DrumBeat: March 4, 2009

Number of Rigs Drilling for Natural Gas in U.S. Drops to 5-Year Low

The number of rigs drilling for natural gas in the United States fell below 1,000 last week for the first time in nearly five years, according to Baker Hughes Inc. The drop comes as prices for the fuel continue to fall.

Oil Rises a Second Day on Signs China Will Increase Stimulus

(Bloomberg) -- Crude oil rose for a second day on speculation China will broaden efforts to boost economic growth, bolstering fuel demand in the world’s third-largest economy.

Oil climbed as much as 8.7 percent after an official said Chinese Premier Wen Jiabao may announce new measures, adding to a 4 trillion yuan ($585 billion) spending plan. A government report today showed an unexpected decline in U.S. crude-oil inventories last week as OPEC cut production.

“There are signs of optimism about the economy after weeks of very bleak news,” said Michael Lynch, president of Strategic Energy & Economic Research, in Winchester, Massachusetts. “We are also starting to see the OPEC production cuts impact inventories here.”

Exxon Seen Using Cash Hoard for Field Stakes, Not Takeovers

(Bloomberg) -- Exxon Mobil Corp., the world’s largest oil company, will probably tap its $31.4 billion mountain of cash to buy stakes in offshore fields from state oil companies rather than mounting takeover bids for major rivals.

Russian energy stocks look cheap

It may take years for the oil market to right itself after the devastating selloff last year, but value investors with time on their hands might want to have a look at Russia’s oil assets.

The collapse in oil prices has devastated the country and caused a serious short squeeze on dollar borrowers that has sent the currency tumbling. Stocks in Russia are now dirt cheap and oil and gas producers are priced more cheaply than anywhere else in the world.

Green trucking: State may consider diesel idling ban soon

The rumble of idling diesel trucks at a highway rest stop is a familiar sound to many travelers. Truck and bus drivers routinely run their engines during breaks to provide heat or air conditioning in the cab and electrical power for the radio or refrigerator. Keeping the motor running also eliminates the need for a "cold start," which is hard on bearings, seals and other engine parts.

But growing concerns over air pollution -- not to mention fuel costs -- have driven 21 states to pass laws restricting the amount of time diesel operators can idle their rigs. An idling diesel semi can burn through a gallon of fuel an hour while spewing out pounds of soot, ozone and carbon dioxide.

Byron W. King: How much coal is out there?

First, I’ve been hearing that “250-year supply” — thing since about 1973. But the U.S. has been mining, burning and exporting coal in immense quantities for all that time. So don’t you think that the reserve estimate might have shrunk down to something like 215 years by now? Nope. That 250-year number seems never to change, kind of like those Saudi oil reserve estimates that stay the same year after year. Despite decades of coal mining, a lot of people still want to believe (and probably want you to believe) that the U.S. has a bottomless pit of coal resources.

Alberta unveils incentives to spur oil and gas drilling

The Alberta government has unveiled new financial incentives for oil and gas drillers battered by the economic downturn, but the province's energy minister adamantly refused to characterize the move as a bailout for the energy sector.

"This has nothing to do with splashing money around. What this has to do with is putting Albertans to work," Mel Knight told a news conference on Tuesday.

Rosneft Fourth-Quarter Profit Declines 64% on Oil Prices, Taxes

(Bloomberg) -- OAO Rosneft, Russia’s largest oil producer, said profit declined 64 percent in the fourth quarter as crude prices fell while taxes and costs rose.

Net income dropped to $775 million from $2.18 billion in the same period a year earlier, the Moscow-based company said today in an e-mailed statement. Analysts had expected a loss of $120 million, the median estimate of 11 responses in a Bloomberg News survey. Earnings before interest, taxes, depreciation and amortization, a measure of profitability, plunged to $32 million from $5.08 billion.

Aramco eases contract terms on Manifa and Jubail deals

State oil giant Saudi Aramco is introducing flexible terms to contracts for its Manifa oil field capacity expansion and the Jubail export refinery to help cash-strapped contractors and attract lower bids.

Aramco will now conduct the engineering, procurement and construction (EPC) deals on the projects on a cost-reimbursable basis to reflect the fall in commodities prices, rather than using the fixed-price terms that it traditionally favours.

Pemex May Seek $10.5 Billion to Finance Projects

(Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, may seek as much as $10.5 billion in financing this year to pay for record spending on exploration and production.

As much as $6 billion may come from issuing debt in local and international markets, $2.5 billion in loans from financial institutions and $2 billion in loans from export-import agencies, Chief Financial Officer Esteban Levin said today on a conference call with analysts, without giving a time frame.

PetroChina Cuts '09 Output Targets on Falling Demand

Top Asian oil and gas producer PetroChina has cut its domestic production targets for 2009 by 10 to 20 percent at many oil fields because of falling demand, a company executive said on Wednesday.

The cuts, versus original production targets set at the beginning of the year, would apply to fields except its top two producers Daqing and Changqing, said Zong Yiping, head of PetroChina's Qinghai Oilfield.

Are greener gadgets even possible?

Griffith, the intellectual force behind wattzon.com ( where you can calculate the energy use of your lifestyle), has another term for the gadget-obsessed, himself included: "planet f&*kers." A detailed analysis of the energy required to produce everything from his daily glass of wine to his iPhone revealed that Griffiths requires some 25,000 watts of energy every day, or nearly twice that of the average American (who is already consuming at least six times as much as the average person in China and more than 20 times as much as the average Indian citizen).

A big part of that is all that time spent on the computer. As Stephen Harper, Intel's global director of environment and energy policy, put it: "As the chips get smaller and denser, we end up with a laptop with the heat output of a nuclear power plant." The chipmaker hopes to get around that by emphasizing energy efficiency over speed. But the fact remains that computers are becoming ever more energy hungry.

Building products firm in bid to power factory with wind turbine

Building products manufacturer H+H is hoping to provide energy for its Humberside production site from the wind, under a partnership with electricity supplier Ecotricity.

The company, which makes "aircrete" breeze blocks at the Pollington factory, has signed up to Ecotricity's Merchant Wind Power scheme, where the power company builds wind turbines on customer sites to provide renewable power for their needs.

Sharon Astyk: Seussian Paradigm Shift

I have no crystal ball, but I wonder how much radical shift in direction we’re likely to see in the coming year. My own sense is that we may well see such a shift - and quite soon - away from our frenzied attempts to prevent the worst, and toward attempts to mitigate what we must now acknowledge as inevitable - the extended Depression, the rising temperatures, the lifelong project of adapting to Depletion. I do not know for sure by any means, but it strikes me that we are nearing a point at which we will no longer be able to go on as we have been, and the projects we engage in will have to change fundamentally. We may have to admit that the hope of growing the economy again or rescuing the banks is futile - and turn our efforts, hopefully, towards mitigating suffering. We may have to conceed that the planet will pass the 2 degree tipping point (and I say this with great pain), and that the best we can hope for is to not add more damage. We may have to conceed that our children will be dealing with a national infrastructure designed for cheap energy - and without much of the energy, and turn ourselves to the national and world project of adaptation.

Gardens could make comeback in current economy

STAFFORD — At the Jan. 15 meeting of the Stafford County Parks and Recreation Commission, Bobby Crisp, George Washington District, stated that home production of produce could help citizens offset the rising costs of fuel, medical expenses and food.

In World War I, this effort was called a “war garden.” In World War II it was considered a Victory Garden — and it worked. Estimates are that about 70 percent of the country’s produce was produced by people keeping gardens in their own homes.

Victory or War Gardens were gardens citizens grew in their front and back yards, the tops of their roofs and across the street in empty lots. These gardens grew fruits and vegetables that people ate and canned so that the produce being grown by farmers could be sent overseas to soldiers and allies.

Should hunters switch to 'green' bullets?

(CNN) -- Three years ago, Phillip Loughlin made a choice he knew would brand him as an outsider with many of his fellow hunters:

He decided to shoot "green" bullets.

"It made sense," Loughlin said of his switch to more environmentally friendly ammo, which doesn't contain lead. "I believe that we need to do a little bit to take care of the rest of the habitat and the environment -- not just what we want to shoot out of it."

In a recession, cheap is chic

With the economy in shambles and so many people losing their jobs and homes, it is no longer considered cool to brag about possessions and purchases.

For many during a deepening recession, conspicuous consumption is out and frugality is the new black.

How the Crash Will Reshape America

So how do we move past the bubble, the crash, and an aging, obsolescent model of economic life? What’s the right spatial fix for the economy today, and how do we achieve it?

The solution begins with the removal of homeownership from its long-privileged place at the center of the U.S. economy. Substantial incentives for homeownership (from tax breaks to artificially low mortgage-interest rates) distort demand, encouraging people to buy bigger houses than they otherwise would. That means less spending on medical technology, or software, or alternative energy — the sectors and products that could drive U.S. growth and exports in the coming years. Artificial demand for bigger houses also skews residential patterns, leading to excessive low-density suburban growth. The measures that prop up this demand should be eliminated.

If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

Oil producers running out of storage space

NEW YORK - Supertankers that once raced around the world to satisfy an unquenchable thirst for oil are now parked offshore, fully loaded, anchors down, their crews killing time. In the United States, vast storage farms for oil are almost out of room.

As demand for crude has plummeted, the world suddenly finds itself awash in oil that has nowhere to go.

It’s been less than a year since oil prices hit record highs. But now producers and traders are struggling with the new reality: The world wants less oil, not more. And turning off the spigot is about as easy as turning around one of those tankers.

Ukrainian security agents raid Naftogaz offices

KIEV, Ukraine – Ukrainian national security service agents raided the headquarters of the country's troubled natural gas company Wednesday and began questioning a top accountant and searching for documents, officials said.

The raid by armed agents wearing masks was in connection with a criminal investigation launched this week into the alleged diversion of gas worth around 7.4 billion hryvna ($900 million), SBU national security service spokeswoman Marina Ostapenko told The Associated Press.

Gazprom says concerned about Ukraine gas bill

MOSCOW (Reuters) - Russian gas export monopoly Gazprom (GAZP.MM) said on Wednesday it was concerned about timely payment for Russian gas supplies by Kiev following a raid by Ukraine's security services on state energy firm Naftogaz.

"It seems that someone doesn't want Naftogaz to pay in time in order that we don't have problems," Gazprom spokesman Sergei Kupriyanov told Reuters.

BP to freeze dividend: report

LONDON (AFP) – British oil major BP is planning to freeze its dividend this year, its chief executive told the Financial Times on Wednesday, as the firm seeks to adjust to the plunge in oil prices.

Sakhalin II signs LNG supply deal with Osaka Gas

YUZHNO-SAKHALINSK (RIA Novosti) - Sakhalin Energy, the operator of a vast oil and gas project off Russia's Pacific Coast, said on Wednesday a sale and purchase agreement had been signed for LNG supply to the Japanese company Osaka Gas.

Ecuador will not seize Perenco's fields over debt

QUITO (Reuters) - Ecuador will not seize the oilfields of Perenco, Oil Minister Derlis Palacios said Wednesday, only a day after the OPEC nation said it will freeze the French company's oil income to collect a debt.

Palacios said the government still hoped to settle the more than $300 million in late taxes with Perenco to halt actions against the company that extracts crude from oil blocks 7 and 21 in the Amazon jungle.

China on buying and lending spree

MONTREAL - The agreement announced late last month between Russia and China for construction of a pipeline branch to China from the East Siberia-Pacific Ocean (ESPO) oil pipeline is only one aspect of a relatively new strategic policy direction from Beijing to acquire foreign assets during the ongoing global economic downturn.

