styrofoam insulation (the blue boards). The far easier way to go would be to fill the cavities with spray in foam such as "soy foam". In either case make sure you get a layer of foam BEHIND the outlets so they are sealed! I then put on a layer of 1 inch foil faced polyisocyanurate foam boards over the the insulation and the studs. I taped the joints with metal duct tape, and replaced the drywall (I am still doing that) over the foam boards. I figure this changed the wall insulation from R-19 (with gaps) to something in the range of R 35-40, and more importantly, no leaks or short circuits. Its a bit labor intensive, but nothing that a DIYr can't do for themselves.

A few technical comments:

In other rooms that actually get heated (this was an experiment in a room mainly used for storage) I will use 2 inch sheets of foam which will bring the walls to R 45-50

Use occasional drywall screws through roofing disks (drill a hole in the disks) to hold in the insulation until the drywall gets in place.

The practical limit without adding additional framing (read cost and effort) is about 2 to 3 inches of foam insulation since the longest drywall screws you can conveniently get are about 4 inches.

If you do this to the entire house your house will be SEALED so you might want to consider some sort of ventilation!

Be liberal with the foamin' goo ("great stuff" is one brand). Its great for sealing the cracks and what have you. The goal is no leaks.

IIRC, the R-value of extruded foam is about R-5 per inch, while expanded beadboard is about R-3.5/inch.  2 inches of foam would add about R-10 for a total of about R-29.

Of course you are right. with 6.5 inches of insulation I am getting something in excess of R 32. Still good enough for me when you add in the fact that the walls are sealed (with the vapor barrier to the inside), and well within the recommendation range of super insulation. My point is that retrofitting is a relatively straight forward solution, and you don't need to add 12 inches to your walls, or even new studs.

My bigger problem was that this room had a low ceiling that was directly under the rafters. The best I could do for the ceiling was about R 35, which is not good enough, and well below the R 65+ I have for the rest of the house.

Don't forget the R-value of the wooden studs and headers which appear to be 2x6's in your case. Doors and windows are poor insulators reducing your overall improvement. Assuming there is an 8' x 8' section of wall with studs spaced 16", one top and bottom sill plate; no windows, doors & electrical sockets; and insulated as you described:

extruded polystyrene: R-5 / inch
polyisocyanurate bat (foil faced): R-7 / inch
2x6 board: R-6.9
drywall: R-.879 / inch

8 studs (double stud every 4'): R-6.9, 1.5" wide x 7.75' tall

extruded poly inserted between studs: R-5 * 5.5", 7' x 7.75'

2 sill plates: R-6.9, 8' wide x 3" tall

polyiso over studs: (R-7 / inch) * 2", 8' x 8'

drywall over studs (5/8" thick): R-.55, 8' x 8'

Thermal conductance, U, through the studs and extruded poly:

U = {((1/R-6.9) * 1' * 7.75') + ((1/R-27.5) * 7' * 7.75') + ((1/R-6.9) * 8' * .25')} / (8' * 8')
= .05290 BTU / ft2·hr·F

R = 1 / U so the stud wall and extruded poly combined is R-18.9

R-18.9 (stud portion of wall) + R-14 (polyiso) + R-.55 (drywall) = R-33.5

Edit: corrected error: must add thermal conductance in a parallel heat flow problem

Well, since the northern tallgrass prairies were populated before the invention of electricity, this should suggest that it is possible.


Dress warmly, in lots of layers, ideally wool layers (which stay warm even if wet). Wear a hat, mittens, warm socks - multiple layers, ideally, and keep the hat and some fingerless gloves on inside.

Insulate as much as possible one space, with a heating source, but making sure you have adequate air exchange - you can do this by spending money on superinsulation, or you can do it with blankets hung on the walls and bubble wrap over the windows - just make sure you have some air.

Don't expect to heat your whole house - spend most of your time in a warm, central area. You can bring mattresses in or sleeping bags and sleep there if necessary. Or, if you sleep seperately, wear layers, a nightcap/hat, have plenty of blankets, ideally down or wool or good sleeping bags, and warm the bed by putting a brick or something on the stove before you get in. You can also make a four poster bed with blankets and keep heat in. Sleep with something or someone - kids can sleep together, or with the family dog, you sleep with a spouse, etc...

Heat liquid and drink hot tea/or whatever you like regularly. Use thermoses to have a constant supply. Move around, and keep a close eye on the elderly and small kids. If you are sitting, put a blanket on your lap, or better yet, a cat and a blanket ;-).



No cat, but a blanket and using a laptop to read your blog and TOD works quite well. And the laptop doesn't get all POd about me getting out of the chair!

Keep up the good work.

Very timely points Nate. We won't see much in the way of production cuts from domestic fields. Actually when prices drop almost all producers push production even harder. In the end it's a cash flow business. Oddly enough, the biggest production drop over the next couple of years due to low oil prices may well be in domestic NG production. We're one of the biggest unconventional NG players in the country and we've just cut that 2009 budget from over $1.4 billion to under $700 million. It's been the UNG plays which have accounted for most of the increase in NG production. But, as you point out, most understand the very high decline rates (up to 80% over the first two years) that these plays exhibit. All that kept the NG rates stable was an ever increasing rig count. Probably won't see any effect this winter but next winter, subject to the degree of demand destruction we see, could be a shock: historically low demand facing increasing costs. Just exactly what the economy doesn't need to see as it tries to recover.

