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Drumbeat: May 22, 2010
Posted by Leanan on May 22, 2010 - 10:27am
Natural Regression is a short independent documentary that focuses on the energy crisis and how much impact it has on the economy. With interviews from Colin Campbell and Chris Skrebowski, this gives us an insight on the nature of the financial crisis. The financial consequences are so overwhelming that this subject should be at the heart of political debate everywhere.
What Insiders Don’t Want You to Know About “Peak Oil”
The heavyweights who met in Mexico know that "peak oil" is totally misunderstood--that investors who focus on how much crude oil is left are missing the point.You see, serious observers know that "peak oil" has never meant the depletion of reserves. Instead, it means the peak of production-the industry's ability to get it out of the ground and to market.
Fact is, the oil insiders at the Cancun meetings quietly came to one unavoidable conclusion that could turn the global economy upside down.
A report commissioned by the IEF and delivered at the meeting by PFC Energy, a prestigious global consulting firm, has finally bubbled to the surface and sums it up best:
"This is not a world of "peak oil" where global hydrocarbon potential is exhausted, but rather of peak production, where the petroleum industry's ability to continue to increase-or even maintain-production of conventional oil (and eventually gas) is constrained. Exploitation of unconventional oil will provide additional liquids, but in all probability only at increasingly higher costs."
In other words, the days of cheap oil are over.
The B.S. Factor In Post-Industrial Society
I was having a rather intense but friendly argument with somebody one day, and I metaphorically said, “Two plus two equals four.” My opponent replied, “No, well, okay, but it depends on how big the twos are.” At that point we became so engrossed in the irrationality and humor of his comment that the main topic of our debate is lost to history. What I think of as the b.s. factor is the illusive something when I say, with several pages of proof, that something is the case, and my opponent comes up with something that is beyond the average use of hair-splitting, non-sequitur, or general hot air. The term “b.s.,” of course, refers to “blood out of a stone.”One of my favorite examples is the bromide that if, when fossil fuels are gone, there will be no means of running the Earth’s one billion automobiles, then all we have to do is switch to bicycles. Fossil fuels not only provide the fuel for automobiles, they also provide the entire system of manufacture. When fossil fuels are gone, we are basically back in the Stone Age, as Richard Duncan and others have explained.
Dark Mountain: Issue 1 is a book-length collection of new writing that goes deep into the roots of our culture, addressing the questions raised by the Dark Mountain manifesto: what do we do after we stop pretending that our way of living can be made “sustainable”? And where do we find new stories with which to ground ourselves, as that way of living passes?The book brings together a remarkable combination of thinkers, writers and artists whose work engages with these questions. Their essays, stories, poems and images are woven into a conversation which draws on a range of cultural and intellectual traditions.
Contributors include John Michael Greer, Jay Griffiths, Ran Prieur, Alastair McIntosh, Maria Stadtmueller, Simon Fairlie, Rupert Cathles, Chris Pak and Jeff Ollerton.
America's Auto Asphyxiation: We Put the Loco in Locomotion
It's shocking to see the once-glorious Michigan Central Station looking like some kind of Roman ruin, decayed and abandoned. But it's equally eerie to see large swaths of open land in the middle of downtown Detroit where houses once stood. Wide boulevards evoke phantom drivers who abandoned Detroit as its fossil fueled fortunes declined.But where some see only decay, Woolf envisages renewal. Like his fellow filmmakers Mascha and Manfred Poppenkso, whose documentary Grown In Detroit focuses on a high school program that teaches pregnant teens how to farm on a former playground, Woolf has faith in Detroit's ability to rise from the ashes of the auto industry's flame-out and reinvent itself.
Pemex Output Fell in April at Slowest Pace Since 2007
(Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, said production in April declined at the slowest pace since 2007 after the company boosted investments and stabilized waning output at its biggest fields.Oil production fell 1.9 percent to 2.593 million barrels a day last month, down from 2.642 million barrels in the year- earlier period, the Mexico City-based state oil company said today in a statement on its website. The drop was the smallest since December 2007.
Mexico Pemex April Crude Exports 1.437M B/D, 17-Month High
MEXICO CITY (Dow Jones)--Mexico's state-owned oil company Petroleos Mexicanos, or Pemex, said Friday its crude exports averaged 1.437 million barrels per day in April, the highest in 17 months.Crude exports, most of which go to the U.S., were 1.325 million barrels per day in March, and 1.177 million in April 2009.
Oil sector investments help stability: producers
Massive investments planned by Saudi Arabia and other Arab hydrocarbon producers to expand their production capacity will ensure the world's oil needs and support market stability, their main oil group has said.
BP Chief Warns New Effort to Cap Leak Isn't Guaranteed
LONDON—BP PLC's chief executive told staff he was frustrated by the company's failure to stop an oil leak in the U.S. Gulf of Mexico and warned an attempt to do so starting next week could fail.
Engineering a solution to the oil spill
Reporting from Houston -- More than a week into their quest to stop the oil pouring into the Gulf of Mexico from a damaged BP well, several dozen of the brightest minds in the engineering world gathered to watch a 100-ton failure unfold in slow motion.
India: In the face of fuel shortage bicycle regains lost charm
Imphal: Bicycles which have been replaced by costlier, faster and more convenient but fuel consuming vehicles over the last decade have regained its lost popularity and reliability, thanks to the prolonged blockade which has resulted in acute shortage of fuel in the State.Bicycles which were lying as useless scraps just about a month back in the backyards of almost every households were seen brought to cycle workshops with their owners giving special attention to repair them.
This was unthinkable a fortnight ago.
CFTC Set to Limit Oil Speculation With Senate Backing
(Bloomberg) -- The top U.S. commodity regulator is poised to impose new rules on oil speculators as Congress and the European Commission attempt to rein in trading in the $615 trillion over-the-counter derivatives market.A bill by Senate Democrats to overhaul financial regulation would require the Commodity Futures Trading Commission to set limits on the number of contracts a single trader can hold in commodities such as crude oil, natural gas, heating oil and gasoline, including the bilateral contracts known as swaps that are negotiated outside of regulated exchanges.
Pump prices continue to fall as oil drops again
The three-week slide in crude prices is paying off for the nation's drivers, as pump prices continue to fall ahead of the summer driving season.Nervous investors have been backing away from oil over concerns about the European debt crisis and worries that the global economic recovery will stall and weak demand won't drain off excess supplies of crude and gasoline. Oil prices fell again on Friday, with Benchmark crude losing 76 cents to settle at $70.04 on the New York Mercantile Exchange.
Average national retail gasoline prices are now a dime per gallon below the 18-month high reached earlier this month. They could fall another 10 cents or more by the Memorial Day weekend, according to Tom Kloza of the Oil Price Information Service.
Record U.S. Fuel Supply Cools Refining Margins
(Bloomberg) -- U.S. petroleum inventories climbed to the highest level in at least 20 years for the middle of May, driving down the profit margin from refining crude into gasoline and heating oil from a 15-month high.Supplies of oil and all petroleum-based fuels jumped to 1.81 billion barrels in the week ended May 14, the highest stockpiles on a seasonal basis in Energy Department data through 1990. The margin, or crack spread, to process oil into gasoline and heating oil has tumbled 33 percent since last week, the biggest drop since the week ended Aug. 21.
The supply glut will weigh on prices, even with an Energy Department forecast for the first increase in domestic consumption in four years amid signs of an economic rebound. Refinery utilization dropped to 87.9 percent last week, the lowest level in a month.
Commodities Have Peaked, Commerzbank Says
(Bloomberg) -- Commodities probably have peaked and have limited scope to rebound, according to technical analysis by Commerzbank AG.
Jeff Rubin on triple-digit oil
Author and economist believes oil demand in North America has peaked.
Petrobras Proposes $80 Billion Stock Issuance Limit
(Bloomberg) -- Petroleo Brasileiro SA, Brazil’s state-controlled oil company, said its board will seek shareholder authorization to issue as much as 150 billion reais ($80 billion) worth of new shares, paving the way for an offering to help fund investments.
Total Is Studying Offers for Lindsey Oil Refinery in U.K.
(Bloomberg) -- Total SA, Europe’s oil refiner, is examining a number of “interesting” offers for its Lindsey plant in northeast England, a process that could take months.“We have a number of offers,” Michel Benezit, Total’s head of refining, said in an interview today following the company’s shareholder meeting in Paris. “There won’t be an announcement before the summer.”
ONGC Restarts Rig in Bay of Bengal After Cyclone Laila Weakens
(Bloomberg) -- Oil & Natural Gas Corp., India’s biggest energy explorer, resumed operating one deepwater rig in the Bay of Bengal as cyclone Laila weakened after lashing the southeastern coast and snapping an anchor of a drilling ship.
Obama wants drilling safety assurances, names panel
VENICE, Louisiana (Reuters) – President Barack Obama said on Saturday that future offshore drilling would require assurances that another massive oil spill would not happen again, as energy giant BP Plc scrambled to contain a seabed well leak billowing crude into the Gulf of Mexico.Obama unveiled a commission to investigate the accident and vowed to keep pressure on firms involved in the still-uncapped spill -- BP, Halliburton and Transocean Ltd -- and added he would hold Washington accountable for mending its ways.
Anger, skepticism and accusations of lying washed over energy giant BP yesterday as it desperately pursued efforts to contain a month-old seabed well leak billowing crude oil into the Gulf of Mexico.U.S. lawmakers and scientists have accused BP of trying to conceal what many believe is already the worst U.S. oil spill, eclipsing the 1989 Exxon Valdez accident in Alaska. It represents a potentially environmental and economic catastrophe for the U.S. Gulf Coast.
Deepwater Disaster Doesn’t Change Need for Deepwater Drilling
Gary Gibson: OK, Byron, can you start off by telling Whiskey readers a little about why we’re searching for deep sea oil in the first place? I mean, we know about peak oil already. But… is it really THAT bad that we’re having to search for oil buried beneath 12,000 feet of water? And after the water, another 10,000 feet of dense rock? That’s a lot of risk to take. Seems to be proof for the end of cheap oil theory, right?Byron King: Exactly. The days of drilling a hole just beneath the soil in Texas, inserting a pipe and watching oil gush out are gone. We’re never going getting back to those days.
Public beach in Louisiana closed as oil washes up
GRAND ISLE, Louisiana (AP) — Officials closed the public beach here Friday as thick gobs of oil resembling melted chocolate washed up, a very visible reminder of the blown-out well that has been spewing crude into the Gulf of Mexico for a month.
Craving a Better Seat on the Seabed
BP finally agrees to provide a live feed of the spill at its Web site, but a congressman wants more.
A month after Gulf oil spill, why is BP still in charge?
WASHINGTON (AP) — Days after the Gulf Coast oil spill, the Obama administration pledged to keep its "boot on the throat" of BP to make sure the company did all it could to cap the gushing leak and clean up the spill.But a month after the April 20 explosion, anger is growing about why BP PLC is still in charge of the response.
ON Thursday, BP was finally forced to acknowledge that far more oil is escaping from its damaged well into the Gulf of Mexico than the oft-repeated estimate of 5,000 barrels per day. Nonetheless, the company still insists that an accurate measurement of the spill rate is neither necessary, as it would do nothing to alter their response efforts, nor is it possible with existing science.It is our view that accurate, continuously updated measurements are not only possible, but absolutely essential if we are to respond effectively to this and future disasters. That is why we are conducting satellite image analysis and image-based fluid-flow analysis to provide an independent assessment of the oil spill.
ANALYSIS - Oil spill's political consequences rise for Obama
WASHINGTON (Reuters) - President Barack Obama has prevented the BP oil spill from becoming his own Katrina-like nightmare so far, but the political and policy consequences of the disaster are likely to increase as the oil spreads.By repeatedly assigning blame to energy giant BP Plc and focusing ire on the government agency responsible for regulating offshore drilling, Obama has deflected criticism that his administration was sluggish in its initial response to the Gulf of Mexico spill.
That may not last. A month since the Deepwater Horizon rig exploded and sank, killing 11 people and leaving a ruptured well that has been leaking crude ever since, the feared environmental catastrophe is becoming more and more real.
