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Countdown to $100 Oil - No Normal Recession
Posted by Euan Mearns on October 17, 2011 - 10:02am
David Cameron describes the economic downturn as "no normal recession" UK Prime Minister David Cameron to party conference, 5th October 2011.
This is the fourth post in the series following the oil price, markets and general health of the global economy examining the simple theory that OECD recession may result from annual average oil price exceeding $100 / bbl.
The annual average price (AAP) of Brent went through $100 on around 16th August 2011 and the AAP stood at $105.3 on 12th October. The AAP high point in the 2008 price spike was $104.8 on 9th October that year.
Below the fold are observations and commentary on debt, economic growth, interest rates, commodities prices and government policy. This is not intended to be quantitative analysis but instead is intended to provide a platform for discussion in the comments.
No Normal Recession
When the UK Prime Minister calls the current economic crisis "no normal recession" and The Governor of The bank of England has said "this financial crisis could be the worst the UK has ever seen" it should be clear to all that we are living through exceptional times.
Ask any financial commentator or the political and economic elite and they will tell you that the cause of this crisis lies in the Euro Zone and that the straight jacket of the single currency is causing stress in peripheral nations that are in deep recession and unable to service their crippling debts.
In 2011, the European Union had a GDP of $16.3 trillion. Tiny Greece contributed just $0.3 trillion or 1.8% of the total. Can it really be the case that the risk of default in this tiny economy is threatening to topple Europe and with it the global economy? Is it this risk that is threatening stagnation of economic growth? Or is it stagnating economic growth that is raising risk of Sovereign defaults? It is of course the case that triggering settlement on credit default swaps on Greek debt may multiply the problem enormously.
This chart from The Guardian illustrates the problem. 13 quarters have passed since the 2008/09 recession began but the UK economy has only recovered 2% of the 6% lost and is not on any trajectory to recover all 6% any time soon. While Cameron may think this is no normal recession, thus far it has evolved rather similarly to the first oil price recession back in 1979 / 83. However, there are four key differences this time:
1. In 1981 interest rates stood at 17%, raised to squash oil price inflation, could then be lowered to stimulate recovery. In 2011, UK base rates stand at 0.5%, cannot be lowered any further, and the Bank of England has effectively lost control of inflation and the economy.
2. The 1979 oil price shock brought on by the Iranian revolution was artificial and new supplies stood ready around the globe that could be brought on stream to alleviate scarcity and bring down prices. Oil prices continued to fall until 1998. In 2011, global oil production has stood on an 82 mmbpd plateau for 7 years despite record high oil prices. There is little prospect that global supplies can be increased sufficiently to satiate demand and bring down price.
3. In 1979 / 83 governments recognised the cause of recession to be high oil prices and a range of measures to boost supplies (North Sea, North Slope) and reduce demand for oil (fuel economy and substitution in electricity generation) took place. In 2011 the recession is blamed on The Credit Crunch, sub-prime mortgage defaults, the Eurozone problem and Greece. The UK government, failing to recognise the key energy problem, has penalised North Sea oil producers with increased taxation and somewhat amazingly is contemplating a rise in the speed limit on the country's motorways from 70 to 80 miles per hour.
A note on UK speed limits
The speed limit on main highways in the UK is currently 70 miles per hour (MPH) and has been for many years. Back in the 1970s following the first Yom Kippur oil shock the government reduced the speed limit temporarily realising this was a good way to improve energy efficiency and reduce liquid fuel consumption. Somewhat astonishingly today, the government is considering raising speed the speed limit to 80 MPH. From this it seems quite clear that there is no perception within the corridors of power that the current economic crisis is part linked to an energy crisis.
4. Debt levels throughout every level of the economy are much higher now and the economy cannot support higher interest rates to squash inflationary pressure and the higher energy prices that are causing inflation. With interest rates effectively at zero, economic health has been handed over to the fluctuating and highly volatile global oil price. When the oil price fell in 2008 / 09 growth resumed but with the oil price rise (stimulated by QE) in 2010 / 11 growth is stalling throughout many of the major economies. It is this stalling growth superimposed upon high debt burdens that is the main threat to sovereign solvency.
The September 2011 commodities price crash
The September 2011 crash in the price of copper (and other commodities) was reminiscent of the October 2008 price crash. Copper, along with oil, would normally be considered a bell weather of the state of the global economy and this crash most likely heralds global economic stagnation or contraction. Surprisingly, the oil price barely flinched which may be a sign that oil supplies are more tight than many believe. But if $100 oil does cause recession then demand will shortly wane and the oil price must surely follow copper down?
A shrinking share of a static pie
This chart, inspired by one previously posted by Gail, shows how the OECD share of global oil consumption has fallen fairly steadily from the early 1970s. Once upon a time the OECD consumed about 75% and this has fallen to about 53% today. The developing economies have relentlessly increased their share and will soon consume as much oil as the OECD. For many years this mattered little since global oil production was rising rapidly enough to satiate increasing demand in both OECD and Developing Economies. But since the 82 mmbpd plateau was reached 7 years ago the OECD has been getting a shrinking share of a static pie. Should oil production go into decline on the backside of Hubbert's Peak then this situation will become suddenly worse.
It is oil and energy consumption that produces real GDP and creates lasting wealth, not digital billions conjured out of thin air.
The cart and the horse
This article on Bloomberg sparked some debate on The Oil Drum email list. My own reaction was that they had got this the wrong way around. It must surely be the extremely poor and highly misguided energy policies pursued by most OECD governments that are threatening economic growth and it is this economic stagnation that lies beneath nation's losing ability to service their debts. If we had strong economic growth, the extant debt problems would be less severe.
Failure by OECD governments to recognise that it is growing supplies of cheap energy that have oiled the wheels of economic growth for decades lies at the heart of the problem. The notion that we can have an economy based on magic money that can be used to support mad cap energy policies like carbon capture and storage, hydrogen cars and temperate bio-fuels must be put to bed. Energy policy must be re-formulated with some urgency with focus on providing society with adequate supplies of affordable energy.
A day of reckoning and acceptance of harsh reality looms. The OECD will most likely continue to lose share of global oil consumption to developing economies who manage to deliver more energy service per unit of energy consumed enabling them to pay a higher price and secure that ever higher share. Should that lower share of static supply turn into lower share of decreasing supply then severe economic hardship will follow with employment levels, social and health services and pensions hit first and hard - it is already happening!
There is no simple solution. But a personal belief is that if the population understands the cause of the trauma they will be better equipped to cope and accept the consequences. Blaming bankers and Greece alone will leave the feeling of pointless suffering that might have been avoided. With little to no control over global oil supplies the OECD must develop an obsession with energy efficiency in an effort to get their demand down ahead of the price curve. Speed limits on UK motorways should be reduced to 60 miles per hour and enforced. Inefficient means of energy production should be discouraged not subsidised.
Earlier posts in this series
Oil prices and recession June 1 2011
Countdown to $100 oil - a date with history? July 11 2011
Countdown to $100 Oil - Deja Vu? August 26 2011
Commenter Pasttense asked if I had ever documented my views and recommendations on energy policy. I gave a talk on this subject at ASPO 9 in Brussels earlier this year. The slide deck is here and the video is here.
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Nicely phrased article.
My own sense is that we have entered the field of "sociology" in the failure to pay attention to what seems to be an obvious factor in the weak economy.
Too many of the ruling elite don't want to be considered "girlie men" (a nice phrase coined by the former Governor of California)or associated with Jimmy Carter and his cartigan sweater.
I also think there's fear among the senior statesmen that they 1) have failed the younger generation by leaving them a worse society than they inherited, and 2) that they themselves are not up to tackling a life with lower energy consumption (i.e., riding a bicycle, not turning on the A/C.) The Daniel Yergin example has been referenced here many times in his denial of the possibility of peak oil. Also, what I found interesting (and not referenced here) is that James Hansen, the climate scientist, in an otherwise informative book on global warming (Storms of My Grandchildren) has a long chapter on how breakthroughs in nuclear energy (which are only being held back by a conspiracy of anti-clear activists!) will enable us to keep crusin the highways and having the A/C cranked to 10.
Significant portions of the populace will never embrace an understanding of "peak oil" until it is too late. They will see it as a conspiracy to keep them down, to destroy their standard of living or to increase profits for the oil producers. This will lead to further civil strife.
Look at the arguments around global warming for a hint as to how this is likely to play out. We will never reach consensus on this issue. Plan accordingly.
Hansen backs the development of a new fleet of fast-breeder reactors. This does not require any breakthroughs in nuclear technology.
Wind is good. Solar will also be helpful.
Good article!
Just one step of reducing the speed limit on highways is totally pointless. Either we embark on a sustainability campaign sponsored from the top very soon, or the whole system will collapse.
Half-measures that extend the life of the current economic paradigm will only create a worse collapse later.
Collapse has already started and I am doubtful that it can be stopped. The world will be a very different place in 2020.
Euan - Great detailed presentation. But it's your own fault: long ago you set a high bar that everyone expects you to maintain. LOL
Most TODsters know it but for others: don't confuse the theme of this article with the MSM relentless offering of low WTI prices. First, that WTI "price" thrown out so often is not the price that WTI is selling for. It's the futures price that some folks are betting on with an equal number betting the other way. Second, as another TODster pointed out some time ago, WTI represents about 15% of the oil sold in the US. Despite the recent drop in WTI future prices (as well as actual sales price) below $100 I haven't sold a single bbl of oil for less than $102 since oil broke the $100/bbl mark. Recently much of my coastal Texas oil has been barged to La. where it's been selling as La. light sweet. At peak I was getting over $115/bbl.
If an oilman receives $50 per barrel more than previously, wouldn't this enable an oilman to invest more and wouldn't these investments to some level also support the economy?
Where do you think that $50 is coming from? It is coming from the hide of the public. And most of the $50 is going to national oil companies. Also, it cost a lot more to produce the marginal barrel of oil so even the US or European oil companies are not getting an extra 50 bucks.
So half the $50 goes out of the country to other oil companies. Half of the remaining 25$ goes to the extra cost of producing the oil. So about there is about $12.50 extra in the pockets of US or European oil companies and $50 less in the pockets of the public. That's not a good swap.
Remember Europe is in the midst of a great economic crisis as well. Paying an extra $50 for oil is hitting Greece, Ireland, Italy and even Germany very hard while the extra profits of BP, Shell or Total is really not helping all that much.
Ron P.
Half of the remaining 25$ goes to the extra cost of producing the oil.
Well, those extra costs should be partially added value to the US economy as far as Texan oil is concerned. (Assuming the additional equipment and labor to produce more oil is produced in the US).
I'm not saying that everything goes back to the economy, but some should. If the economy has to spend 1% more for oil, it may actually only have to net 0.5% more.
anyone - Without putting numbers to it: fairly simple. US public oils: All revenue goes to taxes, dividends or operating expenses including company overhead. Dividends are typically a set percentage of earnings. So for every $1 increase in oil somewhere around $0.05 more goes to the shareholders (and a huge chunk of that goes into the retirement accounts of millions of Americans). The rest is spent by the companies conducting business. And virtually all that money goes to mineral owners for their leases or to service companies.
Right now there's a capital transfer of around $2 billion/year going to service companies that are doing to actual drilling in the Eagle Ford shale gas play in S Texas. And most of those are public companies. So, if there's any comfort to be taken, much of the increase in oil revenue goes back into the economy in the form of salaries and material purchases. US companies are sending many 100's of $billions into the economy. Of course it's pulling most of those monies out of the economy so it's more of a wealth transfer than an addition. But better to be transferring it to the US economy than some other country's economy. We're doing that to the tune of around $150 billion/year. I chuckle sometimes when I see this line of thought: almost every penny that ExxonMobil makes goes back into the hands of the public either as salaries, dividends, taxes or royalty payments. IOW nearly every dollar is redistributed to millions of US citizens. Figure some way to lower XOM income and you've lowered the incomes of a lot of folks. Except, of course, the incomes of the CEO and executives...they typically won't have their salaries cut regardless. But your granddad, a former union worker, might see a little less in his retirement account.
Privately owned oils and service companies obviously don't pay dividends. But the bulk of their incomes goes into operational expenses also.
Two problems with that analysis. One; who are the acutual owners? I bet a significant percentage are overseas investors, since the US has been running a large current account deficit for years, a considerable amount of our corporate assets must be owned by foreigners. [Nothing wrong with that, if we had been thriftier, we would own a lot of foreign assets paying dividends to us].
Two: It isn't all going out as capital gains and dividends, some is going into oil infrastructure, and that effort is not going into consumer stuff. So the capital tied up in oil production increases, but output doesn't.
I rarely disagree so strongly with you and Ron,
Missing from the discussion is the role of the multiplier that results from new earned money, which is spent and then respent several times.
Consistent with Rockman's implication, I think the comparison that matters is the increase in US spending resulting from a US produced barrel of oil (plus multiplier effects) versus the US spending that results from an imported barrel of oil.
The run up in oil prices has certainly been a boon for oil producers. Not only should this have brought additional investment dollars into US production, it appears to be doing so.
While increased US oil production should have a clear economic benefit, this marginal gain is unlikely to solve US economic problems. These problems have been created by redirection of new national income to the investing class, leaving individuals who earn thier income from wages with no new money to spend. Thus we get the comments like those below, which seem to suggest the answer to US economic growth is to encourage even more obscene conspicuous consumption by the wealthy.
Easier answer, take new national income from investing class and allow growth in income for wage earners. Even the investing class will benefit because of US economic growth.
P.S. Long term investments in renewable energy may have even more benefit to the US economy in the long-term, but that is not the issue here.