We'll be drilling from cash flow borrowing. We have an excellent credit line but don't want to combine the cost of finance with pricing uncertainty. We'll be cutting loose about 40% of our drilling rigs in the next couple of months. A side benefit will be the resultant drop in costs. Oil patch inflation was starting to really pinch the bottom line. We'll likely see a much improved profitability from UNG (assuming there isn't a major collapse of price support) during this period but it will be at the expense of declining reserve base/deliverability. As you say, we’re still going to school on some plays like the Haynesville. Reduced drilling/completion costs will allow us more experimentation. Again, good for us but not so much for the rest of the economy. It was the fear of a declining reserve base that kept public companies, like Chesapeake, pushing the rig count up. Now companies have an excuse (national economic downturn) to explain the drop. Except for a big drop in high paying blue collar jobs in the oil patch, the current situation has a good bit of silver lining for many of us.

Deep Water projects won't be cut back as quickly....time lines are just too long. But if prices stay low for a couple of years you'll see a big drop off there also. If it turns into a prolonged downturn we'll see a lot of us grey hairs opting for early retirement. The aging factor will then become even more critical when the business bounces back. Education levels are no less critical in the oil patch as any other industry. But I think on-the-job experience is a bit more critical for the oil patch. For instance, a geologist can graduate with a master's degree but still doesn't have 90% of the skills needed in an oil patch job. A clever one can catch up to the point of being truly productive in 4 or 5 years of heavy experience. Even more so for the engineering side IMO.

The Texas RRC shows that Barnett Shale gas production increased at +37%/year in 2007. If my numbers are correct, if the industry could keep gas production growing at this rate from this play, by the year 2031 the Barnett Shale would be producing the energy equivalent of about 3,000 mbpd.

Of course, as some non-financial people know, it tends to be difficult to sustain an infinite rate of increase in our consumption of finite fossil fuel resource base, and through July the Texas RRC showed that Barnett Shale production would be up at about +10%/year, and the final data will probably show production for 2008 to be flat to down relative to 2007, probably followed by a definite decline next year.

WT -- I figure the plan is start tracking the monthly NG production of the top 5 players in TX and La by the end of 1Q 2009. That could give us a good hint as to how far/fast NG production will fall. Balancing that number against consumption could afford a guess to NG prices next winter.

We will see a lot of wells where drilled in the last two years. The drilling campaign was probably getting close to the point that it was going to have difficulty replacing existing wells fast enough to offset decline much less growth. Any slow down like what we are seeing is sufficient to start a decline and it will be very hard to recover from. Also sounds like your a big player smaller companies will probably cut back faster and harder. They probably where not contributing to growth but I bet they played a large role in slowing the decline rate.

Although a different problem its similar to the stripper wells in the US the 2mbd of oil the US gets from stripper wells serves as a sort of steady anchor to production. As economics become unfavorable for the small players your losing your backstop.

The positive is of course that falling rig rates may keep some operations profitable. But this seems to be the only real positive and its not clear how it fits with the other factors. The problem is that assuming that these smaller players used credit and that this is a lot harder now even if rig rates fall they may not be able to afford to drill. They would need to save up cash and with low prices this is hard in fact they may not be profitable right now. They need to service their current debt and save cash.

What this indicates is that we will see a consolidation in the UNG field potentially with some of the big players going under depending on their financial situation. After this what we will probably see is that the remaining large players will adopt a fairly conservative strategy of slow to no growth with a focus on maintaining a certain profit margin.

This is in a sense the same conclusion I drew with gasoline consumption if you think about it as a sort of extraction problem we "deplete" our gasoline reserves rapidly and we have a sort of base demand at some level.
With a very high depletion rate.
Our gasoline consumption should stabilize at some level and then undulate with economic conditions.

So in both cases I think that we will see about the same outcome both are constrained by investment not supply
by this I mean for gasoline Americans can burn as much gasoline as they can afford world production is far greater then US consumption we simply need to bid for our gasoline. For UNG reserves are larger then production thus it is the same bidding problem. In general as far as I can tell this results in the amount being bid to follow economic trends and it has a fairly firm base i.e in both cases you can be sure that X amount will always be bid.

Thus in the case of UNG investment tends towards a constant amount. In the case of gasoline consumption the amount spent tends towards a constant. The price will be determined by where this amount fits on the supply and demand curve. If you want to remove inflationary effects of fiat currencies you can look at it as precentage of GDP since what I'm saying is we will only spend a fairly fixed precentage of our GDP on both UNG production and gasoline.
GDP is not quite the right number its really "free" cash. Since in both cases the way we measure GDP result in a increasing precentage if prices or costs increase. Maybe call it precentage of economic effort the precentage of economic transactions related to UNG and gasoline consumption tends towards a constant. If the money is a store of value then its trivial since we would spend a fixed amount of "real" money on both.

There is a saying that a ounce of gold buys a good suite and a ounce of silver buys a good meal. I'm basically asserting this that given a non fiat currency the result is you tend towards allocating a fixed amount of wealth to a problem when it becomes economically constrained.

This can be seen in housing for example when we don't have bubbles. The natural or stable expenditure on housing is historically 3X income this is the stable precentage of income. I suspect that UNG is rapidly approaching its stable precentage of income. Its not clear yet that gasoline consumption has discovered its stable precentage of income.

