DrumBeat: May 18, 2006

Now for some wise words from the readers of The Oil Drum...
There's a candidate for governor of Maine running on a PO platform.  His name is Chris Miller.  His site is:
Maybe TOD could get an interview with him or something.
Awesome news!
I took a look at the candidate's site. He has a link to us here at TOD! Cool! It's a long way until Peak Peak Oil Awareness. PPOA is a lagging indicator of Peak Oil, of course.
Xcel takes the blame for those blackouts in Denver.  Some interesting info about how the power system works.  

Meanwhile, Uruguay limits night sports events due to energy crisis. A drought has affected their hydroelectric dams.  

And in Nigeria, a group is protesting the incessant power outages, using the motto Let there be light.

During the protest, the groups prayed that any staff of the nation's sole energy supply outfit, PHCN, who had a hand in the unimpressive power situation in the country, should die.

Members of the protesting groups carried placards, some of which had inscriptions like, "Say No to Darkness", "Say No to Crazy Bills," "Fight the Monster: End the Darkness" "Light is Wealth", "No light: No Life" etc. Others wore uniform T-Shirts with inscriptions that read, "No Light; No Job." "The Siege is over," No light: No Nation," No Light, No Progress."

An understandable sentiment, but however incompetent or malevolent the employees, after they died en masse the replacements might be even worse.
Lagos would be a very interesting place to be with no light at night.  Lagos crime rate is high as it is, but imagining it with the city in darkness at night is quite chilling.  Povery, population density, failed promises of oil wealth all together with failing electricity adds up to a frightening picture.  
This looks like Richard Duncan's "Olduvai Cliff" beginning.  Is it reasonable to imagine this as a syndrome that will creep through the world's impoverished mega-cities in the near term?  
Matt, dc
IMHO, inflation will be the major issue on people's minds this Summer. Consumer prices rising, spooked investors, asset deflation, and the average American worker will find they are largely powerless to demand higher wages to compensate.

NY Times: Inflation Rising, Markets Tumble

Only a week ago, the Dow Jones industrial average was on the verge of a record high. Without much fanfare, the Dow -- the best-known indicator of the stock market's performance -- seemed about to regain all that had been lost since the spectacular 1990's boom came to an end. .... For investors, the biggest concern is that rising oil prices will feed into the cost of goods and services dependent on oil. So far, the main impact is on gasoline pump prices, which averaged $2.79 a gallon in April and $2.97 a gallon in May, according to Energy Department surveys.

An indirect effect is evident in rising air fares, in surcharges on overnight air freight, and in a few chemical products made from petroleum. But those increases are still isolated.

From the Falls Church News-Press:

Are Investors Waking Up?

When will the second shoe drop? The 214-point nosedive in the Dow yesterday was again blamed on the impact of high oil prices, and signals what will happen whenever it finally sinks in that this problem is not going away and will wreak unfathomable havoc on the U.S. and global economy.

The domino effect of the "peak oil" crisis facing the globe is what sends market investors scurrying, even if up until now it has been only in fits and spurts. Yesterday, for example, a higher-than-expected rise in the core consumer price index (CPI) was interpreted, in Wall Street's usual lemming-like fashion, to mean that high oil prices are, indeed, reverberating throughout the economy. The core CPI does not include direct energy costs, and its rise was interpreted as indicating the effect of rising energy costs on the rest of the economy.

Investors have suddenly figured out that this will drive up prices everywhere, and will cause the Federal Reserve to have to raise interest rates faster than previously thought in order to tame its inflationary impact.

That, in turn, will mean access to capital will become harder for businesses to retain their expected rates of growth, and the conclusion to draw from that, of course, is that it may suddenly be time to pull out ahead of the resulting downward curve.

So we line this domino up here, and that one over here, and the next one over yonder, and then...

Nothing to see here! These aren't the problems you think they are. Move along! Move along!

(Apologies to George Lucas.)


Greyzone, OT but have you seen this sortable web page version of your Major Oil Fields list? I'll gladly update it if you send me a new CSV.
Maybe the current price of crude has very little to do with "peak' at this moment.  Fiat money is being funneled into commodities causing the prices to inflate [i.e. Housing], in the case of oil, before any actual peak.  We are being set up for a real hard landing here folks.  Total absorption of a financially ruined United States into the New World Order...

"Will the coming world order be the American universal empire? It must be that.... The coming world order will mark the last phase in a historical transition and cap the revolutionary epoch of this century. The mission of the American people is to bury the nation states, lead their bereaved peoples into larger unions, and overawe with its might the would-be saboteurs of the new order who have nothing to offer mankind but a putrefying ideology and brute force. It is likely that the accomplishment of this mission will exhaust the energies of America and that, then, the historical center of gravity will shift to another people. But this will matter little, for the opening of new horizons which we now faintly glimpse will usher in a new stage in human history.... For the next 50 years or so the future belongs to America. The American empire and mankind will not be opposites, but merely two names for the universal order under peace and happiness. Novus orbis terrarum."
~Strausz-Hupé, 1955 "The Balance of Tomorrow,"


The Greatest Economic Crisis in Modern History


So, what we've had, is this kind of speculative system, which is integral to this operation with getting money back into these bankrupt banks, through bundling of Fannie Mae-type and Freddie Mac-type mortgages, this system was going to blow! This is a bubble, this is a classical John Law-style bubble, as John Law from the early 18th Century. You had one in England, you had one in France. South Seas Island bubble, and the Mississippi bubble. Same kind of thing. It's a ponzi scheme. It's a pyramid club scheme--same kind of thing. But a pyramid club scheme betting on a pyramid club scheme, betting on a pyramid club scheme--off into the stratosphere.