Obama Sketches Energy Plan in Oil
WASHINGTON — There is very little upside for the Obama administration in the ecological and economic disaster unfolding in the Gulf of Mexico. The government has come under sharp criticism for underestimating the size of the discharge and for coddling the oil industry for too long.Until now, perhaps distracted by the critics or because it did not appear that his overall energy agenda was moving forward, President Obama has not made use of the disaster in an overtly political way.
But on Friday — a full month after the explosion on the Deepwater Horizon — he made clear that he also was not going to let the moment go to waste, announcing plans to impose stricter fuel-efficiency and emissions standards on cars and, for the first time, on medium- and heavy-duty trucks.
Shell's former CEO explains why we hate oil companies
Why do we hate oil companies?The short answer is because the government has taught us to. Government's failure over many decades to make the difficult decisions and choices with respect to our energy future means they look for a scapegoat when things go wrong. The primary scapegoats they choose are the oil companies, whether about prices, environmental issues or supply issues; it's always the oil companies' fault.
Are the oil companies blameless?
The oil companies have earned the disfavor of government by A) choosing sides, preferring a particular party in general and B) maintaining a wall of silence, which ultimately comes back to hurt them.
State Farm files California pay-as-you drive request
State Farm Mutual Automobile Insurance Co., the nation's largest car insurer, is the first to apply to the California regulator to offer pay-as-you-drive coverage in which motorists get discounts for travelling less.
Four-cylinder engines snag nearly half of new car buyers
Powered by a growing number of small cars, and buyers' concerns over fuel economy, four-cylinder engines were in 49%of new cars and light-duty trucks purchased in the U.S. in April, according to J.D. Power and Associates' Power Information Network.The first quarter, four-cylinders were in 46.5% of new vehicles, Power says. That's up from 41.9% in the first quarter a year earlier, when the economy was worse, but gasoline was much cheaper -- averaging about $2.31 a gallon vs. $2.86 now, according to AAA's daily nationwide average calculations.
Energy Minister Blair Lekstrom acknowledges peak oil and downplays offshore drilling
NDP energy critic John Horgan asked Lekstrom if the Oil and Gas Commission had done any work in connection with peak oil.Peak oil is the point when global oil production will start going down because of diminishing global supplies.
Lekstrom replied that staff are following the peak oil debate.
"There are people that think we have plateaued or peaked, and there are others that don't," he said, according to Hansard. "So it's an ongoing debate, and our staff do follow that."
Using nature's bounty to feed the hungry
West Milford, New Jersey (CNN) -- For Gary Oppenheimer, 2007 was a year of plenty.His backyard garden produced a bountiful harvest with a surplus of spaghetti squash, melons, pumpkins, tomatoes, peppers and cucumbers for his family. At the end of the season, Oppenheimer had 40 pounds of excess fresh produce -- and nowhere to take it.
"Nobody wanted more," he said. "My wife wouldn't let me bring any more in the house, and I didn't want it wasted."
So Oppenheimer took the produce to a local food pantry at a battered-women's shelter. When he dropped off the food, he was struck by the response he got from the shelter worker.
"[She] thanked me profusely, and as I left she said, 'Now we can have something fresh to eat,' " Oppenheimer recalled. "That stuck with me because I remember walking away thinking, 'What? They have canned stuff only all the time?' "
Disputed Deal Puts Yellowstone Bison on Ted Turner’s Range
BOZEMAN, Mont. — When dozens of wild American bison wandered out of Yellowstone National Park in search of greener grass and wound up five years later sheltered on a giant ranch owned by Ted Turner, media mogul and bison meat kingpin, the species reached what many believe could be a turning point.Mr. Turner, under an unusual custodial contract with the state of Montana, offered to shepherd the animals for the next five years as part of an experimental program. It will grant him a sizable portion of their offspring in exchange, much to the chagrin of environmentalists who sued the state, saying the bison belong to the public. Mr. Turner is not restrained from using the bison for commercial breeding or sale.
Sustainability Faceoff: Microsoft vs. Apple
It's tough to pick a winner for this faceoff, mostly because Apple does seem to be making major strides--it just won't set specific goals. But until it does, Microsoft will remain the victor.
Russia to help Bangladesh set up nuclear power plants
DHAKA (Reuters) - Bangladesh said on Saturday Russia had formally agreed to assist the energy-starved South Asian country in building nuclear power plants."An agreement on cooperation for the peaceful use of nuclear energy to meet the growing power demand in the country was signed between the two countries in Moscow on Friday," a foreign ministry spokesman told Reuters.
James C. Liao, Chancellor's Professor of Chemical and Biomolecular Engineering at the UCLA Henry Samueli School of Engineering and Applied Science, has been awarded $4 million over three years to develop a method for converting carbon dioxide into liquid fuel isobutanol using electricity.The grant was awarded by the Department of Energy's Advanced Research Projects Agency–Energy (ARPA-E), a new agency that promotes and funds projects to develop transformational technologies to reduce the country's dependence on foreign energy, curb energy-related emissions and improve energy efficiency across all sectors of the U.S. economy.
NStar, Cape Wind to talk energy
Representatives of NStar will meet with developers of the Cape Wind energy project Monday, the power company says, but whether it will commit to buy electricity from the proposed wind farm is an open question.
The state Department of Natural Resources and Environment has denied the Wolverine Power Supply Cooperative's air quality permit to begin a new coal plant in Rogers City. The agency said its decision was based on a finding by the state Public Service Commission that the utility didn't demonstrate enough demand for new electricity. But the time may come when that electricity will be needed in an age of growing computer use and electric cars.
Paper Bags or Plastic Bags? New Proposals Like Neither
Cities are considering more inclusive bans that would cover paper shopping bags, which have environmental consequences of their own.
Climate hacking for profit: a good way to go broke
FORTUNE -- The newest cause on the radical fringe of environmentalism is opposition to geoengineering -- the large-scale manipulation of the Earth's climate, in an attempt to reverse global warming. Essential to the argument being made by the Hands off Mother Earth effort - dubbed HOME -- is the notion that planet-hacking, as I call it, might someday be done for profit.Yet while corporate geoengineering is a disturbing concept, it's unlikely to amount to much, at least for the foreseeable future. In fact, companies attempting weather-changing for fun and profit have already sputtered quite badly in their nascent attempts.
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I was watching the live feed of the BP video leak http://www.cnn.com/video/flashLive/live.html?stream=stream2&hpt=T2
this morning about an hour ago. The camera was set on a different leak at that time.
At one point, they pulled the ROV with the camera out more and you could see more of the plume rising. With that wider angle, I could see fish swimming by and something long and slender (eel?). As they moved the ROV over to the riser leak (camera on), you could see what I presume are the hydrate snowflakes in the water column floating around and then sinking. It was pretty interesting. Now that I look back at the feed, it appears they are shooting pics of the BOP stack. So, BP is keeping the cameras on while the ROV moves around.
I got me wondering if the world has ever been witness to a live camera feed from the bottom of the ocean for an extended period of time. I found myself forgetting about the leak for a bit and just watching the video and imagining the bottom of the ocean and what goes on there. A sight very few humans will ever experience firsthand.
It would be interesting to have expert commentary accompany the video at set times so people could tune in and hear. Perhaps have engineers at one point, then oceanographers and then marine biologists.
OK, they showed the BOP stack and then the bent riser pipe out the top. The ROV then shot the riser laying on the ocean floor. Now they are at Tool End of Drills. It is fairly incredible to be getting actual footage to compare to the schematics posted yesterday. My knowledge of DW drilling has increased 1000% in the last week.
I assume it is now focused on the kink in the riser above the BOP. Three very distinct exit points are visible in the closeup, shooting out light orange streams. High gas to oil ratio?
Krugman thinks we're in danger of falling into a deflationary spiral, like Japan, and we need more stimulus. Full speed ahead and damn the deficits.
I think he's right about our situation, but not about the solution. It didn't work for Japan. I know, the usual defense is "Japan didn't spend enough." Just like supply-siders complain that we didn't try trickle-down economics long enough or intensely enough. I get the feeling that no matter what the government did...if it didn't work, the claim would be that we aren't doing it enough, not that the theory behind it is wrong.
So, are you saying you have a different solution or there is no solution? If the theory is correct, then isn't the proposed solution correct?
In any event, the premise is that the need for growth is paramount and must be maintained literally at all costs. The goal is simple; we just need to find a solution to the obvious goal. Same goes for unemployment. The solution for unemployment is more growth. It is still trickle down regardless of how you look at it. Trickle down really doesn't work anymore unless, you literally are satisfied with a trickle.
I think it is way past time for a new paradigm. Accept the fact that the planet cannot be sustained with endless growth and we need no growth or even negative growth. We need tools that don't require growth.
As much as I like Krugman, he is firmly in the growth is the answer to all economic problems camp. He just wants to get a bigger hammer.
I don't think anyone, including Herman Daly, has a detailed blueprint as to how we manage a no growth economy. But it is time that our best minds starting working on that blueprint. Find a way that just doesn't involve giving trillions to the banksters and billions to the auto and real estate sectors.
Any real solution (austerity based) will make the house of cards collapse faster - so we are left with half measures that seem to make things better but just extend and amplify the eventual reckoning. Any ultimate solution will require less consumption and less aspiration for consumption - by a significant margin. It will also have an appropriate wide boundary framework for measuring natural resource costs in terms of natural resources themselves - particularly energy, which even though we will be flooded with it for the foreseeable future will be the real limiter to future growth. What will be long term oil/gas production at $30-$40 oil and $3 gas? Renewables won't cut it due to the timing of flows, intermittency and other costs. The debt explosion has boiled us like a frog over 30 years - we have continually done everything possible in our system to extend the growth paradigm -we aren't 10-15% overshot - more like 100-200% (in terms of wealth that people in aggregate think they have that doesn't exist).
Personally I am reasonably convinced there is no non-disruptive solution for our current trajectory which will end in currency reform (new currencies) and near stoppage of trade. Therefore the real 'solutions' are a)what to do immediately after this happens (basic services, media, supply chains) and b)how to restructure long term goals and infrastructure for a lower complexity/lower living standard next 30-40 years while we still have fossil pixie dust. And what % of our best and brightest and our financial resources are we allocating towards this? 2%? 1%? 1/10 of 1%? Essentially zero as far as I can tell. ( I know of one team in Europe that's all).
That is my biggest concern - the utter lack of resiliency of my locale. There is some interest in pretending to become "sustainable" - as long as it is not inconvenient, and as long as it is confined to the classroom, or some token patch of campus no one ever visits.
But ask the local utility, mayor, emergency management personnel, school superintendent, sheriff's department, etc, etc. and they have no contingency plans for disruptions beyond a tornado or ice storm.
It's not just the economy, it is "extend and pretend" at every level of the society.
Britain 2000 was a preview of what might become SOP:
The zombie Japan outcome is probably the best that can be hoped for here in the USA. Without stimulus and deficit expansion Japan would have slipped into depression a decade ago.
There but for the grace of food stamps, Social Security/Medicare, unemployment compensation and stimulus go all of us ... into the pit.
The USA is not Europe. Nations within the Eurozone must borrow a 'foreign' currency which places members at a disadvantage as these countries have no control over the terms of borrowing or service costs. The US, Japan and the UK borrow in their own currencies and can run technically unlimited deficits. The deficit issue in the US is a neo- conservative political issue rather than an economic one.
Excess sovereign borrowing or deficit spending in home currencies buys time. The limitation is that borrowing has no effect unless there is sufficient private commerce to create new money. The time buying exercise creates the opportunity to restructure, that is close bankrupt firms and write- off un- collectible debts. The deficits take place, the restructuring is always put off which is a factor in the current (unteneble) situation. This is the issue in Japan where bad loans from the 1990's still clog the books of Japanese banks.
More info can be found here, an interview with James Galbraith.
Meanwhile, Colin Campbell and Chris Skrebowski make the good case for the energy- finance interconnection and the effects of high prices on lending and money cycles. Skrebowski stumbles when he suggests an inflationary outcome. His and Campbell's allocation observations suggest deflation, which is taking place right now.