Establishing frame-conditions which favor investments in decentralized efficiency measures (e.g. weatherization) and decentralized renewable energies as opposed to investments in oil would enable growth in income for wage earners.
The multiplier works both ways. What we are discussing is an effect of a delta of $1 more being spent on oil. Sure some of that $1 is recycled through the economy. But (relative to the baseline, which is slightly chearer oil), that dollar was first removed from the economy. Any multiplier effect operates on both sides of the equation. Any net loses of that $1 extra revenue to the oil company, represent dead losses to the economy. So lets say, $.20 is paid out as dividends to foreign owners (deadloss as for as the domestic economy is concerened). Then maybe another $.20 goes to rich domestic investors. Some of that will be invested abroad. So before multiplers we have a loss of mayve 25% of the price increase to the economy.
Now, if domestic oil production is increased without changing consumption, that is a net positive for the domestic economy, i.e. much of that $1 goes out as wages, purchased stuff (say drillpipe), and dividends. But here in the physical world we see we have an extra barrel of oil (or one less one to import). In the former case (price change only) we don't have anything extra physically.
But EoS, each new US barrel would replace an imported barrel. Domestic consumption is not determined by US production but by international markets where a modest amount of increased US production would have essentially no impact. US consumption would be unchanged.
Thus the comparison holds, as the money spent on a barrel of imported oil certainly leaves the country.
Let me be clear, at this time rising oil prices are killing the US economy. Most of the money spent on costlier oil is going to overseas oil producers and is lost from the economy.
Yes, the multiplier working the other way.
One way of explaining why an increase in US spending on imported oil has such an outsized effect.
daniel
Re: "Most of the money spent on costlier oil is going to overseas oil producers and is lost from the economy."
If the US imports 50% of its oil, on what do you base "most of the money spent . . is going overseas"?
That calculation would need to include the ownership distribution of shares in the respective companies.
More importantly, the US is bleeding about $1,000,000,000 PER DAY to imported oil - filling OPEC's coffers, while politicians twiddle.
Call you member of Congress to pass the Open Fuel Standard Act to get serious competition going for alternative fuels.
Daniel, EoS gave you a pretty good answer and I will only try to add to that. If higher priced oil represents "new earned money" that multiplies over and over, then the logic that follows that is "the higher the price of oil the better off everyone will be". After all if oil was $300 a barrel than all that new earned money, over $200 a barrel, would be spent over and over making everyone much wealthier. Quite obviously it don't work that way so there must be something wrong with your theory.
Obviously if that happened the oil companies would be very very rich. And their shareholders would be getting huge dividends. But the rest of the nation would get nothing but a huge gas and oil bill, making them much poorer. And much of those huge profits would go to places like Iran and Saudi Arabia or the UAE. That would not help you and I very much.
And Exxon, BP and all the other rich oil companies would not necessarily reinvest that money. Some of it they would but much would go to buying out other companies and likely laying off half their workforce.
Economies grow because of lots of capital to reinvest. If only the oil companies have capital to invest, and every other industry is hurting because the people have little money to spend, because of high oil prices, not much can happen.
Capital is not just money, it is money that you, or a company, has left over after all your, or their, basic needs have been satisfied. If your spend all your earned money on basic needs then there is no capital to invest. If a company is barely meeting expenses because it is costing them more and more to produce their product, then there is no capital for investment, or anything else.
Cheap energy all around means everyone can make cheap goods and sell them at a profit. But when energy is no longer cheap then everyone and every company is a little poorer. That is what is happening right now in the world. The days of cheap energy are over. This means that the times of plenty are coming to an end.
Ron P.
Language - so difficult.
Rereading, there is not really a correct view because the issue was ambiguously framed. Yes, energy descent will decrease collective wealth.
However, addressing what seemed the dominant implication, I focused on the impact of increased US oil production resulting from high prices, and not unambiguous economic loss from increasing expenditures on imported oil or the redistribution that follows from a price increase.
To the extent that high prices drive resurgent US oil production and decrease imports, a substantial economic benefit will be produced by the drop in US spending on imports. Could this benefit be of sufficient size to out weigh the negative impact that higher oil prices have on the rest of the economy? Partly because of the multiplier effect, I think it could. Another important factor is the economic utility of oil consumption that is given up. Much of that oil use may add little. What is the economic value of a larger car or of thoughtless travel that would not occur if one rationally considered expenses?
In a multipolar world, economies grow because they have capital to invest - and an expectation of adequate return. Typically valid arguments about tradeoffs between consumption and investment become mute in an economy without an expectation of growth. The need for capital decreases.
Even worse, if capital can find better returns overseas, it will flee.
eos - I haven't seen the stat for a while but long ago a big chunk of US oil equities were held by pension and hedge funds by US citizens. But as you say, the shareholders are the owners whoever they are. If foreigners so be it. We have a lot of US citizens who earn dividends from foreign investments who then spend the money here.
Not some going into oil infrastructure but the bulk of it. And that goes to services companies who pay dividends to shareholders who buy stuff and to employees' salaries which is then used to buy more stuff. I'm not sure what you mean by "the capital tied up in oil production increases". Hopefully so and the result is that for every $ sent on oil infrastructure there is more than $ generated to the economy. If not then the industry is losing money. Not good for the oil patch and not very good for the public. Think we just went through something like that with the home finance industry.
I'm not sure I'm getting the tone of this thread correctly: is there something wrong with a US industry, any industry, growing and operating at a profit? Granted folks are transferring a lot of wealth to that industry. But they are going to be transferring it to some oil/NG producers. Better to be sending it all to the KSA?
I know folks are upset with the recent increase in energy costs. If folks don't like the idea of domestic companies making that money (and reinjecting most of it back into our economy...fine...vote some politicians in that will shut us down. And then they can focus the resentment on foreign producers. Producers who won't give a rat's *ss how we feel about it.
Excellent! As peak oil runs up prices, energy companies profit, it flows into pension funds and such, and compensates for fuel costs (if consumers aren't mitigating against them already with EVs and bicycling and whatnot).
And on paper I can draw up wonderful plans for a perpetual motion machine that produces energy from a single heat reservoir and doesn't have to worry about dumping the waste heat somewhere else. It's just like Keynesian economics! Magic!
And the common urban myth -- tsunamis and wars are good for stimulating the economy because they get money flowin'. Reality: the US emerged from WWII with near record debt to GDP and was only able to escape from this through economic growth and negative real interest rates.
In those scenarios, GDP DO go up, but VALUE ges destroyed. Wich only serves to demonstrate how limited the GDP is to measure economy. Funny how we picked the probablyleast usefull value forthe purpose to look for as a thermostt for economic activity.
No, GDP goes down, typically. (Look at Japan, for instance.) GDP is an excellent measure for economic activity.
I think GDP temporarily goes up as the government must increase deficit spending, and typically interest rates are lowered (look what they did after 9/11) which stimulates more easy money policy and credit expansion. The problem is that this must be reconciled at some point in the future when that government debt must be lowered (typically this is done through economic growth, but no more; another option is to go into negative real interest rates -- this also overstates GDP). This is why governments never really run surpluses for any length of time, because they count on the above strategies to deal with the debt burdens. Also, interest rates must come back up at some point too.
This has been the strategy of the last 10 years or more -- deficit spending and rock bottom interest rates -- but it has not been done to help us overcome some disaster, it has been done to keep the entire financial system from imploding. It will soon implode.
One of the great anomalies for me in modern economics is not considering depreciation. GDP is a crude measure of "work done" that correlates (I hope) with tax revenues. Shopping is hard work - believe me;-) In order to get a handle on wealth increase, depreciation has to be taken into account. I believe this is why the Germans and Scandinavians have grown wealthy - they build to last.
Yes, but GDP is an income measure, in a sense, and since you can consume varying amounts of your income (or even more than that), it says nothing about wealth increase. There is a measure called "national wealth" but that's not as widely used.
If you look at it from the frame of physical flows, rather than money, which is an articficial human thing, you see that (assuming it isn't resource owners simply charging higher rents), that more economic effort is being put into producing and/or exploring for oil than previously. I.E. workers who in the past would have been making consumer goods, are now employed trying to obtain more oil. To the extent, it is just pure rent-seeking (i.e. market condition favor suppliers to make higher profits), then the money can be recycled back into the economy. But, it tends to go towards the already rich. And it tends to go from consuming to producing regions.
So say, the excess price accrues to a multi-millionare. The extra spending goes towards a bigger yacht. In the physical economy, a worker who formerly would have produced a widget for a 99 percenter, is now building a bigger yacht.
And as we trend toward eroei of 1, all nurses, teachers and manufacturers will be drilling for shale oil.
Euan
You recently visited American and burned up a lot of our cheap gasoline on a jaunt around the Southwest.
Complaints about high energy prices in the E zone often overlook your oppressive taxation of liquid fuels. Is there, in your view, a role for those taxes to be reduced? Just sayin... And does that idea ever come up in general discussion?
R Udall
Randy,
I was directed to this site over 5 years ago by Jeffrey Brown (Westexas) who had posted something over on 321 energy and I sent him an email. Little did I know then that email would take me to Goosenecks and Kelly Place;-)
High gas prices in Europe teach us to be efficient, using less than half the energy per capita as you guys do. And life is just as good over here. If we train ourselves to be able to pay a high price for energy then the energy companies will produce more of it for us. So if you have had time to listen to my ASPO 9 talk you will know this outcome is very good for society faced with FF decline but is potentially bad for CO2 emissions.
I think Jeffery agreed with me then that much higher energy taxes were needed in USA and not the other way around. It seems USA would rather self destruct than suffer the humiliation of using 70% of the energy per capita used today (I'm factoring in decline in Europe's consumption here). There are howls of anguish at present about energy prices - but little of this directed at government, its focussed on profiteering utilities who, unlike their banking counterparts, have not yet abandoned the profit ethic.
If Europe reduced gas taxes, demand would rise, pushing oil prices higher, canceling any gain. Main difference is that taxes go to our national governments instead of Arabs and Russians.
¥ (Yuan)
It it were up to me, I would abolish the highly regressive Payroll (Social Security + Medicare) Tax and replace it with an energy consumption tax, on the retail level. It would be a carrot & stick approach to push us toward where we appear to be headed anyway, toward "freedom" from our reliance on foreign sources of oil, as we continue to be outbid for access to a declining supply of global net exports.
But then again over 9% of the US population is unemployed or rather: The capacity utilization is only at 77.4%:
http://www.federalreserve.gov/releases/g17/current/
The problem appears to be that the rich unfortunately don't consume enough. At least not as much as the rest would, if they wouldn't suffer from a diminishing income share. Also, the rich seem to prefer to buy properties rather than actual products. This does increase living-costs in general without giving anybody really anything in return.
What would you expect the rich to do with all the extra products they would be consuming? Live high on the hog, then send the refuse to the landfill? (Ok, let's think environmental friendliness and say the rich will do their part and recycle.) Right, those of us with large disposable incomes should accelerate our consumption of Nature's resources so that we can rescue the economy.... Consumption is a Problem (with a capital 'P'). How about let's everyone (rich and poor) consume less, have fewer or no children to consume on into the future, and begin adjusting to a new standard of living that resembles that enjoyed by our great grandparents. They survived without the wildly consumptive behavior we have come to think of as economically "healthy". If the rich should do something productive with their disposable income, it should be directing investments toward population control, alternative energy solutions, and conservation.
Yes, the rich should insulate the properties they own, invest in renewable energies and turn into philanthropists (for their own mental benefit - however and unfortunately, most of them are not smart/wise enough to figure this out).
Consumption of efficiency measures, renewable energies and education is not a Problem.
Billionaires are actually the antithesis of debt in that they have postponed and not brought forward consumption. Billionaires who spend their fortunes now will produce consumption - Bill Gates is probably the worst example of philanthropy.
If a philanthropist were to invest in education, conservation and renewable energies, it would certainly reduce consumption of limited resources (reduced birth-rate and lower consumption per person). (Bill Gates may be a bad example of a philanthropist).
Right to Life groups have not been happy about Gates support of family planning.
http://www.lifesitenews.com/news/archive/ldn/2010/jun/10060813
From 2003
http://www.lifesitenews.com/news/archive/ldn/2003/may/03050902
Then there is this - On 60 Minutes Melinda Gates once addressed what some had claimed to be a conflict of interest
http://www.huffingtonpost.com/melinda-gates/can-social-media-end-mala_b_...
Maybe they postponed consumption in their individual lives, but that is not how most of them made their billions. They became billionaires by encouraging others to consume something and then saving a cut of the profits from that consumption.
Bill Gates did not become a billionaire by collecting nickels and dimes he found lying around on the ground. He made it by producing software that encouraged hundreds of millions of people to buy hundreds of millions of computers on which to run his software.
true, and even more so, he made his money not from selling computers, but from selling software that, once dreamed up, cost pennies to copy and distribute. He essentially created an entire industry out of almost nothing - not to say that the software didn't do anything valuable, but that it's price was determined almost entirely by some abstract combination of demand, marketing, monopoly, and naivete. In other words an almost totally virtual form of consumption produced the most pure wealth of our times. Says something about how wealth is created in general maybe.
In other words an almost totally virtual form of consumption produced the most pure wealth of our times. Says something about how wealth is created in general maybe.