That's by no means a "peak" event, however.

If production is down it will be by choice and not geology. They've barely begun to tap the Barnett and some have rolled to the other side of the street and started on the Haynesville Shale.

Of course, some finite earth types would argue that any unconventional shale play sooner or later would have problems with offsetting the growing number of older wells with high decline rates--especially since the average Barnett Shale well reportedly produces about 80% of total producible reserves in the first two years. There is also the little problem with providing the personnel and drilling equipment necessary to maintain an infinite rate of increase in drilling.

But hope springs eternal, and perhaps one of these days we will have a scientific breakthrough that will allow us to maintain an infinite rate of increase in our consumption of a finite fossil fuel resource base.

You know that implying that the only two choices are "infinite 37% increase" and "decline begins any day now" is something of a fallacy... right?

What they can do (but may not choose to do based on demand/price) is increase natural gas production so far and fast that claims from just a year or two ago that the US hit "peak natural gas" several years ago and were now in permanent decline can safely be said to have been proven wrong.

It's the average well that taps out so quickly... not the field itself. Which means that, unlike crude examples we've discussed where more drilling doesn't necessarily equate to more production... shale natural gas can ramp up almost directly with drilling.

Add the are other promising shales that have barely gotten started and natural gas production in the US will only "peak" in the near future from declining demand.

It's the average well that taps out so quickly... not the field itself

I've long referred to this as a Huber/Lynch type field--one where discrete wells peak and decline, but the aggregate field production, the sum of the output of discrete and depleting wells, increases forever.

I'm sure that seemed funny... but you're just repeating the same old falacy.

"Finite resource" doesn't mean that it runs out tommorrow or even next week. If you were to find a field ten times the size of Gwahar sitting under your back yard, oil would still be finite... but the peak would be far away.

This is the mark of the true believer... it's a miraculous coincidence that Peakeverything is next (or last) week. It really doesn't matter what is discovered because that's on its last legs too.

Let's be blunt. We now know that we have the capacity to expand natural gas production well beyond where Simmons (and others here) believed it could never go. He was simply wrong.

That doesn't mean there is no such thing as a peak, it just means that his "religious" faith caused him to believe it was last Wednesday.

"Finite resource" doesn't mean that it runs out tommorrow or even next week. If you were to find a field ten times the size of Gwahar sitting under your back yard, oil would still be finite... but the peak would be far away.

Hubbert addressed this in 1956. He found that a one-third increase in URR for the Lower 48, from 150 Gb to 200 Gb, only postponed the projected peak by five years, from 1966 to 1971. Of course, the upper end estimate appears to be more accurate, and the Lower 48 peaked in 1970. Note that 50 Gb is on the order of 10 times the size of the largest Lower 48 oil field, the East Texas Field.

A comparable ratio for the world would be from 2,000 Gb (C+C) to about 2,700 Gb. The 700 Gb difference would be roughly 10 times the cumulative production to date from the Ghawar complex (and according to Peter Wells North Ghawar will be effectively watered out within two years).

So, you are correct. A very large oil discovery would allow us to maintain the illusion of an infinite rate of increase in our consumption of a finite fossil fuel resource base--at least for a few more years.

Building strawmen doesn't help your case at all. Surely you must see that?

We're not talking about adding a year or two added to an estimate twenty years in advance. We're talking about a US peak in natural gas production being at least two decades off when many here claimed it had already happened years ago.

All because of a change in technology unexpected mere years ago.

Think it can't happen ever again?

I think I'll dub that the Charles H. Duell school of geology. :-)
Yes, I know it's a myth... but if you can build strawmen...

Nate: That Marginal Full Cycle Cost graph is super interesting, thanks for putting it up!

That one could be the basis for a really interesting article all on its own.

Right! This was what I was looking for :-)
However the weblink to the source seems to be wrong: I don't find any presentation there :-(
Can you fix this, Nate?

The problem that got us into this was excessive borrowing and spending.

Hence, the solution is excessive borrowing and spending. :-)

See, this economics stuff is easy! We can spend ourselves to wealth.

The imbalance between income (how much money the consumer has to spend) and earnings (how much money business & the wealthy make) has been growing for decades which lead to irresponsible borrowing to keep the spending going. The costs of houses, automobiles, education and health care have risen faster than income for decades. Globalization sent American manufacturing and jobs to foreign countries. This is an unsustainable economic situation which must eventually end. It was stretched to the breaking point using cheap, ubiquitous credit making the correction harsher.

Nate....when the Fed does finally throw out the Kitchen Sink, it will have the whole house stuck to it. What the Fed is doing is what I term:


What the Fed did today, is akin to cutting off limbs that are rotten to save the body. The charade of easy living is coming to and end right along with the Great Phat White Way. As I mentioned in another post, the only way the US Govt could control the price of Oil was to control the price of Gold. This has been done by several players, but the Fed has its favorites....and those are Goldman Sachs and JP Morgan. Some even say...that JP Morgan in all actuality, is the FED. JP MORGAN has the largest amount of Derivatives on the planet. When Bear Stearns went under, the Fed and Treasury made sure that JP MORGAN obtained the huge long position of gold contracts to offset its shorts.