If governments and central banks could turn on inflation with a switch they certainly would have done so already. Instead, the allocation process traps credit and currency and pegs the 'favored' currency to crude oil. The outcome is a self- reinforcing cycle that allocates in favor of the 'currency du jour' over other forms of wealth and wealth creation.
In our present case, the forms of wealth creation that are spurned are returns from commerce. It is not yesterday that speculation and government transfer payments are the two drivers of our economy. This is a consequence of rising fuel costs in both nominal and real terms since 1999.
The conservative demand is for the establishment to support the value of money by eschewing deficit spending. The price of oil gives money value by default destroying commerce as a consequence - adding even more value to money which allocates away from commerce back toward money amplifying the cycle. Both major input costs rise: not only is oil more expensive but money is more expensive, also. Our deflation represents the increase in the value of money which is happening right under the noses of (oblivious) conservatives!
Too bad the conservatives on the staff of the Wall Street Journal, the Economist, Financial Times and other media outlets, in governments and in investment firms don't understand money. No wonder the wheels are coming off finance!
The USA fuel bill is almost $500 billion annually which represents a non- returning tax on all forms of economic activity. We have created a machine that does little but waste, spews toxic gases in the atmosphere and forces us to inhabit like cockroaches a cheap and mean - and soul destroying - automobile habitat which is the machine's secondary product behind the waste.
This machine has a meter attached by which the amount we need to spend to pay for our waste is determined.
That this is our so- called 'Economic Miracle' I can't imagine what the successor system will look like. It cannot possibly be worse.
You have a point. But things could be worse....total randomness, a "system" that is no longer really a system in any sense of the word. That might be worse....
The solution to unemployment is, surely, a shorter working week [perhaps a step drop to 6 or 4 hrs a day so 24/7 cover still works]? You need to eliminate tax per head count - in the UK it's called 'National insurance tax' so that employers can employ 4 for 3 previously.
Obviously won't help those overstretched financially to cut hours, but we should have been doing it anyway with every productivity boost we invented.
A shorter work week doesn't solve problems, it creates more problems. Currently employed workers would now have to find a way to meet their current expenses on 3/4 of there current salaries. As many people are stretched to the limit as it is, cutting their salary by 1/4 would result in a whole bunch of people unable to meet their mortgages, more defaults, more bank failures and the cycle continues and deepens.
This also ignores the fact that additional employees cost money to employ, train, insure(in the US that would be medical insurance costs), etc. Also, since most the tax structure in most countries is not flat and has standard deductions, 3 employees at 100% salary results in more tax revenue for the government than 4 employees at 75% salary.
I don't think the theory is correct, and I have serious doubts that it ever will be.
I think economics has taken the place religion used to hold. Religion used to be the answer to injustice and inequality. You're poor now, but if you live a righteous life, you'll get your just reward in the afterlife. Now, the answer to inequality is economics. You may be poor now, but if you work hard, you'll be rich one day (or at least your kids will be middle class).
George W. Bush already showed the way: give money to everybody.
In the long run, this has to be the new paradigm you're looking for: the Food Stamp society.
For many here, the idea of divorcing your income from employment will be heresy, but it has to come. The next six decades will see -- if we're lucky, this is -- more jobs going to poor Asians (outsourcing), more automation of the jobs that can't be outsourced, and finally automation of the outsourced jobs as well. We can't all do the few jobs that can be neither outsourced nor automated: pro sports and performing arts.
I don't want to dwell on what being unlucky would look like...
Japan managed to muddle through only because the global econonmy was growing.
With most of the industrial nations now falling into the deflationary spiral their "stimulus" efforts will become less effective with each round (declining returns).
There are no "consumers of last resort" nations left and we are running out of lenders of last resort (I can't believe the US is bailing out Europe... I look forward to the state bailouts next).
Did I miss something yesterday on my bus. trip? We are bailing out the EU? No, plz say it isn't so.
On Deflation. Seems like it's a recipe for disaster. Right now 1 in 7 home owners with a mortgage are behind on their payments or delinquent. Is it any wonder as money becomes tighter. To my way of thinking we need some inflation and soon. One way to accomplish this would be to monetize some of the debt. Kill two birds with one fell swoop. Not all the debt, mind you, just enough to move into inflation. However, wages need to move up as prices inflate. We can only hope on that one.
" I look forward to the state bailouts next" -- OOPS too late, already underway.
Krugman has never seen a problem to which his answer isn't "more government spending". When your only tool is a hammer, every problem looks like a nail.
QFT
The problem here is that Krugman's "solution", when it doesn't work, puts us in worse overall financial shape. One the other hand, if we tried fiscal responsibility, eliminating the deficit through reduced government spending and paying down the debt, even if it didn't work, the nation would be left in better financial shape. Taking huge long term risks to "feel good" in the short term is irresponsible at best, but unfortunately is typical for the human race.
Sorry, but that is incorrect. This is Econ 101. Sovereign deficit spending does not cause the sovereign to run out of credit. The sovereign creates credit, the sovereign's deficit is the private sectors deposits. No sovereign deficit results in no private sector funds.
What this means is that government deficit spending is essential for a private sector to function at all.
There is no upper bound to government deficit spending except that at some point the numbers become absurd and the government loses credibility.
International current accounts work somewhat the same way. Accumulating reserve surpluses reduces the amounts a country's international customers have to spend for the surplus nation's goods and services.
Think of an economy like a giant loop of pipe with a pump in the loop. The pump represents the 'government'. The fluid in the pipe is money and goes around and around. Every time it cycles the meter on the pump counts '1'. The meter counts the 'deficit'; the system never runs out of numbers.
Fascinating. So there is no limit to deficit spending until there is, when the whole system collapses under its own weight. Nowhere did I state that the government would "run out of credit". What I did say was that elimanting the deficit and paying off the debt would leave us, and our future generations better off in the long run. How is this even controversial?
If a person makes $50K a year, owes $40K on credit cards right now, and spends $60K each year, would you say that person is in good financial shape? When you substitue "nation" for "person" and multiple the amounts by a factor of 100 Million, the basic premise is still exactly the same thing. The famous quote is "when you are in a hole, stop digging!" Also note that this is exactly why they call being in debt, "being in the hole". Just because the government has additional options to get out of the hole (printing money, etc.) does not mean that overspending your revenue is a good thing. You can't spend your way out of the problem when the problem is the spending.
Governments are unable to print productivity, that is the issue.
There is no technical limit to deficit spending in nations that borrow in their own currencies. I'm not making this up, it is basic economics and can be found in any number of basic economics textbooks or from any serious economist's web page.
An economy is basically a closed system where deficits in one area are surpluses in another. The current surplus in the private sector is the deficit in the public sector. Without the public sector deficit there is no private sector surplus.
Read this interview with a real economist!
"Where is the surplus?" you ask. It is in the form of bank reserves and funds stashed away in the Federal Reserve as well as funds hoarded; currency and precious metals stored in vaults or under mattresses. The bulk of the funds are simply reprocessed and lent between banks and government over and over again.
This circular process is a form of carry trade. The lack of desired effect regarding the real economy has to do with the effect of of 'other' input costs such as crude oil on that economy's profitability.
Nations borrowing in their own currencies are decidedly not like households. The funds created by the borrowing - remember, money of all kinds is lent into existence - are deposited with the entitites (banks and other lenders). The deposits represent the loans in question. The funds are loaned to the government because there is no better return available.
If there is a better return in the private sector the loans are made to business and there is a smaller government deficit. Simple, no?
Households lending is on the asset side of the lander's balance sheet. If the household runs too large a deficit for too long it goes bankrupt. If the sovereign runs a large deficit for a long time it simply makes the deficit larger which recycles more funds into the private sector. There is no economic limit to the ability of nations borrowing in their own currency to expand their balance sheets.
Look to Japan that has sovereign debts + 200% of GDP @ -2% funding costs ... and has run these large deficits for over 20 years. Analysts have been up coming up with reasons why the Japanese won't be able to service their massive debts for the same amount of time. As long as there are entities in Japan that can accept deposits there is no reason why the Japanese government cannot borrow.
At some point the deficit becomes absurd and the government loses credibility. That is a matter of politics rather than economics. Most of the complaints about deficits are from finance interests that feel that money value is threatened by expansion of future claims against it. These folks don't understand the inverse relationship of money- and commerce values.
They also don't understand or deny peak oil which changes all values.
This is what is really happening now and not too many people are paying attention, this includes bankers, policy makers, investors, economists and analysts. Peak oil is making the dollar more valuable which is turning the current way of doing things upside down. In light of this, extended deficits by sovereigns are becoming irrelevant. An increasingly hard or valuable dollar means the government will be competing with all other interests that use fuel for a shrinking pool of available dollars. At the point where this happens, credit and currency will diverge with the preference for currency prevailing. The 'real' or physical economy which is built upon a credit structure - and dirt cheap oil - will shrink or collapse upon itself. This shrinkage will take place long after the purpose and effect of the real economy has been forgotten and the musty structure an artifact supported by government deficit spending. (Cash for Clunkers, mortgage subsidies, 1st Time Homebuyer's tax credit, etc.) Oops! I guess we are there, now!
You are right, there is no limit to deficit spending until there is ...
Yes but :)
At the end of the day we don't eat dollars or drive our cars on them esp electronic ones which have zero btu value. Indeed they are energy negative.
The world runs on energy and food. For food there is a fairly hard lower bound because people simply need a certain amount every day. For infrastructure reasons I've argued there is a fairly hard lower bound on oil usage. Also of course most of the waste if you will occurs in the countries with the most money. Its not that we don't wast a lot its just that the people that waste can afford it. Indeed via credit they have access to a significant amount of funds to spend ridiculous sums on all kinds of things besides oil.
Contracting credit helps to some extent but the buffer on the financial side is fairly deep. It would take a long time for your average American to be reduced to working to stay alive.
Now the big question is is how flexible is the real economy during collapse if its very flexible then we should see Japanese style deflation I'd think with ever expanding deficits like you suggest potentially for years until the financial system itself becomes untenable.
However if it actually does have a hard low water mark if you will where further shrinkage becomes exponentially more difficult then demand for resources will exceed supply. Then the credit system becomes increasingly irrelevant as cash spending on increasingly precarious attempts to stay alive predominate.
More and more people simply drop out of our credit economy yet their demand for resources remains finite and slowly declining if at all given population increases.
I'd argue we are right in the middle of such a transition and the future will be determined by the real flexibility of the basic economy if its capable of significant efficiency gains regardless of how they happen then we end with immense deficits and a basic restart. If not then we never even get to that point as increasingly vicious competition for resources overwhelms the credit situation.
Right now of course the collapse of the credit economy is at the forefront however its far from clear that this will continue. I think the real economy needs to show it can shrink fairly quickly and take the strain off of resources making "cash" valuable vs resources. So far the track record is in my opinion mixed. But all my research indicates that right now is the decision point if you will. Either the base economy can continue to shrink its resource footprint when credit becomes and issue or it cannot.
This of course is dependent on exactly how credit and resources are linked. If its basically linear than your right if not then something else happens.
I don't think they are linked in such a simple manner since intrinsic demand plays a role.
More important I think the real linkage and real state of affairs is becoming clear right now.
At the moment anticipation of a rapid drop in demand for oil has just started to result in oil prices rolling off along with the belief that ample supplies are available. If this is fundamentally true then prices should continue to fall no telling where the bottom is.
If its false then its false and the daily economy of staying alive diverges from the credit economy allocating more and more cash to commodities basically no matter what happens in the credit world.
This divergence if you will is what I'm predicting that intrinsic resource constrains literally blow away any games in the fiat world. Its akin to a starving man with a wheelbarrow full of gold looking for a loaf of bread. The old monetary rules simply have no bearing regardless of what they where credit fiat gold etc.
"It didn't work for Japan." How will we ever know? We will never know what the alternative outcome would have been had Japan not chosen this course of action. It's like the people pointing to 10% unemployment and saying US fiscal stimulus has failed. Maybe we would be looking at 20% (nominal) unemployment now if we hadn't acted. Denninger and his ilk were happily predicting the end of the world by now back in 2008, but that hasn't happened any more than a healthy recovery has. What has happened is that we have somehow muddled along post peak without complete collapse, which if I am correct has been your own prediction for a while now.
