What's Ahead in the Next Six Months?
Posted by Gail the Actuary on October 2, 2009 - 10:20am
Recession will ease; oil price will stay under $80
5% (210 votes)
Recession will ease; oil price will reach $80 to $100
11% (410 votes)
Recession will ease: oil price will exceed $100
4% (139 votes)
Economy will limp along at today's level; price under $80
21% (836 votes)
Economy will limp along at today's level; price will exceed $80
14% (550 votes)
Recession will get worse; oil price will drop below $40
4% (140 votes)
Recession will get worse; oil price will drop to $40 to $60 range
13% (522 votes)
Recession will get worse; oil price will stay above $60
26% (1006 votes)
Some other choice
2% (81 votes)
Total votes: 3894
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—Richard Feynman
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I voted for the recession will get worse and oil goes to $40-$60 (and maybe lower). Price (as we should know by now) is not a good indicator for anything other than the short term (<3 month) supply vs demand dynamics.
The debt overhang right now is just too great - and world governments have used a good% of their bullets in monetizing/supporting end demand. I suspect in order to maintain credibility Fed may start to drain funds from system and surprise everyone - of course that will accelerate deflationary move, but increase their long term credibility.
I'll be talking on 'abstract energy gain' at ASPO (the fact that since we use so much of our energy exosomatically (98%), that we have allowed our belief in an abstraction (money as a resource) to decouple from reality over a generation. Prices will probably go higher over time, but I think there is meaningful possibility that all time peak in oil production (july 2008) coincided with all time high in real price ($147 for the then front month but slightly over $150 for current contracts). Wildcards are of course what governments do.
that´s my opinion, too! would subscribe it to 100 per cent!
recession will get worse and oil goes to $40-$60
That's my vote but I was wrong not seeing the bubble (in oil) last year, so let's see in six months.
If I'm right it will just be a lucky guess.
I voted same too. Not because I hope for it. I terribly hope that we are wrong in this voting block (worse recession, high oil) but it seems to be a vicious circle. As long as there is no next big thing to give the economy a pick-me-up boost, bad news will bring on even more job loss and so on. Financing for risky oil ventures will dry up and oil supplies will shrink. Not a pretty picture.
I agree too but voted for "stay above $60" because I think that worsening recession + dollar debasement policy + Saudi Arabia's ability to throttle production to influence prices, taken together, mean that the nominal dollar price will hold up apart from a short-lived blip down when some tanker storage gets released.
Similar, but I think the economy will limp along at roughly the same level (as policies are tightened to prevent inflation). Couple that with the SA policies and prices will spike over $80 - and eventually the second dip will come (though not within the six months)
We've been around $70 for a while - $80 is not far away. It will get tested one way or the other.
I'm in agreement but for a different reason. I'm looking for a "negative wealth" effect to materialize in the U.S. Equities move higher, dollar lower, net wealth ~unchanged. Equities move lower, dollar higher, net wealth ~unchanged. Equities move lower, dollar lower, net wealth, buying power if you will, has fallen. Precisely what should happen in the U.S. given the fundamentals. Since oil is priced in dollars...
Nate I trust your ASPO talk will be posted on TOD. I'm eager to learn about this 'abstract energy gain'. Specifically, how do you think this decoupling works psychologically and how does the expansion of the money supply actually decouple from real work (i.e. energy flow)? Lately, folks around here have been obsessing on the debt financing of so much work (esp. service sector) and how could it possibly be serviced if energy flow is now or soon will be diminishing.
It seems to me that money decoupled from real work when it came to be used as a carrot or incentive to create motivation for real work.
Right now the way our system works is that money/debt is thrown into the economy in such huge amounts that people try to figure out ways to get it.
It seems to be a cart before the horse arrangement and all the distortions can be traced back to this apparent inverse relationship.
To me money is suppose to be a representation of PREVOUS production and in that way it would be an accurate measuring tool.
I will go to my grave blaming that idiot Reagan for starting this.
He had the opportunity becuase Nixon put us on a completely fiat standard which has always resulted in money becoming detached from reality.
How many times are humans going to make the same mistakes?
It is obvious that in the absence of prudent rational men of integrity issuing a fiat currency that money should have some physical basis.
Energy seems like the natural basis..........but how to do it and preserve free market interactions?
This is a caffeine inspired stream of consciousness.
Yes - But in our system it is introduced to service existing debts, not represent previous capital. This would be (more) acceptable if the debt was used for investment in productive ventures, but a goodly % of it is used on ski boats and vacations, where the heat loss and dopamine surge dissipates quickly and leaves nothing for the future but some increase in cravings.
YES and YES.
Money was savings accrued after the good work of being human was complete, an expression at the end of the day of confidence in the community/future and trade between equals. It now represents debt to the Masters.
He gets the fractional reserve definition wrong by implying that each individual bank can lend 10X deposits when it is really the redepositing of the money through the system in other banks and the "fractional multiplier effect" that causes the initial deposit to add 10 times the money into the economy (@ 10% reserve ratio which is variable) but otherwise this is accurate.
By the way this guy is coming out with a new film today.
This is an old film early 90s I think.
http://video.google.com/videoplay?docid=-515319560256183936#
But beware of the false equation of money=debt. It is easily shown that money and debt can never be the same thing. A debt necessarily entails a contract between debtor and creditor. Money by contrast is (a) a medium of exchange (with no contract involved) and/or (b) an asset in your hand/account (again with no debtor party required).
Hi Robin,
Did you read the book "Web of Debt" and, if so, do you think the author is correct? You seem to be reflecting that author's thinking.
No, I read very few books etc, because I am mentally disabled by dental mercury and reading/writing/remembering take a lot of time/effort and I can usually think of the same or better ideas myself in the same time. This then comes across as conceit because I don't list reams of others relating to those ideas!
Money IS debt with exception of actual currency certificates - which are a small fraction of the money supply - the broader M3 (and beyond measures) of money, and how they are created, are all debt. (meaning they require a return).
It depends on definitions. One way to look at it is that money (cash, demand deposits, CDs etc) are all claims on future labor, and that future physical labor is not going to be subsidized by fossil fuel labor at rate it has been, so this 'claim' is going to be more unforgiving.
Really Nate? I explained above why it is (at least apparently) logically impossible for money to be the same as debt, and all you have done here is resort to a capitalised "IS" in supposed disproof. How about putting some explanation in justification of that "IS" there? How about we start by asking of when some central bank prints some money, who is the resulting debtor and who is the resulting creditor?
Or here's another test-example. Suppose our stone-age village decides to introduce money. The boss stamps out 100 coins (officially valued at a pound of grain each) for each villager and hands them out. Everyone now has money, but no contracts of debt/credit are thereby generated. Therefore the introduction of money did not require the introduction of debt?
It may indeed be the case that the currently-prevailing method of "money creation" entails creation of an equal debt, but that is another matter entirely.
RPC,
When a Government prints money, be it at the fiat edict your Stone-age village chief or that of our Oil-age commander in chief, the Government is in essence making a "promise" to the people.
The promise is this: Take it on the basis of your full faith (and over extended credit) in this government that this stuff ("money") has value in the general society. You can take this stuff to any merchant or service provider, offer it as legal tender, and you will receive the value you seek.
Of course the story gets more "interesting" when the PROMISE that Government made cannot be fulfilled, say due to an unexpected arrival of Peak Oil. Who ya gonna sue? (For reneging on the Promise?) Who ya gonna call?
Step--I don't dispute that money is a promise. It's even written idiotically on the uk banknotes: "I promise to pay the bearer the sum of [...] pounds"! (as in "I promise not to recognise bs when I see it").
Rather I was questioning the notion that Money IS debt, which you haven't addressed there.
I obviously meant 'our current monetary system' not money in general.
Contracts are usually in the form of promises and these can create money.
Example: "I promise to pay you $X in one year if you do Y for me right now (or in recognition of you having done Y for me)."
Such contracts can be used to secure immediate loans from a bank. So the contract or promise can quickly become money. Indebtedness becomes money.
IOU's are also a form of promise or contract.
"I promise to pay the bearer of this IOU note $X on date Y."
So yes, money can be created by creating indebtedness based on deeds of the past.
Money can also be created without existence of a deed in the past for which someone is indebted.
Example: "If my nephew Joshua, now age 15, finishes medical school by age 30, I his rich uncle will owe him $1M for his reaching this goal." Nothing has been done yet. But Joshua can probably secure a school loan based on this promise of future performance and his uncle's good name (Uncle Sam).
The money represents a contract between two parties and is therefore representative of debt. In your example the money represents a debt of one pound of grain from whomever holds the grain to whomever holds a coin.
Modern physical money (think dollar bill) is a call on a debt "This Note Is Legal Tender For All Debts Public and Private" the fact that the dollar exists entails that a corresponding amount of debt exists somewhere in the economy. NONE of our current money has any equity value beyond this call on debt.