That is certainly one of the sticky points with 'limits to growth' but there most certainly are physical planetary limits to population carrying capacity (a moving target depending on many factors not the least of which is the technology level of energy harnessing). Almost all vapor wealth would evaporate in an overshoot collapse-but even in a collapse if the knowledge base (including the rubber meets the road portion where people actually make useful physical things) is preserved much wealth is preserved within it.
agreed, although I think maybe i think some kind of mean where vapor wealth meets vapor production. the way i see it, even a collapse is at this point going to be entirely mediated by tech, and whoever has the best tech survives. The weird thing about it I think is that production is now so intrinsically tied to tech, that the question of wealth and production is entirely different than it was in the early industrial age when all these economies of work and money were invented. the dynamics of what constitutes work are going to change rapidly, and so I'd guess that there's essentially going to be a steep curve between labor that's involved with production, with will generally be very technical, and labor that's entirely 'vapor' - service, entertainment etc. I don't really see these evaporating even in a crunch because of tech. If anything, i imagine a collapse would increase the technocratic gap between wealth that is 'vapor' ie Gaga or Bierber, and wealth that is tied to some kind of actual production ie Hamm or Koch. Value is increasingly abstract and polarized due to tech.
Spoken like someone who has never had to go a day or few with no food, though I do understand pretty much where you are coming from. In simpler times much of knowledge base that was once archived in Alexandria and other civilization centers was truly lost over the centuries. The shape and length of the bottleneck determine how much gets through it how fast. The make up of that which does get through...well lots of interactions at the beginning of the bottleneck mostly determine that.
Don't overrate our tech or its permanency, lots of life is looking to displace us if the energy inputs our tech requires get choked down. I just watched a fine 'Nature' production, 'Radioactive Wolves' on PBS. The exclusion zone at Chernobyl looks to be thriving...in our absence.
The problem with what you propose, which I will call resource consumption austerity, is that the way our economy works it requires a greater fraction of the population to be thrown into desperate circumstances. We don't give every worker a $10/month pay cut, and a minut more of vacation time, we lay some off. So the effect on the economy is to drag it down further. We really have built ourselves onto a treadmill, and don't know hoe to get off without getting hurt.
Automation technology is throwing construction and farm labour out of work and this requires more economic growth in order to suck up that unemployment so that they can get new jobs in the latest housing construction bubble ponzi scheme. Of course, those bubbles crash and then unemployment goes back up to what it should be. And with physical constraints on economic output becoming more severe (Peak Oil and soon Peak Food) then there really aren't any more housing bubbles available to suck up unemployment. The only way to reduce unemployment now is to reduce the work week.
Countering this trend of increasing unemployment is the decreasing EROEI of our energy sources which tends to suck up unemployment because it requires more labour to extract an equivalent joule of net energy than it used to. So this would tend to create jobs and decrease unemployment. But the flip side of this is that we are not doing nice things with those extra jobs that are creating benefits to society; we are merely trying to stay afloat and it requires more and more people to go down into the bilge with coffee cups to bail out the sinking ship, rather than relaxing on deck and watching wildlife swim by and enjoying the fruits of automation technology's labour-saving services.
The best way to deal with unemployment is to of course get off energy sources with a decreasing EROEI and to reduce the work week. It's absurd that people can no longer make ends meet while working 40 hours a week, yet we have all this automation technology over the last 50 years that was supposedly brought about to make our lives easier and provide us with more leisure time... The reason it isn't working is because we have been stuck in a 40 hour week for 50 years by TPTB whose monetary system requires perpetual economic growth in order to steal wealth from the middle class, and in order to maintain full employment at 40 hours a week the government has to overspend which in part contributes to all the debt problems we are seeing (there is more to it than this though).
ROCKMAN
you forgot to add that WTI is only paid by 15% of the US - and to all of Canada. Somehow I think Canada got outnegotiated - thats the trouble when your oil is landlocked.
poly - I try to avoid pointing out how the evil Canadians are flooding our mid west markets with their cheap oil and hurting incomes of many of our companies. There oughta be a law.
Why is the importation of ethanol taxed and of oil not?
To protect the US ethanol industry (corn growers to refiners) from cheaper sugar cane ethanol from Brazil.
Brazil now imports ethanol.
http://en.wikipedia.org/wiki/Ethanol_fuel_in_Brazil#Exports
Corn farmers own better lobbyists.
Why do corn farmers own better lobbyist than US oil miners?
It is well known that the agricultural lobby reaches into many many congressional districts and the horsetrading after that gives it incredible leverage. The coal lobby is long established and powerful with deep ties in organized labor that the agricultural lobby does not have though coal mine owners and miners aren't always on the same lobby page. Pretty tough to call who owns the better lobbyists.
Interesting. Seen any good discussions we can find links for?
Perhaps 1/3 of "Canadian" oil, though it is techically owned by the people, is extracted by subsidiaries of US oil companies, and another substantial portion by European-based head offices. These corporations have great sway over the provincial government politicos who manage the resource, and over the federal government whose political base is in Alberta, the Texas of Canada (in more ways than one).
Perhaps your comments should be directed to Houston or Rotterdam. To the average Canadian, the term "foreign owned" doesn't have the same connotations as in the USA, which implies some kind of economic defeatism.
Any comments on Figure 6 on the situation in the Former Soviet Union? While I could understand a big decline when the Soviet Union broke up and the corresponding economic crisis--why hasn't it recovered?
Has Euan ever posted a complete set of his proposed policies?
I gave a talk on energy policy at ASPO 9 earlier this year.
Here's link to slide deck
http://www.aspo9.be/assets/ASPO9_Thu_28_April_Mearns.pdf
Here's link to video
http://webcast.streamdis.eu/mediasite/SilverlightPlayer/Default.aspx?pei...
I'll add these links to body of post above.
soviet union wasted so much energy. after the collapse there was a real incentive to use energy more efficiently. hence the economy has recovered (gdp has grown) but the energy consumption hasn't "recovered". also a lot of old factories were simply closed, and the new modern ones are much more efficient and productive.
The EU imports less than 6 GigaBarrels of crude oil per year. The EU spending $50 more per barrel of crude oil roughly corresponds to the GDP of Greece: $0.3 Trillion or 1.8% of the total GDP.
Why are 1.8% of the GDP responsible for the current recession?
If you look upon Norway as part of the EU, EU net imports less than 4 Gb/annually.
And I agree with your description that growth in the total oil bill is not the sole cause for the economic slowdown.
Total debt (private and public) within EU is perhaps as high as 200 % of a US$ 16-17 Trillion economy.
If interest rates were to go up 1 % this would add more than US$0,3 Trillion for debt service (interest payments).
Good point:-) You are looking at the net cost of importing oil to the EU. What needs to be looked at is the gross cost to the consumer of gasoline and diesel. And not just oil, but increased nat gas and electricity prices and the knock on this has to higher food and commodities prices across the board.
Euan,
The comments are about the net additions for consumers/users caused by an increase in the oil price of $50/Bbl.
Gasoline, diesel prices do not move lockstep at a 1:1 ratio with crude oil prices. The price increases for food and commodities follows roughly the price addition caused by changing oil prices.
I spent a bit of time looking at the impact of higher cost oil and made an attempt to quantify the scale of the issue. This is just an approximation, but I think directionally shows the impact on the world economies of higher oil prices.
Using the BP average price published in their statistical review, I broke the curve into two different domains: pre and post 1974 (see Fig 1 below.) I calculated the average price from 1880 to 1973 in the first domain to be US$17.78 (2010$) as the average price the world was used to, and much policy was and still is, built on. For each year after that I took the difference between the average price paid in that year minus the pre-1974 average price to determine how much additional money was transferred from other parts of the economy to paying for oil. So for 1974 the average price was $51.23 (in 2010$) minus the $17.78 average price pre-1973 or an additional $33.45/bbl.
Fig 1: Historical Oil Price (from BP Statistical Review 2010)
I then took the total oil consumed in each of those years and multiplied it by the difference in oil price. In 1974, the world consumed 54,826 bbl/day (BP 2010 Statistical Review) times 365 days times $33.45/bbl difference in price for a total of just under $670 million dollars (in 2010$). This is money that went from other parts of the economy to paying for oil in that year alone – hence the recession.
Using this logic, over the period of 1974 – 2010 the world paid an additional $29 trillion for oil than it had become accustomed to over most of the 20th century at a much lower price. This astonishing figure clearly has impacted our economies enormously. To keep growth going, credit was added to the economy, and appeared to work well during the 1986 – 2003 years when the oil prices were relatively low. The resulting debt was a ticking time bomb that governments missed because they believed that supply always would grow to meet demand as it had in the period up to 1974. This error, still promulgated by Yergin and the PO sceptics, leads to very bad policy, because they don’t adequately consider the cost of oil to the economy.
I looked at the USA alone, as the world’s largest consumer, and in 1974 consumption was 16,631 bbls/d. Therefore, that year a little over $200 million was diverted from other parts of the economy to pay the additional cost of oil. However, the USA produced 10,461 bbls/d of its own oil, which meant that most of the money stayed in the USA: $75 million left the country to pay for foreign oil.
Over the periods of 1974-1985 (the Arab embargo & the Iranian Revolution) and 2004-2010 (the financial crises and securitised debt), the impact of higher prices in 2010$ is almost identical at a global scale: $11.5 trillion both times. The impact in the USA was different due to falling domestic production. Over a six year period (2004-2010) the USA paid an additional $1.7 trillion for foreign oil versus a little under $1.3 trillion over an eleven year period (1974-1985.) This is shown graphically by year in Fig 2.
Fig. 2: Wealth Transferred as a Result of Higher Oil Price
I haven’t applied this logic to the other fossil fuels. I expect the impact would be smaller, but NG has to be helping in the most recent years with the onset of shale gas production.
The Arab Embargo has nothing to do with the first oil shock (was never effective towards the US btw), but the US oil production peak in 70 71 has everything to do with it : the Western majors NEEDED higher oil prices (to start GOM, North sea, Alaska), and US diplomacy PUSHED OPEC for higher oil prices (limiting their prod), James Akins in particular, and Kissinger.
Quite amazing that this "Arab Embargo MYTH" keeps on going on "peak oil aware" websites, and that Americans are still trying to avoid to consider the fact that they went through their oil production peak in 70/71.
It is time to label first oil shock "US peak and OPEC quotas oil shock" on these charts, don't you think ?
After all labelling the first oil shock the "Arab Embargo" shock is the biggest cover up on the fact of peak oil itself, and putting a proper label, maybe could help in current situation (if anything could help ...)
A different way of describing what happened in 70/71: US was an early example of a country becoming a net importer of oil after having been a major net exporter (as in Jeff's ELM). I can't say I agree with the idea that the Western majors did anything beyond plane garden variety greed concerning oil prices. They were confronted with a situation in which they needed to produce oil resources that were more expensive to develop than anything they had developed before, but, happily for them, oil prices were rising without them having to put up with government enforced quotas. More likely, they were fat, dumb and happy, congratulating themselves on how smart they were to have been born in America.
I remember lots of talk in the news about 'recycling petro-dollars'. How many of you are old enough to remember that nonsense? This might be the first appearance of 'recycling' in non-technical English speach. I can't recall any discussion of how the third world countries that needed petro-dollar loans to pay for oil would ever have any way of repaying the loan. What ever happened to that?
This is recollections of a person who has always lived in USA. I'm curious as to what people living in other countries might remember from that time. Surely, British Petroleum had a different view than Standard Oil. Its hard for me to believe that the whole seven sisters could engage in a coherent conspiracy.
"I can't say I agree with the idea that the Western majors did anything beyond plane garden variety greed concerning oil prices."
I'm talking about historical facts and related diplomatic actions here, not ideas. The ignorance regarding this is really quite amazing (especially on TOD). And it's not a "conspiracy" per se, just usual real politics. There is a great doc about this with key guys interviewed (James Akins, ex Saudi oil minister, Simmons, other guys), unfortunately exists only in German and French to my knowledge "la face cachée du pétrole", from Patrick Barberis and Eric Laurent (in fact a lot from his book), and interviews are mostly dubbed which is a pitty.
And yes the western majors had a common game, don't forget that prior to WWII they were sharing the "oil patch" throughout the middle east. That Mossadegh has been thrown out in 53 by MI6/CIA, a lot if not only for having nationalized the oil isn't a conspiracy or an idea either.
Again this "arab embargo" first oil shock labelling is totally ridiculous, and a real cover up of US peak. The result : most average American today do not even believe that the US are past their own peak, the reason for decreased prod being "tree huggers" and the like ...
And about the Embargo, Akins clearly states in his interview in this doc that tankers were going out of Saudi Arabia through Bahrain straight to Vietnam (for the US) during the Embargo, and that at that time "two senators" were starting to push for some actions against Saudi Arabia, he told them what was really going on, and there wasn't any leak.
Akins is also the guy that Nixon asked to audit US production capacity in 71 or 72 through a kind of "not to be delivered to the press" report, the result were clear : we are in a mess. And he was then convinced that higher oil price were needed (as were the majors), and he suggested raising to 4 or $5 a barril the price at an OPEC meeting in Algiers (forgot the date). Too bad this guy died a year ago or something. But I'm always quite amazed at TOD not taking into account the real diplomatic stuff around oil and quoting the stuff with the "usual mantra".
Take below image and labels for instance :
http://crudeoilprice.com/Crude-oil-prices-1970-2008.gif
You really think that the US (top producer of the time) production peak had nothing to do with the first oil shock ?
YvesT, thanks for your insights on the geopolitics behind oil.
Nevertheless, I find Calgary Oilman's price/revenue figures absolutely stunning, the 500 kilometre view, whatever approportion you wish to asign to backroom deals and jerrymandering. With 29 trillion ADDITIONAL dollars strained out of the world economy and funneled into the oil industry, one wonders what Big Oil would do to protect their income?
Thanks for great post and charts. Its that node ($10 oil) in 1998 that jumps out at me - end of bear market for oil industry, beginning of bubble economics for everyone else.
It would be interesting to do this type of analysis comparing 1986 to 2002 with 2003 to 2010.