By what standard has Japanese stimulus failed- by one of endless growth, where stocks always go up and people constantly get richer? Anyone keeping up with the resource reality here on the Oil Drum knows that our future is something different than that. So is it fair to call these kind of outcomes "failures"? The Japanese government stands. Her people are fed and there is domestic peace. This from an energy poor island nation post-peak. How would you judge success? I would be happy if the US decline is managed as well as the Japanese have.
I would be much more inclined with you to agree that stimulus efforts are being misdirected. But I do not agree that they are the wrong course of action, or that there is any kind of real world evidence for that view.
All these kind of "what if" games do is reveal the color of the lenses that different people wear when they look at the economy.
Kudos WBS. I like your reasoning. Perhaps there is a way out of this without total disintegration. (tho i'm not certain of this at all).
One thing the Japonese have that we are lacking is a WILL to do well, regardless. We of the USA on the other hand have become soft, fat and with our collective hand out (to receive) because that mentality is what's been foist upon us by way of MSM ect.
Too many EXPECT their lives to be comfortable WITHOUT taking responsibility for their own acts. The gov. has primed it to be so. We have morphed into something strange. Just imagine what this country would have become like, had the settlers been so dependent? I've said for some time now that P. C. is going to kill this country. When there is "NO FAULT", what can be the obvious result? Strange, very strange.
We are in the midst of the untried/untested.
Let's hope we can all get along.
Exactly. I'm sick of hearing about Japan's lost decade. Anyone with half a brain knows we need to cut consumption and growth. I visited Japan several times and found adequately fed people, calm polite satisfied citizens, and a much lower ecological footprint per person. Japan should be considered a positive model to adopt rather than a problem to avoid.
Growth is the problem not the solution.
http://www.chrismartenson.com/crashcourse/chapter-3-exponential-growth
I am wondering if Japan stopped growing deliberately because they understand the exponential function.
Japan is held up as a sick economy. But perhaps this is a delusion of mad economists.
I agree that growth is the problem in many ways. The biggest problem is population growth, since all production must grow at the same rate as population growth just to keep the same level of consumption per capita. Any efforts to reduce material consumption, including the consumption of fossil fuels, will result in even less of everything available to each person if population continues to increase. Ultimately, it would seem obvious that there's no hope to solve our long term problems without some measures toward limiting population.
In the US, we are all children of immigrants, including the Amerindians, since back in time, we all came from people who immigrated from somewhere else. But, in recent years, immigration has made up about half of US population growth, so limiting population growth would be much easier if immigration were also reduced. While it may seem unfair, illegals are the first in line of fire, so to speak, in efforts to limit overall immigration. Of course, the average person in the US hasn't even begun to consider realistic means intended to limit population growth, such as a 1 child per woman limit in the form of birth quotas which could be traded between women who wanted kids and those who did not or could not. I see little chance that such measures will gain traction until it's too late. We live in an Idiocracy...
E. Swanson
Amen.
I propose a really big war. The sort of global conflict to make WW2 look like a scrap in the playground. Benefits of war:
1. Will lead to sudden decrease in population. Especially if we use a few nukes.
2. Will give us the ability to switch from a peace-time consumption-based economy to full employment and mobilization. Get those factories humming again.
3. Will drive away the depressive attitudes of many who 'have no hope'. Nothing better than a good war to focus the mind and give clarity of purpose.
4. Will enable me to dig out my old army boots and put on a smart uniform. Girls always love a man in uniform. I might even get some 'non-combative action' if ya know what I mean.
5. If we survive the war we can look forward to an invigorated Hollywood - war is great subject matter for quality movies.
Frankly, we all have to die at some point anyway so I don't see any negative points to having a really good fight.
I assume your proposal for a big war is tongue in cheek, but I personally don't find it amusing. War comes with all sorts of collateral damage to the environment, to the assets that we will desperately need in the future, etc. Aside from the huge amount of suffering, think of destroyed solar power facilites and windmills, oil megatankers sinking by torpedo attack, hundreds of sunk deepwater oil rigs, burning oil wells, houses, farms, crops, etc. Nuclear fallout, dispersal of toxic chemicals everywhere, the castastrophe would be staggering.
Destruction is not the answer. Wealth is not created by destroying the assets we already have. There aren't a lot of good answers out there, but war is probably one of the worst possible outcomes.
You reckon?
The Red horsemen? That doesn't seem fair (military superpowers have an advantage).
The indiscriminate Black and Pale Horsemen - famine and pestilence - seems more equitable.
I think we will get all four horsemen.
Pestilence is the way to go.
The problem with a big war is that it costs too much and is really messy... and really it's only the government doing the buying of all the equipment. War is what has bankrupted a lot of nations at one point or another.
Best to go with a good solid plague. All the death, much less expense. Also, as a bonus it will tend to pick off the children and elderly, and no one has to take the blame for killing lots of people.
I remember seeing a couple of articles recently about how recent college graduates are facing terrible labor markets. Many of them end up living at home (the NYT had a sociologist who used the horrible and unfair phrase "failure to launch" to describe 20-30 year olds living at home with their parents). These people are facing maybe no marriage and perhaps no ability to support a family. Well, the same thing has been happening here in Japan for now decades. Millions of people have dropped out of the family-building process. They are mostly the people who don`t have a good education. Only 30% of people go to college here.
Anyway, what I am trying to say is that as long as the govt keeps sayig "growth! growth! growth!" then people feel as though everything is being done that can be done. If it doesn`t work, then too bad, can`t be helped, a kind of fatalistic "nevermind" attitude takes over (after all, one has lots of company in one`s unemployment). Think of a doctor who keeps telling the relatives of a dying patient "Don`t give up! This patient will recover soon!": the relatives just want to hear something positive. Even though both sides feel inside it`s hopeless. About the economy, no one wants to say the truth because the truth is that the competition to pass on one`s DNA has become very tough. But it is another life-and-death issue so only one party line can prevail.
Pump prices continue to fall as oil drops again
Commodities Have Peaked, Commerzbank Says
I think the general fall in prices and commodities is partly because, according to ShadowStats, the money supply is falling. M3, M2, and M1 have all been declining over the past 6 - 12 months. While anecdotal, when I logged into Amazon today after having been gone for a month, Amazon informed me that nearly every item in my saved shopping cart had been reduced in price, with 2 - 3 price increases. Has it been discussed why the money supply has been shrinking?
The money supply is shrinking because money is vanishing into thin air as debts are being defaulted on or written off. Money is created when a loan is made...and it's destroyed if the loan goes bad. The money being borrowed into existence is not offsetting the money being destroyed in the bursting of the housing bubble.
The government is giving away a lot of money...but it's not enough to make up for what people have lost: their homes, their jobs, their access to credit (via credit cards and HELOCs). That wealth is gone, and a few tax credits and bank bailouts aren't going to make up for it.
I filled up my gas tank this morning, and was surprised to see the price was 15 cents less per gallon than it was last week. Usually the price goes up as Memorial Day weekend approaches. It's really strange to see the price dropping.
Excuse me if I sound naive. When a bank loan money to a person to buy a house, the money goes to pay off the previous owner of the house. In the case of an old house, the owner gets the money and what is left goes to the other bank or entity that mortgage to the old owner. In the case of a new house, the builder, contractors, city planner etc. gets the money. These people then turnaround and go spend it on e.g. gasoline, a new TV, schooling, grocery, mortgage payment etc. In other words the loaned money gets spread about and the new mortgagee has the obligation to pay back the bank in full amount + interest. If the new owner default then the bank will loose the ability to collect the loaned money, but the money is still out there albeit diluted BUT it is still out there. Some of it may end up in the middle east, some in Germany BMW as profit (think real estate agent spending spree), some will end up in China where it will be used to buy T-Bills etc., but it is still out there. I think a lot of it will eventually funnel up to the elite rich, and it will proabably remain trap for at least awhile. Yes, trapped money is as good as vaporized money to a certain extent, but it still has the potential to move in the future (liquidity). The fallen Ms money supply metrics are what it is because the lack of circulation not because money has vanished. Most money/credit exist in electronic form, and the potential of a "fat finger" mistake resulting in a literal destruction is real, but this is beside the point.
I saw Chris Martenson Crash Course at least more than once, and his explanation of money creation-destruction especially destruction is less than perfect. Nevertheless I still think it is a worth while lecture, and strongly recommend it to everyone.
Do I have a blindspot here? Leanan? Darwinian? If so educate me or delete this message for its incoherent babel.
I don't understand that statement at all. Of course nothing is perfect but you must have a reason for saying it is less than perfect. What do you know that he doesn't?
Actually I think your description above is less than perfect. If a bank has $1 billion on deposit and they then lend $900 million of that out, that is $900 million created. That money is then re-deposited and $810 million of that is then lent out again, and in turn $810 million created.
It does not matter that the borrowers are spending part of the money on stuff like labor costs, or gasoline or whatever, they are still spending money the bank created. You are missing the point that the people they spend the money on will also deposit it in some bank. Spent money is just money to be deposited in some bank. Spent money, or rather the process of spending money is money in circulation! That is what the money supply is all about.
I thought Chris Martenson hit the nail on the head, he got it exactly right. Well, in my opinion anyway. I still await your critique of what he got wrong. Perhaps you can change my mind. (I often change my mind on such subjects as new information comes into view or it is explained better by someone else. See Coilin's post below for a bit of information that I originally had wrong.)
P.S. Make your paragraphs a little shorter. They are a lot easier to read that way.
Ron P.
I don't take issue with money creation. In fact I use your/Chris example in my thinking.
The issue that I'm trying to resolve for myself is the destruction of money. I think I am a reasonable person (sometime LOL), however, many explanations floating about with regard to the destruction of money I find very unsatisfying. Once money is lend into existence i.e. when it exchange hands, it gets disperse into the economy like you say, but whether it will come back to the original lender +interest depends on the soundness of the borrower. The main point that I'm trying to make is that money can be create but it can't be destroy, exception being intentional burning or electronic deletion of it.
I'll watch Chris Martenson lecture again and will address your comment a later time. Great! homework
Exactly. Defaulting on loans does not directly result in money being destroyed, although as I mentioned below, it can have indirect effects.
As I mention in a post below, it is when account holders make a payment to bank (usually, but not always, a debt repayment) that money is destroyed. Approximately 97% of money is bank money, or electronic money (ie. all money other than notes and coins). This bank money is an IOU, the lender being the account holder, the debtor being the bank. If you make a payment to a bank from one of your accounts, the IOUs are simply cancelled. Repayments to banks to not result in any other accounts being increased. So money is destroyed when you make a payment to a bank.
In order to avoid a shrinking money supply, the 'aim', as it were, is to increase borrowing each year. Increasing debt is a 'good' thing (I don't think this, but increasing total debt is the number one goal of all mainstream economists, bankers, and politicians who understand the money system). This ensures that repayments do not exceed new lending and avoids deflation.
Banks, however, only like to increase lending if the economy is growing. Otherwise, if lending was growing, and the money supply was therefore growing, but amount of goods and services was shrinking, we would have inflation. Banks dislike inflation. So we 'need' growth.
Once growth becomes physically impossible, because of peak oil for example, then the whole money system becomes unstable. Deflation tends to occur, which has all sorts of major problems associated with it.
That's not quite right. Yes, money is created when banks make a loan. But money is destroyed when the opposite of a loan creation occurs, ie. when the money is repaid.
Any payment by bank-account holders to banks, whether it's a repayment of a loan or a payment of a fee or a fine, results in money destruction.
Any payment by a bank to an account holder, whether it's a new loan or a payment of interest, results in money creation.
Defaulting on a loan does not result in money destruction. In fact, defaulting ensures that the money which was created by the loan remains in circulation.
Nevertheless, increasing rates of defaulting tend to occur at roughly the same time as the money supply is shrinking. Why is this? Because, when more and more people are defaulting, banks become more cautious in lending and reduce the amounts they lend. If lending falls enough, then repayments exceed new lending, and the money supply falls. Also, as money becomes scarcer, it becomes more difficult for people to earn money and repay their loans. So more people end up defaulting. They defaulting, however, does not directly cause the money supply to shrink.