If you begin to think about this you realize why so many people live "paycheck to paycheck". It is impossible for the population as a whole to accumulate a net surplus of savings because those savings represent someone else's debt!!!! In theory, if all debts were paid off, our money supply would shrink to zero which, according to modern finance, would mean that our current productive capacity had shrunk to zero. It's the quintessential problem with our present monetary regime: it is completely and utterly disconnected from reality.
Again, I have only a vague idea of how the word "money" is being used here. However, assuming that we're talking about some measure of the "money stock" or perhaps a "near money" stock, there is no reason that it should be related in any straightforward way to a dollarized measure of past production. Money circulates and not all investment or consumption is debt financed, so the two are at least partly decoupled.
NO.
By ignoring the other, you miss the full picture.
When an employer pays "money" to a worker, the employer is (yes) recognizing the value of services rendered in the past (PREVIOUS production). But the employer is also:
(1) Making a Promise about the FUTURE, and
(2) The employer is decoupling himself from liability for making the promise come true.
When the employer pays "money" to his worker, the employer is saying, "Take this stuff (money) out there, to general society and trust me that THEY (not me) will give you fair value for this money stuff comparable to the value you gave me through your past work. BUT, if society does not make good on the promise, don't come back crying to me. Take it up with "them". I have no obligation to make good on the promise.
OK fair enough and see what you are saying BUT............The worker in theory at least provided some good or service through his effort that again in theory enhanced the economy in general. With this in mind it goes back to my conception of money and that is a representation of increased wealth already achieved.
This is no doubt a slippery topic. But I think that money should be viewed as a measuring tool of increased wealth first and of course it's functional use as a convenient medium of value exchange second.
Right now in modern society everyone thinks that money is the end all be all.
Also the societies system of money and finance should be used and regulated like a utility that exists to FACILITATE economic activity not as a way to skim off that activity.
Also the money system should be public property and any profits generated by the issue and manipulation of the money system should go to the people and not some small group of greedy criminals.
If it isn't getting obvious by now then it soon will that the system in it's current incarnation is rotten to the core and flawed by design deliberately by the crooks that took control in 1913.
I'm sure the Green Shoots will soon enough be diagnosed as mold. So i expect the economy and oil demand to decline further. As for the price, what are the chances of OPEC & Russia (and others) realizing that being paid less and less, in a more and more uncertain currency, for incerasingly scarce and expensive (to deliver) reserves requires some serious collaboration to support prices?
It seems there is growing boardroom awareness of PO (though i am skeptical that many have though much about implications, but that can change), growing fears of currency devaluation etc-how long will the bond market indulge countries hunger for debt?
As time goes on, the chance of a major systemic reality-based 'correction' rises. And when it comes it is likely to be supprising, and fast.
On another note, does anybody know if anyone keeps a database of all (from USGS to Campbell, without predudice) professional estimates of PO dates?
D.
i agree with davidk...i think the green will be determined to be mold...all things being equal though and BAU continues then oil will plod along as others have mentioned...THE BIG BUT caveat is what he mentions here; if the rest of the world doesnt want US bonds in the vast quantities they have gorged on in the past and Uncle Ben decides he can continue inflating his balance sheet we may be paying a much higher price while the rest of the world barely registers a blip up in price; for awhile. Good for 6 monthes but after that we may be paying for our oil with whats left in ft knox.
there are many many countries that have much higher fiat debt to GNP ratio and much lower % of indigenous energy resource than the US (Switzerland, Japan, UK, etc.). We only import 20% of our energy (though 2/3 of our oil).
The counterintuitive but relatively easy trajectory is to use alot less - but we'll probably do the opposite.
Yup, we have enough energy to be OK if we tighten our belts but the GNP is a bullshit number.
Much of it is nothing more than money just changing hands with nothing being accomplished.
You said it yourself in the past that the financial sector has become way, way too big and it is not only contributing Phantom GDP but in reality it is a parasitic drag and probably should be SUBTRACTED from GDP not added.
Phantom GDP is an altogether too valid concept (being essentially numbers in absence of real things underlying them). But I am intrigued by this alternative notion that an economy can somehow keep "airborne" for a while on just fantasy when the real resources are no longer justifying it. Does this make sense? Surely it's physics-ally impossible to power your heating and transport on hope alone?
"Phantom GDP is an altogether too valid concept..." [posted by RobinPOC]
The entire concept of GDP seems suspect. Consider, there is a disaster - say a tornado. All the rebuilding that follows is counted as part of GDP. Nothing new is created. Just replacement.
Consider further: A man sandbagged his home when a flood threatened. His home did not suffer any damage. It cost the man $2.500 for the sandbags. His neighbor did NOT sandbag his home. No cost to the second man, but damage to his home was $250,000.00. The first man's insurance company paid nothing. The second man's paid 100%. Net GDP was $252,500. If the first man had spent nothing, net GDP would have been $500.000 [and, ironically, the first man would have been better off]. The increase in GDP would have come from 'profits' of the insurance company [I guess], or maybe from later premium increases[?]
I suppose that the GDP of Louisiana after a hurricane would be really great, right? Lucky guys.
And, Schwartzenneger should pray for that big earthquake?
So, anyway. My question(s) is(are), what does GDP measure? Is society really better off just from increased GDP? Does it really mean anything at all?
Does anyone really understand this? Help me out here.
Hmm--maybe I should have gone to bed earlier!
Your flood scenarion seems a little puzzling but GDP appears to measure the velocity of domestic trade in that case. We can add a lot of velocity to the system by building, destroying and rebuilding. That part is really not much different than all the rest of the disposable goods we run through at such an incredible clip. I get lost when they start running products and services throught the chain and each link gets credit for adding the gross transaction to the GDP rather than just the value added their specific activity generated. Maybe we need some sort of NDP (net domestic product) accounting as well. I'm sure such would add layer upon layer of clarity to it all ;-)
How about Net Domestic Improvement.
That would at least attempt to measure if things actually got better rather than if we have been spinning our wheels.
Possibly the High Priest position could be resurrected--someone would have to judge what constituted improvement
Ok......... a wise guy...........Think Three Stooges........
That may be true but Switzerland is not one those:
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt
Although the Swiss GDP may unfortunately be inflated by the financial sector, it still has a trade surplus with China:
http://www.eda.admin.ch/eda/en/home/reps/asia/vchn/bilchi.html
You want to look at external debt. Switzerland 4 times ratio of USA>
We can't of course 'create' energy -we can transform what already exists at a natural resource cost. So abstract energy gain (money/debt) really has just created a false signal that allowed us to extract resources at rates far faster than would have occurred in a debt-free world (or a biophysically tethered one). If people are incentivized to value money as opposed to energy (by assuming that we can always buy or substitute oil at 3 cents per kWh to replace $60 per hour labor and similar assumptions), then money is what we directly pursue instead of energy and natural resources, which in an era of rising tides became mere commodity inputs into the larger economy.
I calculate that just using Fed Flow of Funds debt stats that we are now creating 75 debt dollars for each barrel of oil equivalent of energy consumption nationwide (this is conservative as it doesn't include stock mkt debt nor private debt). This number has been increasing from $10 debt dollars per boe in 1960s - we are servicing our debt by issuing more debt - eventually (now) that hurdle becomes too high to overcome, especially in face of diminished spare capacity right around the corner. I would hypothesize that had we remained on the partial gold standard beyond 1971, that economic growth would have faltered sooner, from a lower level, and the price signals to develop technology to extract at above $75 per barrel and higher might not have occurred. Subsequent decline rates would also have been shallower, and perhaps many other social trajectories as well.
As with any levitation act, there is a trick or gimmick. Regarding 'abstractions', there are dozens of books out there now on 'the God Gene' and religious abstraction modules in our brains -many explanations for the phenomenon, but such a tendency towards fundamentalist belief in 'something' is real. To me, in a species that uses predominantly exosomatic energy, we can easily be fooled as to 'what' energy is - ergo if we really were eating 240,000 kilocalories per day, we would KNOW if some of it were 'fake', but since we only eat ~2,500 calories, and the other 237000 is transport, waste, economic growth etc, we don't pay attention to how it gets here - the answer is that our brains (on average) have perceived debt to be an acceptable proxy for real stuff, without realizing it is empty calories (or more correctly, borrowing calories from a poorer future).
I'm still working on the details and implications. It's not all correct but I think it's in the ballpark.
In my talk at the upcoming Biophysical Econ meeting I will be presenting a macro-view model of the relationship between energy flow and economic wealth (physical asset accumulation over time). This graph shows that there was a historical period (yellowish region) when we could effectively borrow from the future because the rate of production of energy (oil or fossil fuels in general) available to do useful work kept ahead of the energy cost for extraction and production. But as the latter gained (think deeper drilling from expensive oil platforms, EROI) and new energy source exploitation declined (think peak oil) we reached a point where the combination created (or will create) a region where not only is borrowing from the future no longer possible but the total amount of work will decline meaning that prior debt cannot be paid back at any rate.