Now, the money is being printed, which is generally registered under the category M3. And notice that you can't find out what M3 is, any more. They officially decided to hide the figure! Because, if the figure were published, it would show you how much money is being printed, printing-press money by the Federal Reserve System, and being pumped into the system now, to bail out and fund these financial interests.

Anyone knows this, who knows the system: When you build up this kind of bubble, a super-John Law bubble, layer upon layer--this thing is going to pop. Then, if you're a smart banker, what're you doing? How are you going to get out of the bubble, which you are going to cause to pop? Why aren't you going to go down with the bubble? You have to find a landing place outside the system. What is that landing place? Gold, silver, iron, zinc, copper, petroleum!

These are physical assets, so-called natural materials, these are assets which will be marketable in the future. So what you do, is, you corner the market in possession of these materials. You raise the price to the sky, because you're bidding against each other to grab these materials, and trade them back and forth, day after day. It's all done by this bunch of financiers. That's where you get that curve! So, when you look at the curve of inflation, don't look at the groceries--you will get grocery inflation very rapidly; you're already getting it, as many of you know. It's going to get serious, like housing inflation has been. Hmm? But this inflation, is where the powers of the future intend to be: They will control these assets; they will control the real estate; they will control the water systems; they will control the water. They will control the food. They will own you, and decide which of you lives and which dies.

This is not oil companies trying to "gouge the public"--oh, they do that all the time! But, this is nothing new; that part's nothing new. What they're doing that's new, is, they plan to sink the whole world economy, into a breakdown crisis, from which they will emerge, where governments are bankrupt and powerless, and they will emerge as the owners of everything in sight. And their banking systems will come--not the government!--but they will come, and foreclose on you. And there'll be nothing to protect you. That's the game.

Isn't M3 "long term" money which is driven by long term loan demand growth which the Fed "satisfies" by creating more money?  So wouldn't M3 actually decline when housing and other long term capital investments decline?  Wouldn't "hiding" M3 actually hide the fact that the economy would at some point be collapsing?
The Fed can create, or contract, the money supply in many different ways.  Read up on The Mandrake Mechanism:

That doesn't even cover derivatives, assurances and all the other silly debt games the central banks play.

They have reached a point where they have to monetize debt to cover their obligations.   There is no way out.  Hyper inflation is just around the corner...


"The Fed can create, or contract"

I meant "expand", or contract...


I don't have time to read all that stuff.  I just want to know, now that M3 is hidden, is it your contention that (1) M3 is expanding because there is rampant private sector borrowing, or (2) M3 is expanding because the Fed is borrowing from banks?
Wait since when does the Fed borrow from commercial banks?  I thought the Fed was the lender of last resort.  How does it even go about "borrowing" from a commercial bank?

I think the point to this is that the Fed is monetizing debt at a large rate!  They buy securities - that is debt, and in turn put it down on the books as an asset.  Problem is this "asset" is in turn a liability against the American People.  Once this fake cash starts being spent by our fair govt, it is deposited into banks and a small part is held as reserves and the rest is loaned out and it goes to another bank and the process repeats itself.

Right!  So if the Fed is buying debt then wouldn't M3 fall not rise.  M3 is an indirect measure of long term borrowing by private entities from banks isn't it?  Further then, if the Fed wanted to hide monetizing actions then the Fed would cancel its requirement that banks report M3 for publication.  

The "assets" are already an obligation to somebody.  If the Fed buys those assets, thereby giving money to a financial entity, that financial entity might then cover their eurodollar contracts -- no need for the liquidity if the related transaction has been transferred to the Fed, right?

First the FED did cancel publication of the M3 figure and that has all the money people up in arms.

When the FED buys the debt they are giving fake "cash" for a piece of paper.  So the FED gives money for a piece of paper, so they are increasing money in the system, not decreasing.

You also must keep in mind that they are buying debt.  They buy 10 year T bills, which are debts of the people of the US.  Then they take this DEBT and on paper change it into an asset of the bank.  Now do you understand that our lender of last resort (the biggest bank in the world), is using the US debt as a basis to expand the money supply.

Don't mean to double post, but I didn't answer part of your question.  

The only assets I am talking about are repurchase agreements, repo's, and those are done with other governments or our government.