If you grant that percieved wealth of stuff owned, such as house, cars, financial assets is a part of the net percieved wealth, then a change of market mood change have a large effect on the money supply. Since the market value of most of these assets has tanked, that is like a whole bunch of money vanishing. The opposite happens during a bubble. People see their individual net worth going up and are more willing to spend money, so it is easy for business to expand. So bull markets are kind of an ongoing ponzi scheme, everyone thinks they are getting something for nothing. Recessions are kind of an inverse ponzi scheme, everyone seems to be losing no matter what they do.
Agreed. And when you have a debt-based money system, the bursting of the Ponzi scheme can, if the crash is prolonged and deep, result in deflation because the money supply is shrinking.
Once deflation sets in, it becomes very difficult to get the whole thing started again. With any kind of money system, deflation can be a problem: since companies usually have to pay costs before they make sales, falling prices makes it extremely difficult to make a profit.
However, with a debt-based system, there is an additional problem: if you can't make a profit, then how are you going to repay any new debt you take on? Deflation therefore tends to cause companies, and people, to quite reasonably borrow less. The consequence of this is, of course, that the deflation gets worse.
The Keynesian answer (or attempt at an answer) to this problem tends to be that the government should intervene, and increase its spending, and therefore its borrowing.
This is partly what our governments have done, except that instead of increasing, for example welfare payments or employing more civil servants, which has a direct effect on increasing the money supply, they've ploughed trillions into the (largely bankrupt) banking system. As the banks are in such a bad state, much of this money has just disappeared down a black hole. The money supply has barely increased, but the public sector has been landed with a huge debt making any further Keynesian stimulus that much more difficult.
Not quite correct.
If the loan is repaid the banks loan to capitol ratio increases and it can lend money again.
If the loan is defaulted on not only can it not make another loan but it has to cover the loss with capitol from its loss provisions. So your technically destroying twice as much money if you will once in the form of a loan thats never made. Once in the reduction of the capitol a bank has to make loans. The capitol loss can only be restored from setting aside money from existing loans as the banks ability to expand its loan portfolio is by definition reduced by the default.
This is why troubled banks generally try and skirt the rules and make even riskier loans in a sense doubling down if you will and hiding losses. The easiest way out is to make even more loans that are even worse than the initial ones.
Whats really interesting however is how securitization plays into such a situation. By bundling the loans up and painting them with AAA lipstick they dump the risk and can lend again making money off the churn.
Selling loans created with fractional reserve lending is effectively and infinite money machine.
On the flip side if your also lending out the money to the investors interested in buying such products there is really no limit. Risky loans are converted into AAA assets and your longer term loans are to wealthy investors to buy such assets.
Until of course someone makes the mistake and sleeps with their makeup on and everyone realizes its just a pig with lipstick.
Now whats really interesting is how this has created huge concentrated amounts of "money" in these packaged loans they are no longer simple loans but have taken on the role of a real asset that can be traded like other assets.
Of course when the go bad the leverage insures that the system is bankrupt its not a liquidity crisis just simply bankrupt. Your literally forced to have a third party step in and unwind the trade and take the loss. It looks like a liquidity move but its not.
Whats interesting is I don't see and easy way out by simply transferring the loss to the central banks balance sheet its still not resolved just moved. And you have printed a crap load of money to accomplish this however this money cannot be lent out easily as that would cause inflation. Since a lot of it ends up in treasuries its then eventually effectively transferred to the government. You then have the interesting situation of a bunch of junk sitting on the central banks balance sheet with the money in general flowing through the government in the form of treasuries and back into the economy in the form of government programs. Its not being lent via a bank so it does not have the multiplier effect but its still entering the economy leading to effective inflation.
What I don't see is a way out of this sort of situation I can't see and end game. The mounting debt at the government level will eventually force tax revenues to increase to service the debt. Some day interest rates will start rising and even if that don't ever rising debt levels esp on the short end create a mounting problem which makes it difficult to force the debt to longer duration as you have and effective interest rate increase as you try to lengthen the repayment period regardless of what actual rates are your still looking at a large spread as you go out in time.
The only way out seems to require a V shaped sort of recovery yet the way the money was moved pretty much ensures this won't happen. Simple inflation is impossible as it would spur rising interest rates and lead rapidly to hyperinflation that many people predict.
As far as I can tell your basically stuck unable to move but with ballooning deficits at the government level.
I find it fascinating since its a move that leads directly to a checkmate situation if you will with as far as I can tell no way to escape except to let time work its magic if it can however at some point the government has to stop allowing its deficit to increase. Your forced into a collapse or austerity measures probably on top of high taxes. However such a move probably will send asset prices lower making the situation worse slower to collapse of course but still a downward spiral eventually forcing the government to increase its debt load.
Outside of slowing everything down I simply don't see how things of changed not only is nothing solved most solutions are now simply out of reach and no longer viable.
This decision to commit certain suicide even if its slower has left me wondering what I missed surely a V shaped recovery was not the only possible solution others that I'm unwilling to consider will work yet its hard to believe that they are now on the table as they all involve a sort your talking a reset like Nate mentions.
For me at least this is not the issue what I wonder about is why this path was taken in the first place given it eventually is obvious its a dead end.
Its not how it ends but why did it start ?
You're right that a default affects the bank's capital and its ability to make further loans. However, technically, it does not directly destroy any money.
People get very confused about the fractional-reserve banking system (and I'm certainly not suggesting you are) and how it creates and destroys money, and I just think it's best to be clear that any payment to a bank by an account holder destroys money in exactly the reverse way to how money is created by the fractional-reserve system in the first place. Another way that electronic money can be destroyed directly is if a bank fails and is not bailed out by the central bank. In that case, account holders simply lose all their electronic money.
Defaulting on loans does not directly destroy money, although when there are many defaults, as you say it does reduce the bank's ability to create further money without taking even more risk. In a crisis, this can clearly be an important effect. Ultimately, if central banks do not bail out banks, defaulting loans lead to bank failures, and lots of money destruction.
On the other hand, when an economy is growing, and there is no crisis, a few defaults now and then can help ensure that growth in the money supply does not fall too far behind growth what I like to call the 'debt supply' (ie. all the money that we owe banks individually, through companies, and through the government).
Most loans, over the full lifetime of the loan and the repayments, end up destroying far more money than was created by the loan in the first place (because, of course, both interest and the full principal need to be repaid). However, the borrowing (and money creation) is 'front-loaded', whereas the repayments (and money destruction) take place over a long time. Therefore, so long as borrowing is increasing fast enough, the money supply grows.
However, if there is an early enough default on a loan, that particular loan has actually led to a net increase in the money supply (because very little money destruction occurred). It has therefore reduced the need for further loans to keep the money supply growing.
I largely agree with much of the rest of your post too.
Repaying the loan destroys the 'money'.
Defaults are more complex as the funds are generally in circulation. This is the argument of those who would force restructurings.
The real issue is hoarding. Money in a growth economy loses value as commerce creates (lends into existence) more and more funds to allow market expansion. This expansion represents a dilution of each unit value of money. The extent of dilution is measured as decline in purchasing power of each unit of money and is given to be a (benign) form of inflation. This inflation represents the decline in the value of money, it is 'underwater' and has negative intrinsic value.
Conversely, commerce has corresponding increasing value. This is why ordinary inflation cannot be 'created' by governments, only as the outcome of the increasing value of commerce.
Peak oil (since 1998) has adversely effected commerce by making it too expensive. The value of commerce declines and the value of money increases proportionately. It's so simple it boggles the mind!
When money is valuable rather than commerce, people hoard it. Inflationary money has negative value so people spend it. In fact they go into debt and spend money they haven't earned yet.
Taking money out of circulation is what is happening now. Some is destroyed by the repayment of loans. Other funds are hoarded in the form of cash money or precious metals held in vaults (under mattresses) or in foreign currency reserves that are not cycled back to the country of origin. (See Germany, Japan and China.)
The problem of defaults is the excess claim represented by unpaid service cost which is the income for the lender; the lent funds are in circulation and will likely return to the lender in some form to be lent again ... provided there are borrowers who will borrow or the funds are not held by hoarders.
Capital requirements are small because the actual claim against the borrower (that must be balanced) is the loss of service income rather than the liability. In fact, the liability is generally 'sold' to the central bank for new money so bad loans are good for banks. See the profits of banks rise through the roof as bad loans are cycled to the central banks or held off- balance sheet.
Human Greed.
You hit upon the main reason the money supply is falling: that is some money formerly part of the banking system has been withdrawn from banks and placed into Treasury Bills.
Most of these Treasury bills in private hands are not counted as part of the money supply. The Fed and Treasury working together have actually issued more Treasury bills than necessary, by the specific amount of $200 billion, for the specific purpose of putting to some use excess liquidity in the system. That unused liquidity being caused by a lack of new loans and credit created by the banking system.
So I am pretty much in full agreement with you. The problem has been that to save the system it has been co-opted into needing a very heavy subsidy from the Government. Over time, this will require more and more Fed/Treasury intervention to sustain the economy - unless we somehow have a V shaped recovery. In the longer term, this plan will fail - even without the post peak oil age adding more burdens on the economy.
Actually the recovery in progress has been going quite well, and the biggest enemy of the recovery right now is panic (and not oil). Ironically concerns over the economy have probably pushed the price of oil below some type of longer term equilibrium level - although that does not preclude oil from even going lower in the short term. Oil demand in the US over the last four weeks has been very strong, and the present high inventories have overshadowed just how strong oil product demand has been.
However if the financial system doesn't restart lending to the private sector, the economic recovery can not be sustained very long without greater governmental spending or - less likey - a falling price for oil.
I don't think the US can be compared to Japan because Japan's deflation started from very high consumer price levels. When I visited Japan 20 years ago, I could not believe how high prices were for ordinary goods. What has been called 'deflation' by us here was actually just efficiency gains by opening up Japan to world markets. Historically when the US was on the gold standard, consumer prices fell almost 2% per year - at the rate of productivity gains.
So the problem the Fed has is not only fighting deflationary liquidations caused by financial panic, but long term deflation caused by productivity gains - and more recently - the negative economic effects of the post peak oil world.
To offset these multiple deflationary forces, because further deflation especially in the housing sector may lead to further credit defaults, the Fed will have to adopt a very inflationary monetary policy. Even if the Fed didn't want to take the inflationary road, it would be forced to unless the fiscal deficit spending was brought under control - which seems unlikely now.
I know you asked the question why, and I think the answer was just to postpone collpase, but anyway once started down this road you can not get off without plunging off the cliff.
I like your version better than mine :)
Exactly there is no way out of this one. Obviously some pretty smart people in the Fed realize this but did it anyway. My why question is why did they do it any way ? It certainly bought a little bit of time in exchange for certain destruction. Thus they must feel a little bit is all thats needed.
And that train of thought eventually leads you back to peak oil. Generally it leads you back to the impossibility of the world supporting Chinda at a resource usage level anywhere close to the US. In particular oil. I think peak oil plays a huge role in when this path of destruction was chosen and I think growth in India and China also play a role. As far as I can tell the US plan seems to be to take everyone out and bet that our military can ensure we remain on top of the smoldering ruins.
I'm not saying this was done on purpose but over the last 15 years other options where viable and these options and alternatives where not taken now they can no longer be taken. The decision not to take other routes was deliberate and not by chance. Anyone with knowledge of global economics knows this.
By expanding the poisonous and unsustainable oil economy to India and China the US could expand the energy flow regime of oil (as long as there wasn`t yet peak oil, which there wasn`t back 10 years ago or so). Calling forth more of the black stuff out of the ground would need more than just Americans working away to finance the drilling and pumping....but of course, the Americans would benefit a lot from the expansion of the flow regime since their system was set up to do so first.......That is what Wal-Mart was all about.
That it happened before----right before----peak oil is no coincidence. Flow rates were not increasing fast enough.