I personally think we've reached that 'debt infeasible' region already and that the current economic situation is just a reflection. Dynamic systems that go through such regime shifts (like phase changes) are chaotic and predictions of trajectories of specific quantities is "difficult"!
Question Everything
Nice graph
Somewhat off topic - it makes me wonder what % of emergy (real assets) will have to be written off as embodied energy that has no future use, or a use much less than it was intended for? (I.e a speedboat has a very high emergy, but if there isn't readily available fuel to run it, is it worth less?)
Assets are being converted into liabilities at high rates right now.
Think of all those reports of abandoned boats being cut loose and littering shores. Or abandoned horses and pets. And let's not forget those "second homes" that can't be paid for or maintained. I saw a shopping mall with vacant big box acreage.
Right.
But how does that impact emergy is my question?
Is this sort of like the question "If a tree falls in the woods...?"
Are you wondering if the emergy of these useless items is basically zero? Or perhaps it is worse than that. Does it take work to deal with the disposal or damage caused by what can't be maintained? I don't really recall enough about emergy calculations or definitions to help. But liabilities are a negative, a drain on society. Can emergy be negative?
No (unless there is Dark Emergy ;^). But all of that embodied energy is still subject to the second law. Things not being repaired are going to crumble. Without additional work being done to maintain assets, they will decay with time so emergy, like energy being transformed, is subject to degradation.
I think the idea about those assets becoming liabilities is that as things clog the system if there is not work to remove the debris (or better to recycle the material) then they may impede useful work getting done. Expending energy to dispose or recycle is an energy cost that has to be subtracted from whatever energy gains might have been realized by redirecting energy flows to truly useful work (e.g. agriculture).
In any case, all of those now useless assets represent past work that was directed at a consumptive lifestyle that could not be sustained. The emergy is essentially lost. The exergy that was expended to do that work was effectively wasted (so by definition, I suppose, should not be called exergy!). But who knew?
Your asset(emergy) curve and net energy curves assume absolutely no alternative uses for the assets or their parts.
Just as an example........a automotive junk yard uses the emergy in the form of parts rather than replacing the item with a brand newly manufactured part which saves or rather redeploys the emergy.
Maybe that is a bad example because cars are on the way out but you get my point.
Granted there is some energy use in reusing things but much less than making new stuff.
Even a piece of steel salvaged from an old vehicle can be reused in some yet to be foreseen way.
If you think about it maybe all this built stuff can be an asset in a different way.
We are a creative bunch us humans.
Your curves seem to suggest that once the net energy drops below the maintenance level for the INTENDED uses of the assets it is game over but who needs a speed boat anyway?
Your point is well taken. However, if I understand your intent, you may be confusing emergy and exergy. It will take additional exergy to rework assets and in the process increasing the net emergy. In any case that new exergy has to come from somewhere. And total energy will be diminished. This doesn't invalidate your point. I just want to be clear about the terminology.
OK, you are right I don't quite have a handle on these terms but i have a sense of their meaning. I will look into it so I will be more accurate and also understand your ideas and information.
I understand emergy as all the energy required to build and position an item at it's end use.
I might be confused on this next one but:
Total energy=exergy+entropy ??? for a system??
If I am wrong I need to do some more homework.
I will say that there seem to be more than one definition for everything except emergy when talked about across disciplines which gets confusing for me anyway.
George,
I don't understand how the total energy is diminished.
It seems to me that exergy is diminished and entropy is increased by the reworking of assets and emergy is increased.
This is all for a closed system.
If i am missing something could you explain?
The first law of Thermo...energy can't be created or destroyed.
When I said diminished I probably should have said degraded, meaning the second law takes over. In the end, all turns to heat and loose atoms/molecules. Yes entropy increases to a maximum. Recycling requires additional work. You can "salvage" some of the emergy in parts or material configurations that are still useful for a new purpose. But even there the emergy in the recycled material eventually degrades too. You know what Keynes said: In the long run we're all dead.
Thanks George. You expressed my thoughts better than me and were able to use correct terminology. Much appreciated.
Is there a term for "wasted exergy?" Do we need one?
wexergy?
edit, since there's a series of serious comments on GDP. Waste is rather subjective, though. From the point of view of a nonhuman, human industrial exergy is pretty much all wasted, and worse.
since most of it has been directed towards the sunk costs of human overshoot, short-term brain chemistry rewards, and environmental destruction, it would be interesting to come up with a non-arbitrary definition of "waste". Seen in the rear-view mirror in 200 years, I'll bet the retroactive estimates would be 99+%.
I follow your thoughts. This is what I was getting at when I asked if the issue relates to the tree falling in woods riddle. Thanks for expanding on that so well.
Do you mean entropy?
I think greenish instead means like when an oil depot in Baghdad gets blown up by a missile. Not entropy though that is what results from the waste (but as would from a non-waste too).
I think Will is responding to Jason's post, not mine. But if clarification is needed, I tend to try representing TOD:nonhuman or TOD:ZDR (zero discount rate), if only for perspective.
The point I was making sounds misanthropic, but it isn't: simply, that the great preponderance of what we've used fossil energy for is "waste" by any reasonable metric of planetary habitation or the net interests of our species, even if it "feels" utilitarian at the moment.
Specifically, not just salad shooters, appliances with planned obsolescence, new cars, 3000-mile salads and NasCar, but the whole business of building and temporarily maintaining human overshoot while the planet's biosystems are damaged or perturbed. To a good first approximation, all the fossil fuel that comes out of the ground is currently "wasted" from any reasonable long-term perspective. And worse than wasted from the point of view of long-term human habitation of the world, since the net effect of the waste is to take useful resource concentrations which are the result of hundreds of millions of years' history and disperse them to the point of being largely unrecoverable in the future.
If a 100-lb sack of sugar falls off a truck and is discovered by the local ant colonies, it'll be high times for the ants for several seasons. Populations will boom, foraging will become unnecessary, and large networks of new tunnels can be dug. Once it runs out, and the ants die back, how much of the sugar was wasted?
I haven't the faintest idea what is being clarified here, or how. Does anyone else?
As someone above mentioned, the concept of waste is subjective. From the p.o.v. of the ants it enabled their population to thrive, hence not a waste.
You posted "what greenish means", incorrectly, so I supplied additional explanation on the subjective nature of "waste". To wit: that the short-term human perspective isn't the only one possible.
For many people, it seems like it is. I don't know if it's a matter of not having the mental equipment to process it, or simply a refusal to consider any other possibilities. Perhaps it's the issue of "faith". Faith defined as believing in something because you want it to be true, as opposed to believing in something because you have considered it thoroughly.
Could there be another way?
If you're talking emergy as a concept where humans are necessary to the equation in order to input or make use of whatever percentage of potential ...
The percentage of emergy written off will be roughly equivalent to the level of population decline. But there will be a massive decline that sets in as the power goes out.
http://interiorstwo.typepad.com/photos/aircraft_/lion.JPG
Here's a good use for all of those stockpiled jets out in the desert. Too bad all of the megafauna will probably be dead from the decreasing marginal returns of overshoot. They'd make great mobile homes with those wheels, just not too mobile. Maybe you could pull them around with enough donkeys.
Excellent underscore of the "problem". With your permission I will add that point to my notes with appropriate attribution, of course.
It can be a giant flower pot ;)
Now Nate- A ski boat without readily available fuel is WORTHLESS, NOT WORTH LESS;)
Or at least worth so much less that it's almost worthless.
I saw an older giant Cadillac that was in excellent condition except for the tires sold for scrap metal when gas hit four bucks.
My personal wag is that things get a little worse-here in the US- and that the price oil oil holds more or less steady.Depletion and ELM plus Saudi will power will see to the price.
The pundits have been wron g about the price for nearly a year now, but reality says the world will pay sixty to seventy and who is supposed to pump enough to push down the price?
I gerenally keep my mouth shut concerning supply but it seems obvious from reading this site that only the Saudis and maybe the Russians have it to pump in quantity-and the Russians apparently don't have thier production act together.
As far as an improving economy is concerned , my seat of the pants definition is employment going up rather than down.That is not likely within six months according to anybody except the most starry eyed optimists.
Nice graph, again. Suggestion for improvement: at some point past the 'debt infeasible' peak, the two curves will merge again to show that any debt creation is not possible. Showing 'when' the curves merge would be the difficult part, but your graphic could have an arrow pointing to the merge point saying 'this timing is highly speculative and/or undetermined at this moment'.
I voted "Recession will get worse; oil price will stay above $60", because I believe so many people are in denial that they will drain their wallets before they move to any mitigation. In their minds: the mere idea of giving up their vehicle to walk is like suddenly finding themselves as a member of the Bataan Death March...