T-Bill's not sold to public ---> Congress takes these to the FED and the FED writes a check ---> On the FED balance sheets, this debt is now a securities asset ---> the government deposits the money into commercial banks through issuing checks to various people agencies, etc. ---> those banks receiving the money only needs to hold a fraction of what was deposited so this orignal govt money has been re deposited up to nine times and up to 9 banks lend of 80-90% of whatever was deposited  ---. so they loan out the rest and it cycles.

The world didn't want to take on the debt of the US, but when the FED assumes the debt (enters in a repo agreement with the govt) it is in effect, creating money from debt.  Thinking only in terms of off setting debits and credits in accounting terms won't let you see the bigger picture.

I think we may be talking about two different things.  I'm talking about how it's supposed to work normally, and you may be talking about some nefarious Fed actions.  Allow me quote something here which may be of use:

"One of the trademarks of perma-bears is to blame all the World's ills on a hyper-active Fed whose policy shifts endanger the state of our economies and the value of financial assets. But is this a fair indictment? Judging Fed policy by the growth rate of the US monetary base, we find that the US monetary base has been growing fairly steadily and in line with US GDP growth.

In fact, if one wants to blame a central bank for volatility in global monetary aggregates, one should instead turn to Japan.  Looking at the past thirty five years, we find that the Japanese monetary base has been allowed to double over short periods (i.e.: less than three years) three times.

Another interesting fact is that, following the large 2001-2004 expansion in the Japanese monetary base, the Japanese monetary base is now larger than the US'. That is quite impressive for an economy less than half the size."

The creation of money, or credit, or debt (they are all one and the same, just different columns of the ledger) is the source of inflation, in the textbook sense of the word. This inflation is also reported as "growth" in the GDP.
Think about it....money was "created", so of course it is reported within GPD growth, in much the same way as your pay is reported on your paycheck.
That is why they are in line with one another (and growing fairly steadily, I might add, or was until fairly recently).

GDP can grow above and beyond the inflationary amount, but in order for that to happen more goods and services have to be 'created' than money/credit/debt is created.  Very little of that has happened. The US does not actually "make" much of anything anymore, after all.

The US Federal Reserve has created more money, via the issuance of more debt, since 2000, than was in the system total prior to that year.  Our debt load more than doubled in that time. As mentioned before, inflation is the result. A $1USD today buys only a fraction of what it did a few years ago.

Japan is a totally different case, one of a slow deflationary collapse over a nearly 20 year period that has been carefully controlled by the Japanese.

Some raw data....

Prior Fiscal
 Years            National Debt
09/30/2006?       $est 8.5T
09/30/2005        $7,932,709,661,723.50
09/30/2004        $7,379,052,696,330.32
09/30/2003        $6,783,231,062,743.62
09/30/2002        $6,228,235,965,597.16
09/28/2001        $5,807,463,412,200.06
09/29/2000        $5,674,178,209,886.86

OUCH!  This will be interesting to see how this spirals...

When we are rolling the wheelbarrels of money to the grocery store, the debt won't look that bad.
Then we'll be like Zimbabwe, where it takes longer to pay for the meal than it does to eat it.
I've got bankruptcy proof college debt, so at least it will be easier to pay it off with inflated money.  I'm all for it.
Ah yes, good news for you, your existing fixed-rate student loan debt will be monitized, right along with the US federal debt. One day, you'll come home from work and can pay it all off with a single paycheck.  Too bad you (all of us Americans, really) probably won't be able to afford much else.
In Japan they lend money @ 0% interest.  No one spends money, so American companies for years have siphoned Yen out of japan (basically for free) & turned it into USD.  Once they did that they could put it anywhere and make a pure profit.  This only happens in the largest investment banking houses (JP Morgan, Goldmach Sachs).
"One of the trademarks of perma-bears is to blame all the World's ills on a hyper-active Fed whose policy shifts endanger the state of our economies and the value of financial assets. But is this a fair indictment? Judging Fed policy by the growth rate of the US monetary base, we find that the US monetary base has been growing fairly steadily and in line with US GDP growth."

Ya that might make sense if the GDP numbers, make that any official economic numbers, the government reports were REAL.  The numbers are a joke so judging anything based on the economic numbers is a joke.  Here is a mainstream article pointing out the lies.  It is probably worse than this:

The numbers behind the lies

It is worth reading the PDF report referenced in the article


I've heard all the critcisms of CPI, govt numbers, etc.  But if people just thought of CPI as a measure for people who rent apartments, buy used cars, and have a government job which provides for all their health care needs, then CPI is an ok measure.  Rents were going down relative to incomes during the housing boom, and used cars were similarly in oversupply after 9/11 created 0% new car financing.  It's just that a lot of wall street types a while back thought CPI was measuring some sort of overall deflation!  
The "assets" are already an obligation to somebody.  If the Fed buys those assets, thereby giving money to a financial entity, that financial entity might then cover their eurodollar contracts -- no need for the liquidity if the related transaction has been transferred to the Fed, right?"

Does this answer your question?

"Because the Federal Reserve can be counted on to "monetize" (convert into money) virtually any amount of government debt, and because this process of expanding the money supply is the primary cause of inflation, it is tempting to jump to the conclusion that federal debt and inflation are but two aspects of the same phenomenon. This, however, is not necessarily true. It is quite possible to have either one without the other.