It is the second law working
Well, yes, the entire world financial system was set up (at least since 1944) to almost solely benefit the US. All attempts to counter the US dollar based system (an oil flow regime system) have failed so far (although I am not quite yet ready to count the Euro - or SDR - totally out as part of a new transitional system later).
Now that the US system, supported by military might, is in place it may be difficult to get agreement on a new system once oil flow rates fall. Perhaps that is why (Fed, Treasury, US government) they just stuck to the present system despite its eventual flaws.
Basically what I'm thinking. Instead of accepting geology and the concept of limits we basically out of arrogance chose to continue our path even to the point of making obviously fatal decisions. Whats really interesting is that Chinese coal reserves have played a large role in allowing this to be executed. Without them the attempt to offshore to china would have failed. I don't see any reason at first at least for this to be any sort of grand conspiracy. Now however after "subprime is contained" etc etc we probably have reached the point that extensive lying at the top is the norm not and exception. Perhaps not a traditional conspiracy but lying causes people to play cover your ass which leads to a larger web of misguided actions if you will.
Still no need to claim a conspiracy. The best way I can describe it is slavery. Obviously people are human and in a land with slavery mixed raced children would exist. The lies needed to sustain slavery are huge and have to happen with the plain truth in site. This is the sort of bold lie I'm talking about. Once its accepted all manner of lesser outrages can operate.
For Americans at least it was the "American Dream" a suburban house and cars that when from being a dream to a birthright. We where sucked into believing it was our basic privilege just like earlier cultures accepted slavery. We simply did not care past this point what it took to keep the lie going giving our leaders full power to do as they wished.
The earlier peak of American oil production itself played a large role.
If there is a conspiracy its and entire nation that has been consumed by insanity and its own vanity and arrogance its so large that any manner of lesser evils are possible and probable under such a regime.
From the Vietnam war to going off the gold standard you can fairly easily see this underlying mandate if you will propelling the American Dream forward regardless of the truth. Before that you can see how it formed in the aftermath of WWII and the economic distortions following the destruction of most of the worlds production capacity. So its rooted in what should have been a fairly temporary post war situation.
We simply never stopped our war economy just redirected it towards fighting the cold war.
So you see a system build up from a warped post war situation and perpetuate itself. Given the underlying basics of the situation are fatally flawed and fairly obviously a farce its hard to really claim some sort of fundamental cabal at work indeed none is needed. Once Americans gave their rulers the implicit mandate to do whatever they wished as long as we had our bread and circuses basically any outrage was possible.
Indeed the willingness to surrender our future itself has its roots back in the Great Depression and follow on war.
But in the end once you dig it becomes clear at least to me that the only reason this distorted situation was able to continue was the steady and relentless increase in energy supplies. Without it it would have failed long ago. Indeed South Africa under Apartheid provides a chilling micro example of what the US is today. The only real difference is our slaves are safely hidden in factories around the globe not living next door. South Africa managed to retain its system for a long time only because of its ample coal reserves. Without them it would have crumbled.
Thus in the end its clear that energy is absolutely critical to ensuring that the warped economy created in the US can continue to survive and for a long time even look healthy. The economic system and underlying energy supply are deeply and completely intertwined you cannot split them.
Today the distortions and imbalances are becoming increasingly clear but most people still think that the basic economic system of fiat currencies is intrinsically sound and need only be managed or corrected.
I don't see any reason for this to be true it was fake from the very start its never been sound cheap energy simply allowed it to perpetuate itself. If you think about it cheap energy acts very similar to having slaves multiplying the efficiency of a person at low cost. On top of this we have added real slaves distributed around the world to do more detailed work thats expensive to do with energy alone.
There are simply no fundamental basic points of stability in the system even down to its roots.
Just because its now obviously broken does not mean that it was ever actually right or functional it never has been and thus cannot be fixed.
Yes and what is really scary is the new "international order" speech that Obama gave at West Point a couple of days ago to the graduating class, PLUS the new buildup of the army base in Afghanistan 20 miles from Iran.....are they realizing their days to get financing for their military-industrial complex are numbered? Are they planning a war? I hope not. But they have marshalled a lot of forces and it seems like they won`t just give up their access to energy out of the goodness of their hearts........
Yes, it's checkmate.
I've thought a lot about the underlying reason we chose this path. Here is my theory.
We chose a fractional reserve fiat system because in a world unconstrained by natural resources this system maximizes wealth growth. It does this by recognizing future physical wealth (that will be created by the loan) at the time the loan is made. In other words we borrow from the future to accelerate growth.
Our system requires exponential growth in natural resources (and sinks). When physical resources become constrained and growth is no longer possible, layers and layers of leveraged paper (representing future physical wealth) become worthless.
So our checkmate was unavoidable. It was just a question of when.
We face a very painful reset. After which we should choose a new system that creates credit only from real savings. A hard currency backed by gold or energy might be part of this solution. But certainly fractional reserves must be abolished.
There is a problem with this line of thinking, and I think I can come up with a good illustration.
Scenario 1: Bank makes the loan, a house gets built, money goes to the builder, builder pays the sub-contractors, who buy materials, etc. Money is spread through the system. Eventually the homebuyer defaults, house becomes property of the bank. Result: In spite of the default, a new home was built, and a lot of economic activity occured. Jobs were created or substained in the creation of the house. Taxes were paid, etc. The bank is left with a house, possibly overvalued, but an asset was still created in the process.
Scenario 2: Buyer purchases already built house. Bank gives loan, seller gets the money, eventually the new buyer defualts, house becomes property of the bank. Less benefit from this one, but overall result is the home seller made extra money and the bank lost an equivilent amount. No overall benefit or loss. (the seller benefited, the bank lost an equivilent amount)
Scenario 3: Bank doesn't make the loan, a new house is not built. A clear loss. No house(asset), no jobs, no taxes, but the bank's capital is safe.
Scenario 4: Bank doesn't make the loan, the seller of a prebuilt home can't make the sale. No effect. The seller lost out on the potential gain, the bank doesn't get stuck with the loss of value when the home price goes down.
Loans that are used to create assets still leave those assets behind even if the loan is defaulted on. The money doesn't disappear into thin air, the assets are left behind, and someone else will eventually benefit from those assets. Maybe the bank loses money, but assets (and taxable economic activity) occurs as a result.
US overall petroleum demand was contracting throughout April, which may have contributed to a lag in gasoline price somehow. Demand did pick up for May 14th; also gasoline demand has held up while the bulk of the contraction was in Propane/Propylene.
We had that $5/bbl drop the other day when the Greek bailout news came out, which proved, of course, to be a total phantasm. That probably curbed fuel prices for a short spell too.
It is really quite simple why the money supply is shrinking, banks are refusing to lend. And, of course, what Leanan says above.
Sell in May and Run Away . . . Fast
Ron P.
The banks can lend up to whatever amount results from multiplying cash+deposits times liquidity ration (e.g. 10).
They are in the business of lending for a profit, and will charge an interest rate relevant to the percieved risk of default. Insuring against default with a CDO is not as easy as it used to be ..
Also the banks can re-lend money borrowed on the inter-bank market, at an interest rate determined by the percieved risk of the bank defaulting.
So there may be money available to borrow, but only at exhorbitant rates.
And that would only be repayable by businesses with cast-iron certainties of growing enough to service the debt load..
In other words, banks are again doing their job - lending responsibly.
The government (including Fed and Goldman Sachs) are the irresponsible parties pushing irresponsible lending.
Watch - GMAC is being resurrected and will soon be lending irresponsibly in order to boost car sales... because no responsible banks will make the irresponsible loans, GM dealerships will take matters into their own hands (and why not - they do not have to tell the truth on their financial reports anyway, they can fake profitability ...)
The money supply is contracting because the Debt is being Called - Debt is a short position on the dollar, and there is a short-squeeze in progress. (paraphrase Richard Russell - May 2004)
Please explain that statement. What debt is being called and by whom? How does a bank, or whomever "call" a debt? A mortgage, bond or any type of loan is a contract. A bank, or anyone else cannot just willy-nilly cancel a contract. And the US Government sure as hell are not calling in their debt, they are issuing more and more of it every day.
The money supply is contracting because banks have stopped lending!
Ron P.
The lack of bank lending is one mechanism of the deflationary spiral that contributes to the "short squeeze" of the currency.
The lack of lending decreases the velocity of money, but not the supply. The "lack of irresponsible lending" builds the banks reserves -so the money supply is not necessarily altered.
In general, any debts outstanding that are not able to be rolled over, are being "called." Forclosures on properties for homeowners, businesses and government are "calls" on the loans.
The combination of forced deleveraging on all economic levels coupled with the decline of irresponsible lending causes a net contraction in the money supply and a "race" to cash.
Every dollar borrowed and spent is a "short" of the dollar. All loans being called at all levels are the "calls" on the dollar.
Bank lending creates money, so if the amount of lending by banks is reduced, then the amount of new money being created is reduced.
The effect of bank lending on the money supply is very different to the effect me, for example, lending you money, would have on the money supply. If I have spare money I'm not planning on spending, and I lend it to you because you're got some spending plans, then my lending to you will tend to increase the velocity of money, as you suggest. Me lending you money won't have increased the money supply, but it will have increased the velocity of money.
But bank lending is completely different. Bank lending creates new money out of thin air. It has a direct effect on the money supply. Lack of bank lending will tend to reduce the money supply because repayments to banks will eventually exceed new bank loans, and repayments to banks destroy money just as bank lending creates money.
I think we mostly agree. A decline in bank lending (credit) is one mechanism for decreasing the money supply because the money supply = (amount of "virtual" credit "dollars" + actual dollars in circulation).
Fractional reserve lending creates "naked short positions" on the dollar - it's no different than lending shares of a company to be sold short even if you do not have the shares to lend. That is not a problem in a growing economy, but is a problem in a contracting economy.
What I am saying is there is more to it than just a lack of irresponsible lending (irresponsible "virtual" dollar printing).
The deflationary spiral has two components - the deleveraging, which creates demand for real dollars, and a decline in lending, which causes a decline in "virtual" dollars.
Together they cause an increased demand for real paper dollars (short squeeze).
Doomer porn morning on the History Channel. They reran "Earth 2100" earlier, now they're airing "After Armageddon," with information on sheltering in place, what to put in your bugout bag, etc.
They can be so inconsistent. Some days they run good stuff - other times they have programs about things like Nostradamus, the Mayan calendar or space aliens. I suppose at the end of the day they run the stuff that people are interested in seeing. They really should have a PseudoScience channel for all of these topics. They could have programs on other such things like ghosts, numerology, astrology and "free energy" to round out their schedule :-).
Some of this mystical crap I would recommend learning about anyway. Think about (these beliefs) as a sort of sociological state of society. Gaining some insight about the irrationality that surrounds us could be useful. Better to have some exposure to the myths that may be driving peoples thinking, then to be unaware of them.
Wolverine Power is our power supplier. Here is a letter from the MPSC chair to the Governor that clarify's why their air permit for this 600 MW coal plant was denied. http://www.deq.state.mi.us/aps/downloads/permits/pubnotice/317-07/PSCNot...
That was a remarkable document for its clarity,brevity, and logic.
Yes it was a powerful document....so to speak.
Benefit of smart meters in doubt
Tiny savings after huge cash outlay
See: http://www.edmontonjournal.com/technology/Benefit+smart+meters+doubt/305...
Presumably, the actual and estimated hourly cost won't be too far apart. And consumers will save money if they're willing to shift a reasonable portion of the energy use to off-peak and shoulder-peak hours.
Cheers,
Paul
The projected summer rates in Hamilton Ontario have been issued with the low rates being $0.005 less then the current average rating. This with the HST added I believe the average increase for energy could go up $800-$1200/yr starting this fall. You'll notice in the following that the difference between midand high isn't that much. May. 1 to Oct. 31
7 am to 11 am 8.0 ¢/kWh
11 am to 5 pm 9.9 ¢/kWh
5 pm to 9 pm 8.0 ¢/kWh
9 pm to 7 am 5.3 ¢/kWh
Welcome to the real world. Might shut down the house between 11-21:00 as an experiment.