Caijing Magazine, using information compiled from Dealogic, reports that Chinese companies initiated 22 overseas acquisitions in January and February, with a total value of US$16.3 billion, with the pace accelerating. Almost all acquisitions concerned natural resources, and nine-tenths of the total investment was directed to Australia. This is a marked switch from 2008, when less than two-thirds of investment was in the natural resource sector, and one-third of that went to British companies.

Gazprom to Cut Gas Producers’ Pipeline Access, Vedomosti Says

(Bloomberg) -- OAO Gazprom plans to cut the amount of natural gas it ships for independent producers as demand falls, Vedomosti reported, citing Alexander Mikheev, the state- run pipeline monopoly’s first deputy head of sales.

OAO Novatek, the country’s second-largest gas producer has boosted output 11 percent in the first two months of the year, while Gazprom reduced its own natural gas production 16 percent, the newspaper said. The global economic crisis, Ukrainian gas conflict, high European prices and warm winter weather have eroded demand, the newspaper said.

Kuwaiti emir may dissolve parliament

Kuwait's ruler could move to dissolve parliament in the leading oil exporter in the coming days to avoid deputies questioning the royal prime minister, media and parliamentary sources said.

Frequent Cabinet changes usually do not affect the oil policies of Opec-member Kuwait, the world's seventh-largest oil exporter, which are set by a high state energy council.

U.S. car sales tank to troubling depths

Automakers sold barely more than half as many new cars and trucks in February as they did a year ago, as potential buyers worried about more basic concerns — such as whether they'd have jobs or be able to pay the mortgage.

The February auto sales rate, if stretched over a whole year, would amount to just 9.1 million new vehicle sales, the worst annual rate since December 1981, according to sales tracker Autodata. And it's worse than January's grim annual rate of 9.6 million, which many hoped was rock bottom.

Fiat aims to cut fuel use up to 25% with new tech

GENEVA — On the eve of Fiat CEO Sergio Marchionne’s meeting with the presidential automotive task force to discuss his company’s proposed alliance with Chrysler, the Italian automaker unveiled a new engine technology it says can reduce fuel consumption as much as 25%.

Somerville after the fall

The gales of economic adversity howling through the nation and the world will be brutal and prolonged. As the recession deepens and prolongs, it will coincide with peak oil impacts. And as baby-boomers continue to age, far fewer workers will support many more retirees. Increasing the Social Security eligibility age is inevitable, and decreasing benefits is likely. Healthcare costs, now at $8,000 for every man, woman, and child, will increase to $13,000 within a decade.

When the storm ultimately subsides, Americans will live differently.

Someone spent all the money

Most of the easy oil has been pumped. What remains is expensive to get out of the ground, expensive to transport and refine, and often of lesser quality.

Any new discoveries are likely to be environmentally dangerous, as well, threatening ocean waters or blighting watersheds (imagine a massive pipeline spill up the Copper River, for example).

Without significant new amounts of green energy coming on stream, oil supply needed to meet world demand could be down by nearly a quarter in only four years.

Analysts at www.theoildrum.com depict us as heading toward an “energy cliff,” one beyond whose edge the cost of getting energy of various kinds exceeds the value of the energy to be recovered.

Given the threat of climate change, peak oil may be a blessing in disguise, but the transition to efficient and abundant green alternatives is likely to be an ugly and painful one.

The Party's Over: Why not grow some of your own food?

It's not coming back. The party's over. This isn't some temporary blip in the economy that a little belt-tightening will fix. One less latte and a smaller, "fuel efficient" SUV will not make this problem go away.

It would be nice to have all that money back from our Iraq misadventure. It would have been nice to have had eight years of competent federal leadership. But even so, the party had to end some time. It just came sooner than we expected. This is what the CEOs used to call a paradigm shift. Or, to borrow another corporate buzz-phrase, this is a perfect storm — too many people, too few finite resources (oil, water, coal), too little meaningful work, etc.

Residents' triumph on Green Lane

Paul Atkinson, who lives on the winning street with his wife Karen and two children, said he was "astonished" after cutting £1,000 from his annual electricity and gas bill.

Mr Atkinson said: "Small measures really make a difference and once you start doing things like not putting the TV on standby, it soon becomes second nature."

L.A., San Francisco, Houston are stars of energy efficiency

In a list of America's greenest cities, Los Angeles and Houston wouldn't top most people's lists.

But those two cities, with San Francisco between them, are the U.S. cities that have the highest number of energy-efficient commercial buildings, says the Environmental Protection Agency.

India Flips Switch on Energy, Pollution

WASHINGTON (OneWorld.net) - The second most populous country in the world is phasing out incandescent light bulbs in favor of energy-saving fluorescent bulbs, reports an environmental protection group, calling the move an important step toward a cleaner energy future.

Supreme Court limits challenges to logging in federal forests

WASHINGTON — A closely divided Supreme Court on Tuesday limited environmentalists' ability to challenge Forest Service rules in a case that arose from a controversial Sequoia National Forest salvage logging project.

Canada, U. S. join in $7B plan for carbon

Canada and the United States will ensure there is co-ordination and no duplication in $7-billion worth of technology projects -- $3.5-billion on each side of the border -- aimed at reducing carbon emissions from coal-fired power plants and the Alberta oil sands, Jim Prentice, the Environment Minister, said yesterday.

U.S. Climate Official Urges Congress To Curb Greenhouse-Gas Emissions

WASHINGTON -- The top U.S. negotiator of international climate-change agreements urged Congress to pass legislation curbing greenhouse-gas emissions in advance of an international summit this December, saying it would give other countries "a powerful signal" to cut their own emissions.

Climate change won't wait for recession's end

THE unprecedented challenges of economic recession, global warming, peak oil and shortages of usable water have all emerged simultaneously.

The argument that the problems of recession and rising unemployment are more immediate and, therefore, measures to reduce the national carbon footprint should be put to one side, should be seen for what it is — special pleading by polluters who have apparently gulled a majority of Australian Industries Group members that it is also in their interests.

Mediterranean Sea Level Could Rise By over 2 feet

A Spanish-British research project has come up with three future scenarios for the effects of climate change on the Mediterranean over the next 90 years, using global models from the Intergovernmental Panel on Climate Change (IPCC). The conclusions show that ocean temperatures in this area will increase, along with sea levels.

A 10 basis point rise in the Ten Year will get you
a 100 point rise in the DJIA.

How this increases/revives the "money as debt" system
I don't understand.

Unless hyperinflation is considered the cure.

No surprises here, but it looks like the FDIC is going to be using their line of credit with the Treasury, sooner rather than later. I wonder if depositers might be paid off with bonds in future years.

FDIC’s Bair Says Insurance Fund Could Be Insolvent This Year

March 4 (Bloomberg) -- Federal Deposit Insurance Corp. Chairman Sheila Bair said the deposit insurance fund could dry up amid a surge in bank failures, as she responded to an industry outcry against new fees approved by the agency.

“Without these assessments, the deposit insurance fund could become insolvent this year,” Bair wrote in a March 2 letter to the industry. U.S. community banks plan to flood the FDIC with about 5,000 letters in protest of the fees, according to a trade group. . .

Smaller banks are outraged over the one-time fee, which could wipe out 50 percent to 100 percent of a bank’s 2009 earnings, Camden Fine, president of the Independent Community Bankers of America, said yesterday in a telephone interview. “I’ve never seen emotions like this,” said Fine, adding that he’s received more than 1,000 e-mails and telephone messages from angry bankers.

Now we know what it was like to be in the control room
watching the Soviet Techs stress testing Chernobyl.


Small banks don't get to do the Zombie Bank. They just die right away:


WT -- Far from my knowledge base so tell me: isn't the FDIC issurance program a voluntary service they provide for banks? Are all banks required to have such covergae for their depositors? If not then any bank could choose to opt out. Of course, they could have a difficult time attracting depositors. But such would be the cost of doing business. And if the new fees are just enough to cover the liability of the Feds (I really doubt they do...look at what the Fed is warning about short falls now) then the banks are being offered a service at a more then fair price.

I'm not an expert of course, but the same thing occurred to me. One of the unanticipated (by some) consequences of vastly increasing the size of deposits guaranteed would be to accelerate the rate of decline in the FDIC fund, requiring larger fees paid by the remaining banks that are still in business. At some point, one wonders if a group of healthy banks would abandon the FDIC system and start their own insurance fund.

"At some point, one wonders if a group of healthy banks would abandon the FDIC system and start their own insurance fund."

Sounds awfully close to creating/issuing your own currency.

State's Rights anyone?

All Federal Banks have to be members of the FDIC. I think that it is ditto for all state banks, unless their state charter allows otherwise. This was some sort of simplification, and was strengthened when the FSLIC was merged after the S & L crisis.

Anybody want to buy some Empire Savings shares? I think I got the only stock certificate they ever issued, but it still said Town East Savings and Loan, with Spencer Blain's signature. It was the one which triggered the huge bust. I'd take what I had invested, don't have to have a profit ! (special today only)

"At some point, one wonders if a group of healthy banks would abandon the FDIC system and start their own insurance fund."

That sounds an awful lot like buying Credit Default Obligations from AIG! But, at least that has been backed up by the government (at taxpayer expense) so far.

WT, there is no other bank insurance option other than FDIC. If a group of banks started their own insurance fund, meaning a much smaller group of banks took part in the fund, risk would go much higher. The smaller the bank pool, the greater the risk factor. Fees would have to be as high as or higher than fees to the FDIC in order to cover the greater risk.

The FDIC is in reality the only option other than no insurance at all. Would you trust your deposits to a bank that had no insurance? Not me!


I'm no expert either, although I did take a course in Money and Banking eons ago. If my memory is still correct through the mists of decades, I seem to recall that nationally chartered banks are required to be members of FDIC. I'm not so sure about state chartered banks, and different categories of financial unions like credit unions have their own separate systems. It might be possible to a bank to give up their national charter and recharter themselves as a state chartered bank; I suppose it might also be possible for them to shut themselves down. In that sense, I suppose that membership in FDIC is "voluntary".

Thanks for the input gang. It does make one wonder if some of the players out there might not be thinking along the lines of separating themselves from the mess if possible. If credit unions are covered by a different insurance system, and if they are relatively healthy compared to the banks, this could be an excellent time for them to expand. I had already thought about checking on some local CU's. I've been reading various stories that they and some smaller local banks were actually doing quit well these days. In other words, they did get sucked into all the various toxic plays like the big (and formerly smart) boys.

Any US bank can be in the FDIC - not sure if they still have to be charted in the USA or just doing business in the USA. All Federally charted banks have to be in it.

Interestingly, the FDIC was initially opposed by many, perhaps most, bankers when it was proposed back in the 1930's. My grandfather's cousin was a banker and he swore it was socialism, communism, statism, dishonest, etc., and that it would lead to the destruction of banking. FDR himself opposed it initially, feeling that the well run banks didn't need it and the poorly run banks would only be encouraged to continue their bad practices.

Some credit unions are already expanding their reach. For example, Navy Federal, the largest credit union in the world, has recently expanded to accept US Air Force and US Army military and civilian personnel and their families as members.

Generally credit unions did not rush into the mortgage backed securities, derivatives and credit default swaps craziness and so they have been hit less hard by the financial meltdown. However, to the extent their members suffer from it due to other financial transactions and entanglements or job losses, the credit unions can and will suffer as well.

I did recently see a story that reported that the large "clearing house" national credit union used by many, perhaps msot, credit unions for making loans to each other, settling drafts against each other, etc, (similar to how regional Fed Reserve Banks serve banks) was experiencing problems from the financial crisis. IIRC they had parked some of their short and long term money in some of the now-toxic investments, leading some analysts wondering whether the financial contagion was more likely to spread to credit unions than had been previously thought.