The banking cartel holds a monopoly in the manufacture of money. Consequently, money is created only when IOUs are "monetized" by the Fed or by commercial banks. When private individuals, corporations, or institutions purchase government bonds, they must use money they have previously earned and saved. In other words, no new money is created, because they are using funds that are already in existence. Therefore, the sale of government bonds to the banking system is inflationary, but when sold to the private sector, it is not. That is the primary reason the United States avoided massive inflation during the 1980s when the federal government was going into debt at a greater rate than ever before in its history. By keeping interest rates high, these bonds became attractive to private investors, including those in other countries. Very little new money was created, because most of the bonds were purchased with American dollars already in existence. This, of course, was a temporary fix at best.

Today, those bonds are continually maturing and are being replaced by still more bonds to include the original debt plus accumulated interest. Eventually this process must come to an end and, when it does, the Fed will have no choice but to literally buy back all the debt of the '80s -- that is, to replace all of the formerly invested private money with newly manufactured fiat money -- plus a great deal more to cover the interest. Then we will understand the meaning of inflation."

This may be the reason the Fed suspended the M3 because they are beginning the process to "buy back" all the private debt plus interest from the 80s and early 90's.  The ponzi scheme is coming to an end, there is no way out.  It was fun while it lasted...


There is also some evidence that over the last few years, the Treasury department (or the Fed) has been buying up it's own unsold bonds, via Carribean intermediaries, in an attempt to prop up the system.
Is there anywhere I can find this?
Prudentbear,Fiendbear and Financialsense usually cover this topic (on and off).
Financial sense had the best article and it was dated a year ago almost exactly.  It's funny that within the year from that article the FED has stopped publishing M3 stats, but there is a clear indication that this is spiraling out of control.

The FED is quoted as saying they will take unconvential means to maintain the dollar.  It pointed out that our trade deficit was like 55B in APR 05, yet Net Foreign Investment was only 45B.  So who are we getting the other 10B from?  I say we're printing money, though not with any presses, unless it's the press of a button.

In other words, when the bubble bursts, it'll explode like an asteroid hit. The national debt is the mother of all weapons of mass destruction. And BCR is determined to detonate it.
"Wait since when does the Fed borrow from commercial banks?  I thought the Fed was the lender of last resort.  How does it even go about "borrowing" from a commercial bank?"

Did you ever here of The Bank for International Settlements?

A banker's bank, the BIS does no direct business with individuals, governments, or corporate entities. Instead, it deals solely with member nations' central banks (most of which are privately owned). There are 55 of them at present, and the list includes every central bank of consequence in the world.

All members are owners and have voting privileges, in proportion to the number of shares they have. (Private citizen ownership was originally allowed, and comprised about 14% of shares outstanding, but in 2001 all of those were bought out by the central banks.) We were unable to pin down the exact present share structure, but it can be assumed that the founding members have the most clout.  

The founders were the central banks of Belgium, France, Germany, Italy, Japan and the U.K., all of which got an identical number of shares. The U.S. Federal Reserve was not an original shareholder; however, three American banks (J. P. Morgan, First Bank of New York, First Bank of Chicago) each got the same number, giving the U.S. three times the voting power from the outset.

Management's inner circle is of course the Board of Directors. There are six ex officio (i.e., permanent) members, the central bank governors of Belgium, France, Germany, Italy, and the U.K., plus the chairman of the Fed. These six appoint six others of their own nationality, and then there can be up to nine more elected members (there are five at the moment, representing Canada, Japan, the Netherlands, Sweden and Switzerland). Ben Bernanke has thus just replaced Alan Greenspan as the U.S.'s ex officio rep, and his appointed American sidekick is New York Bank President Timothy Geithner.

So, what does the BIS do these days? According to the bank's website, "BIS . . . fosters international monetary and financial cooperation and serves as a bank for central banks . . . by acting as: a forum for discussion and decision-making among central banks and within the international financial and supervisory community; a centre for economic and monetary research; a prime counterparty for central banks in their financial transactions; and agent or trustee in connection with international financial operations."


It is worth reading, when you have the time.
Knowledge comes from understanding.
It seems simple enough to me that the Japanese and Chinese have recycled a lot of the money that they've made into Treasuries.  The fact that the Fed has a variety of complex ways to create money isn't surprising to me.  We've received cheap "vendor financing" -- why blame the Fed for this?  

We won't/can't pay the foreigners back at fair value.  So what if the Chinese cancelled our debt in exchange for us relaxing our policy on the defense of Taiwan?  And the Japanese cancelled our debt in exchange for grain export guarantees after peak oil?  Or a bunch of nukes for their new army?  Or both of them on some other political deal?  We can't pay them back, and as Bob Dole would say, "You know it, I know it, they know it, we all know it.".