The period for 1986 to 2002 worked out to be, on average, $11.05 more per barrel(all numbers are 2010$ originally from BP)than the pre-1974 price spike average. On a global scale an additional $4.7 trillion was paid for oil over the 17 year period. In the US, it was $1.2 trillion in total and just under $625 billion for foreign oil.
When compared to 2003 to 2010 (note in the earlier post I did 2004 to 2010, so the numbers are slightly different), over a 7 year period, globally an additional $12 trillion was paid for oil relative to the pre-1974 average, $2.8 trillion in the USA, and $1.8 trillion for foreign oil coming to the USA.
Perhaps the most telling impact on the US economy was during the 1986 to 2002 timeframe the average additional payment for foreign oil per year was $37 billion; in the period 2003-2010 it was $259 billion, about seven times the earlier amount.
EDIT
OK I found the PER year above!
Euan,
You know what they say………. a diagram may tell more than a thousand words.
The chart below shows how UK transitioned from a net oil importer to a net oil exporter during the time of the Iranian crisis. And as of recently UK has become a net importer of oil.
The diagram above shows how UK net imports and exports developed from 1965 and as of 2010 together with the oil price in US$2010.
As long as a country’s net imports are less than 50 % of its oil consumption, a growth in the oil price is a positive for its economy, GDP (Gross Domestic Product), but a negative on its trade deficit.
The exception being oil imported, refined and then resold, thus adding value to the economy.
Evidence thus suggest that it could not have been the oil price that prolonged the UK recession of the early 80’s as UK imported little oil in 1979 and entered a period of being a relative big net oil exporter.
To me it seems like the interest rate prolonged the recession of the early 80’s as the effects from high interest rates would be dominant.
On that graph it looks like oil alone contributes £5B a year to the UK trade deficit. The natural gas deficit is of a similar order, perhaps bigger. We import half our natural gas now, a lot of it LNG at world prices.
We also import coal and electricity. Our trade deficit was recently $4.5B for one month, so oil is 10% of the total, and energy altogether is probably 20-25%.
I think that there can be dislocations, regardless of whether one is an importer or exporter. A prime example would be the riots during the "Arab Spring" this year. The riots were at least partly tied to high food prices, which are tied to high oil prices. So while one side of the MENA economies were doing well, with all of the exports, another side of the economies were doing very badly. Somehow, the new concentration of wealth must be transferred to the part of the economy which really needs it, perhaps by taxes and new public programs. This may be easier said than done.
Gallo et al.(2010) formally show that OPEC's constraining supply is behind the increase in oil prices and the consequent 2008 and 2011 financial crises.
Andres Gallo, Paul Mason, Steve Shapiro & Michael Fabritius, What is behind the increase in oil prices? Analyzing oil consumption and supply relationship with oil price. Energy 35 (2010)4126-4141
Owen et al (2010) very clearly summarize the current situation, showing that OPEC began constraining supply in 2002, and clamped down in 2005, which together with the Iraq war in 2003 led to the global plateau starting in 2005 after Non-OPEC plateaued in 2004.
Nick Owen, Oliver Inderwildi, David King, Energy Policy 18(2010)4743-4749>The status of conventional world oil reserves - Hype or cause for concern? Energy Policy 18(2010)4743-4749.
See graphs from the very eye opening Oilwatch Monthly August 2010.
Gail Tverberg observes:
(PS is there a better source to that $85/bbl observation?)
In Euan's Figure 1, when oil reached this $85/bbl is about when the FTSE 100 peaked and began to decline. (I recommend a derivative analysis of the stock indices vs the price of oil to further clarify this.)
OPEC and/or the peaking of light oil now constrain world wide growth and is disrupting economic stability. The only way to break out will be to provide alternative sources of abundant fuel from alternative resources and then from renewable/sustainable energy sources cheaper than $85/bbl. e.g.
Linc Energy claims $28/bbl operating costs for underground coal gasification.
The two major strategic candidates are solar thermochemical fuels and nuclear power using advanced cycles.
James E. Miller et al. Summary Report: Direct Approaches for Recycling Carbon Dioxide into Synthetic Fuel.
and
TerraPower's Travelling Wave Reactor
Thanks for links to papers. I think the price spikes are due to interaction of rising demand with price inelastic supply. We can debate the cause of the latter for hours and the whole picture is very complex. Simply pinning this on OPEC is unsatisfactory. If the OECD could bump up their own supply by 20 mmbpd for $50 / bbl - problem solved in the interim. But they can't. Little doubt that with sufficient investment Saudi, UAE and Iraq could all boost supply significantly in the medium term - but then only to reach irreversible decline more quickly. OPEC have done the world a great service by producing their reserves on a plateau that is well below the theoretical peak.
Federal Reserve just published a study on price formation in the commodity markets.
More at the link below
Speculation in the Oil Market
Right, and speculation is the reason WTI, as I write this, is selling at a $26.40 discount to Brent. Those damn speculators are keeping the price down. ;-)
Seriously, I was hoping that the fact that WTI, that Wall Street traded crude oil traded futures contract, is selling at such a low price compared to the world price, would silence those blaming high oil prices on speculators. Apparently there are still some holdouts though, including a few Fed Grues.
Ron P.
Speculation, which I see as short term investment in pursuit of transaction profit has very little to do with the massive financial bubble in Brent/BFOE which sets the global oil price.
It is massive investment by risk averse 'inflation hedgers' in index funds and ETFs which have inflated the price through financial oil leasing by producers, who are the real beneficiaries from high prices.
Essentially producers - and the scale of it means it can only be the Saudis/GCC - have been borrowing dollars interest-free from funds and have been lending them oil through sale and repurchase agreements. Similar financialisation by inflation hedgers applied to a greater or lesser degree to other commodity markets, which - like oil - lost touch with reality and saw their correlated forward price curves moving in reaction to movements in the dollar yield curve.
Natural gas has been the exception - being both over-supplied and without a meaningful global market - which proved the rule. From early 2009, the commodity bubble started to be re-inflated in earnest as QE money flowed into anything but dollars, natural gas departed from its historic relationship with crude oil.
Now that QE2 has ceased, (and the Fed dare not do it again, because they know it will lead to debt deflation), we are seeing the Brent/BFOE market in massive backwardation at a time when there is actually a lot more supply around than the people talking their book would have you believe.
The reason for the backwardation is not massive demand at the front end but the fact that new money is not entering the market to enable the financial leases to be rolled over. So it's not so much that there is forward selling, but rather an absence of forward buying, and all of the opaque forward sales - eg Saudi to Goldman Sachs - which were in the background are now being delivered onto the market.
This completely distorted and dysfunctional market is coming to the end of the line. The risk averse investors who bought into the inflation hedging meme are about to find that they were exposed to massive market risk and the regulatory shit from massive mis-selling will once again hit the fan.
Don't get me wrong. The planet needs high carbon prices. But not high prices generated by market manipulation on a cosmic scale.
http://www.atimes.com/atimes/Global_Economy/MH30Dj02.html
That recent article of mine covered this ground.
If all this unwanted oil is being delivered to market, why are OECD stock levels falling sharply and contra-seasonly?
And the supply of total petroleum liquids available to importers other than China & India (Available Net Exports, or ANE) fell from 40 mbpd in 2005 to 35 mbpd in 2010, an average volumetric decline rate of one mbpd per year. If we extrapolate the 2005 to 2010 data, ANE would be down to about 21 mbpd in 2020.
Should be interesting to see who gets the lion share of that - oh my!
Right now, we need to recognise that WTI pricing represents a regional US midwest price and not a global one. Due to the rise in supply of hard barrels, from Canadian heavy and bitumin, and Bakken shale oil, Cushing, where WTI is set, is oversupplied. They have been building storage as fast as they can, but until new pipelines from Cushing to the Gulf coast are built (eg. Keystone), WTI will sell at a discount to Brent. This is not driven by speculation but actual hard barrels.
This isn't a 'normal' backwardation resulting from under-supply and high nearby demand.
It's a different - and relatively new - beast. It's what we see when forward bids disappear because financial purchases are no longer being made.
If prices are falling it makes no sense to hold stocks does it?
Of course, there is the simple explanation, that prices are rising, relative to 2005, because importers are bidding for a declining supply of Global Net Exports * (GNE), with the Chindia region consuming an increasing share of a declining volume of GNE:
*Top 33 net oil exporters in 2005, Total Petroleum Liquids, BP + Minor EIA Data
Incidentally, one could argue that exporters have voluntarily cut back on the volume of GNE after 2005, in contrast to the very rapid increase in GNE that we saw from 2002 to 2005, e.g. Saudi net exports fell from 9.1 mbpd in 2005 to 7.2 mbpd in 2010 (BP), but doesn't the very fact that we have seen declining supplies of GNE negate the argument you made in the following comment?
Not in the least.
Financial demand and demand from consumers is indistinguishable in its effect on the physical market price. But in order to affect the physical market price an actual transfer of title is required, and the scale of financial buying we have seen could only be accommodated by the leasing of stocks held by producers in tank or in the ground.
If financial investment (or leverage) is available to support the price at the upper bound 'sellers' market' where demand destruction sets in, then producers always have and always will take advantage of the opportunity to do so. eg tin; copper; soft commodities; diamonds.
That is what has happened here. Financial buying by risk averse investors has essentially enabled producers to monetise stocks in tank and in the ground.
The correlation of oil prices with equities, and with other commodities; the relationship between crude oil and product prices; and the dissociation of the financialised crude oil price from the non-financialised natural gas price from early 2009 IMHO all support a view that the oil price again parted company from reality at that point.
Anyway, we'll soon see if I'm right or wrong in my view that - absent more QE - the oil price is going to decline, if not collapse.
I suppose what you wrote may make sense to you.
In any case, some numbers for Global Net Exports (GNE) and for Available Net Exports (ANE).
GNE = Total net oil exports from top 33 net oil exporters in 2005, total petroleum liquids, BP + Minor EIA data
ANE = GNE less the Chindia region's combined net oi imports.
GNE fell at an average volumetric rate of about 600,000 bpd per year from 2005 to 2010; from 2010 to 2020, I suspect that the GNE volumetric decline rate will be between 600,000 bpd and 1,000,000 bpd per year.
ANE fell at an average volumetric rate of about 1,000,000 bpd per year from 2005 to 2010; from 2010 to 2020, I suspect that the ANE volumetric decline rate will be between 1,000,000 bpd and 2,000,000 bpd year.
Or let me put it this way, the five year decline in ANE, which is the volume of exported oil available to importers other than China & India, was equivalent to total US crude oil production in 2008.
The reality that the is US facing, i.e., what the 2005 to 2010 numbers show, is that a slow rate of increase in US domestic production is not coming close to offsetting the decline in ANE. In other words, we are being shut out of the global market for exported oil faster than our slow rate of increase in US crude oil production (average US crude oil production rate in 2010 was 5.5 mbpd; average for 2011 through September, 2011 was 5.6 mbpd).
Incidentally, "Charles Mackay," on The Oil Drum, studies short term inventory and export data, and he has some interesting comments about what is currently going in on global markets and in the US:
http://www.theoildrum.com/node/8500#comment-844402
If the US had not released some oil from the SPR, I suspect that we might be down to a couple of days supply of crude oil inventories in excess of MOL (Minimum Operating Level). I have heard that light/sweet oil supplies are very tight in the Atlantic Basin, and I think that there is a good chance that we will see another release of emergency oil supplies by IEA countries, as we head into the Northern Hemisphere winter.
@ Westexas
I shall try and spell it out more clearly.
Your analysis makes perfect sense in a market where only consumers, producers and physical trading intermediaries take part.
But it takes no account of the presence in the market of financial intermediaries/middlemen; financial demand for oil by speculators (risk taking investors) and inflation hedgers (risk averse investors), and the new market instruments and methods through which this financial demand may be accommodated by producers.
What has happened is that financial investors - and these are NOT typically speculators in search of a transaction profit - have become able to temporarily acquire title to inventory either in tank/tanker/pipeline (a relatively small amount) or in the ground. Producers have increasingly been selling temporary title to oil, through a sale and repurchase agreement (Repo) of an agreed duration such as a month.
ie they have been 'repo'ing' or leasing oil out against dollars borrowed from funds.
These leasing transactions take place opaquely off exchange between producers and (via intermediaries) investors, and these OTC deals are almost entirely invisible to the market.
The ONLY way in which the physical market price may be affected is through a transfer of title to oil. Futures contracts have zero effect on the physical price unless and until they go to delivery and actually become a spot contract. Note here that the predominant Brent/BFOE contract confers no entitlement to delivery at all, and has as much effect on the physical price as a bet between you and me.
The point is that the physical market price can and routinely does lose touch with the market clearing price which would arise purely from consumer demand. The reason is the additional (temporary) physical oil purchases made by financial buyers which create a pool of virtual oil ownership.
So what we have seen is the creation of a virtual oil stockpile - an Oil Pool - in the temporary ownership of financial investors, and the custody of producers and intermediaries.
As dollars flow into the market, a bubble is created; producers make windfall profits; and financial investors accumulate potential losses if they are unable to find a greater fool to buy their entitlements/units.
Once the dollar flow (ie the QE dollar pump) stops, then the forward market price starts to sag, creating a backwardation. If funds actually withdraw from the market - as they did in late 2008 - then the decline becomes a collapse. The price will then plummet through the expected 'lower bound' market clearing price of consumers and producers to a lower price at which the number of bids from both consumers and 'bottom feeder'/vulture investors once again exceeds the number of offers in the market.
The reason for the unseasonable backwardation has less to do with excess physical demand in the front month than the absence of financial demand in the later months. The closing out of leases means that inventory comes back into the ownership of producers, while dollars are returned to the funds.