Totoneila,
I don't quite get your meaning. Which two curves are you referring to? And why do you say they will merge? The model, run out many more time steps beyond what the graph shows has the three peaking curves simply crashing toward zero. The energy cost curve is actually a shallow logistic so it eventually reaches an asymptote where it crosses the other three curves on their way down. Of course that has no real meaning since long before that time the whole system would have crashed due to disruptive factors, so the math, beyond that shown in the graph, would not be operative.
George
Oh, I agree that they [3 peaking curves] will all crash to zero eventually. I am just suggesting the two curves [light blue, dark purple] will meet first, forcing barter and/or new local currencies backed by some valued asset(s) that locals intrinsically trust; a no debt system.
Ah! Then you might be interested in reading my just-posted blog at Question Everything. It asks where are the new jobs going to come from? and ends up at exactly this point you are making. I assert there is a psychological twist to getting from here to there. We have to stop thinking of ourselves as consumers and start thinking of ourselves as producers, with the further caveat that we need to be producers of useful stuff and services (as opposed, say, to flipping burgers).
I actually think that the forcing of this transition has already started when we entered the debt infeasible zone. But it is accelerating with the worsening economy.
George
The problem with that is the "The Great Deskilling" that has taken place.
I guess trade schools are going to be a "Growth" business?
flipping burgers is actually producing something more or less edible and meal preparation has been a productive part of human economies for a goodly long time
those teaching economics on the other hand might have to go some to argue they were producing anything
Just because you can't eat an idea does not mean it has no value.
I hope you are trying to be funny.
Granted economics needs to be revised in a big way but that seems to be what this thread is all about.
My guess is that the debt feasible portion of your graph (for the US) can be equated with that period of time when the US started to have to pay for a portion of their oil (after 1970). Although we didn't have the heady mutiplicative growth process of the previous decades where we were the top oil producers, we were still growing, with enough real assets to still multiply the process enough to allow repayment. Since we owned the petrodollar and could inflate it at will through debt, we could basically borrow from other countries. Now that the whole world is peaked, there is absolutely nowhere to borrow from. So even though we are creating debt like mad through derivatives, we've reached a global peak thermodynamically. We went into the debt infeasible segment about 10 years ago; just my WAG. Unless we shrink the global money supply from here, the inflation will go though the roof. And if you consider the politics involved with shrinking the money supply, and the history of previous such episodes, I would suggest that it's just not possible.
The last decade has been a blow-off top for debt. We're breathing the fumes of promises of a technotopian future. The SNL skit below may be silly, but it is ridiculously true. You can't get something for nothing.
http://consumerist.com/consumer/clips/snl-skit-dont-buy-stuff-you-cant-a...
Nate (about abstract energy a mile upthread),
Indeed there seems to be something fundamentally incorrect. If I properly understand your conceptual system here, then it requires that economic fantasy can override the limitations imposed by physics/chemistry. Or not? Printing money can't make oil come out of wells any faster.,,,(can it?)?
Indeed there seems to be something fundamentally incorrect. If I properly understand your conceptual system here, then it requires that economic fantasy can override the limitations imposed by physics/chemistry. Or not? Printing money can't make oil come out of wells any faster.,,,(can it?)?
The basis for overshoot is the delays in systemic feedback. We've been in fantasyland for at least the last 10. Currency is information. In our current system, the information is passed around based on capitalism, growth, and a systemic goal of profit over all else. But the system goals are changing currently. New system goals (if we make it that far) will be based on cooperation, redundancy, flexibility and other features of ecological resilience. We won't have capitalism, we won't have debt or FICO scores, and we probably won't have democracy.
The current blow-off top, complete with skiboats, is a massive stream of entropy about to be consigned to the waste heap of history.
Iaato, you don't seem to have resolved the riddle. You are now proposing (by implication) that "information" can keep the lights burning, that "information" can trump physics/chemistry.
I'm reckoning the real thing here is that it is not a matter of "we have run out of resources but still keep flying via a make-believe economy" (aka the Wile E Coyote cliffhanger favoured by Nate & Co). (Or "we keep going even though we are bankrupt".)
Rather it is merely (huh) that "we are now consuming resources at an insanely unsustainable rate but are unrestrained from hesitating to do so by our make-believe economics which blinds us that that insanity". That formulation does not entail any violation of the laws of physics; it merely indicates that intolerable burdens are being dumped on future generations. George Mobius here describes this as "in effect borrowing from the future" but that description has the downside that it doesn't really make sense; you can't borrow from a future that hasn't existed yet!
We are acting like yeast.
Or the ants that found the sack of sugar a la Greenish.
Deleted redundant
Robin,
A couple of points of clarification. First, the monetary system has become uncoupled from the real underlying currency that is the flow of energy. Technically, exergy which is the capacity to do work as defined by economic desires (prices payed for products and services supplied whether or not they are 'useful' in the sense that they increase the future exergy). Monetary values no longer represent the actual work values corresponding to the energy flows and their coupling to our work processes.
The whole financial system is now based on promises that work will be accomplished in the future that will ultimately pay back the debt. And it is measured in denominated currency (i.e. dollars) as opposed to actual energy values (i.e. exergy which would account for work capacity). Worse still, we have bet on the future returns performance of these debts such that there are trillions of dollars worth of bets (recorded as part of GDP) on things that can never happen now that net energy available (exergy) is in decline.
That doesn't mean we are not able to carry on with some work (e.g. heating houses). But what we are doing in borrowing from the future is betting on that future and measuring the dollar denominated value of those bets as if they were real wealth production. Every time a hedge fund records an asset it counts as real GDP. But the hedge fund can never actualize the profit unless the economy is growing, which it clearly cannot if the real work capacity is shrinking.
My phrase shouldn't be interpreted as borrowing energy from the future, but as acting as though there will be energy in the future to do the work needed to pay back the debt. The debt infeasible region means that that will not happen. So our continued reliance on a financial superstructure (stock markets to derivatives) to generate business and profits is an illusion. In my graph it would be as if the net energy available line were independent of either the gross energy (which peaks ala peak oil) and the energy cost (EROI) so that asset accumulation would just keep going up and up. That is the 'growth' that neoclassical (well almost all) economists believe is the norm and the desired state of affairs. But physical reality is now asserting itself on our beliefs. What we will see is the unwinding of all the debt superstructure and an end to financing operations based on debt.
Perhaps this helps.
George
Agreed!
Iaato, you don't seem to have resolved the riddle. You are now proposing (by implication) that "information" can keep the lights burning, that "information" can trump physics/chemistry. Rather it is merely (huh) that "we are now consuming resources at an insanely unsustainable rate but are unrestrained from hesitating to do so by our make-believe economics which blinds us that that insanity". That formulation does not entail any violation of the laws of physics; it merely indicates that intolerable burdens are being dumped on future generations. George Mobius here describes this as "in effect borrowing from the future" but that description has the downside that it doesn't really make sense; you can't borrow from a future that hasn't existed yet!
In no way will information keep the lights burning. High quality information such as the internet will be one of the first things to go. Google, for instance, probably has one of the highest embodied energies of any man-made thing. The flow of money is a counter-current to the flow of energy and work transactions. Money flows in a circle, while energy eventually flows downhill, from high-grade potential to lower-grade potential and heat. Per Odum (Energy Basis, p. 52), the flow of energy turns the cycle of money. While money makes the transaction wheel turn more smoothly, it is the energy that drives the money system. If energy slows or stops, money flows slow or stop. With an unlimited source of energy, additional money speeds spending and energy extraction and growth. But currently with flow-limited energy, increasing money or spending just creates inflation. Throwing more money at the current problem will not help it or fix it or extend BAU in any way.
It is the autocatalytic processes that spin on that create overshoot. And our make-believe economics are one of those autocatalytic processes. Not only do we have feedback loops producing output suited only for a high energy world, but even worse, we're borrowing from a nonexistent future to do so. Lack of regulation and imbalances of power create feedback-free crazy growth in the financial system, but there is no coexistent real growth (at this point) in the biophysical system, because the system can only contract. That's why the biophysical becomes decoupled from currency, and the financial system eventually just quits.
I'd vote for recession will get worse, an oil goes to $40-$60, except that I think the price won't stay on that range, and will soon reach $80-$100 again. So I voted on "Other".
By the way, the recession that I see getting worse is the world's recession, not only US.
Quite, that's exactly why the Great Depression restarted after World War II finished, because the massive public debt overhang left by the war (substantially larger for the US than today) forced a massive retrenchment in government spending and massive increases in target interest rates by the Fed, which led to even more retrenchment of government spending.
Of course, some argue that was not forced upon the government, but that it was a public policy choice. These thinkers argue that if only the US after WWII had pursued a policy of trying to maintain the economy closer to full employment, and allowed GDP to grow out from under the public debt, then in several decades debt would have dropped to a quarter of GDP or less.