Ok and when the rest of the world knows it...what is the incentive to hold it?
Incentive to hold it?  I don't know!  I'm trying to play a little devil's advocate in here -- and as usual getting shot down.  I'm long energy, commodities, and effectively short the dollar in my long term investments, and it makes me nervous when I start seeing too many people agree on what "must" happen.  So I'm constantly on the look out for that great new energy technology that everyone will believe is the savior, or the political deal that will save the dollar, or whatever.  I constantly try to find things that disagree with my beliefs.
It's really not that many people though.  I would short all entertainment equities.  I would think we cut back their first.
My preference is to figure out how much money I'm willing to lose, and buy puts.  Shorting can be reasonably dangerous without dicipline.  Another approach is to sell call spreads and collect premiums towards expiration, but options have been too cheap recently for this.

Not that many people?  I'm trying to believe you.  I guess it should be obvious to me that not that many agree on this, given the DJIA runup (until recently).

The train has left the station...i've been telling a few different people to dump their equity holdings in their 401K's and one listened.  My mom didn't and she called me a couple days ago to let me tell her I told you so.  In less than a week the DOW dropped over 400 pts since.  Not that it's the ONLY index.
From my perspective the elite ruling classes in all the major economies, the "functioning Core" of globalization,


are all working together towards a common goal.  Through central banking they have gained control of governments and are in the process of redistributing the wealth around the globe.  When this process is completed the will pull the plug on the current finacial paradigm and bring about a high-tech global feudalism under the guise of a New World Order.  If I was at the top of the pyramid it is what I would do. We must die so they may live.


Dogs of war and men of hate

With no cause, we don't discriminate

Discovery is to be disowned

Our currency is flesh and bone

Hell opened up and put on sale

Gather round and haggle

For hard cash, we will lie and deceive

Even our masters don't know the webs we weave

On world, it's a battleground

One world and they smash it down

One world...one world

Invisible transfers, long distance calls

Hollow laughter in marble halls

Steps have been taken, a silent uproar

Has unleashed, the dogs of war

You can't stop what has begun

Signed, sealed, they deliver oblivion

We all have a dark side, to say the least

And dealing in death is the nature of the beast

On world, it's a battleground

One world and they smash it down

One world...one world

The Dogs of War don't negotiate

The Dogs of War won't capitulate

They will take and you will give

And you must die so that they may live

You can knock at any door

But wherever you go, you know they've been there before

Well winners can lose and things can get strained

But whatever you change, you know the dogs remain

On world, it's a battleground

One world and we're going to smash it down

One world...one world
~Pink Floyd

For all of you who are in the NWO camp, there is an interesting article in Financial Times.  Scroll down and read the last two sentences.


"Meanwhile, in Europe inflation data for the 12-country eurozone showed the core rate, also excluding energy costs, jumped in April to an annualised rate of 1.6 per cent. The acceleration is likely to stoke European Central Bank fears about inflation dangers.

The ECB is expected to raise its main interest rate in June from 2.5 per cent, possibly by half a percentage point.

It became clear on Wednesday that the Bank of England's interest rate-setting body had a three-way split at its meeting this month, pointing to mounting concerns about inflationary pressures and increasing the chances that the UK would also raise borrowing costs this year.

Michael Dicks, economist at Lehman Brothers, said central bankers were "talking the same language" about inflation risks.

"It is almost as if they are looking at each others spread-sheets, and looking at the world in the same way," he added."

I love how the media portrays central banking.  Central banks don't "FEAR INFLATION", they intentionally create it to tax the hapless citizens and confiscate their wealth.  When is the US public going to wake up and realize they have paid for every war since the turn of the 20th century and funded the hemorrhaging wealth transfers to third world countries and supposed "enemies", Russia and China, through INFLATION?  That is a rhetorical question because we know the answer is never with the complicate, elite owned media. The entire system is a sham built on ignorance!!!

Even those who once spoke out against "The Creature" CAN NOT escape its seductive powers...

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
~Alan Greenspan, "Gold and Economic Freedom", 1966



Someone posted this recently http://www.ipsnews.net/news.asp?idnews=33268

" "The food production system is designed to generate profits, not produce food or nutrition for people," Qualman told IPS. "

Someone posted this recently http://www.ipsnews.net/news.asp?idnews=33268

" "The food production system is designed to generate profits, not produce food or nutrition for people," Qualman told IPS. "

How could it be otherwise?

"When plunder has become a way of life for a group of people living together in society, they create for themselves in the course of time a legal system that authorizes it, and a moral code that glorifies it."
~Frederic Bastiat


I bet it's easy if you think everyone won't notice.
Check out the inflation chart, present VS Germany 1923, that LaRouche shows in his presentation (regardless of what you make think of LaRouche):


Then check this out:

June 2006 -

Beginning of phase 2 of the global systemic crisis: the phase of acceleration



High Sugar Prices push up CSR profits
[CSR's] financial report shows sugar trading revenue rose more than 42 per cent because of good sugar prices and growing conditions.

The company lists the commissioning of a renewable energy plant at the Pioneer Mill in the Burdekin and an expansion of the Sarina ethanol distillery as its major projects for the period.

I've followed the debate about bioethanol here with interest. Eventually I'd like to write about it in an Australian context at my blog Energy Futura, but at the moment I'm still just sponging information.