With the market in backwardation, and the inventory owners now short of dollars, the outcome is that inventory owners are liquidating stocks, as we see.
Anyway, the proof of the pudding is in the eating. If I'm right, we will shortly see a market collapse as we did in 2008.
In the UK the prices paid for NG (mostly domestic heating & electricity generation) and coal (mostly imported for electricity generation) have mostly followed, in tandem, the Brent price of oil, except for a singular price spike for NG around 2006, if I interpret this link correctly and compare it correctly with Euan's oil price chart above:-
Figure 2. Comparison of coal and gas (NG) prices in UK http://www.decc.gov.uk/assets/decc/11/about-us/economics-social-research...
UK is a net importer of coal in a big way, and since 2005 increasingly of NG.
Clearly, balance of payments for coal and NG, as well as oil, in the UK has further changed unfavourably since 2008 because of the devaluation of GBP against a 'basket' of currencies as I understand it, of more than 20%.
As a footnote, if Euan is correct, our authorities now have few controls over price inflation in the UK (not to be confused with a simultaneous devaluation of the economy, when a contraction in credit and an economic recession increases bankcruptcy and unemployment). These troubles could be reflected in the flurry of UK political activity in the last few days aimed at, quote from Prime Minister, "reducing energy bills" for consumers. Consumers, we are told can reduce their bills by investing heavily in not using so much energy in their houses, and by "shopping around among energy providers". (The most optimistic techncal scenario that I have seen for reducing energy use in the average UK home is for a 50% reduction on average over 20 years, depending on a crash programme starting several years ago!)
I agree on rising growth with inelastic supply. The Gallo link shows that up to now, active constraining supply was leading the oil price increases.However, Non-OPEC's plateauing indicates we are now entering the geological peaking constraints.
David Murphy's post Further Evidence of the Influence of Energy on the U.S. Economy shows that oil as % of GDP graph. He links to Causes and Consequences of the Oil Shock of 2007–08 where James Hamilton gives further detailed analyses.
I expect an analysis of the response of oil production of countries past the peak compare with oil exporting countries would help provide the tools to distinguish between peak oil constrained production versus cartel action.
Politically, budgets expand to fill the available supply. Saudi Arabia has increased its budget so that it now requires $85/bbl price to meet its budget, up from $65/bbl. See:
Saudi need for oil at $85 may speed cutback
With the incredible difficulty politicians have in reducing spending, oil prices will likely average around $85/bbl between the lower constraints of meeting new OPEC budgets and the upper constraints of pushing the USA and other OECD countries into recession.
After the first OPEC oil crises, Non-OPEC countries strongly increased oil production. Furthermore, most countries shifted electricity production away from oil to coal, natural gas, nuclear power (France), and/or hydro. Vehicle efficiency was also increased by legislation. That decline in demand coupled, with increased global production resulted in the major drop in oil prices in the 1982s, despite OPEC's reduced production.
Now, geological constraints make it unlikely that Non-OPEC can strongly increase production as it did after the first OPEC crises 1974-1981.
The desire to sustain revenue and maximize returns on resource indicates that OPEC would be unlikely to strongly increase production that would strongly reduce prices.
Thus oil prices may swing around $85/bbl pushing the world in/out of recession as described by Colin Campbell and David Murphy.
Breaking out of this "mess" will require major alternative fuel resources be brought into production.
Sam Foucher shows at least a 3.6% depletion rate of crude oil which requires at least 2.7 million bbl/day to replace crude oil or 3.1 mbpd for total liquids. (This will rise as giant fields progressively decline and production shifts to smaller and offshore fields.) Adding 1.5% growth adds about 1.3 million bbl/day each year to give 4.0 to 4.4 million bbl/day new "liquids" supply is needed every year.
i.e. Globally we need to add about 80,000 bbl/day to 90,000 bbl/day new "liquid fuel" production every week to meet current depletion plus 1.5% growth!
Hello,
There is no doubt that rapid growth in total energy expenditures in general slows economic growth (for net importers of oil/energy) for non-energy sectors as expressed by GDP (Gross Domestic Product).
Through the last 2 - 3 decades economic growth was "supercharged" with year over year growth in total debt as illustrated for the US in the chart below.
Similar developments as illustrated in the chart above are also found in many other OECD economies, like in UK as illustrated in the chart below.
For some economies total annual debt growth was above 10 % of GDP!
This debt fueled growth was clearly not sustainable and caused the financial crisis in 2008.
Debt growth temporarily allowed compensating for (and also partially caused) the compounding effects from growth in energy prices and energy consumption.
This just begs the question;
“What was the dominant factor in recent decades economic growth, “cheap” oil/energy or debt growth?”
As I see it, many countries are now at a (or has passed) the point where the economic participants (private, corporate, public) are at debt saturation. The emerging slow down (and possible reversal) in debt growth will in my opinion also affect near future demand and prices for oil and other energy.
Change in total debt growth will in my opinion be the dominant force for the near term economic development (GDP) and thus demand and price support for oil/energy prices.
Present high oil (and energy) prices also slows GDP development and may at some point in the near future become subject to the gravity from temporarily declining demand that feeds into weaker oil/energy prices.
Structural high unemployment, declining house prices, uncertainty in the stock markets will all put additional strains on the economies as output and the tax base will shrink and also reduce demand for oil/energy.
Lowered oil/energy prices could in the near future produce false signals to the economic participants as this obscures the fact that many new discoveries (fields)/developments now require a break-even oil price of $60 - 70/bbl to become economic.
As I see our future predicament;
The oil flow now required for real economic growth results in an oil price most OECD economies cannot sustain.
The oil price now required for economic growth in most OECD economies results in an oil flow that does not sustain economic growth.
Spot on Rune. Of course it needs to be pointed out that borrowed money has always supplied the capital for growth. And the more borrowed money that is circulating in the economy, the more growth you have. But growth requires more than capital, it also requires fuel.
Once there is not enough fuel to sustain growth, growth either stops or declines dramatically. Then there is not enough profits to pay off all those debts and we have a recession.
But a lot of very cheap oil flooding the market could quickly pull us out of such a recession. That's what happened in the mid 80s and the late 90s. Unfortunately that is not likely to happen this time. :-(
Ron P.
I'm glad that at least here on TOD those of us who believe in supply and demand setting prices, rather than speculators, get a reasonable opportunity to debate the question.
I've been trying to find a way to express my rejection of the "speculator" position that will make sense to those who have wedded themselves to the idea as a result(imo of course)of a lack of understanding of time scales and the real nature of supply and demand.
So here goes:
Demand is determined by the state of the wallet of the economy in general.Supply is determined by the producers vertically integrated supply chain.
Price is found at the point the two functions cross on the graph.
Now purchases will fall off in response to a lack of purchasing power, OR to a rise in price.
Price will rise(if not constrained by physical reality or some sort of market manipulation, such as rationing, or the development of monopoly or cartels, etc) in response to a supply shortage, or fall in response to a glut.
I don't believe I have ever seen any arguments made that refute these statements.
Nobody has even attempted to make the case that speculators can control end use customers behaviors-except perhaps by causing hoarding behavior, if we accept the existence of speculators powers.i will accept that the APPEARANCE of power is enough to initiate hoarding sometimes.
The real problem explaining speculation then becomes this one, when restated:
How are speculators able to control supply in a substantial way?
Well they can buy physical product during a glut, and store it-THEREBY SUPPORTING THE PRICE at that time, and sell it later, when and if prices rise-THEREBY HOLDING PRICES DOWN at the later date a month or several months down the road.
Now if these so called speculators were to be able to control ACTUAL PRODUCTION AND DISTRIBUTION, then they could indeed manipulate prices at will.
The CATCH is this;ONLY ACTUAL PHYSICAL PLAYERS can control actual production and distribution.
When the curtian is pulled back by the little doggie, we see that the big bad speculator evil wizard is actually a strawman costume donned by the people who really do have the power to control supply, at least to some extent.Nowadays I doubt anybody has the capacity to push prices down very much, but any major producer could certainly cause them to rise by curtailing production.
These people are of course the actual oil companies- and most of the ones that matter are nationalized.
Secondary players might be a local chain of retailers that can hold prices up a few nickels worth because they own all the stores in a given neighborhood.
We have a chain famous for that where I live-they match prices when there is another competitors store within a few blocks, otherwise they always charge twenty to thirty cents more than the local low brand name price of the day.
Sure there are speculators-they are one and the same as the larger and more powerful oil companies and OPEC.
(Sure speculators were able to cause a portion of the run up in real estate-in the short term, in terms of the time scale appropriate to looking at real estate-there were millions of individual SPECULATORS bidding on ACTUAL PHYSICAL INVENTORY physical inventory intending to buy and hold for a while.They overextended themselves and prices crashed as hard and as fast as they rose on wings during the build up phase.)
These so called speculators are no more and no less than useful figments our the collective imagination - but nevertheless figures very very useful to many people for many various reasons. i don't have time this morning to go into who and why of this aspect , but bogeymen are always useful to those wishing to control us or keep us in the dark, or sell us advice and services, or buy our vote, etc..
Why is this so hard to understand?
Simply because not understanding it requires no extra thinking;not understanding it allows one to focus his frustrations on an enemy, an outsider-namely the evil speculator.
Maybe for the same reason just about everyone here insists that the people in the TEA PARTY" are all idiots( no doubt a good many of them actually are, while more are simply opportunists, etc).
We regulars scorn them because they generally and obviously don't understand energy , climate, and ecology. FAIR ENOUGH, but don't expect to win them over with vinegar .
THEY SCORN YOU because you are not(obviously to them) smart enough to see that we are on the very brink of financial collapse.Now personally I don't think much of their proposed solutions, but I am a firm believer in their basic premise-the issue of near term collapse due to money problems is a very very real and very grave risk.
Anybody who does not understand THAT imo has a poor grasp of political and economic reality.
Speculative bubbles are caused by artificial too-low interest rates that create too much easy credit money which then must park itself somewhere and the easiest place for this is usually in housing since that is the #1 expense for people over their lifetimes, and this then spins off into all the other commodity prices.
We are all "speculators" in today's manipulated markets that are determined by political moves from the Fed, rather than by supply and demand fundamentals. Whether you hold oil, gold, dollars, stocks or bonds, it is all speculation. Once the system collapses, then we will see real fundamentals assert themselves.
Speculators at the beginning of a bull run are good because they tend to even out prices by buying low and selling high. Then every other speculator jumps on board and creates a bubble extending beyond the sensible fundamentals of the underlying bull run and these would tend to destabilize things.
Speculators can control "production" in certain markets by manipulating prices with artificial paper contracts not backed by the real commodity and through high frequency trading. This is what the bullion banks do (backed by Fed oversight and support) to gold and silver and therefore suppress the price by creating infinite demand of paper gold and silver. To what extent the other commodity markets are manipulated this way is another question. I would guess quite a bit since the Fed wants to hide its money printing so it wants to keep commodity prices down. This is of course totally illegal but that's what our financial system has devolved into.
It seems the Tea Party movement has been hijacked by the oil industry and turned into a farce, they want to use it to deregulate everything, but marketed to the masses as a way to improve "efficiency" by reducing red tape, but in reality, all this is is a way to R&P everyone's resources.
Hi Null,
I don't have any real arguments to make against your comment;generally speaking, I agree with you except that I would like to point out that arguments such as the ones I made are generally supposed to be interpreted as "snapshot" or "everything else held the same" in understanding the point being made.
Of course artificially low interest rates can ( and did) play a truly major role in real estate bubbles, etc.
I agree that prices and markets are being manipulated-I just happen to think that the so called "speculators" are in actuality one and the same as the real, big time market players.
The so called "speculator" is just a sleight of hand trick being used to divert the attention of the public from the real speculators-meaning the actual members of the industry.
I am with Darwinian lock stock and barrel on this one.When someone shows me how a speculator can actually CONTROL THE SUPPLY of oil moving through the distribution system, without being a real time physical player in the industry , I will retire with a red face.
I won't argue that the tea party is not a farce in many respects;but as you yourself point out, things are being manipulated all over the place.
Most of my conservative friends do not realize their patriotism has been hijacked by the military industrial complex for instance.My less perceptive liberal friends simply cannot grasp the idea that we can all have plenty of everything by simply wishing for it;it is a perfect waste of time trying to explain to them that Bill Gates money has no real existence in some respects; every dime he has would not suffice to buy enough food to feed the hungry people of this world,because food cannot be conjured into existence, as money can..
My liberal friends do not realize that their pet social programs are more about the people running them than the people they are supposed to serve.I for instance was once a teacher, and while there are many dedicated teachers out there, you can take this to the bank;95 percent of what you hear about education is about the teachers and all the other personnel earning a salary out of education budgets.The LAST 5 % is REALLY about kids.
While the fed is not a player in the same sense that an individual company is a player, nobody doubts the very real and very massive powers of the fed.The fed is the biggest of the big bully players.But even the fed cannot manipulate physical realities such as oil depletion to any serious degree.
Propaganda, repackaged as public relations , is the name of the game these days.It is almost impossible to find somebody telling the truth in an earnest and impartial fashion, rather than cherrypicking the data to push an agenda.
I always enjoy your well reasoned and well informed comments.
I'll try a shorter debunking of the evil oil speculator myth. For a speculator to affect price they must buy and withold a commodity from the market. Speculators do drive up the price of gold for example while they are holding it and then drive the price back down when they eventually sell the gold. Oil and most commodities, however, are generally not witheld from market while a speculator waits for the price to rise. If significant oil was witheld from market it would show in the storage data. Changes in oil storage data are inconsequential compared to the size of the oil market. Oil speculators are generally betting on futures prices, which makes no more difference than if I bet on who will win the next presidential election.