But clearly, that is crazy talk - there never are any government policy choices that ever allow a country with public debt at 120%+ of GDP to pursue robust economic growth and "grow itself out from under" that debt.
I voted the same as you Nate, Recession worse and oil in the $40 to $60 range. A deep recession and very high oil prices are like a contridiction in terms. But that is just for the next six months. I would not attempt to guess what will happen in the next two or three years as I expcet the economy to suddenly fall off a cliff sometime in the next few years.
Ron P.
You expect the recession to worsen but the price to stabilise at an unsustainable point? The current and future dollar price is dependent on producers not flocking to a much more stable currency like the euro (which they're already doing) and the recession stopping or at least slowing heavily, something you admit you don't even believe will happen. And then there's the global competition for limited resources...
Recession continues, price jumps, speculation and hedging continue which result in further wild fluctuations.
In the long term the Euro is NOT a more stable currency. None of world currencies are stable - they are all in fiat crisis to varying degrees depending on demographics, available land, energy and non-energy natural resources, import burden, built infrastructure, needed fixed vs marginal consumption etc.
I agree that in any sane environment oil prices would continue upwards but we are in a once in an era situation of extreme wealth disparity, reliance on imports, huge debt overhang etc. So the regular vicissitudes of the market system will cause unintended policy responses. In order to have sustained oil prices above $150 EVER in future (in real terms mind you) we need peace and growth or at least the perception of same, and I just don't see either in the next decade. There are LOTS of possible paths, but the most likely to me is oil stays between $40 and $120 for as long as its publicly tradable (which I would put at less than 5 years).
Imagine if oil was $150 today. What would happen? 'Free' market couldn't handle it - there would be rioting in streets and some sort of policy response would emerge.
In any case, other than reshuffling the PA, talk of prices is counterproductive, other than pointing out how poor price is for a long term signal of what is happening to our system.
All of the world currencies are fiat and thus, by definition and by historical precedent, unsustainable.
So the regular vicissitudes of the market system will cause unintended policy responses. In order to have sustained oil prices above $150 EVER in future (in real terms mind you) we need peace and growth or at least the perception of same, and I just don't see either in the next decade. There are LOTS of possible paths, but the most likely to me is oil stays between $40 and $120 for as long as its publicly tradable (which I would put at less than 5 years).
I would say that high prices are essentially guaranteed. There is a fairly direct inverse correlation between the price of US oil and the value of the dollar, barring speculative aberrancies, since we now have to import 2/3 of our oil. What happens when (not if) the "petro"dollar falls of the cliff compared to other currencies? This is still a capitalist society--we will ration based on price, IMO.
And even though money is a lousy measure of true value, price is one of the only signals we've got currently in the system that creates negative feedback to growth, at this point. You'd better hope it goes up.
I am not convinced that petro dollar falling off cliff relative to other currencies is a 'when' not 'if' proposition. That is a crowded trade right now.
In any case, you better hope that doesn't happen - because in todays day and age, a decimated dollar becomes the new Archduke Ferdinand. I am uncertain about many things, but US powers that be sitting idly on our weaponry in the face of a dollar collapse I am virtually certain is not a possibility.
It's very sad and frustrating - US has most to gain and most leverage and brainpower to shift global course on so many areas - yet we continue to push the chimeric carrot of strong growth in face of multiple resource constraints...Madness..
I think that currencies for countries that can still export oil will win the currency race, and countries that are importing oil, and even worse, are heavily reliant on that oil, will lose in the currency race.
In any case, you better hope that doesn't happen - because in todays day and age, a decimated dollar becomes the new Archduke Ferdinand. I am uncertain about many things, but US powers that be sitting idly on our weaponry in the face of a dollar collapse I am virtually certain is not a possibility.
It's very sad and frustrating - US has most to gain and most leverage and brainpower to shift global course on so many areas - yet we continue to push the chimeric carrot of strong growth in face of multiple resource constraints...Madness..
:-{ Well, there you have it. I don't think we have a choice, and our country will become an angry, hungry, unruly giant.
continue to push the chimeric carrot of strong growth in face of multiple resource constraints
As we've been doing for 40 years now.
Emergy conference in Gainesville in January.
http://www.emergysystems.org/conference6.php
All Roads Lead to Howard Odum...;-)
"A decimated dollar becomes the new Archduke Ferdinand"
The world is literally teeming with potential Archdukes and madmen eager to assinate them.
A hot nasty war is in my estimation almost a certainty-the only way I could see it NOT happening is if by some great stroke of luck and masterful diplomacy the cards fall in such a way that the major powers are able to cooperate and keep the size of the conflicts down.
Arguably(and ironically) the only thing that has so far prevented WWIII is MAD-mutual assured destruction.
Western Europe is in such dire straights in respect to energy and heavy industry that they are not really able to fight a conventional war of any consequence anymore.The Russsians are a riddle wrapped in an enigma but if a Hitler like character were to come to power there I think they have the potential in terms of raw materials to field formidable convential forces within a decade.
The Chinese are on thier way up and if tptb in China decide to hit the war path I can't see anybody stopping them.Japan wouldn't last three months without the US Navy saving thier butts but they could build the machinery and manufacture the munitions needed for a fight.
The US is in such a financial bind that our govermment cannot focus on problems in a systematic and effective way.Once when I was a kid I got a laborer's job and had to bust butt all day while my uncle the mechanic-who got the job for me- sat in an airconditioned truck most of the time.
When I complained about the unfairness and his easy berth versus my hard one he explained the facts of life to me as follows:
"When the boss rides thru and sees me sitting in my truck he knows all is well-every thing is up o date on maintainence, the spares and expendables are on hand,everything is running, nobody is getting paid to do nothing because his machine is busted ,and we're making our production goal.
Now there's two kinds of mechanic in the world-the kind that get's things shipshape and keeps them that way-if he has a problem , he can get right on it while it's a small problem and most likely at the end of the week the company has got a good week in.
Then there's the kind of mechanic that cannot get organized and focused-he is constantly running from one breakdown to the next-putting out fires,we call it.But while he's putting out one fire two more are getting started because the ROUTINE PREVENTIVE work and the "stich in time saves nine work" is not is not getting done."This man did not graduate from high school but in my opinion he knows more about running a business than some people I have met with degrees in business.
Our govt is entirely absorbed in putting out fires-or at least trying to put them out-and the fact that democracy does not mix well with human nature does not help-politicians always go for the easy short term answers because the public has a short term memory and a future discounting appetite for easy answers.
Some old Greek once said that a democracy can exist only until the citizens( corporate too in this day and age) discover they can vote themselves largesse from the public treasury and that it will inevitably collapse soon after that.
We are living in incredibly dangerous times.The systemic risk if war has probably never been higher than it is today,but the typical man on the street has not an inkling-no more than he does of the true state of the ff depletion problem-which is of course the biggest primary driver of the war threat.
It is at least a hopeful sign that tptb here and many of the readers do recognize that the risk of war above and beyond our current little adventures is high.
Once upon a time, I was a genuine optimist. What am I today? (Answer below)
Doesn't anyone remember 1979-1981? Stagflation? The economy will get worse... oil will go up in absolute dollars, but if inflation indexed will be in the $40-$60 range, I.M.O.
I don't think there is any way the phoney money injected into the economy by the Fed could not set off some sort of major inflationary spiral, even with no job gains or wage pressure. Of course, I could be wrong about that, and we could even see a [much worse] deflationary scenario, in which case we are all wrong, and doomed. Not that we are not doomed in any event.
Today I am, not a pessimist, but a realist! Sorry about that.
Things get much worse, and prices go much, much higher.
Money is supposed to represent stores of previous wealth, while debt is representative of promises of future wealth.
I suspect in order to maintain credibility Fed may start to drain funds from system and surprise everyone - of course that will accelerate deflationary move, but increase their long term credibility.
How will the Fed do that if they traded all their money to the banks for bad mortgage paper, and then printed more and traded that too? They've given it away. I'll guarantee that they won't get it back. And we're at the point where we must inflate or the entire financial system goes down. There are too many vested interests in a "crowded policy arena." Inflate or die.
Here's a nice description of decoupling from Martenson.
http://www.vtcommons.org/journal/2008/08/exponential-money-finite-world-...
And an explanation of why we'll get inflation over the next few years, guaranteed. The thermodynamics of energy descent meets failed economic policies of a growth-oriented world.
http://www.buddycom.com/ecol/Brainfood/ergmoney.html
If energy becomes scarcer, even if the supply of money is held constant, then inflation occurs. And if/when we get resource wars, that will amplify the inflation even more.
It's no coincidence that Bretton Woods II and the US peaking of oil occurred at the same time. We've been forced to increasingly operate off of expanding debt instead of assets ever since then.
And here I thought for a moment that I might actually be a pessimist.
Still, I keep wondering how it could be possible that no one in the Obama administration is aware of this. I keep coming up with, "They are aware of it, but don't want people to become alarmed."