Australia is the world's 4th largest sugar producer and my understanding is the industry is not subsidised in Australia:

Around 80% of Australia sugar production is exported, nearly all of it at the world price. The industry domestic (ex-mill) price is fixed at export parity in the main producing State (Queensland) and imports of sugar can enter Australia duty free. The Australian sugar industry is probably more exposed than any other sugar exporter to world price movements.

With 80% of Australian sugar for export thats a lot of potential domestic bioethanol production. What is people's take on the economics of sugar for ethanol, and can anyone direct me to some links?

On Monday from 3:05-5:00 pm Pacific Standard time I will be guest hosting on the Dave Congleton show.

The afternoon radio show will be on alternative energy and a local business person who has been in the business for well over a decade will by my guest. I will also be beating up on PG&E for its latest action on solar credits in California, among other items.

It is the best time slot on this local AM station.

The station is supposed to start streaming this week so it may be available to the TOD.  For a laugh, go to:


Saudi Aramco plans to hike oil reserves by 25%; Costly oil makes consumers wary: Al-Naimi

Aramco, the state oil firm of the world's top exporter, has 260 billion barrels of proven oil reserves and a sustainable production capacity of 10.8 million barrels per day (bpd), said Mohammed al-Qahtani, manager, production and facility development department. "The 260 billion barrels represents 36 percent of discovered oil resources, this is the so called oil initially in place. We have 716 billion barrels of discovered resources. We produced 106 billion barrels so far, that is 15 percent, and 36 percent is our proven reserves," he told an Arab energy conference.

What???  716 Billion barrels of discovered resources... is that total oil/gas/other?  You say just above 260 billion barrels of discovered oil resources... What is the 456 Billion other?

Oh yes and...

"We are estimating that by 2025 we will increase total discovered resources up to more than 900 billion barrels," he told the conference in Jordan.

WTF?  Seriously...

They can invent as many discovered resources, proven reserves or any other kind as they like. Until and unless the stuff actually starts being delivered faster no-one will believe a word.
I totally agree... the whole "paper barrel" fiasco is quite troublesome
The MSM will tell the sheeple and they will believe every word of it.
According to what I could find doing some googling...

Discovered Resource - "This classification is simply a formal recognition of a discovery and it does not indicate economic or producible status."

so the 456B additional resources they speak of are discoveries that might be economically producible?

yeh I suppose they "might", but I wouldn't count that as ever coming out because it's only on paper.  They never restated reserves from the middle 80's when they flooded the market by creating paper reserves to satisfy both the bidding of President Reagan & OPEC ratio requirements.
Interesting little article from the Observer (UK) on the Guardian site today:
I like driving in my car
Basically about how urban America went from compact cities with efficient electric tram and train systems to the horrendous sprall of today.
Suspiciously similar to a piece in Heinberg's book "The Party's Over".
It's Not That Gross! Freeganism and the Art of Dumpster Diving
The Satya Interview with Adam Weissman
May 6 2006


i'm eating breakfast!

(i'll look at it more later ;-)

i did see a tv segment on a dumperster diver guy.  he at least brought home garbage food to feed his chickens, and did not "dine" himself.

He're comes the financial collapse we are talking about!!

He's a story from MSN and I can't verify their numbers with any other publication so I'll take these.

Bankruptcies are on the rise after the new law has taken affect.  As those ARM's become pricier I think this gets worse and as gas gets more expensive it only compounds the problem.  Too many people have homes that shouldn't and now they will be giving them back.


Great find, tate423, some have been expecting to see this for a while now. Changing the laws to make it harder to file for bankruptcy and penalize those who do was just a handout to creditors, and did nothing to change the underlying problem, that an increasing number of Americans are finding it harder and harder to make ends meet. An endless advertising barrage, stagnant or declining wages, a deflating housing sector, and soaring prices are combining to push the average schmuck a little closer to the edge.
If you listen you can hear the creaking backbones of the US consumer, as he/she nears maximum debt load.
You're right. The underlying problem is still there. The lenders (inclides card issuers) have only themselves to blame for making this bankruptcy bomb. There are 2 trillion bucks in ARMs, and something similar in credit card debt, which is an ARM type of lending.

All the new law did was create jobs for credit counselors, and the lenders will take their bath anyways. The post-law lull was preceded by the pre-law pulse. Once the average settles back out, the bankruptcy rate will accellerate back to normal plus interest!

Now for the kicker - or more like the booster rocket: With an ageing obese population and the failure of the healthcare due to layoffs, debt from healthcare bills will take off and bankruptcies will soar like a rocket plane on steroids.

Do I feel sorry for creditors? Is Osama bin Laden Catholic?

I'd like to start contributing more but being a politic-head I lack the requisite econ background to step up to the plate and dig in with you guys.

I can handle/learn all the technical stuff you can throw at me, as I have a small background in engineering, comp sci and astronomy.

What I guess I am asking for is a primer on the economy of oil.  How do spot prices get set?  Why are there more barrels represented in futures than actually exist?  Where do I find month by month historical data on prices?