Not many in this blog might realize that according to the Bank Participation Report, only 2 US Banks held over 25% of all Gold Short positions and 29% of all Silver postions in July of 2008 right before the big declines. Paulson, that Twit Bernanke and the President all came out on July 15 to calm the markets and let everyone know that everything would be HUNKY DORY. This is when the GREAT COMMODITY CRUSH began. This had to be done, as the FED knew it had to drop interest rates and flood the market with US DOLLARS. They realized this campaign could not start with high gold, silver and oil prices.

The plan worked just fine. JP MORGAN and SACHS who had many of the opposing trades to their very clients, the Hedge Funds, watched with glee as these Leveraged Contracts imploded. Now that the INFLATION SCARE has subsided, Quantitative easing and zero interest rates can take place. We have to remember, if the US Treasury and the FED had started their SLASH and BURN CAMPAIGN, Oil, precious metals and commodities would have skyrockted back in July of this year. At that time, Gold was still over $900 an ounce, Silver at $18 an ounce and Oil at $140 a barrel. To start their campaign at this time would have been sudden death for the US DOLLAR and FED.

Gold is money because of its ability to store value and not rust or decay. Gold coins minted back in the time of the Roman Empire can still be used today. Federal Reserve Notes are the last stages of the Death of the Great White Way in America. Trust is going out the window with the DOLLAR and the Kitchen Sink. Unfortunately many americans fail to realize just how bad the Oil Situation really has become here in the States. Russia has a surplus and can export that for a profit. The United States has a 2-1 Deficit. When the US DOLLAR finally loses its place as the world reserve currency, imports into the USA will dry up and blow away.

Denninger has a good rant about this one. Short and scary.

From 1980 The Federal Reserve has defined "economic growth" as "borrow faster than you grow output." This, as I have repeatedly shown, leads to declaring growth that never really happened.

Bluntly - Bernanke and the rest of the FOMC need their lithium dose increased.

We are here because of excess credit creation which The Federal Reserve caused, and their solution is more borrowing?

That gives new life to the statement "when all you have is a hammer, everything looks like a nail."

Unfortunately the impact of this decision was a total implosion in the TNX (or 10 year Treasury); in other words, a total flattening of the yield curve.

And since banks borrow short to lend long, this means that the very foundation of that which allows banks to make money is being systematically destroyed at the same time.

Worse, this is causing the dollar to get slammed - at least for a little while. Japan suddenly looks prudent compared to us, and the Yen is screaming.

What comes next?

Do you really want to know?

These sorts of actions ignite wars.

Choose between a trade war (about 75% chance) and a shooting war (the other 25%)

The dollar weakness, by the way, won't last. Either sort of war puts every other nation in the world in worse shape than us, which over time leads to the same place - "we're screwed but they're screwed worse."

The only nations that won't be are those who are intelligent enough to repudiate this stupidity in public and back up their mouth with acts.

That's likely to be a short list.

Bernanke needs to be removed from office and Congress needs to grow a pair and shut this crap down while we still have an economy left to save.

The Fed “will employ all available tools to promote the resumption of sustainable economic growth

Reminds me of the popular refrain among certain disgruntled anti establishment types back in the days of the Vietnam War: "Fighting for Peace is like Fucking for Virginity".

Well, promoting "Sustainable Economic Growth" is even more so. In any case be sure not to wear a condom because we need Sustainable Poulation Growth as well.

Hi FMagyar,

Grim quote ya got there. There is ample evidence on the financial pages that we should take them at their word.

On submarines they have a special alarm to alert the crew for a crash dive. I consider the above to be its equivalent.

Hi D.Benton,

Oh now, only about as grim as this one :-)

Any energy [or financial] policy capable of adjusting consumption [or lending against asset value] downward to bring it in line with projected supply, will have the immediate effect of destroying the world’s economic system because that system, lamentably, is utterly dependent upon growth. Less energy consumption [or less lending] means less everything… and especially less credit based ‘growth.’ Such a move would end the Ponzi scam. It would cause world wide economic recession on a scale to make the Great Depression an insignificant blip.

I actually saved your post from which I extracted that one... and am sending it to a few friends and family members because it pretty much expresses what I have been trying to tell them for a while now but a bit more eloquently than I have been able to do so myself, that and the fact that if another person other than myself is saying it they tend to pay more attention. When I say it they just cringe.

Hi FMagyar,

Hey, that makes me a published writer! Maybe now I'll get a little more respect from my own friends and relatives.

This stuff is really making me nervous.

Are we looking at the possibility of negative feedback loops (between finance, gas/oil investment, gas/oil production, and real economy) that could cause all four to decline FAR more rapidly than would be predicted from the merely horrible prospects of each when considered alone?

I remember a recent post, saying that when the oil price goes up, tankers slow down, and the price goes up because the oil is stuck on the sea. When the price goes down, tankers speed up, there is a sudden glut of arrivals, and the price goes down.

Like a skier behind a zigzagging boat zigs and zags much wider than the boat, economic systems tend to over react. All it takes is that a few economic systems synchronize on the downward overshoot, and a major catastrophy materializes.
It looks as if that is what is happening right now.

I grew up happy. Now I'm mostly anxious.

I am amazed at how often on TOD, people misunderstand "Negative Feedback".

It doesn't matter whether a TREND is positive or negative, the effect of feedback is:

"Negative feedback" will moderate or reduce the trend.
"Positive feedback" will exaggerate or increase the trend.

Positive feedback is needed to make horrible prospects even worse.