The reason speculators get the blame is that they are an easy scapegoat. The financial industry would rather blame speculators than talk about peak oil or central banking's theft of currency value.
I have similar views with respect to current European energy policies that you do. I describe some of the issues in this post relating to US energy policies, which has not run on The Oil Drum.
New Department of Energy Priority Setting Analysis Seriously Flawed
This was the most interesting part of the article:
I'm interested in the different reactions then versus now. Several thoughts:
- There were fewer alternative explanations for the late 70s recession (fewer confounding factors like sub-prime mortgages, Greece being knackered by the Euro and so on). Those other factors clearly do exist now, and clearly do have some bad economic effects. So peak-oilers have to use some sort of "root cause" explanation (all the other problems are at root due to oil supply problems), or "simultaneous cause" explanation (the other factors could have by themselves triggered a slowdown or mild recession, but it is only in combination with oil supply problems that we get a huge recession, or two back-to-back recessions). It's difficult for politicians to grasp that complexity of causes.
- The previous oil shock (1973) followed swiftly by recession had already conditioned politicians and economists in general to think about oil prices as a trigger for recession. It was uncontroversial to state the link in public.
- The Western economy was more "physical" then, oriented around manufacturing and production. It was easier to see then that higher costs or reduced supply of raw materials would clearly have immediate detrimental effects. Since we are now supposed to be in a more "virtual" or "service-oriented" economy, and have outsourced all the physical manufacturing of stuff to China, this physical intuition is lost.
- Plus, not all the world has suffered from recession; China itself still seems to be doing well. Since the "physical" economies are not suffering, it's hard to postulate that there is a "physical" cause from supply limits. In fact, a physical shortage of oil is NOT causing problems for China and India, but only because they are increasing imports at our expense. But then you have to look at the export math to realize that.
- The political/economic/media culture is much less honest, and much more superficial than in the 70s. Back then, centrist politicans and pundits (liberals, social democrats) could (and did) state in public that we had huge energy problems, and there was no quick and easy way to solve them. They were subsequently massacred in the 80s, partly for being so honest, and partly because when the "good times" returned in the 80s and 90s (at least for a while) the old liberals/social democrats looked unduly pessimistic and defeatist. So the political system is now conditioned to lie, throw up endless distractions, and make vaguely reassuring noises (No fundamental problems; just a temporary confidence issue/regulatory issue etc. Nothing to see here, move along...)
Personally, I'm rather dubious about this explanation: with some rare prominent exceptions (Carter), I think the political culture was pretty superficial and dishonest in the 70s too, perhaps even more so than today. But that's another story.
- No-one wants to talk or think about peak oil, because it is so closely associated in the public mind with "oil running out", and every shrewd politician/economist knows about endless past claims of "oil running out" which didn't come to pass. They have all become so afraid of "crying wolf" that they are simply refusing to see the wolf, even as it eats threw the flock one sheep (country) at a time.
Nick
I think there are three main reasons why the politicians are blind sided right now.
1. The first and most important is that energy policy is built around reducing CO2 emissions and this has introduced a range of totally absurd policies that governments are wedded to. Governments can't see the absurdity let alone the root cause of the current problem.
2. The oil shocks of the 70s were shocks with supply withheld / destroyed resulting in scarcity that ran ahead of the price curve. Queues at gas stations send an unequivocal signal. The noughties shocks have been more gradual, so no queues - just folks can't afford to go fill up.
3. The digital age has allowed flows of information and opinion with "democratic" selection of cause and effect based on sound bites with little in depth analysis.
In the previous post to this one I linked to an article by Gavyn Davies at the FT who recognised high energy prices as a contributing cause. But all this has been forgotten now.
http://blogs.ft.com/gavyndavies/2011/08/18/what-went-wrong-with-the-glob...
If the € crisis is resolved (and I don't think it will be) then the public are going to be really disappointed when the second PO recession leaves them in equally bad shape as they are right now.
When I first began posting here over 5 years ago I was "Cry Wolf".
CW
You mean those TV debates in which no one finishes a sentence let alone the group ever coming to a consensus as to what should be done? Even when someone says something very interesting that could be agreed upon by the others, silence befalls the group. It's like the human race has gone insane. We are now incapable of doing anything. Everything is muddled in a billion opinions and every opinion cancels out the next. We are collectively hell bent on collapse because there is no way to change course. Anyone, anywhere trying their darndest to change course is cancelled out by another group or set of opinions.
There's an old saying that goes to this problem; Too many chiefs and not enough indians. Meaning, in this digital age everyone with an opinion is a chief and every chief is given equal value. Whereas the way it use to work is only certain people were elevated to the position of chief and therefore policy and changes to policy were simple and easy to get through. Now they are so muddled, every effort fails.
From a distance it probably sounds like a super fast buzz of billions of overlapping sounds, but no clearly discernable line of thought or sound emanates.
yea, but every indian is a chief until some consensus is established, and then it's time to do something. this is a whole new world here on teh Intertubes, and so everyone is a chief, but consensus is still building, and the method of elevating a chief in this new world is still being established. Would you be on here posting your opinion if you didn't think there was some value in expressing your opinion in this new medium?
The first and most important is that energy policy is built around reducing CO2 emissions and this has introduced a range of totally absurd policies that governments are wedded to. Governments can't see the absurdity let alone the root cause of the current problem.
Of course, creating policies that minimize CO2 is only an 'absurdity' if you one disagrees with every established scientific body in the world that Anthropogenic Global Warming is real and very dangerous.
yea, not sure how the dig against CO2 regulation works. If you're concerned about PO, you'd think any pressure towards efficiency would be imperative at every level, even if you disagree with scientific consensus on the motive.
Maybe I misunderstood tho.
dohboi - "...creating policies that minimize CO2 is only an 'absurdity' if you one disagrees with every established scientific body in the world that Anthropogenic Global Warming". And this is where I disagree with how many believers view deniers. Deniers like the woman who was going to support Good Hair Perry because "he was against global warming". Whether she or most of the deniers appreciate what they are really saying IMHO is that even if AGW is real and will cause all the predicted problems that's an acceptable price to pay. Even if a denier has the intellectual capability to understand AGW a perverse view of political correctness won't allow them to admit it. IOW: "No..I'm not wrong...you are" is an easier position to put out than "Yes..you're right but I'm going to keep BAU going because it benefits me to do so". Acceptable to them as the price paid trying to maintain BAU. In that sense it may be a waste of time and effort to argue the validity of AGW with the masses. They may believe in AGW (while never admitting it) but aren't going to let it alter their game plan.
If AGW believers think they'll win this war by "proving" AGW is real they'll likely be very disappointed. My unsolicited advice: I'm not sure how it might be done but we have to work within this denial system mind set to generate some level of mitigation. IMHO going for "all or nothing" will likely produce just that: nothing. Or, more simply, winning some battles (or just appearing to) won't win the war. At the time many thought Kyoto was a battle won to some degree. And how is it viewed today?
And in truth, I see little chance of winning this war. As I've said before IMHO we'll burn even more coal as it becomes the main source of abundant/cheapest energy. The best we might expect is to do what can be done to help those most negatively effected.
you're rock solid on every point, especially the intellectual argument point - it's never going to win on the merits of abstract fact.
but the exception that might contradict your general thrust here about coal and BAU is if some big event were to suddenly re-enforce AGW. As you say, they might already know but they aint gonna let it stop them - unless. There's a tipping point when the existential threat suddenly freaks everyone out and then things change pretty fast. In the end BAU is really about survival more than oil, money or stuff.
Say an extreme heat event in NYC or LA, or if given some massive shortage or event in a populated area occurs - the chances of these kind of events increase as AGW increases - or it could just be the slow creep, Katrina, Deepwater, hurricanes and tornadoes. Each year the frequency and intensity these re-enforces the narrative of AGW til people suddenly believe that they're gonna die.
Keep in mind that five/ten years ago global warming wasn't really on the radar of the MSM, or national politics and now there are politicians and even oilmen talking about it on TeeVee. I wouldn't underestimate teh slow creep of panic to cause a pretty rapid adjustment towards renewable and sustainable across the board of civilization - from energy sources to personal habits. Esp when betting on the fate of all that coal - it might just stay where it is.
"Even if a denier has the intellectual capability to understand AGW a perverse view of political correctness won't allow them to admit it. "
Well put, something that recent studies have confirmed. GW and its implications are just too great an assault on some peoples basic assumptions about reality-- particularly for older, white, wealthy American conservatives (such as my uncle for example, a very nice guy and a good scientist--dean of a major medical school for a while--but totally in denial of GW).
But do keep in mind that virulent denial by 'the masses' and by near majorities of politician (essentially all Republican politicians at this point, as far as I can tell) is mostly an American phenomenon. In most countries most politicians acknowledge the science of GW.
It is mostly in the US (and to some extend in other anglophone countries--Australia, Canada, England) that a large group of major political figures regularly, loudly and very publicly stand up and say that every established scientific body in the world and 99% of published climate scientists are wrong about climate science, and they, in their infinite and omniscient wisdom, are right about it.
Really, when you think about it, the gall of it is quite stunning.
Chrome/dohboi - Here's another example of how darkly I view mankind. I'll give you a "big event" : flash fire....thousand in LA and NYC spontaneously combust. And absolute proof it was the result of AGW. Chinese response: they send a message of condolence and nice wreath. And then continue building one new coal fired plant every 3 weeks along with killing 15 of their coal miners every week (old stat but probably still good). Granted you now have a bunch of deniers in those two regions signing on without argument. So what? LOL. Sure: every politician looking for votes from those constituents will proudly display his new shiny "STOP AGW" button. Again, so what? Even worse: will those politicians demand a severe reduction in the life styles of their constituents when those folks recognize it won't make them any safer as long as the rest of the world continues BAU?
At this juncture I always like to toss out my "point man" protocol. It has been proven long ago to be very effective: the majority of the squad (the rest of the world) is safe and the mission can carry on (maintain BAU). And when you observe that, well, OK, it worked but the point man is DEAD. And the logical response: sure he's dead...that was an acceptable part of the plan.
Yes: I offering a very cold hard view of TPTB and the folks who expect them to act accordingly. AGW will cause suffering for many folks. But that's part of the plan after all. Arguing against BAU worsening AGW is the same as arguing why you don't want to put someone on point: they get dead. Logic tells you this is the plan to follow: the needs of the many out weight the losses of the few. Especially true when the many have the power to carry on BAU while the few are powerless to change their actions.
"the gall of it is quite stunning" EXACTOMENTO! That's why I'm starting to get a tad frustrated with the relentless efforts of some to prove AGW. That's not the dang problem IMHO. It's the cost/benefit ratio they should focus on. Back to the basic problem: for those getting the benefits the c/b is just fine...otherwise they wouldn't be doing what they're doing. Figure out how to alter that calculus and some change in activity might occur. But, again, I have no clue how that could be done. I'm sorry to keeping picking on China but it's obvious IMHO. As China continues burning more and more hydrocarbons they become stronger and less subject to influence by the rest of the world. What's the US going to do to punish China...refuse to let them loan us more money? Which allows them to not only carry on BAU but expand BAU. For at least 15 years China has been tying up huge quantiites of future hydrocarbon production around the world. They haven't been doing this to prevent their consumption and making AGW worse. But we can look at the US also. In the last few years we've borrowed and spent $trillions in an effort to return to our former level of BAU. So now we're going to expect the public to support politicians who'll take positions on AGW that will inhibit the return to BAU they've been promising their constituents? The current administartion can talk green all they want but they still just issued a Clean Air permit to a new coal-fired plant in Texas. But they are no different than the vast majority of politicians around the world IMHO: talk green while trying to maintain BAU using every resource available.
I'm sorry to sound so harsh but some folks are hung up on the "We are the World" fantasy. Proving ourselves correct about AGW isn't going to change the future significantly IMHO. Of course, we'll eventually have a big "I told you so" card to play. But the folks who'll pay the ultimate price for AGW won't really care.
Yes: I can be cold blooded pragmatic. Doesn't matter what I think is right, what I think should be done or what is fair. There's only the expectation of what will happen....sometimes you kill your point man. Then all you can do is figure out how to live with it. Just like with AGW: not every one gets out alive.
There's only the expectation of what will happen....sometimes you kill your point man
of course sometimes the point man is killed last, after everyone else is lying dead in the trap...just saying things beyond expectation can happen as well.
According to the facts China invested far more in renewable energies than the US did last year.
http://www.ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf
And China has already more renewable power capacity than the US.
In 2009 China added 29 GWth of solar hot water capacity while the US added 0.1 GWth (page 74).
2010 China added 18.9 GW of wind power while the US added just 5 GW (page 19).
China plans to install 50 GW of PV until 2020:
http://www.solarplaza.com/article/china-aims-for-50gw-in-2020-with-up-to...
As opposed to the US, China does have energy efficiency program:
http://www.energybulletin.net/node/3566
The best selling vehicles in the US are pick-up trucks and in China, e-bikes:
http://www.time.com/time/world/article/0,8599,1904334,00.html
China may not be concerned about AGW but it is certainly heavily invested in reducing its dependence on limited resources.
And, more importantly, 60 GW nuclear which will yield 5 times more energy due to higher capacity factor.
Besides that this plan has changed since China stopped initiating any new nuclear constructions this year - as opposed to coal China has to primarily import uranium, so this would not reduce China's dependence on imported resources to the extend efficiency measures, hydro, wind, solar hot water, biomass-waste, geothermal heating/cooling etc. do.
No, the plan has not changed. Yes, China has to import uranium and is currently hoarding it, which explains the high uranium spot prices. However, this dependence on foreign resources will disappear when China transitions to fast reactors, which they are also planning to do, eventually. Of course, China would rather depend on foreign uranium than to rely on intermittent sources. They understand a civilisated high-tech nation needs stable electricity. (The non-intermittent alternatives you mention doesn't scale.)