Bring Back the Bank Run!!


I read a good blog post last night that crystalized my understanding of how the energy price runup helped trigger the credit crisis. I know Gail and Westexas have been claiming this for some time, and while I understood what they were saying, I didn't get the exact mechanism, and I also didn't get why other writers I follow didn't see a clear connection. But this blog post by Tim Duy really made it crystal clear to me, and also helps explain where Bernanke's head is at (besides you-know-where). Some excerpts...this quote is just after Duy quotes a Bernanke speech from 2005 in which Bernanke says household debt isn't a big deal because it's balanced by the rise in house prices:

Here Bernanke is saying that debt is not a problem because it is matched by an asset of equal or greater value. Ergo, you have positive net worth, so everything is good. But that debt needs to be supported by a positive cash flow, and the many assets on household balance sheets generally do not generate cash flow, especially owner occupied housing assets. This differs from a corporate balance sheet...

Duy continues:

Bernanke praises the power of the household balance sheet, and further supports his contention that households are financially strong by the disposable income growth at the time. What he missed, however, was the importance of declining savings rates, which were quickly converging on zero. When saving rates hit zero, free cash flow for households is gone, and without free cash flow, the ability to increase debt diminishes unless either interest rates fall further or we can divorce credit access from ability to repay. In this speech, Bernanke effectively endorsed the illusion that asset value growth could replace ability to repay for underwriting purposes.

I'll add my own 2 cents' worth in pointing out that stagnant or declining real wages helped lower the savings rate, as Jerome a Paris has argued. Duy wraps it up:

I suspect that Bernanke still believes his basic framework was correct, even if underwriting conditions loosened more dramatically than desirable. But with saving rates at zero this system was remarkably vulnerable to negative shocks to the consumer. This, I believe, is one of two fundamental failures of the Bernanke system. The first negative shock was the housing slowdown .... income growth was sure to slow as job growth slowed in response to housing and there was little in the way of easily accessible savings to compensate. In addition, households were hit with a massive energy price shock and, with no room in income left to compensate, spending was forced to drop dramatically.

So does Bernanke get it now? No! He wants to reinflate housing prices back up to unaffordable levels:

The collapse in housing prices was the second fundamental blow to the Bernanke framework; note that an actual decline in housing prices was not in his forecast. So the key to restoring growth, in the Bernanke framework, lays in restoring housing prices, and asset prices in general. This is the focus of policy - if we can jump start the debt markets, we can rebuild asset prices, and therefore thereby encourage a rebound in consumer spending. This is, again, a balance sheet approach to household finances, and ignores the importance of tighter underwriting conditions, not to mention that this approach is limited as, over the longer term, if savings rates were forced back to zero, consumers will be pushed back from one precarious position (weak economy) to another (no savings cushion).

Run for the hills...

(Sorry for the long post Leanan).

I think it's pretty clear that all of our fearless leaders, not just Bernanke, see the solution as re-inflating the housing bubble. The other alternatives are just too politically painful.

The problem is, there is no way to re-inflate the housing bubble without increasing people's wages. And that's not going to happen.

If I had said a year ago that GE would be down 14%
for the day
while the DJIA was up 1%, at the same time, I would've been laughed
off the site posted.

Excuse me:

-15.5% now:


Leanan - Maybe we could inflate that *new* housing bubble with greenhouse gasses and solve two problems at once.

Their trouble is that they have a financing unit, and it is very large. Anyone in the financing business - even if only partially - is bleeding out fast.

Denninger has another take on GE's problems:

Stop OTC CDS Abuse NOW

GE Shares Drop Below $6 for First Time Since 1991

General Electric Co. shares dropped below $6 for the first time since December 1991, plunging as much as 18 percent in its fourth straight day of declines on investor concerns its finance unit may require more capital...

The shares are being driven down by selling by sovereign wealth funds anticipating a downgrade of the company’s AAA credit rating, and that’s also pushing its credit-defaults swaps higher, Pacific Investment Management Co.’s Bill Gross said in an interview on CNBC...

The company’s shares dropped 79 percent in the past year before today as the recession and credit crisis eroded profit at GE Capital and undermined the value of real estate on its books. The cost to protect against a default by GE’s finance division reached a record earlier today before recovering in later trading...

It's amazing how our economy is based off of inflated and not real prices. Its as if the entire thing was designed to simulate speculation. The thing is these bubbles, that are backed by nothing other than perception, will always pop and eventually hurt a lot of people.

April 2, 2007

The US Mortgage Meltdown was inevitable, but in my opinion, the trigger for the meltdown was the increase in oil prices in the second quarter of 2005. The US Personal Saving Rate (PSR) metric is not perfect, but it is a consistent measurement, and in recent years it was positive--until the second quarter of 2005. It has been negative ever since the second quarter (April, May, June) of 2005 .

The average monthly Brent spot crude oil price, in the 20 months prior to May, 2005 (the middle of the second quarter) was $38 per barrel. The average price after May, 2005 has been about $62, within a range of $54 to $74. I believe that this increase in energy prices was the final straw that pushed many US households into a negative saving rate, triggering the current wave upon wave of foreclosures.

I think that the government recalculated the PSR after this was written, but it still showed a major inflection in this time period.

So we can just ignore these facts: that all US consumer spending since 2001 has been financed by increasing amounts of debt, that consumers were invited to participate in the American Dream through the purchase of houses they could not afford based on their 2001 income (much less their 2006 income), that the US savings rate has been in declien for over a decade, that many of these fancy mortgage products added the interest payable onto the mortgage principal until a future reset date and this first wave of mortgage resets occurred at roughly the same time as the oil price increase.

Forget the oil price increase for a moment. The US had a housing bubble based on the availability of cheap credit. The collapse of that bubble has left over-leveraged financial institutions on life support, and left bankers and investors distrustful of the global credit system. The contracting credit resulting from deleveraging is having real world impacts on trade and manufacturing. The resulting job losses are distributed world wide and these losses, coupled with the decrease in demand through cheap credit no longer being available have placed the global economy on the brink of a deflationary death spiral.

Given this model you can describe the financial collapse without any reference to an increase in oil prices. I would argue that the increase in prices was also an artifact of a cheap credit regieme. Those who would argue that a rise in oil prices were a cause of the financial collapse have to neglect all of the other causes which were operative. People borrowed and borrowed until they found they couldn't borrow any more; like Wiley coyote they suddenly found themselves suspended in space over a very deep canyon and are now feeling the inevitable downdraft. The cost of fuel did not get them there; a consumer economy based on unlimited availablity of credit did.

The US Mortgage Meltdown was inevitable

If not for the rise in oil prices, it would have happened at some point, but I think that contracting net oil exports acted as a trigger--and as an ongoing accelerant, like dropping napalm on a forest fire.

And from the same article (which was written two years ago):

I have been advising for anyone who would listen to voluntarily cut back on their consumption, based on the premise that we were probably headed, in a post-Peak Oil environment, for a prolonged period of deflation in the auto/housing/finance sectors and inflation in food and energy prices.

Has JHK has said: "Americans will do something until they find they can't"

American consumers increased their debt and then increased it some more until finally they reached the Wiley Coyote Point. And down they went.

PaulusP (below) is correct in that the availability of endless cheap credit also had an effect on demand for oil (through demand for larger houses, acceptance of longer commutes, bigger vehicles etc) but note the cause and effect. It was the cheap credit that enabled the spending spree and the associated demand pushed up prices. It was not the case that prices went up as an exogenous variable and that price rise was the chief cause of the melt down. This was the case in the 1970s when the first OPEC action quadrupled the price of oil. But American industry has much more energy dependent in the 1970s and the rise in the price of fuel had to be passed on to the consumer and this caused a contraction in demand.

If you look at the history of American incomes you find that income equality has been decreasing for the past two decades, that a higher proportion of income flow to the top %10, that American business have relocated much of their enterprise to overseas locations, or to non-union regions such as the south. The American consumer coped with these changes in the only way available to them - they borrowed more.

America is suffering the result of 20 years of neglect. This will not be turned around in one administration.

WT: If you are really into the peak oil hammer thing, is the financial system and all else just a series of nails?

I think that contracting net oil exports will severely limit, or prevent, an economic rebound.

...via the mechanism of price?

(I.e. are you predicting a rapid rebound to 'painful' price levels for consumers that will impact their consumption of other things...)


Hello Noutram,

"...via the mechanism of price?"

I wouldn't necessarily think of it in terms of a rising price, but increasing un-affordability levels. If lots of people's hourly wages will decrease, and/or hours cut back, and/or becoming unemployed--> even $1/gal could become very expensive fuel for most.

'If not for the rise in oil prices, it would have happened at some point, but I think that contracting net oil exports acted as a trigger'

Sorry WT but you are wrong about the trigger. The trigger was too much Fed creation of funny money which rushed into commodities of all stripes when returns in equities were no longer to be had. The price of crude, along with other commodities, was a bubble.

The bubble, like all bubbles, collapsed when the pool of available fools was exhausted. The commodities bubble of 2008 was no different than the South Sea, Tulip, Mississippi, 1929, or any other bubble you care to look at.

When there is too much cheap money, interest rate wise, chasing high returns, a bubble always forms. If you don't believe this then you have not studied bubbles. Anyway, this is history, what the US faces now is another problem and that is restarting the consumption machine.

Problem is, the consumption machine cannot be restarted for several reasons. Consumers are scared, they have lost about 1/4 or more of their paper wealth, and according to socioeconomists it will take 10 to 15 years to regain their trust in government, the financial system, and the use of credit. This is the beginning of a long recession and it will not end for a generation or more. People are beginning to save and there isn't anything the government can do to stop them except print money and devalue the money people are attempting to save. But, if the government devalues the currency then the interest on government bonds will increase and there borrowing costs will escalate plus the remaining sound businesses in the US will not be able to borrow at rates that make business feasible. In addition, the credit rating of the US will be at stake if serious printing ensues. Then borrowing costs for the US will really go up. Deadly trap that I tried to get Don Sailorman to realize long ago but he insisted that 'They will print till the last tree is gone'...won't work, but he wouldn't listen, and no one else could understand.

Meanwhile, China is busily buying up commodities at distressed prices. At some point China will probably announce that they are going to back the Yuan with gold. When that happens all other currencies are toast.

Hope you bought that farm and a couple of mules.

People who'd lived through the first Great Depression kept on saving and living frugally right up to, well, now, those who are still alive.

The "secular bear" will last longer than any 10 or 15 years, because a lot of us realized what a miserable treadmill existance life was when things are good, and except for the feeling of Doom present now, curable by some farming and foraging experience, life's a lot easier when you have a lot less material things to worry about.

The secular bear will last forever for some countries, the US might be among them. The US Government is only making the situation worse than it could be by proping up banks and companies that should be allowed to fail. Capitalisim is being hampered by the creation of more funny money which is going into the black hole of 'asset' deflation.

Economists say 'but look how much money the Fed has created since Sept 08'. But, 'assets' (measured in dollars) in the real economy are being destroyed at a ratio that was 14 to 1 (14 destroyed to 1 created dollars) a few months ago and the ratio has increased since. The government must be seen to be 'doing something', even if it is wrong, in order to appease those being wiped out.

Over a very long time a great deal of capital was misdirected to poor purposes and now the economy is choked with these shopping centers, huge banks with no purpose since creation of 'new financial products' is dead, restaurants, houses, branch banks, auto makers and dealers, colleges, etc. The government wants to get the credit wheel turning again for there is no way to value all these 'assets' because their purpose no longer exists without the credit wheel. How does one value a few dozen multi billion dollar casinos that are sitting idle? What is the value of a car dealership that is vacant? How does one value Citi when their business model no longer exists? What is a resort destination worth when few can afford to use it? These and many more examples are misallocated capital without the credit wheel, and now their value is pratically nothing.