Hi NaL,
I'm trying to determine how you derived this number. From what I see, Horizon Utilities charges $0.065 for the first 600 kWh per month and $0.075 for each kWh thereafter. (Source: http://www.horizonutilities.com/HHSC/html/residential/res_rates.jsp) The average Ontario homeowner uses about 1,000 kWh a month, so that puts the blended cost at $0.069. The off-peak rate is thus $0.016 less than the average standard rate based on this level of consumption. Note that the off-peak rate is in effect all day Saturday and Sunday and on holidays.
A few simple things can make a big difference; e.g., running your dishwasher after 9:00 pm (most are equipped with a time delay function); doing the bulk of your laundry in the late evening and/or on weekends; putting major loads such as water heaters, pool pumps, etc. on a timer so that they remain off during peak hours; programming your a/c thermostat so that the temperature is lowered one or two degrees before the onset of the peak period and using your home's thermal mass to bank a supply of coolth that can be drawn down during the peak; and so on. None of this need be complicated nor onerous.
Cheers,
Paul
According to my last bill the charge was a flat rate of $0.058/ kwh. (Electricity Used 1924.76kWh @ 0.058 =$111.64 for a family of 7 with 6 being hair obsessed girls) rates stated above no longer apply. We already do our laundry on the weekend and the dishwasher goes on before bed. Background use such as the refrigerator and freezer I can't do much about. What doesn't make sense is the reason for the smart meters, peak use issue no longer exist since the economic downturn. The weighted average since January has been $0.032/kwh since January.
http://www.ieso.ca/imoweb/siteShared/demand_price.asp?sid=ic
My average bill is $100/mo and so far I'm not complaining, but, the incentive for being energy wise becomes null and void with the incremental increases in the cost of electricity. I believe the mismanagement of Ontario Hydro in the past has not gone away as is shown in the debt retirement fee. I also still appreciate the ability to flick a switch to cook my dinner vs collecting wood. Cheers
Is it be fair to assume your previous bill falls under the winter rate? That rate is $0.058 for the first 1,000 kWh/month and $0.067 per kWh thereafter. The higher summer rate kicks in May 1st. Also, the rate schedule I referenced above is current as at May 1, 2010.
Higher rates generally spur greater conservation efforts and higher peak rates should shift more discretionary consumption to the less costly shoulder and off-peaks.
Cheers,
Paul
You are correct. Sorry eh.
No complaints. I just think the consumer is in for a big surprise.
The surprise may be even bigger than you think !
Duguid queries OPG, Hydro One rate increases
Minister also tells cities not to use hydro profits to boost revenue
See: http://www.thestar.com/business/article/812833--duguid-queries-opg-hydro...
My advice would be to make your home as energy efficient as possible and to shift as much of your discretionary consumption to the lower cost rate periods.
Cheers,
Paul
Sorry to pick, but 1925 kWh per month seems like a heck of a lot of electricty use. Are you space heating with electricity as well? If anything, your electicity rate is pretty cheap per kWh. In the Pacific Northwest (US), our rate is about $0.085(US) per kWh, and I believe thats considered fairly cheap. Regardless, something you are using is taking a heck of a lot of juice, old fridge perhaps(or second fridge in the garage?), or inefficient water heater or something. Maybe switch out some lightbulbs for compact fluorescents.
Yeah, it does sound on the high side, but we don't know the details. Even in the summertime with the AC going, we don't use that much. In the "off season" (spring/fall), we usually are in the range of 400-500 kWH.
Perhaps a candidate for The Energy Detective.
Hi Runeshade,
It's safe to say Mr. NA Lemming is billed bi-monthly. He tells us that he had consumed 1,924.76 kWh during his previous billing period and paid a flat rate of $0.058 per kWh. All of this energy was thus charged at the lower-cost first tier which applies to the first 1,000 kWh per month. His $100.00 a month bill would include other charges such as transmission and distribution, stranded assets and so on -- the energy portion at $0.058 is roughly one-half of the total cost.
Cheers,
Paul
I don't know how things go in Ontario, I was just going by the two statements that electricity cost $111 on his/her bill, and that his/her average bill is about $100 per month. ~960 kWh per month would be a lot closer to the average use and makes sense with your lower rate for the first 1000 kWh per month charge however.
Where I'm at (in the US), the "basic charge" is about $7 per month. The "basic charge" covers "billing, meter reading and other fixed costs". You folks have a pretty hefty basic/distribution charge if the bill is $111 for 2 months of electricity and about $200 as an overall bimonthly bill (~$45 per month transmission/distribution/stranded asset charge?). As I read closer, I see a mention of a "debt retirement fee" in the post as well. Those kind of charges would make up for that low rate($0.058 per kWh) in a hurry.
The non-energy related charges typically add up to be another $0.045 per kWh, or thereabouts, and Horizon Utilities's "fixed distribution charge" is $14.24 per month.
Toronto Hydro's rate breakdown can be found at: http://www.torontohydro.com/sites/electricsystem/residential/yourbillove...
When all is said and done, the final cost is likely to be between $0.10 and $0.12 per kWh.
Cheers,
Paul
At least here in PG&Eland (California), most of those extra costs go into the rate (per KwHr) base, rather than being biled at a fixed rate. PG&E is notorious for the way the rate increases from tier to tier: approx $.1115 for the first tier, 1.3times that for the next tier, 200% for the third tier, 300% for the third, and 350% for usage in excess. Despite the high marginal cost to energy pigs, I see little signs of the energy pigs among my neighbors tying to conserve. (I've seen several large PV arrays, so I think there is a class of energy pigs who buy PV to avoid paying out at the higher tiers.)
PG&E is switching to "smart meters". But this doesn't really change anything short term. Longer term it gives them the possibility of time of use rates. It also allows them to read meters via wireless radio -presumably from a truck driving through the neighborhood. They ripped out my smart meter, to install a netmeter, after I got PV. The smart meters are still outside the house, so only hardcore energygeeks are likely to read them frequently enough to gain any information about thir own usage.
Probably too late. Bill is Bi monthly.
Sounds like the best thing you can do to save electricity is to reduce the number of female residents in your household! Those are the worst energy consuming appliances ever invented.
Avner Mandelman has written yet another column implying that the west will go to war to maintain an adequate supply of oil from the middle east. He may be right, but the main thrust of his column is that it would be better if the U.S. did go to war (though he tries to say that he does not condone it). He says that there would be a short term economic slowdown followed by a longer bull market.
Unfortunately, the guy seems to know nothing about geology. Or -- judging by another previous column -- climatology.
http://www.globeadvisor.com/servlet/ArticleNews/story/gam/20100522/BUYSI...
@quixotic
It's extraordinary that such an article was published in a serious medium.
Does Mandelman think that the Chinese and others would roll over while the West hoovers up the oil and gas at a discount price?
In my view the US did go to war for oil, and would have done so again - remember 'Real Men Go To Teheran'? - had the Chinese not exercised an economic veto in the first half of 2007. I regard that point both as the point of 'Peak Credit' and as the definitive 'Suez Moment' which spelt the end of the American Empire.
The Chinese have no interest whatever in projecting military force - remember the Chinese Wall was a defensive effort to keep the barbarians out? They prefer to exercise economic force, and to let US 19 year olds die protecting their access to resources and markets.
"Does Mandelman think that the Chinese and others would roll over while the West hoovers up the oil and gas at a discount price?"
They have for the last 50 years or so.
How do you see this dynamic shifting? The US rolling over instead? Not a chance.
@quixotic
IMHO the US did exactly that in the first half of 2007. Do you think that the Saddam era contracts with the Chinese would ever have been reinstated otherwise?
Moreover, I have no doubt that the Chinese will have told the US/Israel that any attack on Iran will be treated as an existential threat, and a 'red line' issue. In the same way that the US threatened to pull the plug economically on the Brits over Suez, I suggest that the Chinese have threatened the same to the US over Iran. China is fighting an economic war, not a military one, and they regard energy security as just as much of a priority as the US does.
We are now in a bipolar world, and the US public had better get used to it.
I just got this reply from Mandelman (see below and my emphasis on the most absurd statement). So I sent him another e-mail, asking him about the demand side of the equation.
"Rate of depletion and rate of discovery are both a matter of debate. The only clear thing is the price. When the price goes higher, it means supply is limited. When the price goes lower, supply is abundant. All else is opinion. At present there’s plenty of supply in Iraq, kept in the ground by men with guns. In Iran there’s even more oil, kept in the ground by men with missiles. When the armed men in Iraq were chased away, the price of oil fell from $140 to $70 / barrel. This much is fact. Depletion rates and new findings rates are doubtful data. If the men with missiles in Iran are taken aside, I betcha the price of oil will fall to $35/barrel. Let’s exchange emails 2 years from now, and see who was right..."
Misleading ... price measures the amount of available credit/value of money. Declining price means the money swapped for crude is more valuable; that credit is losing value relative to cash (as credit would bid up the barrel price).
The price decline measures the related value decline of the real economy which is about the value of spit.
If a barrel was priced for cash sale the cost would be $20. This would represent an economy stripped of credit, a broke country. This is where we are heading.
Well, give him some credit. He's probably an economist, so he can easily wish up sandwiches on a desert island.
How much longer until the Bubble in Higher Education *>pOps<* ?
Another year or two and those of us who live in ivory towers might have to look for another way to make a living ;)
There is a sort of flawed supply-and-demand dynamic that comes into play here. When I was in grad school, they way we looked at it was that the professors would get as many students as his budget would allow, but in in many cases this overproduced graduates who then had a difficult time finding a job. For an incoming student trying to choose a field to study, they might see this and look for another field of study. But once you have entered grad school you are more committed and it is hard to chuck it all and switch to something completely different.
The best examples that I can think of were the grad students studying astrophysics or high-energy physics. The professors had a great need for cheap and highly skilled labor, and grad students filled that need quite nicely. But in those fields there are few jobs in industry so you are all competing for a few faculty positions here and there.
The same dynamic is probably going to happen to people going to college, but there are other questions there. For example, if a kid chooses to not go to college and instead learn a trade (i.e. become a plumber), it is harder to change your mind and later go to college. But if you go to to college and can't find a job, it is somewhat easier to fall back and become a plumber (but unfortunately in such cases the student is burdened with lots of debt).
When I first entered college, they polled the students as to what they wanted to study. A good fraction (perhaps half) were interested in being pre-med - usually a Chemistry or Biology major which in theory could be used to apply for Med school. But it was clearly unrealistic to have that many pre-med students - the intro to biology and chemistry classes that the pre-med students took were known for being exceptionally challenging, and they were indented to thin the herd as it were. Those of us in physics had no such problem - all we had to do is be mindful of which classes were for pre-med and avoid them (unless you were a glutton for punishment). The funny thing was that the pre-med students viewed us physics students as gluttons for punishment, but we were in that major because we found that sort of stuff interesting, not because we were hoping to make lots of $$ as a doctor.
"There is a sort of flawed supply-and-demand dynamic that comes into play here. "
I could not agree more. For most disciplines there is an gross oversupply of BA, MA, PhD, MD, RNs etc, and a gross oversupply of education institutions.
Schools are getting much more aggressive in marketing themselves and most students are still programed to believe "out of work, return to school," or "finished High school, go to college." So the disaster continues.
Our educational system is not sustainable.
Remember that our higher level institutions are really businesses trying to make money. They want #'s of students enrolled at any given point in time paying tuition. They do not care what happens to the students when they leave their institution.
Added note: I believe professors care about their students, but they are not the ones pulling the purse strings at colleges/universities. I direct the above sentiment to many adminstrators and state boards that actually run the institutions.
"Remember that our higher level institutions are really businesses trying to make money."
I currently work for an engineering firm and a bit over a year ago we hired an intern who was attending college in the area - he was a business major looking to finish up school and get a little bit of "corporate" experience...
Well, lo and behold - time flew by as it always does and he graduated a couple weeks ago. For a solid month prior to that we had been urging him to let us know if he wanted to stay on with the company because we would do everything we could to make it happen - we truly wanted him to stay because in the year or so he had been with us he had learned a lot and really gotten to know the "system" for our projects and company.