Besides that it is unwise to single out the electricity sector, given the simple fact that the entire energy is much larger. And as far as greenhouse-gas-emissions are concerned deforestation, agriculture practices etc. also need to be taken into account.
Besides efficiency measures, geothermal, biomass, small hydro etc, China also installed 18.9 GW of wind power and 29 GWth solar-hot-water in a single year. So, China is obviously not rather depending on uranium imports or waiting for an affordable breeder reactor.
Also, efficiency measures do in fact scale extremely well, since they can be introduced on any building, any vehicle and any ship etc. In addition, solar hot water and PV can be placed on any roof and thus scales also very well. On the other hand: Commercially available nuclear power plants cannot be placed on or in existing buildings or vehicles.
And even if this was even an option: What would the uranium spot price be, if nuclear had provide 80% and not just 2% of the world energy (132,000 TWh vs. 2500 TWh) and uranium mines are not even covering the uranium demand today? http://en.wikipedia.org/wiki/World_energy_consumption http://arxiv.org/abs/0908.0627
Any electric grid needs to have a surplus of power capacity to deal with varying demand. An increase of renewable power primarily reduces fossil fuel consumption and disburdens hydro power plants. And besides that heat energy can be stored cheaply: The European hydro power plants already have a storage capacity to deliver power for 22 days alone. There are simply no nights and dead calm period which last that long over the entire continent: http://www.claverton-energy.com/european-hydro-capacity-compared-to-the-... (Granted, the European utilities which primarily own coal, gas and nuclear power plants would do everything to prevent such a scenario - no matter what.)
More importantly: Building new flexible combined heat & power or flexible combined cycle gas power plant and replacing fossil fuel furnaces with flexible heat pumps is a much faster and cheaper fossil-fuel reduction measure than building more expensive new nuclear power plants: http://www.rmi.org/rmi/Library%2FE09-01_NuclearPowerClimateFixOrFolly
A study from McKinsey which underestimated new nuclear capital costs by over 50% arrived to a similar conclusion:
http://www.mckinsey.com/clientservice/ccsi/pdf/us_ghg_final_report.pdf
Which is also why there are comparatively few new nuclear power plants being built despite generous subsidies:
http://www.weeklystandard.com/articles/nuclear-socialism_508830.html
Nations becoming more developed transition toward higher shares of electricity.
If you look at their plans and not just what they accomplished last year, they obviously rather depend on uranium imports than intermittent sources. Also, they are not waiting for "an affordable breeder reactor" - they are actively researching multiple breeder tracks.
Efficiency improvements are always coming, but China needs more energy and needs to transition away from coal. There can be no doubt about either of this. Nuclear is the Chinese' current main track. One reason is that their political elite is mainly guys with educations in engineering - not fanciful liberal arts guys. Feel free to try to convince them that the other stuff you mention can replace coal as baseload power producer.
Could you please refrain from meaningless comparisons. It detracts from discussions.
It provides 5-6% of primary power, and you know it. The spot price would likely be somewhat higher, which would not be a big problem. Also, with breeders, the spot price would be lower than it is today. Besides, the Chinese may choose to go for thorium.
An increase in renewable power typically increase the burden on hydro plants. It's either that or balancing with natural gas.
I think natural gas is not a very good solution, long term. Sure, better than coal, but not that much. Also, it doesn't scale very well. The Chinese seem to agree, as nuclear is their main track for the future.
If you look at their plans and not just what they accomplished last year, they obviously rather depend on uranium imports than intermittent sources.
No, besides no power plant produces power all the time and some large plants even fail unexpectedly, for instance, last night:
http://www.canadianbusiness.com/article/52712--swedish-nuclear-reactor-c...
Again, according to the facts the Chinese build far more renewable power than nuclear and have been continuously increasing renewable spending:
http://www.ren21.net/Portals/97/documents/GSR/REN21_GSR_2010_full_revise...
http://www.ren21.net/Portals/97/documents/GSR/GSR2011_Master18.pdf
http://www.bbc.co.uk/news/science-environment-14030849
Nations becoming more developed transition toward higher shares of electricity.
Which is still no excuse to ignore the much larger non-electric-energy sector.
Could you please refrain from meaningless comparisons. It detracts from discussions.
Please don't distract from the discussion, when your claim that efficiency measures and renewables are not scalable has been disproved.
It provides 5-6% of primary power, and you know it.
Actually, it consumes 6% primary energy and turns only a third of it into useful power, as facts and engineers will tell you.
An increase in renewable power typically increase the burden on hydro plants.
Actually an increase in renewable power reduces the burden on hydro power plants and saves water and saves natural gas:
http://www.reuters.com/article/2008/04/15/spain-water-idUSL1579694720080415
I think natural gas is not a very good solution, long term.
Besides that heat pumps, which replace existing fossil fuel furnaces reduce natural gas consumption by over 50%, even if they were solely powered by gas power plants:
The point is: Policy makers should not pick winners or losers - they should simply increase taxes on GHG-emissions and let the markets choose. Policy makers should simply refrain from a planned economy with a singled out focus on nuclear power or any energy option for that matter.
http://www.weeklystandard.com/articles/nuclear-socialism_508830.html
Wind is stable if averaged over a season, perhaps more so than nuclear. But on shorter time scales, wind in a country like Sweden produce 20%-360% of its mean. Nuclear produce 60%-125% of its mean (and that's just because we have only ten reactors, otherwise it would be better), and with nuclear, some of the variation can be planned to low demand seasons. This means that wind destroys its own spot price and requires balancing in a way nuclear does not.
This, in turn, means wind puts higher requirements on hydro capacity. I.e. you need more turbines and the river beds need to be able to take higher flow rates and also more reduced flow, which is both detrimental to the river ecosystems. Also, nuclear can be a higher proportion of total power - perhaps 70% of total. Wind must be matched by two times as much hydro or gas, so wind won't be feasible above 33% (likely much lower, given the spot price destruction and given that most countries doesn't have just gas/hydro but coal as well).
Again, the Chinese long term plans rely heavily on nuclear power. The renewable ramping should be seen in the light that it's easy to ramp intermittent sources when you have very little to begin with. This is the low hanging fruit, before the intermittency really starts to hurt.
Transport must be electrified anyway, and nuclear may be used to provide that electricity, as well as hydrogen and process heat. Since oil is peaking, the big AGW threat long term is coal.
Almost all energy is thermal, so if you want to cut down nuclear to a third, you should cut down almost everything else to a third too - perhaps oil even to a fifth since gas fuel efficiency in transport is that bad. If you do this, nuclear is still 6%.
Actually, it increase the burden on hydro, as I've argued, and saves water and natural gas. Actually, that is the primary role of wind and PV, to save/extend some NG. Nuclear, OTOH, replaces coal. This is the difference!
Or they reduce uranium consumption, or hydro consumption. But that's mainly domestic heating - quite a narrow application.
I agree in principle, but the Chinese doesn't agree. They plan and have chosen to rely on nuclear for the long term.
with nuclear, some of the variation can be planned to low demand seasons.
Wind power plants always produce more power in the winter when demand is higher.
And solar hot water on existing roofs reduces the load on the grid as opposed to an electrically powered boiler in the basement. And so does PV on an existing roof, as it reduces the power demand of the building and only produces power during day time when demand is always higher.
This, in turn, means wind puts higher requirements on hydro capacity.
Actually, this means that wind reduces hydro power and saves water, especially in the winter when precipitation is lower.
Wind must be matched by two times as much hydro or gas, so wind won't be feasible
Again, the flexible hydro and gas capacity is already in place in order to deal with the varying demand (and this flexible hydro capacity is obviously from hydro storage lakes and not from river power plants). The electricity demand can vary by a factor of up to 3 within 24 hours. Wind power saves water and saves gas, since it disburdens the already existing hydro and gas power capacity.
so wind won't be feasible above 33%
Actually wind is already above 42% in four German states, despite the fact that Germans have very little electric heating and hot water systems (which could be used to adjust demand):
http://www.wind-energie.de/sites/default/files/download/publication/jahr...
Transport must be electrified anyway, and nuclear may be used to provide that electricity, as well as hydrogen and process heat
Aircrafts, ships and trucks won't be electrified anytime soon and unfortunately fossil fuel heating systems and water heaters won't also be electrified soon, because there's no significant GHG emission tax insight. Hydrogen and process heat can be produced from any non-fossil electric power plant.
Since oil is peaking, the big AGW threat long term is coal.
Even if oil is peaking: Oil is still providing almost 20 times more energy than nuclear (45,000 TWh vs. 2500 TWh).
Again what would the uranium spot price be, if nuclear had to replace all the oil, natural gas and coal currently consumed, given the fact that uranium mines are not even covering the uranium demand today? http://arxiv.org/abs/0908.0627
In addition, coal power constitutes less than 20% to AGW and the sooner GHG emissions are reduced the better. Did you have difficulties understanding this pie-chart?
Or they reduce uranium consumption, or hydro consumption.
No, heat pumps increase uranium or hydro consumption. But heat pumps do in fact reduce fossil fuel consumption if they replace fossil furnaces by over 50%, even if their power is produced solely by gas power plants. Also, heat pumps can deliver flexible demand.
But that's mainly domestic heating - quite a narrow application.
Actually, Germany consumes more heating and hot water energy than electric energy:
Switzerland consumes over 40% more fossil fuel energy for heating and hot water purposes, than it consumes electric energy in total, despite having a lot of electric water heaters: http://www.bfe.admin.ch/themen/00526/00541/00542/00631/index.html?lang=e...
And Britain is probably even worse (example of the residential sector only):
the Chinese doesn't agree. They plan and have chosen to rely on nuclear for the long term.
No, if China had chosen to rely on nuclear for the long term, then China would simply not build and invest more in renewables and in efficiency measures than in nuclear. In addition, there are simply by far not enough nuclear power plants in the construction pipeline and China did not even initiate one single nuclear power plant construction this year. http://www.iaea.org/programmes/a2/
I agree in principle
No, if you would agree and trust in markets, you wouldn't demand a nuclear build out, but ask for a simple GHG and emissions tax and let the markets choose.
As usual, you stick your head in the sand with regards to my explanations. Yes, wind saves hydro power and requires higher hydro capacity, i.e. greater hydro variation than nuclear. This (at scale) requires more turbines and take a bigger toll on river banks and ecosystems.
Yes, and nuclear replace coal. Different objectives requires different solutions.
Actually, wind is probably some 30,000% if you include just the house closest to the tower. These four German states are "interesting" in much the same way. Don't you realize they can have 42% precisely because the rest of Germany has much, much less and absorb their swings? The whole of Germany can't have 42% wind.
Nuclear is much more efficient. High temperature electrolysis reduce the amount of energy you need, and heat can be had for a third of the price.
They are thermal sources, so you should count their thermal production, so nuclear should be credited with 7500 TWh.
Why do you repeat yourself so much? I have already answered, you know.
That was just an excuse for you to repeat the chart.
Again, I guess, ignoring the higher value of electricity. Also, much heat is provided by combined cycle fossil plants and gas furnaces, most of which should be replaced with nuclear heat.
Sorry, it doesn't work like that. They are doing a determined and careful ramping, and are bridging and using some excess capacity for simpler but less scaleable energy such as wind. (Also, efficiency measures are not mutually exclusive with chosing to rely on nuclear for the long term.)
Yes it is by far enough reactors in the construction pipeline. They have 11 GW online, 29 under construction and with a 4 year build cycle, they can easily have 60 GW in total by 2020. If you think the Fukushima review will stop them for long, you'll be disappointed.
I don't demand a nuclear buildout. I just point out that it's the choice of the Chinese, something you're trying desperately to cover up. I'd settle for carbon taxes and streamlined nuclear bureacracies any day.
EDIT: Note to Leanan
The purpose of this post is not to discuss religion, but to discuss denialism. I use this only as an example, since it is MY example, and MY story, the only one I got.
End note.
You are the ROCK! This is EXACTLY how denialism works. I know this because I was a denialist myself. With risk of having this post deleted by Leanan I will tell the story. In my case I was a young earth creationist. I have my own personal reasons to believe in God. Wich they are is irrellvant to this discussion. Lets just say that there is nothing you can say that will change my view regarding theism.
But I was told - both by atheists and other christians - that for God to be able to exist, the Earth and in fact the entire Universe has to be 6000 years old. So I believed that, or rather believed that I believed that.
Then I discovered how Genesis 1 is surprisingly compatible with modern geologic history, and thus the Earth does not have to be 6000 years old. So I became an old earth creationist. Then I saw things in Genesis 2 that was surprisingly compatible with evolution. I could not believe what I saw first, but now it is totally obvious to me.
Now the end result of this process (that took some 15 years or so) was that I was "alowed" to embrace science on these areas too. And once I was, I did.
This road trip tought me a valuable lesson on how denialism works. It is basicly built like a two story office building. You walk in to the ground floor and ask what they are doing there. They tell you that "on this floor, we don't believe in AGW/evolution/NASAs moon landings" or whatever. If you ask them why, they will give you their reasons, qouting fossile records, diagrams or youtube videos clearly showing how a missile leaves the airplane the second before it hits the scyscraper (true story) etc. Discuss with them and you will notice how you can never win. Discuss long enough and you will learn they are unable to understand logic that they don't like he end part of. They can not take it in.
Now go up to the above floor. Ask them what they are doing. They will tell you that they don't want to change their life style or planing for the future or that they believe in God or that they don't like whoever they don't like or something.