Hi Merv_NZ

Oops. That's the trouble with figuring out definitions from context. Thanks for the correction. My intended meaning was 'positive feedback.'

Why should the Fed support energy prices?
Why bother about today's front month price?

Would it not make more sense for governments to sign long-term contracts with producers and let the market do its thing at the margin? You could even fit feel-good "sustainable" language in the contracts.
I guess breaking the planning and diplomacy taboos would be too high a price for energy security.

It would make more sense for the government to go home and stay there. Virtually everything they do makes matters worse. Everything that has been successful in the past makes matters worse. The problems we face are the direct results of our successes. Now the game has changed because we're over the hill. Diminishing absolute returns. For my mathematical support, I submit the Greenland ice sheets. Surely the energy/entropy embodied in that ice mass alone is comparable to that of our human economies. And we have pushed it - according to today's news - into positive feedback and accelerating destruction. Beyond reversal.

Not with all the king's horses and all the king's men.

cfm in Gray, ME

I always pay attention to your posts, but this one merits more than just an up arrow...well done.

Impact of humans on Greenland, increased entropy. Impact of humans on "financial economy", gazillions of dollars in CDs, SIVs, Treasury bonds and so forth - vast creation of low entropy, concentrated information. Even the impact of humans on the "built environment", infrastructure, housing, industry, agriculture - that starts to look like massive increased entropy. If we produce little of lasting value - at least on a timespan commensurate with the resources we consume - then GDP is only the measure of how fast we destroy Gaia and the web of life.

Sorry the math is so impressionistic. I really wish I were up to figuring out some numbers. Can anyone help me with that or steer me? Odum had his emdollar concept. But there is the other side, the loss of entropy (resources) that fits into emergy through the long way around, transformity and concentration. The transformity of a species - the transformity of a third of all living species now expected to go extinct in the near future because of man's activity - that too must be order-of-magnitude closer to the entropy of the Greenland ice sheets than to the hydroelectric power we get from a few dams. I want to come up with a SWAG at how effective our economies are at generating entropy per unit of energy - a diesel snow plow truck for example - complete with stinky exhaust and salt spreader.

We have extracted "FIRE" from the ice - Finance, Insurance, Real Estate - and we cannot put the ice back.

cfm in Gray, ME

"The Economy" relies on the trustworthiness of promises made by players in the market. However, FOMC has no tools for improving trustworthiness. That was the job of the SEC and it failed miserably. There was a time when "a man's word was his bond". If a business man told he will deliver 100 barrels of sweet crude to you at $10 per barrel for the next 5 years, then by golly you could rely on it. But now a days, when a Bernie Madoff promises you he will prudently invest your wealth and instead he lies and steals, then trustworthiness goes down the toilet. No amount of rate reduction can resurrect this fundamental aspect of doing business. That's why the economy is in the toilet. It's not the interest rates stupid.

I didn't see anyone else comment on this yet, but math beef: 1.3trill / $45 is 29 billion, or a little less than 1 years worth of global oil supplies.

I am a newbie to this site, only been reading what I can find time for over the last 3-4 weeks. I find the main posts pretty interesting, as this one was, and often well reasoned. The replies , and I am sure you will all rip this one apart for missing the point, on the other hand, often seem to be more on the extreme negative view of the world side with a lot of "suppressed" anger being expressed. Not really very helpful to someone not looking for a cause but just well thought out agrugments about important issues. Anyway, maybe you all just rubbed me the wrong way. Lighten up, you may be wrong too. :)

Congrats for posting. I am an academic in natural resources fields and have been following the site since it started and posting comments on and off for 3 years. The experience is like watching a slow-moving train wreck played out on a computer monitor. Do yourself a favor and browse the archives. The editors have been wrong on some things, but eerily on-target for many others. Just at random I clicked on March 2006 and got this gem:

Credit investors ponder GM-sized hole in universe
Posted by Stuart Staniford on March 29, 2006 - 1:19pm

Obviously, few peak-oilers are going to be very bullish on a US car company that has made a central focus of extremely large and fuel-inefficient vehicles. But I'd love to have a better understanding of the credit market implications. The credit markets seem to be to be very important to understanding the whole deflation versus inflation post-peak question, as well as how the relative timing and impact of the housing bubble bursting versus peak oil, which has profound implications for oil prices.

Granted, Stuart doesn't go into great details on the implications (it was a topic-raising post), but who was talking seriously about these issues back in 2006 except for folks on TOD? Very few. And my hunch is that time spent from March 2006 forward looking into "the credit market implications" would have been time well spent.

For giggles, here's one of Leanan's comments in that thread:

As I understand it, hedge funds have exploded, because they can offer big gains even when the market is in a funk. They do this, in part, with massive leverage. If one of their bets goes bad, the whole thing can go down the tubes very quickly.

Today that sounds quite understated. Now we are contemplating how far "the whole thing" extends.

Edit: scrolling down the comments in that particular thread is amazing. Towards the end, dbarbaric explains the downside of credit default swaps unwinding and the potential for "confusion" (again, putting it lightly).