Good luck with that.
That may have carried some weight, in Jimmy Carter's day?
Nate, with China and India still growing healthy, and most of the major economies emerging from recession, I'm intrigued that 45% of readers here think the recession will get worse in the next 6 months - including you. I have to assume that Gail is talking about the global economy.
I'd agree there is a good chance of a second event, but maybe the "black swan" will be that all OECD governments (apart from Germany) agree that massive debts and deficits are OK - the US after all has been doing this for decades.
I voted recession ease, $80-100 - in the next 6 months.
€
I did too. If I am not mistaken, most of the stimulus money is not even spent yet and will kick in later this year and in 2010. The horrid employment numbers show that businesses have slimmed down dramatically. Take the American auto industry for example.
Dealerships across the country have very few cars on their lots and a good number of them will be closing. But driving continues and cars get older every day. At some point demand will equal or even exceed supply and a recovery will begin. Same goes for housing.
As for money being decoupled from the real economy, I do not see any recent change. It has always be thus. That is the whole point of money. If we did not have money in one form or another we would have a barter economy with all the inefficiencies.
I doubt we would be better off. "Real" money backed by gold or silver is no better than fiat debt backed money IMO. There were very good and valid reasons that that system was abandoned nearly 100 years ago. The main one being that it limits the money supply to such as extent that most people have no hope of ever escaping poverty under it. With fiat debt based money at least those who have little can attempt to better their situation with bowering and hard work. The down side is inflation of course. But most get use to after a lot of complaining.
As for the problem of defining what is "real" in the economy. Clearly physical things are real. But there is a huge area of the economy that has become ever more dominant that borders on the unreal. Is insurance real or not? Nothing was produced that can be measured scientifically. What about entertainment? What about advertising? Education? The list goes on and on. Many not so real things don't use much energy to produce but over time have become a bigger part of the economy. They can grow even in a post Peak Oil environment.
Life goes on and the economy will recover leading to higher oil prices and another recession somewhere down the road.
I go along with that.
Basically a reconstitution of the economy and our way of life shifting away from materialism toward experiences.
From stuff to thoughts I guess.
The only thing is..........What will all these new jobs be in the states?
The point about demand for new cars exceeding supply misses the point! The problem is that demand for new cars will never recover....because the income isn`t there and will never be there to support that.
The U.S. infrastructure calls for a car, yet people will eventually change that situation in a million different ways.
I suspect that a lot of the other things you mentioned---education, advertising, insurance, entertainment will also change form or shrink so that they don`t require so much energy.
I voted for recession gets worse and oil stays around $60.....isn`t that basically what has been happening all along for a while despite the rise of the DOW? Unemployemnt is still going up. Affording food is (very slowly) getting harder and harder (see Tainter on why). The squeeze is definitely on.....and that is changing the landscape. The changes in the landscape in turn depress demand for oil, keeping the price just out of reach to be cheap enough for "growth" but stable.
30 huge cement stores run by Ito Yo Kaado will be shut down here in Japan in the next year, the company announced yesterday.
Many convenience stores are shutting their doors as people economize and buy it cheaper at the grocery store.
I keep in mind the basic physics of the whole thing (as many TODers do but many people I know do not). To wit: energy flows but matter cycles. We`re in for slower and slower material cycling because of the reduced energy flows. Slower material cycling doesn`t equal higher car sales.
Cars, along with plastic and cement, have been hugely helpful for high speed cycling of matter.
But they`re not so helpful for slow cycling of matter! Yay! Good-bye cars!
I hope to see Toyota shut down in the next dew years----they reported a $5 billion loss for the year yesterday!!! $5 billion is alot of money. How long can they stay in business losing that kind of money?
Pi,
Do you mean by the term "cement store" the business that mixes concrete and delivers in it a big truck to the jobsite where it will be used?
These businesses are called redi mix plants or just concrete plants here in the states.
Euan,
I agree that recession will ease for the reasons you state; however don't understand why oil price would rise in the next 6m. We know OPEC has cut production (therefore actually has some capacity right now), we know strategic stores are high, we know there are stockpiles (tankers sitting offshore) too; and we know OPEC are targeting a price of c. $70. All that to me suggests prices will stick below $80 for a while yet.
Sure when the economy starts to pick up again we'll get back to demand outstripping supply and price will increase, but I don't see that happening in the next 6m. I think probably 12-18m.
Cheers
GreenIan
Thoughts on the possible influence of the current situation in Iran over the next 6 months? Things seem to be coming to a head there, and with so many hands and eyes in the markets these days it would not take much to cause an upset I think.
Possiblities, in the order of probability, I.M.O.: 1) Israel bombs Iran's nuculear facilities, Iran retaliates and U.S. enters the fray. WW III. 2) Israel bombs Iran's nuclear facilities, Iran retaliates and U.S. stays out of it. Oil prices go up dramatically as Iran's production is disturbed or destroyed in the war with Israel. This depends on the rest of the MidEast staying on the sidelines with us. 3) Iran preempts and bombs Israel - WW III. 4) Status quo.
How about 5) the West raises sanctions to a level Iran won't tolerate (i.e. blocking gasoline imports); Iran retaliates by stopping selling oil into the global marketplace; welcome back $147 oil and major recession...
Cheers
GreenIan
I'm guessing that a mild recession will be upon us again in just over a year, hopefully not too severe. I'm hoping the recession will come about gradually instead of abruptly so that adjustment is somewhat easier, and so that people are more gently awakened to the seriousness of the problem.
For now, I hope the production plateau will hold out until about 2012, though this may be a tall order from the oil producers. Would anyone else like to venture a guess on when the plateau ends and irreversible decline begins?
2008?
I suppose that's the most probable date. Then again, demand slumped considerably in 2008, thus reducing prices and shrinking supply. It's ridiculous what a low price oil is at now. It must be at least triple. If demand is relatively low for the next year or two, perhaps the plateau will last a bit longer.
Almost certainly 2008 is my guess for start of relentless decline.
I haven't answered the post questions though, because I reckon the price depends on the economy and the economy depends too much on what whims the governments choose to try next.
I would say though that I expect at least one more major price spike in coming years, and quite possibly the next major spike will knock the whole corporate system down for dead.
There's clearly an issue of delayed negative feedback loop of price->investment->production->price-reduction. It would be interesting to have the estimates of tod's industry insiders of the time-scale(s) of such causalities.
May, 2005
After that, Production did not EFFECTIVELY keep up with the CPI, Population increase or Demand.
Which economy are we talking about here, US or world? The world is already coming out of recession and sitting here in Europe the recession here definitely seems to be ending.
The oil price of course is (nearly) always a world price. The question I would have is how influential is American demand on the oil price? In the past it has been the over-riding factor, but maybe now that's not so much the case.
At what point do we officially declare a full fledged depression? I think the unofficial unemployment numbers tell me we are already there. I think the price will hold steady at least for the next 6 months if the cat of reality doesn't escape from the bag.
Ironically I just got an email from some organization asking me to join in a demonstration this afternoon in front of our state senator's office because the unemployment numbers had hit 9.8% and this was a major crisis and we have to do something about it. Hahaha!
Depression would mean a 10% drop in GDP. GDP is negative, but no where near -10%. Although real unemployment is getting close to depression era levels.
Yeah but so much of GDP is just money shuffling. GDP is a crappy metric.
Agreed. Government spending it's newly printed money should NOT be included in GDP numers. Unfortunately it is.
More importantly, DEBT is not backed out of GDP, which means that future GDP very well could be negative 10% and much more. If my neighbor borrows $25,000 against his house as collateral and spends it on a an African safari for his family, GDP has gone up by $25k. Sure there is some ripple effect in the Zambian economy but basically our future assets are less by $25k and this years GDP went up by $25k. Without debt GDP is overstated by 100% or more (meaning 50-60% drop). The question is when.
When George's Net energy curve crosses his asset(emergy) curve.
Nate,
Your example illustrates your fuzzy thinking about GDP. That $25,000 didn't all dissipate, it all ended up in someones pocket, the travel agent, airline employee's, etc. Some of these people or companies will pay back existing loans so some of the $25,000 new debt will be canceled by old debt retiring, the rest will continue to circulate.
While we have a surplus of unemployed, excess capacity and resources new debt will increase GDP. If full employment,or a resource shortage, new debt will increase the price of goods and services so we will have inflation and very little real GDP rise.
Almost everyone who voted seems to have forgotten that unemployment continues to rise and employment declines after the end of recessions.In the first year after a recession, total employment will eventually start to rise and finally perhaps 1-2 years later unemployment will actually begin to fall.
I don't disagree with what you wrote other than it's missing the point. GDP is a measure of flow rate of goods and services, not assets. If you quantify our assets less our liabilities, as a nation, we are insolvent. Yes we have lots of untapped energy and human assets for the future but are they enough to pay for a continual flow of current goods and services plus the growth needed to service the debt? Not even close in my opinion. It would be more helpful if EIA projected net vs gross, and Government illustrated the entire balance sheet instead of just what was spent, etc.