Once government began to meddle in the market the outcome was predictable. Capitalisim needs to cleanse itself to operate correctly. Inefficient businesses and banks must be allowed to fail to make way for a more efficient model. The market exists to discover prices and to direct capital to most efficient use. A little meddeling is necessary, for pure capitalisim is brutal to those born less fortunate, but since about the time of LBJohnson the meddeling has grown too great. Then, the banking regulations that were thoughtfully created and installed to prevent another debacle like the great depression were removed by the greedy for short term 'gains'. The outcome was inevetable.

The Fed discouraged savings by it's 2% inflation targeting. Savings are the only real source of capital formation. The government can't form real capital, all they can do is print more equities, based on a future tax stream that is now diminishing. The only other source of income for the US Government is the beneficience of foreign governments and their real savers.

So now here we are, yes? We cannot manufacture our way out of this with value added imported energy unless we can compete with foreign labor markets. Can America do this? Maybe? We will find out soon. In the meantime the government is creating ever larger deficits with sales of treasury issues to foreign creditors. At some point the credit worthiness of the US will come under closer scrutiny. The dollar is holding up only because all the other fiat currencies are even weaker.

Make no mistake about one thing. Mr market will destroy all the products created with misallocated capital and there is nothing the government can do to stop it. The government can only make the situation worse by staying on the path they are on.

A smart government would encourage savings to cause new, real, capital formation. In the end that is what will be done if America is to maintain it's stature in the world. Many of the American people are doing instinctively what needs to be done. Saving.

"The trigger was too much Fed creation of funny money which rushed into commodities of all stripes when returns in equities were no longer to be had."

"At some point China will probably announce that they are going to back the Yuan with gold. When that happens all other currencies are toast."

"We cannot manufacture our way out of this with value added imported energy unless we can compete with foreign labor markets."

Have read your posts with interest. Taken together these statements seem to point to an underlying
fundamental value as opposed to the fake assest inflation bubble we just popped. Honest hard work, savings, gold, ect vs. shopping malls, auto dealers and Citi. I get that.

What I also clearly see is that oil is firmly in the former category rather than the latter. Agree that there was a ton of easy money around which chased all commodities. However as the value of houses and equities continue to plummet oil is once again on the rise even in the face of massive wealth destruction.

In my simple minds eye a 'fake' bubble expands unrestrained until it bumps up against anything substantial like a sharp marlin spike. And likewise that sharp object was an oil price that hit $147, with no end in sight. Agreed anything substantial could have done it, but is there anything else in the world upon which industrial society so firmly depends?

So I'd be in the 'trigger' camp. One thing I'm pretty sure of. Any attempt to reinflate is gonna hit that spike again and again. And it's crowding in closer all the time. We're inhabiting a world of economic constructs bounded by (increasingly prickly) natural limits.

"Sorry WT but you are wrong about the trigger."

So there was no global diesel shortage, the real blood of the global economy?

Come on river

River and I will have to agree to disagree.

Good points. But all should consider that the ability to pay off rising dept might have been hampered by the inability to raise the oil supply since about 5 years. Off course the oil price rises when demand outpaces supply, so both appear to be closely interconnected.

Edit: I might add that rising disposable income (using a house as ATM) can be assumed to put extra pressure on the price by generating extra demand for oil.

'Good points. But all should consider that the ability to pay off rising dept might have been hampered by the inability to raise the oil supply since about 5 years. Off course the oil price rises when demand outpaces supply, so both appear to be closely interconnected.'

This is not only wrong, it's wrong headed. Oil shortage had absolutely nothing to do with the current credit debacle in the world. There will come a time when your hypothesis will be right, but that time is not now. The bubble blown in commodities that reached a climax in mid summer last was no different than any other bubble. Too much easy money and cheap credit warped the commidities markets. Remember, the commodity markets are small compared to equities and when money began fleeing equities the commodity markets were overwhelmed and distorted. That there was some manipulation of the commodities markets is still in question, but I need not go there to prove my case.

To find out what really happened read my two posts above.

I was about to write a reply praising your earlier rant up thread until I saw this comment:

Oil shortage had absolutely nothing to do with the current credit debacle in the world...

You are looking only at the financial side of the economy. Trouble is, the economy doesn't function without the energy to make the wheels turn. That's mostly oil, as we are all aware. Furthermore, the presumption of continued real economic growth depends on increasing the energy flows. If the energy flow does not increase (other things being equal), the economy can not grow. In that event, the economy becomes a zero sum game, not a growth game, thus when one sector of the economy increases, it does so by cannibalizing other sectors.

Energy and food (another form of energy) are the fundamental commodities. They are the foundation upon which all else is built. The prices we pay for them may gyrate and look like bubbles, but the fact is, without either, not much happens.

E. Swanson

Even on the financial side, what was the cost to the US economy of additional gas/fuel costs as prices rose from $24 to $147? Those are not trivial numbers. The popping of the bubble appears to have hit hardest in the suburbs first, i.e. commuters.

A very rough calculation would indicate that between 1 trilliom and 1.6 trillion additional dollars were spent buying barrels of oil in the US from '04 - '08. Expand that out to gas costs...

This seems non-trivial to me. Someone with the real data on oil and fuel prices can figure this out to better precision, but I don't think it's necessary: it's (or it *was*) a LOT of money out of people's pockets.

I know from my personal experience with Enron in Cali what a few hundred dollars a month can do to a family.



Not a "cause". A "trigger". There's a difference

I haven't read Duy's post, but I think he is missing something vital. We no longer live in a one country economy. That the U.S. savings rate has flat lined is surely a bad sign, but our massive trade deficit has moved the savings overseas to our trade partners. They took their hard earned savings and invested them in U.S. assets, including all those funny mortgage related pieces of paper. The "insurance" offered by the financial gurus made it look like there was no risk.

Then, as the price of oil spiked, the foreign investors likely needed to cash in some of their savings to pay for their imports of oil, which would push the value of those assets down. Add that to the problems Duy mentions and the mess looks much larger.

E. Swanson

For several years, people like Krugman have been explicit about the fact that our economy has largely been dependent upon housing and related industries retailers. Since the auto industry has been zombieized, this is really all we have left besides Defense and other government.

We are beginning to approach a housing market where young people and less well off people will actually be able to legitimately afford housing prices based on their incomes and not the availability of subprime mortgages and liar loans. This possibility, however, is being snatched away from these people just as the houses are approaching the cusp of affordability.

Given the pathetic state of our economy, that is, the fact that we have lost the ability to produce anything but housing and government, I can understand that the focus is on reinflating what got us into this mess in the first place. But it just shows that we have run out of bullets and the future is truly hopeless.

I should add that we will also be spending billions of dollars on highways as we are running out of the energy available to use them.

Should we have a policy that favors owners and landlords over buyers and renters? I think home ownership is way overrated.

'For several years, people like Krugman have been explicit about the fact that our economy has largely been dependent upon housing and related industries retailers. Since the auto industry has been zombieized, this is really all we have left besides Defense and other government.'

Krugman is a smart but foolish man. He is worried about tarnishing his Nobel Prize instead of concering himself with what ails the US Economy and how to set it on the right course again.

An economist that believes that any economy can be repaired by government direct action instead of indirect government fiscal policy is not worth their salt. Real capital formation is accomplished only through the savings of the people, which is excess labor that is not spent on consumer or other goods, but banked for capital formation. These 'real savings' are much less likely to flow into misdirected investments because there are not a huge pile of them and enterprenuers have to present an excellent proposal to get a loan. When government meddles in markets by creating lots of money and artifically low interest rates, everyone has access to it and the funny money is misallocated into inefficient investments. That is how we got where we are now. More funny money is not going to fix the economy.

The government can encourage savings of it's people but not when it is similtaneously promoting consummerisim. Private sector spending had risen to three times it's level of late 20s early 30s, outrageously high, it was not sustainable and is the main reason that the savings rate had gone negative. Government cannot create anything except more debt instruments and these are not going to repair what is broken. There is no way to spend our way out of this with more debt instruments. Period...and, Krugman, being a smart man, knows this.

Re: Oil Producers Running out of Storage Space (linked uptop)

The latest government records show U.S. inventories are bloated with a virtual sea of surplus crude, enough to fuel 15 million cars for a year. Inventories have grown by 26 million barrels since the beginning of the year alone.

The term "Iron Triangle" comes to mind. Crude oil inventories are definitely high, but only in terms of recent years, since the industry deliberately went to more of a Just In Time inventory system. In terms of Days of Supply in excess of MOL, year over year we have gone from about 72 hours of supply in excess of MOL to about 144 hours of supply in excess of MOL. This is what the writer refers to as a "virtual sea of surplus crude."

Total Days of Supply in a historical context:


Obviously, the author of the article Leanan linked realized that we had too many vehicles, and that 15 million was actually sufficient. Thus, all we have to do is eliminate the excess vehicles.

Where is AlanFBE when we need him?

Obviously, the author of the article Leanan linked realized that we had too many vehicles, and that 15 million was actually sufficient. Thus, all we have to do is eliminate the excess vehicles.

Easy- take away their jobs. Not job means no commute, and no way to pay for gas... By the way, let's see how jobs are coming along-

Private-sector payrolls lose 697,000 jobs

The private sector lost nearly 700,000 jobs in February, according to a report from payroll-processing company Automatic Data Processing released Wednesday, but a separate report showed that employers announced fewer job cuts last month...

"We probably still have a few million jobs to lose here by the end of the year," said ADP spokesman Joel Prakken in a conference call with reporters.

He added that the unemployment rate, which stands at 7.6%, could rise above 8% a year from now. And by the middle of 2010, it could top 9%, according to Prakken.

Prakken said the unemployment rate could have exceeded 10% by year's end if not for the government's economic stimulus efforts. Still, he expects "gruesome employment numbers" for the next several months.

So, class, how long before we have 15 million fewer cars on the road because we have 15 million fewer workers?

If you think hard, you probably know some people who dont need or shouldn't have a car. The unemployed 30 yo who is still living with parents. The pothead with 3 DUI arrests. The seniors living in a retirement home. Stay at home moms. People living in a city with good transit. Teenagers. The phd student who has been in college for 10 years. All college students.

Oil ends up 9%, at $45.38 a barrel, on signs of a crude oil supply drop and increasing demand from China. More soon.

CNN reports this as "News". This is not "new".

Re: Fiat aims to cut fuel use up to 25% with new tech

Variable valve timing? Smaller 2 cylinder turbocharged engine with higher output? That means higher RPM's and shorter engine life. Piston/cylinder wear increases with a power function, I recall it to be at least the cube of RPM. That's why most crouch rocket motorcycle engines are junk by 20,000 miles (well, there's the crash factor too).


E. Swanson

Maybe, but technology has moved on from the days of oil burners. In the five years I had my last car I never once had to top up the oil in it.
My current car can run 20,000 miles between oil changes. It has a sealed coolant system, so I can't top up the level even if I wanted to.

Most cars in Europe are scrapped from bodywork corrosion long before their engines become unreliable. A cube factor on wear from RPM is high, but in the future I can see 20,000 being a high milage car.

Mind if I ask what you are driving? Never heard of a car that was supposed to go 20,000 miles between oil changes. If so I may get one of these next trade-in.

Sorry, my bad.


Service interval 15,000 miles.

Better be quick, the car is built by GM in Poland, and supply (new) is about to evaporate with the factory. They are very cheap second hand...