What you will essentially have will be a market lock up (a.k.a. cluster-F). Contracts can not be fulfilled causing other contracts not to be fulfilled. The process of figuring out what contracts are outstanding, fulfilling the contractual agreements, and straightening the whole thing out is known as "unwinding".

yes, the commenters here are mostly doomers and often wrong with their short term forecasts. the general overview however, imo, is on the money, "things that can't go on forever tend not to" (paraphrasing a not remembered source)
Dig into the archives here and your world view will change, money back
I'm not a doomer, I'm a worrier. Who's going to service our debt? If the USD loses it's reserve status the US is almost instantly a 3rd world nation. On and on
Please don't stop posting here, we need more good questions, less doom for dooms sake.

It would seem from a few earlier posts that we have massive deflation, the debt gets repudiated, we return to a quasi gold standard and realize who now has the gold. There is a whole world of pain and suffering between each of these points. But I think that is about the size we have to shrink to in order to see stabilization. When trust dissappears people use tangible items in trade. Paper money will be worthless soon worldwide.

[You TODders] often seem to be more [of an] extreme negative view of the world ... with a lot of "suppressed" anger being expressed [here].

Barry FZ,

Well yes, ... maybe it seems exactly like that to a happy-go-lucky newbie entering this den of doom and gloom for the first time.

Unfortunately many of us older bears have paced back and forth around all the edges of our on-thin-ice situation and haven't found an easy way off. That's what makes us seem grumpy. Perhaps a new young pup like yourself can find the bridge to somewhere that none of us has yet discovered.

Welcome aboard ... the Titanic.

Welcome aboard ... the Titanic.

Well that sums it pretty well. Now if only the titanic was abiotic? We could regrow one!

Oh- love the Welcome aboard... the Titanic. One of the few laugh out loud moments on this board!
My mom called the other day in tears-- tell me SOMETHING hopeful. I said- the stars are lovely- look at Venus and Mecury and Jupiter next to the moon.

VK-- you are in an admirable position to have a hiatus between finishing grad school and returning to Kenya. You've made great contributions to this board and I believe I've seen you at Automatic Earth. Best to you in your own personal adventures.

Many thanks VFH, I've learned a lot from these boards as well. TOD and TAE and a few other blogs to which I go to are actually like University. Where else can a kid like me meet geologists, hedge fund managers, scientists, farmers, authors etc. Best wishes to you in the coming times ahead and may we meet many more times on TOD! :D

Welcome aboard ... the Titanic.

What goes down must come up?

Too big to fail ... like many other of our intelligent design constructs.

barryfz, how I read the post, the fed/government doesn't really understand latency in open systems, ie, the actions that their undertaking is priming a wider system for a severe melt down later. does anyone know for certain, no, but would you bet on them to be right in their actions this time?!

Welcome barryfz,

I can only speak for myself but I can assure you that my anger is not suppressed, it is explicit and targeted at those who are either dishonest about or in denial of our current predicament. I cut those who have not yet looked at the evidence, in detail, a lot of slack. (as doing so can be a rather prolonged process and not easy for the scientifically uninitiated)


Not really very helpful to someone not looking for a cause but just well thought out agrugments about important issues.;

You could visit and read that. He gives his logic behind his conclusions.

Anyway, maybe you all just rubbed me the wrong way.

Many people react that way to the message of '1st you'll be miserable, then dead.'

agrugment - pretty damn clear what it means. It belongs in the TOD lingo lexicon next to sarcanol. I like it! Perhaps, however, better spelled 'agrudgement'?

Thanks for the link. Intersting info. I did not mean in my post to imply that I don't agree with much of the sentiment expressed only that I prefer information over rant. Much thanks to those providing info.

Barry, there's a minus (-) button to the left of each post. You can easily minimize every rant you don't want to see :-)

LOL, I didn't realize that till today!

Now can we get all posters to classify their entry so I don't need to read it to determine if I want to minimize it? :))

I look for familiar names. Some people's posts are always worth reading, others are never worth reading. If I see name X I know to stop and read carefully, while name Y means it's time to move on.

Now all we need is a rating system for the articles, too.

I have formed the distinct and sickening conclusion that these idiots really don't have the slightest idea what they are doing.

I have formed the distinct and sickening conclusion that these idiots really don't have the slightest idea what they are doing.

WNC - I was going to delete your double post but I thought - heh, it probably deserves to be said twice. (not that I think any of these folks are truly 'idiots', just that their intelligence is too narrow in scope)

just that their intelligence is too narrow in scope

How about education rather than intelligence?

(how many remember the 'have kids - for the good of the state' motto from the government? My dead Grandma did.)

Intelligence too narrow, education rather than intelligence...

Some people can form and use neurons more rapidly than others. Certain the "Best and the Brightest" would be in that category - either by nature or nurture. But they still form them wrong. They are wired wrong. The more TV one watches, the more likely one is to be wired wrong. On the other hand, wiring oneself "right" is extremely difficult - one must be able to discount the sight, the thunder and the scent of the herd. That takes something other than intelligence - a certain moral integrity:

IF you can keep your head when all about you
Are losing theirs and blaming it on you,
If you can trust yourself when all men doubt you,
But make allowance for their doubting too;...Kipling

I understand less and less the difference between intelligence and education.

Should I refinance today from 6.375 to 4.75 on my 30 year fixed mortgage? It would save me $250 per month. Or do you think rates will drop more?

And don't say I shouldn't have bought the house in the first place!

Tom A-B

I can't speak to whether or not you should have purchased the home (not knowing any of the particulars), but I do expect rates to continue south from here (though 4.75 is better than I've seen).