How about revenues on Wall Street?. Talk about bullsh@T!!!
How can that be counted as "Product".
My guess is that the economy will worsen (in the U.S.) and the oil price will stay stubbornly above $60/brl. due to continued global demand (especially in China and India with all the new cars they're selling). Also the oil price will continue to be supported by investor uneasiness about equities and continued flight from cash (the dollar). The same dynamics will continue to support the gold price.
Just as I see it. China and India are still growing, and even if they drop down to 2% growth, it's still growth.
I put over $100 partly because of impending dollar deflation relative to Euro.
http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-usd.en....
Not sure if the poll meant adjusted for that or not.
There are some adverse developments, like the unsustainability of China's current quasi-boom, and the deflation-debt trap of the Mediterranean and East-Central Europe, that will preclude a rapid global recovery. There might even be a second wave of the credit crisis.
IMO, there'll be a recovery in 2010-11, and another crash in 2011-13.
I agree, in my neighborhood the 'shovel ready project' is starting to show up on post and base (I am guessing the DOD put a chunk of change into construction that was not a part of the stimulus per se). Less than a year from conception to construction is light speed for government projects. There enough money in the pipeline to to make the economy look like it is recovering for a while, but what are we producing with this money that we can sell to someone else thus allowing us to pay down our debt? Not much that I can see, so debt drags us back just when it looks like 'happy days are here again.'
of course like many here I am not much inclined to check boxes in a survey
Too many economists making remarks here, so the outcome will be 'other'. The future is unpredictable; there are variables and 'wildcards'.
Wildcard 1: An attack on Iran by the US and Israel. The pounding of the war drums gets louder.
Here's Haaretz, the 'quasi- official' mouthpiece of the Israeli government:
The key player here is Saudi Arabia, which would have to make up shortfalls in production caused by the 'official' embargo on Iranian crude by the Amedinajhad government. A Saudi blessing and the planes will fly, and that includes US planes that would provide needed 'assistance' (and Iraqi airspace). The Iranians would smuggle crude over the border to Iraq to maintain cash flow, but overall production would probably decline. Smuggling by truck and then offloading to tankers is less efficient than simply loading tankers in the Gulf. The Iraqis would also claim a percentage as a 'transit fee'. Additionally, there would likely be Iranian attacks on US targets in the Persian gulf area (as Israel is a US proxy) and probably more militant operations in Iraq and Afghanistan. The consequence would be a 'risk premium' added to the current $70 a barrel. Saudia would be expected to make up any difference in overall production.
An outcome here is hard to predict; there would be 'flight to the dollar' which would put pressure on crude prices working against the risk effect plus the strain on Saudi spare capacity. I think the traders are all over this and would make petroleum very rich indeed! They would collect some more expensive dollars in the process. In the event of an attack, I'd look for $100 - 150 oil in a very short time.
Wildcard 2: as equities traders start to unwind long positions in stocks, they will be looking for places to park some of that cash for quick and easy profits. It's not just equities traders; all sorts of derivatives traders will be looking for hedging opportunities. The hedge funds' derivatives debacle led to a flood of cash into oil and the price mid- summer reflected that. Will this happen again? It's hard to predict because most professional traders cross market boundaries; Treasuries and FOREX, swaps and synthetics, gold and stock option- writing. Traders this time are looking to short but not get caught in a squeeze. Oil is a hedge for something and if that something is big enough, a lot of cash will push up crude prices and fast.
Wildcard 3: The 'Black Hole Sun' the Fed. If things start looking crappy, look for the Fed to switch debt creation into overdrive. Most of the debt created so far has remained in high finance, with some leaking overseas and the rest into securities such as oil and oil futures. More liquidity would follow the same pathways and put upward pressure on crude. If equities traders close stock positions and dump the cash into oil along with added Fed liquidity, the outcome would be another 'superspike'. A rise above $78 (a resistance level that the oil market has tested twice during the past several months) and the trend would become self- reinforcing. 'Investors' would pile into the market simply because it is going up! Pouring liquidity into what is a relatively small market (compared to Treasuries, for instance) means there is no upper limit to dollar price.
This would amount to a defacto devaluation of the dollar; Bernanke would like this so don't take this wildcard off the table. When the conniving bastards in Washington get an idea that amplifies the 'idea du jour' (devaluation will kill off the value of the accumulated debt) at the expense of ordinary citizens, there is a good chance the CB's will get their way.
All in all the forces pulling prices are aligned for a higher price; the long term trend is of course much higher. Short term depends to a large degree on the wildcards.
"The key player here is Saudi Arabia, which would have to make up shortfalls in production caused by the 'official' embargo on Iranian crude by the Amedinajhad government. A Saudi blessing and the planes will fly, and that includes US planes that would provide needed 'assistance' (and Iraqi airspace)." Posted by Steve From Virginia
An attack on Iran would likely be seen by everyone in the Middle East as an attack on the Islamic world by virtually everyone in the Middle East, whether they are Kings or commoners. The public outrage would be overwhelming and everyone would become even more radicalized. In addition, this would put the Saudi oil facilities along the Gulf at high risk of being taken out by Iran, especially if Saudi Arabia were seen as being complicit in the attack.
So I think a good question would be: What happens when the Saudis tell us they don't want an attack, but we do it anyway? There is a US/Israeli attack, and instead of trying to make up the shortfall in lost Iranian oil, King Abdullah declares this an overall attack on Islam and declared Arab Oil Embargo II, and tells the US that if they want Middle Eastern oil, "you will have to invade and occupy ALL of us." If we attacked Riyadh, killed the King and the immediate members of the royal family, and toppled the Saudi government, they would go down as martyrs and heroes throughout the Islamic world. With several thousand Saudi princes floating around, it would be impossible to kill them all so there would be plenty of these willing to set up an government-in-exile, and/or lead a resistance.
On the other hand, if the Saudis did "give their blessings" to an attack on Iran, their name really would become mud throughout the Islamic world, and their ultimate downfall likely insured. Don't forget that the House of Saud has been a major player in the affairs on the Arabian Peninsula for over a thousand years; the modern "Saudi Arabia" was only created in 1933, but the Saudis have been Shayks or Amirs or whatever since time immemorial.
Anyway, if I were in King Abdullah's shoes, this is how I would look at it. Better to risk myself (I'm 82 anyway) and my immediate family members going out in a blaze of glory with plenty of other members of the House of Saud to make a comeback at some point in the decades ahead.
So, two questions: 1, What is the likelihood of a US/Israeli attack on Iran if the Saudis tell us "No?" and 2, If we attack in spite of Saudi opposition, and the House of Saud does as I have suggested above, what is the likelihood of our being delusional enough that we will try to occupy the Gulf oil states?
Antoinetta III
The US won't attack Iran but Israel probably will on it's own. US action will be to defend the oil states against an Iranian counter attack. Iran would be powerless against the US Navy. The Saudis will be on Israel's side even if they don't say so publicy. Wahhabis have been trying to topple the House of Saud for many years. If that were possible, it would have happened already.
See, it gets interesting fast. Anything can happen and probably will.
I don't think Israel would gain any more opprobrium from attacking Iran that they have already from their recent attacks on Syria, Lebanon, Gaza and the West Bank. Neither the Saudis nor the Egyptians complained about these attacks. The 'have/have not axis' runs from the oil states as haves to the Yemen/Pakistan as not haves. There are further odd arrangement over long- standing clan and doctrinal lines. Iran is Shia and the oil states are Sunni. The latter consider the former to be infidels and vice- versa.
As for the oil calculus, the producers know any attack will be a force to drive up price; the Iraq war added a percentage to prices since 2003. The producers like the idea of rising price. The don't like the idea of declining shipments or tanker wars. Closing the Persian Gulf would be a disaster for the US ... and for Kuwait, Saudia, the UAE, Iraq as well as Iran. Any military action in the Gulf region would have to be carefully done; whether the various players are capable or feel themselves capable is a massive risk.
Israel is also nearly 90% dependent on imported oil, so they are measuring risks as well. Attacking Syria or Gaza does not threaten their fuel supply as attacking Iran would.
While I think oil is Iran's primary deterrent/cudgel they have more assets than they had during the 1980's war with Iraq. Both China and Russia have been supplying Iran with hardware. The Iranian militaries are better trained and orgainized. What the Iranians could do might be surprising. In 2002, the US conducted a large exercise named 'Millenium Challenge' using Defanse Department resources already in the Gulf and a simulation program:
There is no reason why the Iranians could not attack the Americans the same way. After all, the USS Cole was disabled by one small boat.
destroying sixteen warships
CTRL, ALT, refloat, dead reborn, win the - war shame it won't be so easy in real life.