Now I have already established that you can never win over the ground floor to your side by talking to them. They are just taking orders from the office above. So you may try to change the guys at the second floor to think differently. But the most efficient way to solve the problem of denialism is to cut the link between the two office floors. If you can show that you don't need that particular set of denialism to maintain what you realy want to do, then there is a good chance you can change that thinking.
However you must know what you are trying to do. If the atheist is trying to make the theist atheistic by convincing him of evolution, he will make all levels of denialism stronger. Show the theist that creationism is not neccesary, and he may abandon creationism. But attacking both levels are a sure way to enforce both levels of thinking, as well as the conection between the original thought and the denialism it spawn.
Regarding the conection AGW-denialism/lifstyle preservation you have to find a way to make them understand they can keep their life style and not change a thing without having to emmit those CO2 molecules. Good luck with that. The only way forward with these people is, as far as I see it, to offer them a new life style that is twice as fun but much more simple. Give the denialist a taste for the simple life, then you have a start. But for reasons that I almost wrote a booklet on once, most people wont do that either. I don't think this game canbe won.
I'm skeptical that AGW denialism is based in clinging to a particular life style. I think it's pretty monolithic. It may occur more often in people with a propensity for conspiracy theories, but I don't think you can easily switch them to another, more mild, conspiracy theory. They rather embrace them both. You may be able to turn someone religious to a milder kind of wrongness because the different interpretations are mutually exclusive. Not so with conspiracy theories, but OTOH...
Was it interest rates, the oil price or the combination that caused the recession in the early 80’s?
And what was the dominant one?
The recovery from the 80’s recession was also fueled by credit/debt growth (due to lowered interest rates).
The CB’s (Central Bank) are presently painted into a corner. If CB increases interest rates, the deficits will grow thus requiring further budget cuts and or tax increases. Higher interest rates will also lead to a further slowdown in an already struggling housing market and make consumers dig in deeper.
Tax increases just shifts consumption from private to public sector.
Going forward into default season which will destroy capital and tighten credit, interest rates in the market will come up as a result. Then more defaults. Rinse and repeat.
Rune, in pulling together all data for this post i was astonished by the high interest rates back in 1979. Clearly that long "no normal recession" was caused by high interest rates and high oil prices. Interest rates should be held above the rate of inflation - so we should have 5% base rates right now. What ja think would happen? I'm not so sure the outcome would be as clear cut as many believe. The fit would survive.
BTW you are using outmoded terminology here which I doubt anyone reading this blog will understand. "default" is no longer called "default" but "hair cut". The banks have just had a number 4 and are now going for a number 2;-)
Inflation is a monetary phenomena, so it may be interest rates are held above inflation.
Price growth, different thing.
How do you perform a "hair cut" on someone that is bald? Or did you mean a head cut?....Guillotines are used for head cuts
Yes, the Guillotine. My reading of tea leaves right now is that Germany is probably, secretly developing a Plan B. I'm not sure that will involve several trillion magic €. It does involve a gas pipeline to Yamal.
European banks are going to get a lot smaller me thinks.
I would not take the other end of that bet!
Me also! Banks will need to deleverage a lot in the time ahead, and then there will be several planned meetings to plan for a plan on how to plan to recapitalize these banks.
This could affect funding for future capital intensive projects.
I provided this link earlier but you may not see it so I'll post it again. Interest rates were jacked up in the early 80's to end the stagflation of the 1970's, which had negative real interest rates due to the end of US dollar gold convertibility in 1971 (see page 21) as well as high oil prices stagnating growth. The price of gold spiked way up after the dollar became an unbacked fiat currency, and then crashed catastrophically when interest rates were raised and the London Gold Pool simultaneously dumped gold onto the market to destroy the price and force everyone back into dollars.
Real interest rates have since gone deeply negative in the 2000's despite what the graph says, because the government lies about inflation via CPI manipulative tricks. The problem is that now the debt loads are at critical levels and would not stand a single percentage rise in interest rates, let alone 20%. And the economy can no longer grow out of its debt. Giving hair cuts to debt holders would destroy confidence in bonds and then the only buyers would be the Federal Reserve (it seems to be the only buyer now anyways), as everyone sells their bonds to get cash. Then The Fed would have to print more money to pay off bondholders and to buy new bonds to fund government debt. Repeat cycle. This is hyperinflation.
There seems to be many parallels with today - but as you know the jury is out on whether we are heading for inflation or deflation. All I would say for sure is that finance system is meta-stable.
Hear , Hear!
Null , you are getting to be one of my "go to"posters.
I personally believe that a hell of a lot of inflation is in the cards.Inflation it is alive and well, and going strong right at this minute, in the prices of nearly all things that REALLY matter.
There will be no escaping a runaway inflation for one very simple reason:human nature.
In the end, a govt can always print more funny money and force it into circulation over a very short to short term time frame.
This is ultimately what morphs into a runaway inflation.It's medicine that keeps you alive somewhat longer in the short term but ultimately kills you from the toxic cumulative effects, unless something else gets you first.
The people who are ULTIMATELY in control of monetary and fiscal policy are our so called only native criminal class(courtesy of Mr. Twain).The president is a sort of defacto super member, since he has veto power.
The fed will do whatever it has to to maintain some semblance of short term control as things get worse, just as freezing people will burn their furniture as a last resort to stave off the end game another day or two.
If it becomes necessary, and there are, imo, many indicators that it WILL become necessary, congress will take actions in panic mode to assume more direct control-there might even be a new central bank sprung on us just like the fed was sprung on us.
The people who are earnest and well meaning members of the tea party faction get it.
The membership here in spite of the generally very high tone and thinking displayed seem to be incapable of admitting that they are onto something that can prove to be just as dangerous as the issues we normally debate here-the ultimate consequences of insolvency are dire, and might very well extend to our getting to experience WWIII.
One of the biggest reasons Hitler was able to get control of Germany and start WWII was the monetary situation in post WWI Germany.Ask any historian.
Hey oldfarmer, yes I don't think people realize how dire the financial situation is. I think people naturally reason, "Well if the world can more or less feed and take care of everyone today then why would that change significantly in only 1 year?" Unfortunately, that's not how ponzi schemes work...
The problem is in honouring paper commitments to future (and current) wealth. What this means is that the world could continue to support people today for a while ... but only if all their retirement savings go to zero. The paper wealth in existence could never be redeemed for real wealth. When this fact gets accepted by the market then it will completely crash. And I also fear a Hitler type emerging as a lightning rod for public anger, confusion, misunderstanding, and misdirected rage. It really is sad to watch how much wealth is being stolen from the American middle class. Today I read that China just bought a huge amount of gold. Fort Knox and every other asset America owned has now pretty much made its way across the Pacific. And our criminal leaders allow this to continue because the alternative to the gold suppression scam is to let the US financial system collapse. They will allow it to be completely bled until there is literally nothing left.
I don't really blame the liberals, although I agree that so many seem clueless as to the real financial situation and that we simply can't afford the programs. But fundamentally they are asking for nothing more than what the middle class has enjoyed for a long time and there is no fundamental reason why they shouldn't enjoy these benefits now -- energy and food are becoming scarce, but not THAT scarce, at least not yet.
And I don't really blame the moderate conservatives (the extreme ones are just plain frightening), since fiscal prudence is always a good idea. But the conservatives don't understand that austerity against the middle class is not fair because that's what's being stolen in the first place, which is why the middle class and everything else needs to go into deeper debt.
IMHO both liberals and conservatives miss the fundamental problem -- the monetary system -- and that the wealth of the middle class is being (has been) stolen by a government and banking system that has been taken over and corrupted by career criminals. Their weapon of choice is interest and all the latest exotic financial instruments used to prop up the ponzi scheme as they milk taxpayers for trillions in bailouts with the ransom being the implosion of the monetary system if they don't get their bailouts.
I agree with much of what oldfarmermac and null says. One day we will wake up and hear that gold has been revalued to $10000/oz. At that price the Fed can print enough money to bail out the banks and the government. Of course this will impoverish a large number of people who don't have gold or hard assets. The fundamental problem being that there isn't enough wealth in the world today to satisfy all the paper claims on it.
I actually believe that the economy will do better with higher interest rates.
(a) as any gardener knows a good pruning often leads to a healthier plant. Low interest rates have allowed for the accumulation of dead wood rather than a good a pruning that a healthy economy needs.
(b) at a time when most consumers are heavily indebted to begin with low rates provide no benefit since they have no capacity to borrow in the first place.
(c) the lower interest rates paid by consumers translates into lower income for savers. - the bump to the economy doesn't come from consumers paying 2-3% less on their debt but rather from the principal amount of their borrowing,.
(d)Contrary to conventional economic theory low rates actually result in more saving not less. People have an absolute saving target in mind e.g. they need to save $300,000 - they can get there by either higher returns on the amounts saved or by adding to their principal.
(e) At some point we have to stop borrowing from the future. The sooner we do that the better the future will look. Hopefully, if the future starts to look better some of it will get discounted into the present.
Crazyv, Null, Euan,
Here's a link to a really good article germane to your discussion; one of the best short analyses I've read in a long time regarding; investment, low interest rates, resource driven systemic decline, all in one very short article.
http://news.goldseek.com/GoldSeek/1318873767.php
Jabberwock,
So, what accounts for the recent decline in gold? Do people who understand how the world works now believe that there actually will be an agreement that saves the Euro? Or what?
Nice piece, enjoyed it.
However what are we to make of the contention above that:
''In 2011, global oil production has stood on an 82 mmbpd plateau for 7 years despite record high oil prices''. (backed up by figure 4).
and data such as this:
http://earlywarn.blogspot.com/2011/10/monthly-charts-with-brent-vs-wti.html
- which shows 87mbd production and noticeable 'wobbles' in the past 7 years?
Its an obvious point for anti-peaksters to hammer away at (yes and I know the IEA/EIA data includes all sorts of stuff - bioethanol etc).
Does the 87 mmbd include refinery gains?
I get your point, but...
Stuart's chart is not zero scaled which amplifies small changes, its monthly data which adds noise and is plotting all liquids which includes bio fuel and refinery gains (I think). The BP data I plotted is C+C+NGL.
Heck I am not knocking your work Euan, far from it. I know its been a bugbear for many years in terms of what the IEA and EIA are adding into their figures. Nonetheless I have had the arguement that we have reached a plateau thrown back in my face too many times by folk quoting IEA/EIA figures back at me - and they print at 87mpd plus (as Stuart shows in his graphs). We cant just ignore this - the Yergin's of this world certainly wont let us, and it would be used to torpedo articles like Euan's.
It's true that if we include biofuels, which of course have a very low net energy component, we have seen a slight increase in annual total liquids production from 2005 to 2010 of about 0.5%/year (EIA), but if we focused on petroleum, the two best measurements are C+C and Total Petroleum Liquids (C+C+NGL's).
If we use the price of oil as the price index, shouldn't we use a volumetric measurement that closely tracks the volume of crude oil?
Yergin, et al don't want you to believe your lying eyes:
And looking at total petroleum liquids, the Chindia region is consuming an increasing share of a declining volume of Global Net Exports (GNE). Available Net Exports (ANE) = GNE less Chindia's net imports:
If we extrapolate 2005 to 2010 trends, ANE would be down to about 21 mbpd in 2020, versus 40 mbpd in 2005.
These energy / recession analyses are interesting but I think there is more going on here than the high-energy-prices-leading-to-recession versus recession-leading-to-energy-price-crash dynamics. One thing that doesn't seem to get enough attention is demographics. I mean, the developing world's economies are growing even in the face of rising energy prices; they differ from the West in their demographic makeup -- they are young (although China doesn't follow this demographic).
What is more important is that technology developed over the last half century is providing lots of opportunities for increasing "production" in underdeveloped economies, relatively easily. Developed economies already made all these technological improvements long ago and therefore they don't have much more room to grow. Economies grow in a stretched out "S" shape, not a "J".
But the developed economies' monetary systems, just like any other, are ponzi schemes as well, and they must therefore grow exponentially. As a consequence, the developed countries must go into further debt to fund exponential money (debt) growth, via all the asset bubbles stimulated by low interest rates. This has been facilitated by the last 30 years of continually decreasing interest rates in the bond bull market, culminating with the current Zero Interest Rate Policy. This can't continue, and western economies can no longer continue to grow to service their debts, even with more banker-funded ponzi schemes. This will end catastrophically, fairly soon IMHO, first with major deflation since politically they don't seem to be able to bail out the CDS leveraged European banks or protect Greece from attacks from Soros and the like. Then when deflation gets into full force the central banks will fire up the printing presses and we shall see hyperinflation and an end to the world as we know it.
Excellent article, but could someone explain to me what is meant by the following:
"It is of course the case that triggering settlement on credit default swaps on Greek debt may multiply the problem enormously."
Thanks
EW
A credit default swap is an insurance policy against debt default. There can be multiples of insurance policies on Greek (and other) debts. So if Greece defaults on €1 billion the insured liabilities can run to 10s or hundreds of billions - with winners and losers. At least I think that's how it works.
http://en.wikipedia.org/wiki/Credit_default_swap
I suspect that one over looked factor to 100.00 USD causing a downtown is a tolerance that may build up over time for the higher prices. Gas jumping from 2.00 to 5.00 is a severe increase, more then doubling the amount US consumers are use to paying. Over time however people adjust thier expectations and budgets to reflect the new reality.
A price change from 4.00 to 5.00 is not nearly as severe and might not be sufficient to cause further downturn if enough time has passed for the economy to develop a tolerance. Each shock may increase to amount needed to trigger the next shock.
To make a comment on this whole thread: Has current short-term inflation (real, not CPI) been taken into account?
With the USD pushing up around 10% a year, you can't even judge 2 or 3 years worth of data correctly unless you factor it in.