This is true especially if you expect things to get even worse.

You should also consider that mortgage companies don't just price based on today's rates. If they're bringing in all the business they can handle (and then some), they'll keep the rates higher than they would otherwise be. IOW, mortgages used to track a margin above the 10-yr treasury... but that gap has been growing and it could take some time before these moves are all priced in (and there could be more to come).

All advice is, of course, worth every penny you paid for it. :)

Everything they "know" is wrong. Everything they learned in grad school is wrong. Everything they learned in their professional careers is wrong. Their paradigm is impossible.

There is immense cognitive dissonance going on here. They just can't wrap their brains around the current situation.

I agree, but for my money, the real cognitive dissonance is how the existing paradigm can exist when it flies in the face of common sense.

When I grew up, "Never spend your gross income" was so obvious that it became a joke.

The government has been selling the same story to the public for so long that the vast majority of the people simply believe in the concept of a sustainable growth economy down to their DNA. "Growth is good." "Greed is good." Probably the government itself now believes it as well, given that governments are staffed by people who have been hearing it and saying it since they were in diapers.

If the government was really interested in beginning to attack the problem, they would be starting the process of adjusting the people's understanding of reality... growth is not sustainable. Period. It only appears sustainable when measured against appropriately short time scales. When measured in societal (or geologic) terms, growth is not growth, it is overshoot. If government was ready to make the changes necessary, they would be sending a very different message. That message would be one of long-term adjustment, long-term decline, of hard times for a long time. But it would also be one of hope for future generations. It would be one of taking responsibility for past actions (whether intentional or not), and of courage to suffer the consequences so that future generations might suffer less.

But this is not the message that government (US or any other probably) is going to present. They are either unwilling or unable to do so. Most governments (and economists) simply cannot comprehend that their economic DNA is flawed. Instead, they will rely on their neoclassical growth is good mantra and fall back to Y=MV. When the velocity of money falls during recession (or reverts towards, and past, mean), GDP growth can best be achieved by jacking up the money supply. Look for the government to continue to blow up the money supply balloon as big and as fast as they can. It's just about the only tool left for this one trick pony. That is what they know, so that is what they will do.

Until the people in charge accept that the existing models are bogus at their core, their will be no change of message. And until their can be a change of message, their will be no groundswell among the people to accept the difficult changes that are necessary. Change will come, though, because mathematics and geophysics and thermodynamics and ecology don't care about economics. It will just be orders of magnitude more painful than it might otherwise already have to be. More's the pity.


"Change will come, though, because mathematics and geophysics and thermodynamics and ecology don't care about economics. It will just be orders of magnitude more painful than it might otherwise already have to be. More's the pity."

Thanks to truly excellent sites like TOD, I have been going down this rabbit hole for a little over a year, first as a lurker because I thought everyone was loony. "Surely it can't be as bad as all that", I said.

It all started out of curiosity because the "hydrogen economy" smelled fishy. - I was cynically amused.
Then I studied peak oil - I was concerned.
Then I studied EROEI - I became very concerned.
Then this little thing called a financial meltdown came along and I discovered that exponential growth is a fundamental and intrinsic component of the money system and the economy, not just a byproduct - I became alarmed.

The shocking thing is that all these issues now seem to have been fully entrenched i.e. a fait accompli long before I even started looking and long before anyone started to do anything about it. IMO this likely applies to climate change as well.

The current phase for me is grasping the way in which these various issues interact; mostly positive feedback, in a very negative way. They also appear to be accelerating, but maybe it's just my fear that is on a major uptick. Whatever opportunities there are for mitigation are rapidly dwindling and a "brick wall" scenario seems more and more likely.

I still consider myself a newbie and yet due to denial, or ignorance or hubris, I am probably better informed than 99% of the population.

They say knowledge is power, but after this latest rate cut, I don't feel particularly powerful.

"The only thing we have to fear is fear itself" makes a nice sound bite but when growth is confronting hard limits on so many levels, I suggest there are many things we have to fear.

Dark times ahead indeed.

Sorry for the gloom, but that's how I see it.

the way in which these various issues interact; mostly positive feedback, in a very negative way

Nicely said.

Actually it is not the "Peaking" of Oil which is causing these negative effects but rather the ever expanding consumption of oil in combination with globalization and automation.

The other day I was watching a TV news report about the snow storms hitting the mid-west. They were showing one guy with a very powerful snow thrower doing the work of 20 men. Obviously his ability to throw so much snow (to clear the roadway) so fast was powered by oil. The snow thrower machine itself, was probably manufactured in China. And our our non-negotiable way of life would come to a complete halt if this one guy didn't have this super snow thrower at his disposal to clear the road.

My point however is what happened to the 20+ guys that would otherwise have had jobs clearing snow and manufacturing snow machines, etc.? They've all been pushed into creative paper shuffling. They're busy hawking subprime loans and hedge funds and other financial spinotronic stuff in place of doing real physical work. And because automation, globalization and ever expanding consumption of oil is creating more of these people every day, our society is becoming a bigger and bigger Ponzi scheme.

That's the positive feedback of negatively consequencing results you speak of.


Yes, and like all Ponzi schemes, they must ultimately collapse. The 20+ guys you speak of will be doing manual labour soon enough along with many thousands of others.