It would also be great if someone could steer me in the direction of more knowledge on the business of gasoline, refining, etc.  

I can follow most of the action on the site but I am relegated to a wait-and-see role without being brought up to speed.  The FAQs on the site, and on the web, really don't give enough info.  Any help would be appreciated.

CarCulture learn to love wikipedia!  I know it may not be TOTALLY accurate, it has so many great articles on finance and econ and it includes graphs, formuals, and all the technical jargon if you really want to learn it.

When it comes specifically to oil, I'm sure there are many who can skip steps and tell you, but without a firm understanding of financial and econ principles it may be hard to grasp all the different angles.

I take it that you are saying, "proceed to the beginning, do not pass go, do not collect $200"?

Because I already read the Wikipedia "futures market" and "oil" entries and they don't provide the kind of detail I am looking for.....but if you are saying that I need to stop trying to build a house starting on the 2nd floor, I guess I will go back and research Econ in general (its good advice, thanks), but I am still going to eventually need the oil specific info that I can't seem to get anywhere else........

Good point.  If you want to know specifics on derivatives you'll need to head over the the Chicago Merc Exchange website and look for the raw numbers.  I think hellacious or someone explained the raw derivative numbers in another post.  I can't seem to find it though.  It was only within the last day.

@ wikipedia look for econ info on aggregate supply and Aggregate demand curves.  That is the easy way to understand the macroeconomic basics and you could apply all of the various factors that influence the supply and demand curves to the oil market.  The great thing about econ is that once you understand the basic tools, everything is an extension of a few concepts.

He did, and did a good job of it. You'll find it here:
Many thanks, guys.

Used hybrid and compact cars are selling for insane prices, due to the high cost of gasoline.

In an atmosphere of high fuel prices, the market for used cars with high fuel mileage has gotten red hot.

Gas prices can cause greater fluctuations in used-car prices than in new cars for two reasons: used-car prices are more flexible than new-car prices and used-car shoppers generally have lower incomes than new-car shoppers.

In one extreme example, used Toyota Priuses are in such demand that they lose almost no value in the first year or two of ownership even after being driven tens of thousands miles.

For example, a 2005 Toyota Prius that when new had a sticker price of $21,515 could now sell for $25,970, even with 20,000 miles on the odometer, according to data from Kelley Blue Book. Since Toyota dealers usually charge a few thousand dollars over sticker for new Priuses, the buyer in this example probably wouldn't have made a profit, but nearly so.

Honda Civic Hybrids are also sporting near-immovable resale values.

This reminds me of a farm auction I was at in DE a number of years ago.  I needed a replacement 5 prong pitchfork.  I had priced new ones so I knew my max price.  There were several lots of pitchforks.  One was single 5 pronger and one was in with a bunch of 3 and 4 prongers.

I made a few bids on the single one but a few of the city people really wanted that 5 pronger and I dropped out of the bidding when it got to as much as a new one.  The big lot was purchased by an Amish guy.  I went up to him after the auction and asked him how much he wanted for the 5 pronger.  The price was about in the range I had planned on paying and saved me a bunch of money had I stayed in the bidding.

My point is that only idiots would pay extra for a Prius when there are a ton of other fuel efficient used cars out there for less money, muchless money.  Plus they forget it takes high priced low rolling resistance tires and the battery may die at 10 years for another 3 grand in expense if they keep the car. Argh!

for what it's worth, i hit some road junk while sneezing and had to buy a prius tire.  from the dealer (probaby not the best deal i could drive) it cost $81.63

the average tire sold in 2005 cost $76


not a big difference.

that's funny.  maybe i should turn my (12k mile) prius for a profit ;-)

and it is sad that consumer reports, in their 'are hybrids worth it' calculations, insist tht prius have high depreciation.

I just saw a story on MSNBC stating that West Texas will soon increase its speed limit to 80 mph. Someone please tell me I was hallucinating.
You were not hallucinating.  

Texas close to OK'ing 80 m.p.h.

Nope, not a hallucination. USAToday had it in yesterday's edition, I meant to post on it.

Let me add three other totally stupid little observations, made during my trip home from work yesterday afternoon.

  1. Fake mulch. This stuff is all the rage with homeowners around here. Shredded up plastic and tire rubber, it is then dyed and sold for a substantial premium over "real" (wood-based) mulch and is in high demand. So much for using natural composting materials to add biomass and tilth to your flowerbeds, now you can treat them to petroleum-based runoff instead!

  2. I passed one of our multiple "Admobiles", a small cargo truck with changing billboards on the sides and rear.
Yep, these destinationless panel vans ride around town, burning gas, slowing in intersections, attempting to get drivers to see the advertising on the sides/rear. Pointless waste.

3) The ad on the back of the Admobile in front of me, showing a new particleboard and plastic construction "spec" home (a residential structure build by a homebuilder without a buyer, speculative construction) in one of the new surburban neighborhoods, with the text: "BUY TODAY, INSTANT EQUITY!". Implying that, for some reason, the house is can be purchased for less than it is worth, if only you buy now.

And you wonder why I think Americans are doomed.