Steve,
I agree there are many variables, which may come to play!
That said and given the 6 month timeline, I am opting for the Recession to worsen and for an effective $40-$60 range, adjusted to US$ movements.
But this is strictly a 6 month play. After that, there are many other factors, which will change the likely outcomes.
Regarding the vote, I once saw an interesting and somewhat disturbing training exercise that's worth mentioning. The setting was a meeting of about one hundred employees of a consulting company, many, if not most were college graduates and more than a few had post graduate degrees.
The exercise involved adding and subtracting about ten numbers in your head. None of them were more than two digits; very simple stuff. After the exercise was complete the answers were tabulated and arranged in descending order from the most frequently picked answer to the least.
When the group was asked which answer was correct, everyone agreed it was probably the one that most people selected. But it wasn't. Nor was it the second, or third. Only one person in the room got the right answer.
There was nothing tricky going on here, it was all straight forward. It just goes to show that most everyone can be wrong. Had the person who calculated the correct answer been sick that day, everyone would have been wrong.
I suspect that most every one who voted has some logical, data driven and persuasive explanation for their choice. However, I also suspect that the outcome will be anything but logical or reasonable; Taleb's Black Swan comes to mind. None of this is very reassuring.
Wow! I guessed the same as Nate!
Not a good sign. Means we're probably wrong...;-)
Not that hard-working TOD tech-guru SuperGoose needs anymore code-writing work, but it would be interesting to collate all past TOD-polls to see which TODer had the best prediction record. Any TODer that voted twice or more on a poll would have those results negated/removed.
Might be good to add some hamsters or pigeons as well. Not only would their absolute performance vs. humans be interesting, but some individual critters will be shown to be incredibly prescient.
I voted "Neither better nor worse, oil above $80". I dont think TS will HTF just yet, but I doubt that the markets will get much better. The oil price will probably stay put, in a slight upward trend.
Personally I know very well what lies ahead in the next 6 months: I'm going to graduate and will try to get a job. It will be interesting so see if anyone is still hiring.
At least I'll have a MScEE with great grades from a premier engineering school, but right now it doesnt seem that you can count on anything anymore.
Something that worries me is that it will be hard to live centrally enough so that I can commute by bike to work (I dont want to ever own a car for environmental reasons) while still working at being as self sufficient as possible regarding food.
I dont know how my generation (mid-80s) will ever afford to buy an actual house, as it looks now I will have to rent a cheap apartment for a couple of decades before I could actually buy something. My net worth is a lot less than zero because of my student loans.
I worked in the US last summer after studying in MA on exchange one year, and my former employer might be interested in rehiring me. What are your thoughts on leaving a sparsely populated nuke+hydro-powered Sweden for Massachusetts?
At least the engineering wages are a lot higher there, at least for a single white male. So it might be rewarding in the short run, but I would need a H1B, dont know how long those will be around for.
edit: I just realized that my post probably was way off topic for a non-Drumbeat thread. I'm really sorry about that. Feel free to delete the post if it is inappropriate.
Well, I know quite a few engineers looking for jobs here, some for a year or two. I think there's plenty of work for those who try hard to find it, and of course, we need a lot of farmers ;-)
Seriously, some think Mass is in better shape than many parts of the country, and it's a nice place to live.
"I dont know how my generation (mid-80s) will ever afford to buy an actual house"
Ask yourself why you really want to buy a house, are you still thinking it is a way of making money?
From memory Sweden has an area roughly twice the size of the UK and a population one sixth so there should be enough land. Quality of living surveys usually have Sweden pretty high up.
I voted continued recession with oil dropping to 40-60.
I think what we are seeing is a shift of manufacturing from OECD to developing countries. However, developing country wages are not nearly enough for factory workers there to purchase cars. So we see a slight rise in demand from developing countries, but not enough to match the drop in demand from OECD. So overall demand goes lower, and price goes lower. More fuel efficient cars and EVs on the market are also putting downward pressure on oil demand.
Hello TODers,
Nothing new and shocking to us here on TOD, but still not good news for the huddled masses as the importance of this gradually sinks in [and will continue to get worse if we are indeed postPeak]:
http://www.bloomberg.com/apps/news?pid=20601109&sid=ajY2EJWqg3ZE
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Oct. 2 (Bloomberg) -- For the first time, the average amount of time it takes fired employees to find a new job exceeds the length of their standard unemployment benefits.
The CHART OF THE DAY shows the average duration of unemployment is now 26.2 weeks, longer than the 26 weeks of state benefits normally provided to workers who lose their jobs. It’s the first time that has occurred since the Bureau of Labor Statistics began keeping records in 1948...
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You can almost smell the rage building in the street. Meanwhile, all the banksters can smell is 'Parfume de Greenback' flooding into their personal accounts.
Interesting. The early vote showed more in the 'Limp along, prices over $80.' Now it is more 'economy gets worse, prices over $60.'
I surmise later voters read first, then voted. Or maybe some voted twice, after thinking it over?
It was a tough call given the 6 month window, but I think the recession will deepen and the oil producers will begin to panic because they will not be confident there will be enough investments in new productivity. Therefore they will go for setting a bottom line of what they will be willing to sell oil for because they will know that there will be shortages in the near future and prices will go up. They're not hurting for money so they can wait it out.
I voted recession will get worse, oil below $40 in the next six months, ie fall & winter months. Shortly after that, sounds like Iran will be attacked [despite the fact that it actually has been in compliance with international law] and then oil prices will go up in the spring.
The recession will be a Great Depression by then. So ironically not up by much due to massive demand destruction.
i voted oil below $40, i think it's going below $32, which was the last low, i am hearing from a podcast that oil will go below the low of $32, (not sure how much lower). Then it rebounds past $75. up to who knows where. its that elliot wave stuff.
don't know anything on nat gas, but would sure like to find out the elliot waves on natgas.it had about an 80% drop from its high of $13 mmcf, but natgas behaves different than oil. but i am curious about it. it's all about cycles. i am only learning this stuff, i am at grasshopper level on it too.
I voted that the recession will worsen, but oil prices will stay above $60. Barring any Black Swans, I think if prices start to go much below the $60 mark, the Saudis will just start tightening the taps. I think the producers like $70 oil, which seems to be close to as high as it can get without directly causing a quick economic implosion.
Antoinetta III
Antoinetta, I agree on price range, but have the impression that the already reduced excess capacity will continue to decline and the China/India demand will continue to boom. If you have a Tata getting 35+mpg and don't have much of anywhere to go anyway, a few dollars increase in the price of fuel will not make much difference. It is only here in America that the pinch and low mileage vehicles coupled with common long commutes that we will see screams of agony. As China/India build their economic base, it will be sort of like the recession in the oil patch -What recession, prices are back up.
Of course, the declining Russian production that is the wild card. Should they be able to continue increasing at the early 2008 rate, it will put pressure on the Saudi's to fight back - well, pressure on OPEC to fight back I guess, which is essentially only the Saudi's with meaningful spare capacity. Everyone else seems content to produce at full capacity. One of these days, when demand outstrips supply (theoretically, at least) the Saudi's will have the last laugh.
Recession will ease; oil price will reach $80 to $100
I'm thinking that there is slack in productive capacity and possible untested optimisations due to overcompensation tendencies in the market... but the easing will not be sustainable and will precipitate a economic "brown out" late next year (or so) because the debt of all types can not be addressed at rates compelling enough to place us in a new long term growth boom... that would require more energy
basically I'm with the getting worse crowd except i think there is room for false dawns as the last twists of the rag is made before the market accepts we ain't going nowhere but down the ski slope.
My votes for recession will get worse and Oil price will fall waaaay below 40.
It's inevitable in a deflationary spiral.
A Trillion of stimulus here and a Trillion of stimulus there, and pretty soon we might have inflation.
Inflate or die. Our biophysical system discovers its limits and starts to fall back to earth, while our monetary system "slips its surly bonds" and arises to the heavens.
http://www.americanbankingnews.com/2009/10/01/the-fdic-is-out-of-money-n...
I voted 'limp along, Oil under $80' (inflation/deflation ajusted).
After six months, though, all bets are off, given that Feb-March will be about the time businesses start going to the wall in big numbers, as the disaster that was the 2009 Christmas Shopping Season hits home (can't go shopping if you don't have a job).
As it happens, the number of Canadian banks which has gone bankrupt in this "global economic meltdown" is zero. The number which are expected to bankrupt in the next six months is zero. The number which have gone bankrupt in the last 20 years is zero.
It's all about strict regulation, making sure your banks are conservative, and preventing them from becoming overextended with risky loans.
So, for Canadian banks, the recession is already over. All the major banks are posting solid profits, and three of them set new record profits in the last quarter. Four of the 10 biggest banks in North America are now Canadian, and it's not because the Canadian banks have grown, it's because the American banks have fallen down and can't get up.