Always go to the original...


20,000 miles.

AMSOIL make motor oils designed for drain intervals of 20,000+ miles in most engines.

Read about them here: www.oilshopper.com

You are correct engine life would be compromised in a static comparison.

Forces on the connecting rod are a function of RPM cubed, although if they are using turbocharger boost to replace the lost displacement - the RPMs will likley not increase much. With added boost the maxiumum mean effective pressure will increase. This add side loads to the piston proportional to the pressure, and of course loads the crankshaft more too. However if modern anti-friction coatings and materials are used they can mitigate SOME of the effects of the higher pressures and still maintain a useful service life. Engine design is often a cost compromise (using cast crankshafts instead of forgings etc..) enhancements in materials and processes are still being made today that can make the engine last longer with affordable components. Fracture split rods, high tech sintering processes, coatings etc... Some enhancements are designed to increase strength or reduce friction, others to reduce cost with equal strength.

Its worth pointing out though that a turbo engine has significant advantages compared with a revved up naturally aspirated motorcycle engine. With a turbo you only get the boost when the throttle is opened and the demand is there. think of it like displacement on demand. Under cruising conditions the boost drops away to minimal levels. So the extra wear caused by the boost pressure is only occuring when the drivers foot is on the floor (which isnt very often in automotive applications)

By dropping a couple of cylinders that may help control the cost element offsetting the use of higher strength/harder more durable materials and offsetting the cost of the turbo.

Variable valve timing on the other hand is a win-win. Under hard accleration you get the hp, while cruising you get better fuel economy - no impact on durability.

Both my daily drivers have variable valve timing already though - thats hardly cutting edge.

Ford is following the downsizing model. Thats why they are setting up to reopen the Cleveland plant - to build their new Eco engines. They plan to replace V8s with turbo V6s, replace V6s with turbo 4s etc...

The result is hardly going to save the planet though. instead of a 30mpg family car you might enjoy 35mpg. Technology like the Volt has more promise - if the battery technology can scale up. Thats a big IF.

Dropping the number of cylinders also increases thermal efficiency, since the surface area of two cylinders in a 1000cc engine is less than that of a 1000cc four cylinder engine.

Surface Area = 2(pi r 2) + (2 pi r) * h

The trend appears to be one of engines with fewer cylinders linked to transmissions of more gears. Perhaps the end will be a one cylinder engine linked to a CVT. One benefit of fewer cylinders is that it lowers the parts count and therefore the cost of producing the engine.

Single cylinder engines tend to vibrate quite a bit. Using two cylinders with a 180 degree crank and a balance shaft greatly reduces the vibration. That's the way the 500cc Kawasaki motorcycle is built and one reason I bought one last year. That engine was first marketed back in the 1980's. Twin cylinder motorcycles with 180 degree cranks were built by Honda back in the 1960's. I owned a 305 twin there was much less vibration than the English twins with 360 degree cranks, which was one reason the Japanese motorcycle companies beat the English in the market.

Adding all the extra parts for variable valve timing, 4 valves per cylinder, turbocharging, fuel injection, etc, reduces reliability and increases repair costs. This would tend to favor engines with fewer cylinders.

E. Swanson

If memory serves... the Honda 'Super Hawk' had a 305cc 180 degree crank and vibrated a whole lot since this configuration entails 2 power strokes followed by two exhaust strokes. The Honda 'Dream' had a 305cc engine with 360 degree crank and was 'Dream' smooth because of the balance between power and exhaust strokes.

If you drive the car with an electric motor the ICE can be seperated from having to drive the car and only needs to be sized to top up the batterys / capacitor pack perhaps only 10-20 kW and one or two cylinders or rotary engine. Since it will only be charging the battery it can operate at its peak efficiency all the time. A recent study claimed the most cost effective plug in hybrid vehicle would have an all electric range of less than 10 miles, this study assumed that the battery packs would cost about $1000/kWh for Li-ion which is resonable for today but is likely to get cheaper.

The main point I see it is to get the benefits of electric drive into the vehicles in the first place. If you can buy a hybrid like the new Honda Insight for about the cost of a normal car, in a few years time when the battery technologies have improved and are in mass production you might be able to pick up a 10 kWh (~30 mile range) for less than 1/4 the price of the same capacity of batteries today.

Also a smaller engine could be made completely modular and be changed down the line to reflect future availability of fuels or lack of them.

From theory, efficiency of an engine is a function of the expansion ratio. In older slow speed engine designs with fixed valve timing, the expansion ratio was the same as the mechanical compression ratio. As engine design speeds increased, more radical valve timing allowed the rpm of peak efficiency to increase, along with the rpm of peak power, although peak power is not the same as peak efficiency. The goal of variable valve timing is to widen the power curve, allowing an engine to operate efficiently at low speeds while having the option of high speed/high power operation.

Adding a turbocharger increases the effective compression/expansion ratio while pushing more fuel/air thru the engine. Thus, a smaller displacement motor can produce power equivalent to that a larger, heavier, normally aspired engine.

But, power is the time rate of energy consumption, thus, having more power means faster use of fuel. To achieve best fuel economy, one must minimize the power used to cover the distance, other things being equal. Ultimately, that means that cars will need to be smaller with better aerodynamics and have lower power, if the goal is maximum MPG. These cars won't have the "performance" that we have come to expect, i.e., that kick in the pants when we put the peddle to the metal...

E. Swanson

It may go up as the cube of RPM if all other things are constant, but they do not need to be. Reduce the stroke and the forces are also drastically reduced. Using a longer connecting rod to reduce the angle is also helpful. Fiat has been building stout high RPM engines for a very long time. My 1300cc 128 has a bore of around 86mm and a stroke of 55.5mm IIRC. It was very strong and the engine was extremely durable. In my experience high RPM is a non issue - good lubricant and coolant flow rates and pressure, etc.

This is exactly the kind of car that manufacturers should be building, and Fiat is good at it. Skip the hybrid crap and pump out inexpensive, reliable, useful, and efficient vehicles like these right now. BUT - it's still the perpetuation of the failed concept of the personal automobile, which in the end will be responsible for one of the greatest disasters in the history of Earth.

I was listening to a Talk radio program that was discussing
how much better cars are now than 20 years ago, The person
had 7 cars in last 20 years so he just knew it was so. Actually I
did some research and IIRC the average lifespan of an auto on American roads is only ~3000 hours. 155,000 miles.

A automotive textbook I read back in the 1970's said starting a cold engine had the equivalent cylinder wear of driving it 20 miles at operating temperature. Wear decreases when the cylinder wall reaches 140 F.

I do not know how much technology has improved cold start wear since then. I do know that engines last much longer now, in part because of lower RPM, unleaded gas and better lubricants.

A automotive textbook I read back in the 1970's said starting a cold engine had the equivalent cylinder wear of driving it 20 miles at operating temperature. Wear decreases when the cylinder wall reaches 140 F.

I don't have any numbers to put onit, but the amount of wear is engine temperature dependent. When I lived in cold climates I was very assiduous about using the block heater whenever the temperature was below 0F.

The Prius has a little 3 litre thermos tank. The hot coolant from the cyl head gets pumped into it when you shut down, where it stays warm for up to three days. Then on startup back it goes. It helps with the NZPV rating, saves wear, and makes starting easier. Techy but useful in cold weather.

A friend of mine who sells pumps was describing a phenomenon I had never heard of. It seems that in recent times residential developers have been opting for something called “pressurized sewage”. A conventional gravity operated sanitary sewer system in a residential development requires thinking, planning, designing, digging a network of deep trenches, and laying lots of large diameter expensive pipe. Today's smart developer can forgo all of that in favor of one or more collection hubs at convenient locations and elevations. These in turn are connected to the houses via smallish (1.5” diameter) pipes which can run uphill, downhill, whatever. The houses are equipped with sanitary sump pits that have electric grinder pumps which render the sewage into liquid form and force it along its way.

I asked my friend, “What if there's a power failure?” He looked at me blankly for a moment and said, “Well, you'd have to use a generator like you would for everything else.” Say what you will about traditional suburbia; at least you could typically experience a localized power outage and still have running water and a functional drainage system, including a toilet that works. Not anymore. This just seems like another example of trading long-term resiliency and practicality for reduced up-front cost. Not to mention that the house now has another embedded indispensable energy parasite in the form of the pump. It seems that the municipalities not only allow this, but subsidize it because the sewage arrives at their treatment plants somewhat pre-processed. I can only imagine that if or when the electric grid becomes less reliable than we're used to, these hapless homeowners may become reluctant pioneers in “full-on humanure-based O-NPK recycling.”

- Walt

Why "reluctant" pioneers? Shit & piss are too valuable to be wasted in a municipal sewage system. Look at it this way: composting human & domestic animal excreta conserves the money spent on food. Flushing poop & pee down the sewer flushes that money away. It isn't difficult to build a box out of plywood & 2"x2", install a toilet seat over a bucket on it, & collect your wastes for composting. Subsistence agriculturalists worldwide have been recycling food this way for millenia; it's only a recent perversion that people waste this valuable resource. If you aren't going to use your composted wastes to grow food, sell it to those who will.

Can anyone even imagine Americans willingly shitting in a plastic bucket and adding it to their compost pile to grow their own food. Good grief! This is why there is obviously no peaceful, non-violent way down. (I've been doing this myself for seven years with excellent results)

Nope. Can't picture that at all.

There's nothing wrong with doing a humanure setup(I've done it before myself), and it's going to be vital if we want to feed ourselves sustainably, but it's a political non-starter and will remain one. Culturally, anything less than a flush toilet is considered tantamount to abject squalor.

As bad as people's emotional attachment to their vehicle is, just wait until they can't flush.

Sadly, you guys are dead-on right. Americanas are appalled at the thought of anything other than a flush toilet, preferably the water colored tidy-bowl blue.

Shitting in a bucket and using dirt or wood chips is much nicer, actually. You don't splash your arse when you drop a big bomb, there aren't incessent "plumbing" sounds coming from the thing, and it smells much nicer than any water system - just like fresh earth, or the wood chips.

Piss is different, you don't piss in these things. I'm in a pretty rustic old trailer right now and frankly, I hang my arse over the edge of the tub and piss in the shower, then wash it down. That goes out a pipe to an acacia tree. Piss in a Humanure system will make it watery and it will smell - it's amazing learning how much different piss and shit are. They're both biological gold though, and worth returning to nature if not the garden.

But you are right, this is one of the many areas where many Americans are just going to plop themselves down and literally, may die of heartbreak over the changes. (American "Indians" and Pacific Islanders, Inuit, etc did literally this over the heartbreaking changes in *their* ways of life, so it will not surprise me to see this in the coming decades.)

Last year in August I accompanied a group of Venezuelan synchronized swimmers to a pan-american competition in Calgary, Canada. Girls from 11-18 years old from all over the Americas and Carribean went to Calgary for a week.

By day two there was a "BATHROOM CRISIS".

The kids from Mexico on south are used to putting their toilet paper in a waste bin. (I suppose its cause of the low water flow in a lot of latin american plumbing.) When the girls saw the little tampon/maxi-pad box they assumed it was for this purpose. When this overflowed they put their toilet paper in neatly folded little heaps in the back corner of the stall.

The cleaners in the sports complex were horrified and threatened to stop cleaning the bathrooms if "the situation" was not fixed. The competition organizers were horrified (didn't understand the difference in culture) and threatened to fine all the Latin American competitors. We had to have emergency meetings with the athletes to convince them to flush the toilet paper.

One common conception that came up was that the Gringos must recycle toilet paper. Some of the younger kids cried and asked if we could go to the store to buy un-recycled toilet paper. They thought it was perfectly normal to throw used toilet paper in a waste bin, but could not bear the thought of "recycling" it.