Just before graduation he informed us that he wouldn't be staying on - so a co-worker asked "are you moving out of town or got any other kind of offer or going back to school etc. ?" - the new graduate's reply: "... nope, not really sure what I'm going to do - just going to hang out for the summer, I guess..."
I was shocked that someone in this economic climate would turn down what probably will be a pretty stable job - at least for a few years... especially if they are just another of the dime a dozen business majors being cranked out of hundreds of schools across the country.
I don't know what the hell they're thinking.
I don't know what the hell they are thinking either.
I know young relatives in the same position. They grew up with low unemployment in the 1990s and never had a problem finding jobs during their high school and college years.
I think they believe the economy will recover and they will have multiple job choices in the future.
The vast majority will have to learn the hard way I guess.
Interesting. I had started grad school in astrophysics, but became disillusioned (i.e. I think I lost the fire-in-the belly for the subject), and the mental gymnastics didn't seem worth the effort. In any case you are right about the oversupply of Physics and Astronomy graduates. For my cohort (late 70's), there were abundant jobs in defense or computer programming. So I don't think too many ended up un or underemployed. But, few got work doing what they trained for. In my undergrad school, there were three intro physics sequences:
One for nonscience majors. One for science majors other than physics and astronomy. And finally one for physics and astronomy types. Few of the students in the lower category classes would have been able to pass the classes for the majors.
" In any case you are right about the oversupply of Physics and Astronomy graduates. "
I remember coming to grips with this as a post doc in the 1990s when I stumbled upon a series of articles questioning the model of the "Publish or Perish" academic world.
Acadamia is like a giant parasite now. Few if any graduate programs could survive without the cheap specialized labor (grad students and post docs) and a continuous flow of new students. Never mind the fact that a Ph.D. usually means, at best, a future of serial Post doc positions for most people.
I honestly feel sorry for most of my students. Most will have piles of student loans to pay back for the privilege of being "overqualified" for the actual jobs they will compete for.
TOD's gloomers are getting even worse than usual.
It's true that BAU is awful but that just means we MUST support change.
I support the right kind of growth.
We need a lot more renewables, a lot more efficiency, even a lot more carbon emissions control technologies.
There are plenty of good ideas out there but we'll never adopt any of them under the banner
of 'No More Growth'.
Future generations?
The best way to help them is to make today better.
majorian - kinda agree but to a point. After WW2 the world needed to 'grow'. Everything was shot to bits and real growth was needed to rebuild and get peoples back to a certain level of quality of life. Once that growth faze had run its path we switched from an infrastructure-growth economy to a consumptive-growth economy and it is this kind of economy which is simply not sustainable.
We can, and should, 'grow' our renewables infrastructure and local farms etc but in aggregate, as measured by the absurd GDP measure of total monetary transactions within the economy, we not only should not but can't grow for ever. If everyone agreed to substantially reduce their consumption and instead we diverted resources and labour into 'growing' the infrastructure we need then there might be some hope. Unfortunately once the consumptive genii is out of the bottle trying to convince most chav pikees that they need to radically re-adjust their lifestyles and assumptions of the future and live a much more simple way of life is going to be only possible if we suffer either a massive catastrophe first or a ruthless-but-well-meaning dictator takes over.
I'm off to the boozer to drink beer and watch the Champions League Final. Beer 'n' Footy = Bread 'n' Circus, and I fully acknowledge that we are all doomed so stuff it.
Cheer up things could be worse. So I cheered up and sure enough things got worse.
Looking at the situation today; Murphy is an optimist.
"The best way to help them (future gernations) is to make today better."
I think it depends on what you mean by "make today better."
My feeling is that is what got us into this disaster. Satisfy our "needs" now and pretend the next generation will be better off because of the "capital" we built for them... LMAO.
You couldn't be more wrong.
Selfishness got us into our present mess and a certain amount of selflessness will get us pointed in the right direction, if not out.
Libertarian egotism and its myths have extinguished our capacity for cooperation.
'People need only listen to their own narrow interests (as defined by the media) and the system will soon right itself!'
Or so the BAU mantra goes.
Remember the NRA?
Back in the 1930s when the System was flat on its back and couldn't create a job if it wanted to, government lead the way--building dams, post offices, colleges, restoring the Dust Bowl, securing old age pensions, expanding the National Parks, even completing Mt. Rushmore (and exploding the national debt--and who the F with a braincell cared about that?).
Let this sink into your brain.
The New Deal was the REAL foundation of the American Dream. Nothing else.
We need that kind of government...immediately if not sooner.
majorian,
something like the New Deal or the NRA will never happen in the US now. The "center" has become far right, and anything remotely left of that is "communism". The well has been poisoned, and the earth has been salted. We are not a "we" any more.
I think most people would consider "make today better" as an excuse not to change, an excuse to continue their selfish behavior, or BAU. That was all I was saying.
The value of the New Deal is open to debate (I'm not interested in debating it).
As for the American Dream - whatever that is exactly - it may very well be an unrealistic dream going into the future. Maybe its time to change the dream to something more realistic? Or at least modify the means to that end (e.g. no more using "other peoples' resources" by theft or war).
Social Security, Medicare, government pensions are all unsustainable. They simply require too many people paying into the system for them to be supported in their present form. Social Security was never meant to be a retirement program, it was meant to be a supplement. In the future people must learn to live within their means or you end up with the situation occurring in Europe.
Let's not forget what is real money, FDR banned the possession of gold. Fiat currency is not forever. The American Empire is in steep decline, the sooner it dissolves the sooner I no longer must worry about being forced to fight in some foreign lands.
Heres one for ya Maj;
"Barbara Ehrenreich: Why Forced Positive Thinking Is a Total Crock"
http://www.alternet.org/books/146940/barbara_ehrenreich%3A_why_forced_po...
A friend and member of Reno Transition spent many days this spring working in the county extension greenhouse training gardeners to grow plants. Today was their big sale where you could buy heirloom plants for about a dollar per plant, some a little higher. They moved all the plants outdoors yesterday to sell them today. We hoped to buy some tomatoes and other plants.
Last night the temperature started to drop. We had a light dusting of BB sized snow pellets. Though they covered their outdoor plants, most of them froze because they were in little pots and very delicate. We went to the sale this morning and almost cried over the devistation.
Living here in the high desert is not easy and will be increasingly difficult in times to come. When I walked the dog this morning there was ice on the pond. The apples were in full bloom and I am afraid they will drop blossoms. The only things up in our garden is asparagus which is going to fern this year and strawberries. Next year, I think we will grow our own seedlings in our own hoop greenhouse. We need this experience if we are to survive here.
No complaint, just a reality check.
We were seduced into complacency this year by the early spring weather. For Mother's Day, my son gave my wife a pallet full of veggie and flower plants. She left them outside and an unexpected frost killed 90% of them.
Live and learn I guess.
Not a complaint, just a reality check ;).
Lynford,
Oh, I'm so sorry. That's very sad.
We have had jerk around spring weather - cold, hot, miserable storms, hot again for a week. There are a lot of first time gardeners and it's really frustrating that they can't get a toehold.
Must go. After a warm, sunny morning, the sky is turning ominously black and I need to get my starts in off the deck.
This has been an extra-ordinary nonspring in California. Normally we would be in mid eighties by how, but we keep getting cold gulf of alaska lows. We should be seeing almost zero clouds by now, but my PV system isn't getting all that much sun. Jeff Masters said April was extra-ordinarily warm (world surface temps at a record high), and 49 states were above normal (we were the exception). May is turning out no warmer than April. In our case cold and cloudy is probably good for the plants. The baking almost never a cloud summers really are stressful on plants, and water supplies.
The late freezes and the storms are the killers of gardening.
Sad that your area got hit the way it did.
Greenhouses are at times the only way to stave off the nasty weather changes. Though a bad storm could cave in your greenhouse, and they might not be all that sustainable in the future, I still like them when I can have one.
Hugs from Balmy Arkansas.
Charles,
BioWebScape designs for a better fed and housed future.
The article on the CFTC limits proposals is demonstrably hog wash.
Look at the Silver and Gold Comex a fully regulated market run for the exclusive benefit of the 'banksters' with full government and mainstream media silence apart from mentions in a New York paper.
Enjoy it reads like a cheap thriller.
You can start here:
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2010/5/21_Le...
or here
http://www.nypost.com/p/news/business/jpmorgan_chase_story_in_uk_DsMN4Pn...
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2010/3/30_Andre...
Basically Andrew Maguire became tired of being on the inside track of the big banks short frauds, having made plenty of money he got moral and gave chapter and verse to the CFTC, which they have ignored.
So a demonstrable fraud is in progress several times a month, knowledge of which is suppressed by the MSM and may have even involved an assignation attempt on Andrew Maguire.
From link above:
Why is it so incredibly difficult for people to understand what the two words "Peak Oil" mean? You would think that this term is self explanatory: a peak in oil production followed by a sustained decline. Instead we get nonsensical statements like "we don't believe in peak oil but we believe that oil production will peak and then decline".
Three reasons. Strawmen, strawmen, strawmen. They've so many peakoil strawmen killed, that any other meaning doesn't register.
I think most people think in terms of having something or not having that thing. Like we have some bread, half a loaf, a quarter loaf or no loaf. But they don't understand that the oil used each day is a flow, comparative to a river, with the world having gotten used to a mighty river of black gold. It's counter-intuitive for them to think in terms of a flow that must be maintained at a certain rate while also capable of increasing to match increasing demand. Instead they think in terms of, 'we either have the stuff or we are out of it'. That's why we keep seeing these inane articles referring to peak oil as meaning running out. No, its not a loaf of bread, its a river of oil, and once the flow at some point begins to recede from a maximum flow, peak oil, it will spell trouble for a world reliant on abundant energy.
Why they have trouble getting such a simple idea, is anyone's guess.
A couple weeks ago, I posted an article on the energy retrofit of Deutsche Bank's Twin Towers. Now it's Bank of America's turn to grab the spotlight:
NY skyscraper wins highest "green" certification
The U.S. Green Building Council gave the Bank of America Tower its highest rating for environmental performance and sustainability on Thursday, meaning New York City's second-tallest building is also its greenest.
See: http://www.reuters.com/article/idUSTRE64J3LW20100520?loomia_ow=t0:s0:a49...
Cheers,
Paul
Paul,
Thank you, that's great. I get a big kick out of over the top greenness projects.
A while back, the City of New York gave my team an award in the "Greening NY" design contest for coming up with a similar retrofit of a "B building", a standard NYC glass office tower.
It's all good and of course, on some other level, it's in no way sustainable. I think the tremendous benefit of greening a glass office tower is as much the ripples from the project as the project itself. A lot of those towers are just toxic work environments, and cleaning them up probably pays off as much in improved worker productivity as in energy savings.
There are other huge benefits not nearly as measurable as the number of air changes per hour. The subcontractors get a whole different perspective and a new skill set from working on the project. Something on the scale of this one gives a boost to the supply line and supports struggling regional materials providers. The publicity and the very pleasant ambiance of LEED buildings get people thinking how to incorporate some aspects into their own projects.
Of course, we knew when we proposed our entry for the contest that greening up a glass tower is, in the words of James Howard Kunstler, "blowing green smoke up our collective asses". Those towers are part of a cheap energy world. Just about anything up to eight stories can be made to work in an expensive energy world, if it can be retrofitted so some of the windows open. Over eight stories becomes very problematical.
http://www.businessweek.com/ap/financialnews/D9FRPDEG0.htm
'Geithner tries to reassure China over US deficit'
"The US will get its deficit in order". And just how will that happen? As you can see from the link below,
http://zfacts.com/p/461.html
we are quickly approaching 13 trillion in debt, with an estimated deficit for 2010 of 1.5 trillion. The following years until 2018 are estimated to be 1 trillion dollar deficits. So how will the deficits be reined in? What an outrageous claim by Geithner. But then again I suppose he wasn't asked to define what getting the deficit in order actually means. Maybe it means a reduction of 5 or 10%. But will that satisfy Chinese officials? I think this is building towards a tough stance to be taken by China. An either or situation, in which the chinese define the deficits allowed or no more money will be loaned.
That would be very interesting. What would happen then? Maybe a policy of austerity, much like Greece?