One of the troubling aspects is that many paper shufflers, Wal Mart clerks and burger flippers do not know how to do much, if anything. I'm an old fart and I am amazed how many people don't even know how to cook, one of life's most satisfying pastimes.

Many people will have some serious adjustments to make and it won't be pretty.

Wrong metaphor. This is throwing out life preservers, not the kitchen sink. And the steerage passengers are locked below decks.

Really, the same thinking that led to FIRE being the dominant source of weath in the U.S. is going to insure that those guys get rescued first (and probably only).

The Fed is making Foie Gras and we are the geese.

I think they more likely meant sustained (perpetual) rather than sustainable economic growth.

The current monetary system is nothing more than a scam. Government granted to private banking institutions the privilege of creating new money out of thin air (currency and checking accounts) and loaning it into existence. Obviously this favors banks because interest is paid by the borrowers (individuals, businesses and governments) to the banks. Government likes this system because it gives them easy access to new money when they spend more than they tax. The ultimate end of this redistribution of wealth system is poverty for the masses and great wealth for the few.

When you look at the simple fact that all the money we use is bank debt, the inherent instability of the system becomes apparent. And what asset did the banks receive in return for issuing the money (their debt)? What the received in return was the promises of individuals, businesses and governments to repay the banks. So this monetary system is bank debt supported by debts of individuals, businesses and governments; in short it is not only a scam, but an accident waiting to happen.

Add compound growth into the equation, and you have the certainty that one day this accident must happen. At a minimum enough new money must be created each year to fund interest payments, because when the original money was loaned into existence, it put into circulation only enough money to later repay the loan, but not the interest. Of course, because new money artificially stimulates economic activity, in order to keep economic activity from contracting progressively more new money must be created for that purpose also.

So as time passes the debt based monetary system becomes increasingly unstable; it is a bubble. What pushed it over the edge was the shock to the system from both deteriorating EROEI for oil, and the pressure from the approach or arrival of peak oil.

The ugly fact that the monetary system has significant counter party risk makes it possible for debt defaults to ripple through the system in a domino like effect. When this started to occur last summer, there was a real possibility that the money supply could be wiped out virtually overnight as debt default upon debt default started to make more and more financial institutions and banks insolvent. Credit between financial institutions disappeared as banks began to distrust other banks as well as many other borrowers. Lending standards became much, much more tight.

Swept up in the panic, the central banks of the world attempted to give reserves to banks. What are reserves? Reserves are simply the federal reserve notes (look in your wallet to see one) that individual banks keep in their vaults to meet demands for "cash" (as when you cash a check) and checking accounts banks keep with either the central banks or upstream banks to facilitate clearing of checks (as when you write a check to someone who uses a different bank, and they deposit it in that bank). Reserves are simply assets that banks hold in a highly liquid form for immediate demands. Loaning reserves to banks gives them liquidity and since the federal reserve bank can create a checking account out of thin air and loan it to a local bank, this is a relatively simple matter to inject liquidity into the banking system.

Solvency of banks is different that liquidity. Solvency simply means that a banks assets are larger than its liabilities so it can ultimately pay all creditors. Swept up in the panic, the government looked for ways to keep the banks solvent so that they would not close overnight, wiping out the money supply. The Wall Street bailout was an attempt to transfer worthless assets off the banks' books to the government at face value so that the government bore the loss and not the banks. The government also used some of the bailout money to take equity positions in banks so that they banks had enough equity to absorb losses and prevent insolvency. Interestingly this is all a shell game because the checking accounts created by the banking system and loaned to the government as part of the bailout just came back to the banks when the government wrote checks to the banks to buy bad loans or invest in the banks. Another thing that was done to prevent insolvency was to get the Certified Public Accountants to issue rules to let banks carry worthless assets on their books at full value so as to make it look like they aren't really insolvent when in fact they really are; out and out fraud.

So bank liquidity, and bank solvency has been somewhat addressed for the time being, and only the worst banks are being taken over by the FDIC, but banks are fearful of making new loans and are having difficulty finding credit worthy borrowers, so the money supply is not expanding sufficiently to push up asset values. Plus individuals and businesses have become alarmed and are slowing down their spending. Prices are a result of the money supply multiplied by the velocity of money so prices are falling, particularly for commodities which react quickly. To counteract the reluctance of individuals and businesses to spend, Obama has announced that government will begin a huge public works effort, along the lines of the efforts of the 1930's. (Let us hope he does not also follow the lead of FDR and get us into another World War in order to revive the economny.)

Should the economy fail to respond to the flood of reserves into banks and government spending, the banking system may well fail and the money supply would fall dramatically resulting in severe price deflation. If the economy can be restarted for one final binge, the money supply may explode in response to the huge injection of reserves into the banking system and the change in velocity of spending as a result of shift in attitudes, all resulting in very large price increases. It is a dangerous game these fools are playing with our lives.

In all likely hood, energy costs and availability will put a cap on any final binge. Ultimately energy cost and availability will determine the future and will bring on a much more significant contraction of the world economy over the next several decades. Remember that just as a positive growth rate in energy extraction produces a doubling period, a negative growth rate will produce a halving period; so a negative growth rate of 3.5% for example would cut production in half in just 20 years.

However the details play out, we are at the end of the industrial age, and it is unfortunate that we have been additionally burdened by a predatory, unstable monetary system. But then, we can take the failure of that system under pressure from energy constraints as a benchmark of where we are in history.