We never fully convinced the kids that the toilet paper was actually processed with the human waste. They never fully embraced the idea of flushing the stuff and kept leaving it in the tampon disposal box for the whole week.

I don't think any culture group has an easy time changing its bathroom habits... but I bet they all can.

Oh, dear. More about "modern" sewage systems. There'd been a funny smell around here, turns out our neighbor who'd been having trouble with his "modern" septic system had "stuff" backing up and running down the stream. And in the winter the water table around here raises, and another neighbor has water come into his house, so where's his septic system? Where's his leach field?

So, using a Humanure systems is bad, but letting your poo etc flood all over the place, letting water from nearby your house come in, including your leach field, is OK because it's Modern.

What your friend seems to be referring to is a low pressure sewer system such as Eone. http://www.eone.com/sewer_systems/intro/index.htm
Great for builders as they only install what they need when they need it, but as you said, what happens when the power goes out? Or when the pump fails? I was thinking about this the other day...cities and counties everywhere depend on lift stations to pump sewage from low points (here in Florida more than other places, gravity only works for so long since it's so flat) to eventual outfall to the treatment plant. Most neighborhoods have at least one, then they lead to a larger one, then eventually to some plant. But municipal lift stations usually have generators for short power outages, and they have alarms and usually 'contact' someone in charge if one pump fails or the water level gets too high. Also, these stations use at least 2 (duplex) pumps, so if one fails the second should pick up the slack.

And you're probably not going to run a grinder pump, even a small one, off solar panels.

Composting toilets and graywater recycling seems like a more robust option.

EDIT: After the hurricanes in 2004, when power was out for days, the city had people running around and refilling the lift station generators. They asked everyone to please conserve their use of water.

here in Florida more than other places, gravity only works for so long since it's so flat

AGW offers a terrific solution to all low lying areas of Florida. and its almost as inevitable as gravity.

Florida with a 20 foot sea level rise...

It'll be >6m when the West Antarctic Ice Sheet collapses, as it's done repeatedly over the course of the Cenozoic and is quite likely about to happen again.

Well, look at the bright side: Orlando gets oceanfront property!


I call this the "Lex Luthor development plan."

Yes, that long red line headed towards Orlando from J-ville is mostly the St. Johns, which has a very low hydraulic gradient...Something like a few inches per mile?

In Orlando we're mostly at about 80-100 feet above MSL, but there are areas in Deltona just 20-30 miles north, well inland, at just 20 feet above MSL.

OFF-TOPIC: St. Johns is one of the relatively few north-flowing rivers in U.S.

I've been to Florida, and I have to say: it would be no great loss if it went under water.

This map demonstrates the true meaning of being underwater on your mortgage.

Or in other words, 'Has your bag of O-NPK crawled into bed with you today?'

Get a hilltop house if you can..

Oh, gosh, are those *#^%#*^ things bad news! When I was on my town's planning board, we saw a few developers that wanted to put in developments with those damnable things. Talk about creating a disaster waiting to happen! I tried to do everything I legally could to block them, with only partial success.

I wish these things could be simply and absolutely BANNED - no exceptions, no exemptions. Water isn't the only thing that can run downhill, and in a major prolonged power outage the stupid fools that let themselves get had with one of these things are going to find out how very had they have gotten, when they are up to their you-know-what with you-know-what. The epidemics will immediately follow. For those of you predicting die-offs and suburban ghost towns, here is one likely causation vector for you.

The day may very well come when everyone responsible for these damnable things - the designers, manufacturers, sellers, developers, and permiters - will be lined up against the wall and shot for crimes against humanity. I doubt that they will be mourned.

Silly - no one will be held responsible for their actions. That's the whole point of corporations - to keep anyone from being responsible. And besides, as a primary cultural value we all understand that anything done in the pursuit of profit is just fine.

In what comes after there may be other viewpoints, of course.

Yes, they are pretty much the sewage equilivent of long roads to serve homes spaced out on 5 acre lots.

But hey, they are underground, and designed by professionals, so they should be fine for a long, long time, right?

How many people with these things remember what or where they are after a year? Lucky if 2 in 10 realize that they don't work during a power outage, and the storage capacity isn't much.

It appears to be about 50 gallons, or the way they put it, enough for a 4 person household to be out of power for 7.5 hours?

I agree that this type of use for a sewage ejector should be prohibited, but the device itself is necessary in some situations.

I live in a low area of a 100+ year old neighborhood. When there is lots of rain, the sewer system near my house backs up. This is despite years of leg work by the city to find illegal sump pumps hooked into the sewer. I need a one way valve and an ejector to get past it to ensure that nothing backs up into my house. The city put them in much of the neighborhood years ago.

Though I'm fully prepared for humanure composting should the need arise in the future.

No offence, and sorry to have to say this, but the name we used to have for places like that was "swamps". It was a major mistake to think that by "draining" them and building on them, we were somehow "improving" them.

Just like water sewage runs uphill toward money.

Cities in the Sand: The End of Easy Expansion

Whole cities and metro regions became giant Ponzi schemes.

Phoenix, for instance, grew from 983,403 people in 1990 to 1,552,259 in 2007. One of its suburbs, Mesa, now has nearly half a million residents, more than Pittsburgh, Cleveland, or Miami. As housing starts and housing prices rose, so did tax revenues, and a major capital-spending boom occurred throughout the Greater Phoenix area. Arizona State University built a new downtown Phoenix campus, and the city expanded its convention center and constructed a 20-mile light-rail system connecting Phoenix, Mesa, and Tempe.

And then the bubble burst.

That was a good article uplink

Growing up and living out the entirety of my adult life in the Sun-belt it is easy in hindsight to see the foolishness of the Conventional Wisdom: Property will always appreciate, so buy it now while it's on Sale!

Today I live in Oceanside, CA, a sunny seaside town with surfers and wealthy patrons being the economic staples. Property values have fallen up to 50% in less than 2 years. Whoosh!

I saw my neighbor Mary yesterday who has lived next door for over five years and she told me that she was relocating.

"Where?" I asked. "We're moving to an apartment...to tell you the truth we're in foreclosure."

Mary is a local real Estate agent and she hasn't sold anything in over a year. Her town-home was bought new for $700,000 five years ago and is maybe worth $500,000 today. Her husband Don has had two heart attacks and they have no health insurance. Most of their spare money has gone into expensive medications.

Obviously the doomed are those least able to adapt to the coming shocks, and these shifts will leave a lot of nice people run over by the wheels of progress. Sad!


The bclocalnews link :"Given the threat of climate change, peak oil may be a blessing in disguise"

If you dismiss Global Dimming only, that is. And I'm sure it can't be dismissed.

The Hartford Advocate piece (The Party's Over) is remarkable, not so much for what is says, but for where it is. It appears that this is a basic local weekly paper (anyone from CT that can confirm?). What's more, it is categorized under "News." Infact, if you click on the News link the story is listed along side articles about the UConn coach, the local crime scene and an article about the Colt gun company.

Maybe we are making some headway.

Connecticut is way out ahead on the peak oil front. They've got a peak oil task force, and a state representative who's a peak oiler.

Russian analyst: U.S. will collapse next year

MOSCOW - If you're inclined to believe Igor Panarin, and the Kremlin wouldn't mind if you did, then President Barack Obama will order martial law this year, the United States will split into six rump-states before 2011, and Russia and China will become the backbones of a new world order.

Panarin might be easy to ignore but for the fact that he is a dean at the Foreign Ministry's school for future diplomats and a regular on Russia's state-guided TV channels. And his predictions fit into the anti-American story line of the Kremlin leadership.

There was also this Russian prof that stated this not long ago. And IMHO the USA is right on track. Shovelling more debt to failed organisations, mass lay-offs, deteriorating services, disastrous ag circumstances, it's just waiting for the summer of discontent to spiral out of control.

As a commenter used to say:"pull up a chair, grab a cold one, and watch it unfold"

Dimtri Orlov lived through the Russian collapse and came to the west. He wrote a web article on the similarities between US and USSR and the potential of a US collapse. He argued that the US is less prepared than was the USSR and the impact of the collapse will be worse. Google his name to locate the PDF slideshow of his analysis.

Or visit his blog!


Love it!
If we had went to this format in 1860, we would not be in an economic crisis right now.

Living in Ecotopia, I would be inclined to redraw the lines a bit and contend the choice of capital. They have most of the north-south part right, but all of the west coast states and Idaho should be included. We call this region Cascadia.

The capital would be either Seattle or Vancouver.

Heh. Proud to be a Cascadian born to Cascadians. And to prove my crunchy-granola credentials, I just ate a large mushroom found growing on the side of a tree! Urp!

(A large Grey Oyster mushroom, they appear to have chosen a different tree to grow on out front and we just found 'em today, sauteed in olive oil and butter, with garlic grown here too.)

I've been getting interested in Cascadia lately. I don't know if there would ever be a real secessionist movement around here, unless things *really* went to hell and the existing US and Canadian governments collapsed into irrelevance entirely. It's an interesting piece of speculation though! There's even a website:


Myself I would support drawing the lines based on the bioregion (based mainly on the relevant river basins), rather than bother with including existing borders, whether national or state/provincial.

This configuration makes a helluva lot of sense:


There's even a proposed flag, "The Doug":


And I'd second Vancouver for the capital.

VIDEO "Dmitry Orlov: Social Collapse Best Practices
Long Now Foundation"


Great Q&A at the end.

Wow: I started watching the video and found his points interesting and valid until he got to the subject of education, where upon which he lost me and I stopped watching. He describes the USSR Public school system as an 8 year program that was far more efficient and advanced than a 16 year American program, 12years +4 years at an American university. He shows a slide that makes the statement that despite 12 years of primary school and 4 years at a university, people finish without the ability to read. I can’t speak for Harvard or Yale or the other ivy league universities that produced our latest crop of wall street robber barons, ( I read the post on OTC and the CDS, How is that legal?), but to get into a Midwestern Big 12 public university you have to be able to read. Maybe I have met only the “slow” Russians, however I have seen little evidence that a M.S from a university in Russia comes close to a B.S from an American university, I have seen Russian students struggle in classes at both in my university, and in Industry training programs. Some struggling with some of the most basic, universal, and fundamental of course work, mathematics, chemistry, physics, core sciences which you would think would be largely universal in universities around the globe.

For example, when I first took a job with a service company, I was sent to engineering training, to train me in specific skills I would need. Mind you I have no engineering degree simply a B.S. in Geology. The Russian candidates were there with M.S. Degrees in Petroleum Engineering from Russian Universities and although English speaking, having a translator, and allowed open book exams, (while American/European candidates were not), they finished in the lower 25% of the program. Not an example of the shining luster of the Russian education system in my opinion. The exams included both metric and American units; many of the Russians struggled with the metric calculations. In that regard I guess they had something in common with NASA.

However to his credit, if a social collapse does happen, for the first time in my life I'm glad I'm from the Midwest and was raised with a garden in the backyard, knowledge of raising livestock, have seen and used real outhouses, and am proficient in the use of firearms. To those who were raised in an environment of paper pushing, (much of the east and west coasts) y'all are screwed. (The joke "you're not in Kansas anymore Toto", which everyone I have ever met from the east and west coasts has brought up, it loses its humor in this light, as many on the east and west coasts may wish they were in Kansas.)

To the subject of Bernanke his theories and re-inflating the housing bubble, all I have to say is this: What I wouldn’t give for a time travelling DeLoren, a set of golf clubs, and 5 min alone with him in the late 1970’s.

Interesting thoughts about the Russians you have met, but it might be a skewed sample.

Sorry if people from my coast (East) has made fun of the midwest.. the coasts do often mock the middle states, the north mocks the south, the city folk mock the country folk, Americans/Russians... and vice versa. Lest we forget.. 'Generalizations are always wrong'. I think we've got a really stubborn pattern of stereotyping each other. Too bad..

This guy was in the news a month or so ago saying the same thing. I'm not convinced about the break up into 6 pieces and Alaska going back to Russia bit - I think he is viewing things too much through the lens of the USSR -> CIS breakup paradigm.

I do think that it is possible that things will eventually decline to the point where the states no longer view the federal government as being something worth continuing to keep on life support. Although this is not commonly known and is intentionally suppressed, the states do still have it within their power under Article V of the Constitution to essentially dissolve the FedGov through a new constitutional convention. When things finally get to this point, this may happen and happen quickly, but I very much doubt that we'll see it THAT soon. When that happens, you get 50 pieces, not six; I'm surprised that Panarin just doesn't get this. They may, and undoubtedly will, re-combine into a number of regional federations, but there is no way of knowing at this point how that will all pan out.

I do think that the USA's role as the world's dominant superpower ("hegemon") are over. We need to disengage, pull back, and downsize our military NOW. Everyone at all levels of government and the military-industrial-complex is still in deep denial about this. It will unfortunately take some catastrophic military debacle overseas in combination with a drastic deepening of the current catastrophic financial and economic debacle we are seeing at home to drive the reality home.

The notion that Alaska would join up with Russia is a bit absurd. If a breakup were to occur, I think that Alaska might join Canada, given similar language, democratic traditions, etc. If this guy was(is?) from the KGB, I think they don't get it...

E. Swanson

I saw that and passed it on to Dmitry with the comment "This guy's been reading Dmitry!"

Dmitry responded with:
Here's another one:


This fellow, Mikhail Khazin, has some really interesting things to say.

Dick Lawrence

I have been singularly unimpressed by the analyses coming out of Russia. They seem to be nationalistic with a strong streak of paranoia (understandable, given Russia's history).

And then there are off-the-wall predictions like this one by Panarin. Maybe there's some propaganda reason for touting the idea that the US is doomed, but I can't figure out what it is.

Where the Russians are realistic is in terms of their short- and medium-term interests. But long-term thinking? Not really.

// About the possibility of US downfall. Ironically, I'm beginning to think the opposite, that we will be able to navigate the peak better than most.

In the US, we are acutely aware of our own economic and social problems. If you look at other countries, though, most are much worse shape (hence the flight to US bonds). The UK is being hit harder than the US by the financial meltdown. Japan, Korea and China are suffering from the drop in exports. There are incipient fascist movements in several European countries.

Though it may be hard for us to see, the US has many points in its favor. A German peak oil author pointed out that the US was much more open to change than European countries.

Paul Nellen, another German peak oil journalist, wrote with envy about the ability of Brits and Americans to form grassroots organizations, such as Transition Towns, when the central governments would not act.

Energy Bulletin

Maybe there's some propaganda reason for touting the idea that the US is doomed, but I can't figure out what it is.

Misery Loves Company ?

"Misery Loves Company ?"

I think you're right, RBM. As Dmitry Orlov said in his recent talk, Russia had a horrible century. I've got to say, I sympathize with the Russians. We a big debt of gratitude to the Soviets for what they did in WW2.

To get a feel for what life was like in the Soviet Union during WW2, I recommend the "Life and Fate" by Vasily Grossman. Conclusion: I'd much rather go through peak oil than what they went through. Peak oil is kid stuff in comparison.


Stumped home sellers look to make a trade

They listed their 2,600-square foot four-bedroom brick home for $425,000 in May 2008, but pulled it off the market after six months, figuring they’d wait for the market to improve and try again. But when they stumbled on an open house in December, they realized they’d found exactly what they wanted — a 3,900-square-foot waterfront property with hardwood floors, a swimming pool, boat lift and dock, home theater and five bedrooms for guests, for $699,000.

The Masters didn’t think they could buy the property since they hadn’t sold theirs. But the agent running the open house floated a radical proposition: The Masters could “swap” their house with the seller. That is, they and the seller could sell their houses to one another and schedule a near-simultaneous closing that would let both parties avoid financing complications.

Barter, and this fits in with WT's "local FDIC's"

Once again, the federales won't like it.

This Week in Petroleum is just out (probably Leanan will have it posted by the time I type this) and supposedly gasoline demand is up 2.2% on last year. A reminder here that the EIA is comparing current estimates with last years revised figures. If you compare with last year's original estimate then gasoline consumption is essentially flat with 2008 which was down on 2007 in any case.

Also recall that the latest revised more accurate figures available are for December and show a decline of 3.5%

Most likely there has been a rebound in consumption but it is still likely that current consumption is actually below last year's and it's very unlikely it's up 2.2%. But we'll have to wait a couple of months to find out.

U.S. oil stocks fall unexpectedly, fuels rise: EIA

NEW YORK (Reuters) - U.S. crude oil stocks fell unexpectedly last week on higher demand from refiners while refined fuels stocks logged surprise gains, Energy Information Administration weekly data showed on Wednesday.

Here's the summary. Will delete if Leanan posts first

Summary of Weekly Petroleum Data for the Week Ending February 27, 2009

U.S. crude oil refinery inputs averaged 14.3 million barrels per day during the week ending February 27, up 409 thousand barrels per day from the previous week's average. Refineries operated at 83.1 percent of their operable capacity last week. Gasoline production rose last week, averaging 9.0 million barrels per day. Distillate fuel production decreased last week, averaging nearly 4.1 million barrels per day.

U.S. crude oil imports averaged 9.0 million barrels per day last week, up 259 thousand barrels per day from the previous week. Over the last four weeks, crude oil imports have averaged nearly 9.1 million barrels per day, 573 thousand barrels per day below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged about 1.2 million barrels per day. Distillate fuel imports averaged 294 thousand barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased 0.7 million barrels from the previous week. At 350.6 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories increased by 0.2 million barrels last week, and are in the lower half of the average range. Finished gasoline inventories decreased last week while gasoline blending components inventories increased during this same time. Distillate fuel inventories increased by 1.7 million barrels, and are above the upper limit of the average range for this time of year. Propane/propylene inventories decreased last week by 1.1 million barrels and are above the upper limit of the average range. Total commercial petroleum inventories increased by 1.0 million barrels last week and are above the upper limit of average range for this time of year.

Morgan Downey sent me these two graphs. The first shows that according to today's data, Cushing is starting to draw down. It has been very full, and this contributes to the weakness of WTI relative to Brent.

The second shows that gap between front month and second month prices is starting to get smaller. This is what one might expect, as the impact of Cushing's over-supply becomes less.

If this pattern continues, WTI's price can be expected to rise.

I've read there's a bunch of crude sitting in idle tankers -I guess if the price starts to rise these ships will start offloading again. Might temper any rise for a while...

Yes, a tanker can hold about 2 million bbl. The world uses 80+ million bbl/day. The floating supply has been estimated to be equal to about 24 hours usage.

The floating supply has been estimated to be equal to about 24 hours usage.

If used to cover a five percent shortfall, it would last 20 days.

This really brings home the enormity / complexity of the current system doesn't it...

Does anyone else here think the new Chevy Volt/Opel Ampera looks remarkably similar to the current Honda Civic?

Gordon Brown on Capitol Hill.

He's still speaking but here's some highlights typed from memory.

World economy to double in size as developing world starts buying goods from developed world as well as other way round as currently.

This is not blind optimism or synthetic confidence to reassure people [Interesting he feels the need to say that] this is a reaffirmation of our faith in the future

We must end dictatorship of oil and create new green future. We must build tomorrow today.

Shadow banking should be outlawed worldwide along with tax and legal havens.

We must work together for a low carbon recovery (at least I think he said "recovery" - he might have either meant to say "economy" or he did and I misheard).

Oh yeh and it's now Sir Edward Kennedy as he's been knighted.

US Constitution, Article I, Section 9:

No Title of Nobility shall be granted by the United States: And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress, accept of any present, Emolument, Office, or Title, of any kind whatever, from any King, Prince or foreign State.

And no Person holding any Office of Profit or Trust under them, shall, without the Consent of the Congress,

As he was addressing the US Congress at the time and they gave a standing ovation for that bit, then I guess they consent

...without the Consent of the Congress...

Day 44: Sir Ted Kennedy

In a further ingratiating gesture to the US, Number 10 has announced today that the Queen has awarded an honourary knighthood to Senator Ted Kennedy "for services to the US-UK relationship and to Northern Ireland.
Kennedy has become an important political mentor to Barack Obama. The endorsement from the Kennedy clan was key to Obama's securing of the Democratic nomination last year.

Huh, would ya think that the dems (who control the House and Senate) go against this? Also, notice how he got knighted after the dems took over...?

Gas on the rocks
With demand down and prices tumbling, the rush to explore unconventional natural gas fields has all but ended, taking with it the hopes of royalty-hungry landowners.


Along the same line BOP: we are now down to 3 rigs running in the E TX unconventional NG plays compared to 18 rigs running 10 weeks ago. It's difficult to believe the 50% reduction in US rig count that many are predicting. IMO we won't see the real bottom until late summer.

A bit more on the raid by state security services on Ukranian gas company linked above

Financial Times: Ukraine’s security service raids Naftogaz

It is not yet clear if the raid could complicate Naftogaz’s ability to make a $400m payment to Gazprom on Sunday. A failure to do so could spark fresh disruptions to gas supplies.

In Kiev, politicians said the development was linked to an escalating standoff between Viktor Yushchenko, Ukraine’s president, and Yulia Tymoshenko, prime minister.

On Wedneday Oleksandr Turchynov, first deputy prime minister and a close Tymoshenko-ally, warned SBU agents not to abide by “criminal orders” of their leadership which run contrary to state interests.

You have the right not to abide by criminal orders. You should not become weapons of criminals, which with the appointment of the president are managing the [state security] service or controlling it,” Mr Turchynov said at a briefing in Kiev

Naftogaz is claiming that it will still pay Gazprom on time this week. If not then Gazprom is threatening to close the taps again.

Bulgaria thinks this is serious.

Bulgaria Prepares for New Gas Crisis

Bulgaria was preparing contingency plans to ration gas to industrial consumers in case the country faced a repeat of the January gas crisis, Economy Minister Petar Dimitrov said on March 4.

Relying entirely on Russian gas transited through Ukraine, Bulgaria was hit the worst when the pricing dispute between Moscow and Kiev led to a complete halt to all deliveries through Ukrainian pipelines.

Ukraine's state-owned oil and gas company Naftogaz is yet to pay the full bill for February gas deliveries, which could prompt Gazprom to cut off deliveries again.

"There are no grounds to believe that the crisis is inevitable," Dimitrov was quoted as saying by Dnevnik daily, but conceded that the most likely outcome was a reduction in the amounts of gas shipped through Ukraine

What the security services raids seem to be about (on the surface anyway) is the ownership of the majority of the gas in Ukranian storage. In any case Ukranian storage is currently being drained.

With the President and Prime Minister of Ukraine effectively accusing each other of treason things seem to be going down hill fast.

For reference, here's the normal winter's day gas flow in the eastern and central half of the EU from the Gas Transmission Europe Winter Outlook (PPT)

The percentages indicate the percentage of pipeline capacity used on a typical (but not exceptionally cold) winter day.

UPDATE 2-Russia pipeline fire halts fifth of oil exports

MOSCOW, March 4 (Reuters) - An oil leak and a fire on a pipeline in central Russia have halted one fifth of supplies of the world's second-largest oil exporter to global markets on Wednesday for at least a few days.

Gas to Shoot Back to $4/Gallon? Video

As oil shoots higher the nation could be in for a big snap in gas prices, says Jeff Rubin, CIBC World Markets chief economist.

I found Rubin's remarks about world oil demand extremely revealing.


Fascinating the incomprehension of Rubin by both CNBC interviewers. Rubin was clearly a little bemused by the incompetence of the questioning and the impossible brevity of his appearance. I suspect that the producer truncated Rubin's appearance because he or she could see that the interviewers/the program was not prepared to deal with him competently. That or the program had one of the Big Three as a sponsor. Compare the low quality of this network's business coverage with the much better coverage of Canada's BNN. Especially Amanda Lang on Squeeze Play, where Rubin appears frequently and informatively.

Challenging the Ski (ie 'Downhill Skiing') industry in Maine is like going against Corn in Iowa, but Maine Public Radio Aired this one last night, which is possibly a crack in the shell..

GREEN SKIING http://www.mpbn.net/News/MaineNews/tabid/181/ctl/ViewItem/mid/1858/ItemI...

"I don't know if there is such a thing, but I would presume no snowmaking, no grooming and you hike the mountain yourself," offers fellow New Hampshire resident Nathan Karckow. On a day like this one, with temperatures in the 30s and rain predicted in the forecast, green skiing could refer to a few patches of grass on the slopes. But that's not the case so far this year. What green skiing is about is the makeover of large and small ski resorts.

I joined some families for a day of skiing a week ago, but was fighting nausea at the implications of this 'Sport' .. it reminded me of those Tubby folks in Wall-E who were carted around everywhere on anti-grav Chaise-Longes (yikes, I can't even pretend to spell that one right!)

First, green skiing has to catch on with skiers, like Adam Eldridge of Springvale. "I think it has something to do with the environment," he says.
Among the advantages for green skiers at Shawnee Peak: Those who drive hybrid cars are allowed to park closer to the lodge.

Damn! They really didn't mention Cross-Country Skiing ONCE! Guess it's time to send a patient-but-paternalistic letter to NPR again.. but I'm grateful they even opened the can of worms. (Was it Napoleon who invented 'Canned Worms'?)

The local NPR station gives the "ski report" repeatedly thruout the day. No way are they going to dis the yo-yo ski industry, as it's a major underwriter. Btw, I quit contributing to NPR once they went to corporate underwriting & begin running commercials.

Earn your turns!

'NPR is the worst news on the radio, except for all the others' To mutate poorly from Churchill.

I give my $$ to the local college station that brings Democracy Now!

“America is a maximum-security prison
whose walls are made of Radio Shacks and Burger Kings, and MTV episodes
Where you can’t tell the show from the commercials”

Back to the Future or Forward to the Past? Strengthening Markets and Rules for Effective Global Energy Governance

This article makes a first attempt to apply a broader analytical lens by pointing out and analyzing the important role rules play in determining outcomes in international oil and gas markets; by examining how current trends are affecting the existing 'rules of the game'; and by highlighting consequences for public policy.

If anyone has access to this Chatham House article could they comment on what it's about.

Thanks ME for the reference,

The authors of this article (and a book by approximately the same title) seem to be suggesting that the dominant geopolitical perspective on "energy security", the view that ES is all about states, national interests, and ultimately "security", is overrated. They argue that observers of international energy politics need to grant more relevance to the rules that structure the game regarding energy supply. Most of these rules are embedded within a global market (one that is increasingly dominated by national oil companies), but are also reflected in institutions like the IEA, NAFTA's proportionality clause, the Energy Charter Treaty (an investment treaty between Europe and Russia), and the World Trade Organization.

The argument here is embedded within the traditional opposition, in the field of International Relations, between "Realists" (who describe the world "as it is", an unending contest among [state] powers for survival, dominance, security) and "Liberals" (who see such powers as rational actors who recognize the value of playing by the rules in order to increase global welfare - and their own [think Adam Smith and "the invisible hand"]). To put it differently, Realists see states acting in a zero-sum game (in which my gain is your loss), while Liberals argue that the pie can get bigger (we can all benefit from cooperation and submission to rules). This is an old argument, probably best addressed in E.H Carr, The Twenty Years' Crisis, 1919-1939 (dedicated, in 1939, "To the makers of the coming peace"). Carr meant no irony, I think; he was convinced that a peace would follow the inevitable conflict (WWII), and that its survivors would do well to consider the lessons of history, the imminent interplay of idealism (Liberalism) and power (Realism). For many, this ongoing exchange defined the discipline of IR; that IR has only begun to address the energy crisis speaks volumes of the (f)utility of academics in relation to the realities of our time.

Hope that helps,

Shane (currently post-doctoral and highly disenchanted)

Am I reading this correctly, over on the site "The Automatic Earth", that Obama gave a speech today telling people to buy stocks?

The Dow is up 150 points, that's probably the only reason why. I bet a lot of people with more faith than reason bought a few shares, like those people you see in convenience stores who obviously can't afford to, but are buying, lottery tickets.

Yup, yesterday he said "What you're now seeing is... profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal if you've got a long-term perspective on it."

What with his popularity still being so high, a lot of people may take his advice. Watch his ratings plunge in a few weeks when all who did so lose their shirts and blame him for it.

Did FDR ever tell the public to buy stocks? Remember FDR was on the radio weekly.

I just am beginning to get the impression that Obama is a hell of a nice guy but not equipped to handle the job under the circumstances we're in.

And who do you feel is ??

Heinberg? Orlov? Kunstler?

Frankly, I *like* Obama and if I had my papers in order at the time I'd have voted for him. (Keep in mind I'm part of the "internal refugee" population of the Empire right now.) But while he's a smart guy, I think at most he's patterning things after the first Great Depression, when oil discovery and use were still ramping up, and BAU worked fine. Start up some programs building highways (among other things) and hold steady until a nice big war comes along, and there you are. The trouble is, the Atom Bomb means a nice big fat war is lunacy, and now we're on the oil downslope.

I don't think Obama's touting BAU to be mean, but because that's what he knows. That's the comfort zone for himself and for most Americans. We go in and out of recessions, and many have stated that we're in no worse shape *so far* than during the recession of the early 80s. He's doing what has worked so far.

He's a huge improvement over BushCo, heck a random pick from your local homeless encampment would be a huge improvement over Shrub. I still feel a thrill when I think about his election; it *is* a landmark in a country where even "liberals" hold many unexamined assumptions that are right-wing.

But I think the honeymoon will be short. And I think he'll go down in history as a nice guy who got stuck with a big mess.

Bottom line: It may have been better if the horrible combination of McInsane and Palin had won. They could have reaped the whirlwind of the Bush Disaster and made it their own. Then maybe the crushing effects of 12 years of Rethuglican rule would have made it possible to do the things we really need to do. Instead, we have a situation where the failures of the W years are playing into the hands of the
GOP, and just when we really need to get serious, we may wake up in 2012 to the Palin/Jindal presidency. God Help Us All.

Bottom line: both parties are to blame and both parties continue to be danger to the public.

For the record, I apportion a healthy share of the blame to the Democrats also. As an Independent, I figure its 60/40 GOP/Dem. The GOP had the White House for the past 8 years, and controlled Congress for 12 of the past 14 years.

However, as noted in this earlier post, I hold Clinton Rubin and Summers responsible in large part for both the ruinous Commodities Futures Modernization Act, and the repeal of Glass Steagall.


I would differ somewhat with the indictment of Clinton, et al on the Commod Futures Modernization Act and Glass Stegall. The move from the Congress to de-regulate was led by on Newt Gingrich and his band of merry budget busters. Clinton may have signed the bills but the repubs were complicit in their enactment.

I do agree that both parties share the blame, however.

The way things are going, I think it more likely that the USA will share the same fate as other crony capitalist banana republics with dysfunctional, ineffectual governments. It would not at all surprise me in a few years to see constitutional civilian government "suspended" and a military junta take charge - either directly or behind a front group of civilian puppets.

Remember that old tire advertising jingle? "Sooner or later, you'll have Generals"

I doubt that people like Obama, his advisors, and every corporate CEO in America, even want to THINK about the possibility that recovery of the BAU growth paradigm is impossible, and that managed decline is the BEST we can manage. They refuse to even put that on the table and consider it. Thus, they deliberately constrain themselves at the get-go. This assures that perfectly rational options are not considered, and irrational, ineffectual, and counterproductive policies are the ones that tend to be chosen and implemented. This explains a lot.

I found this little gem over at Chris Martenson's March 4th Daily Digest.

Europe on the Ropes

(Emphasis Added)

The following is not pretty reading. I have rarely, if ever, felt this apprehensive about the outlook. So, if the crisis has made you depressed already, don't read any further. What is about to come, will make your heart sink.

Here's what jensen means.

On the 11th February the Daily Telegraph's Brussels correspondent Bruno Waterfield wrote an article under the header: "European banks may need £16.3 trillion bail out, EC document warns." In the article, the reporter revealed that he has seen a secret document produced by the EU Commission which briefed the union's finance ministers on the true extent of the banking crisis. Less than 24 hours later, the article's header was changed to "European bank bail-out could push EU into crisis" and two paragraphs had mysteriously disappeared. Here they are:

"European Commission officials have estimated that "impaired assets" may amount to 44pc of EU bank balance sheets. The Commission estimates that so-called financial instruments in the ‘trading book' total £12.3 trillion (13.7 trillion euros), equivalent to about 33pc of EU bank balance sheets.

In addition, so-called ‘available for sale instruments' worth £4trillion (4.5 trillion euros), or 11pc of balance sheets, are also added by the Commission to arrive at the headline figure of £16.3 trillion."


Gasoline and diesel prices are moving toward parity again.

After a 75 cent difference last July, it's less than 30 cents different today. See details at:



If anything, our government policies should encourage renting, not buying. Homeownership occupies a central place in the American Dream primarily because decades of policy have put it there. A recent study by Grace Wong, an economist at the Wharton School of Business, shows that, controlling for income and demographics, homeowners are no happier than renters, nor do they report lower levels of stress or higher levels of self-esteem.

Wrong, wrong, wrong, wrong. Homeowners are more engaged with their communities, and commit fewer and less serious crimes than renters.

What is needed is to make residential real estate completely unattractive as a speculative vehicle (aka "investment"). A 95% tax on capital gains ought to do it. People will still buy houses -- because they want to LIVE in them.

Everyone hates this idea, so it's probably the right one. ;)

Homeowners may not have a higher self esteem but I bet they are more financially secure.

I had the most financial security when I was working for $5 an hour and living in a rooming house. I had 5 months' rent in the bank at all times, was never out of work longer than a week or so, and if I lost my $5 an hour job, I'd have just gone out and found another $5 an hour job. My savings rate was a minimum of 15% and often higher.

Owning a house is *not* a path to financial security right now. Those who have a LOT of money and are smart with it, and those who live "low" and are used to that, are best off right now. Living "low" doesn't have to mean living in squalor, it can mean a good earner who's very frugal too.

In fact I'd say that owning a house has *nothing* to do with financial security these days.

Owning paid off or almost all paid off farmland, now, that's different!

*Nothing* is "secure" at this time. Even the title of "Securities and Exchange Commission" is a joke. Securitites are not secure. Houses are not secure even if you "own" it because tax liens can take it away. Land is not secure. Gold and money can and will be confiscated by the gov't just like 1933. Food can be devoured by pests or stolen.

The only thing that is securely certain is *more* taxes.

Your pessimism is pretty secure.

Amen to that.

The Smart Grid, an ambitious plan to modernize the country’s electric grid