I would hope that "admobile" truck had a big fat battery in it  as part of a hybrid drivetrain. Since it drives all day in city traffic the advertising company can avoid wasting a lot of the gas they waste. It would improve the bottom line to convert the van to a hybrid.

Speaking of hybrids, we all know that people add batteries and plug it in to get extra gas mileage. Here's an idea. While solar panels on the top surfaces can't power it in real time, as it sits in a workplace parking lot, it can add some charge to the batteries.

I was afraid of that. Way to go, Texas, leading the nation once again with progressive vision. You could at least execute all the offenders over 80mph, now - you're certainly setup for it. Ohhh, cheap shot! I'm surprised there's no proposal to allow only non-Mexicans to drive 80.
Excuse me? We like our Mexican neighbors here in Texas. If you want to quibble with those Minutemen fellas haul yourself on over to New Mexico or Arizona. ;)
Sorry, I didn't realize that. I hope you'll forgive my ignorant northern attempt at humor :-)
How about sinking navy warships so we can look at them rather than recycling the wasted steel.  And while we're wasting metal, let's waste some $20M of taxpayer's money to do it.  WoW....


Oh, but it will eventually (hopefully) become an artificial reef, to replace the natural ones that we humans have managed to kill off with pollution, seawater temperature change, deoxygenation, etc.
There is no global warming I'm telling yah.
Getting rid of old ships, especially Navy vessels, is an extremely tricky operation for a number of reasons not the least of which are environmenntal concerns. The US navy actually has a lot of experience dealing with these issues and I believe has reformed its methods considerably since a flap in the late 1990's.

I recommend William Langewiesche's 'The Outlaw Sea.' Great book by a great writer.

Friend left as deposit at gas station

BERLIN (Reuters) - A German woman left her friend as a deposit at a gas station because she did not have enough cash to pay for her petrol, police said Wednesday.

"She didn't have enough money to pay the bill, so her friend stayed behind as a human deposit while she went to withdraw cash," said a spokesman for police in the southern town of Muenchberg. "Unfortunately, the woman did not return."

A new twist on the old pump and run.  Ingenious, those Germans.  ;-)

Is the price of gasoline really that high?

The average retail price of gasoline in the United States is currently about $2.95.

Over the last two and a half months, we have seen gasoline demand exactly flat versus the same period last year. While given weeks and months often show flat or even negative demand growth, flat demand over a 10 week period is rare. Is this real demand destruction? Is the high price of energy finally cutting into Americans' discretionary spending?

Just this week we saw the release of inflation numbers which had quite a significant effect on the stock market. Monday morning all the talk was of Dow 13,000 on CNBC. By Wednesday evening the majority voted for "beginning of the end" in a poll conducted by Larry Kudlow.

Gasoline 1996 - May 2006

Rising energy costs, mainly oil and gasoline, are blamed for both inflation and sagging consumer confidence. But will the effect last? What happens if gasoline stays around $3 a gallon? Will Americans drive any less? I doubt it. They will probably get used to the price and continue to drive more, expanding gasoline usage by 1 or 2% per year.

A year ago, I was of the opinion that we would not change our behavior until gasoline reached $3.50. I still think that is largely true. However, what if it takes another year or two to get to $3.50? Will we be so acclimated to the price by then, that it will take $5 gasoline to make an impression. I think it is all about the timeframe - how fast the price rises, more than the price itself.

For gasoline to be $3.50,  oil needs to be about $110.  $5 requires at least $160 oil. We still have a long way to go. The fact is that if we start in 1996, gasoline has only increased, in inflation adjusted terms, by 7% per year. The huge run-up since early 2004 masks a relatively low, stable price for all of the previous two decades.

As far as inflation goes, if a 50% increase in the price of gasoline in the last two years has contributed a few percentage points to an overall rise in the cost of living, then for it to continue to have that effect, gasoline has to continue to rise at the rate of a dollar per year. I don't think that will happen. No dollar rise, no inflation.

I remain unconvinced by anecdotal horror stories of gasoline use aired with increasing frequency everyday by the mainstream press.  The EIA releases its weekly gasoline demand numbers every Wednesday at 1pm.  I will continue to pay attention to these figures.

Support a robust gas tax now!

I live in Palo Alto, but I'm pretty sure I've seen gas prices hovering around $3.50.  
Yeah, I'm aware it is much higher in some parts of the country. Sucks for you, sorry. I always refer to AAA's weekly national average, it's the only way I can maintain sanity.

There is one of two things happening. Either the paradigm of the relationship between oil and gas prices has changed, or gasoline prices are too high relative to oil prices for a variety of reasons.

This is why the debate over price-gouging exists. Six months ago I was using $120 as a price for $3.50. I arbitrarily revised it down to $110 solely for this post since it just seemed absurd given the current situation. $90 might be more like it. We'll have to see if things ever get back to "normal" or if this is the new deal.

Gas will hit $3.50/gal, national average at $90/bbl, not $110. As the price of crude oil rises, it makes up an increasingly larger portion of the price of gasoline (already hovering between 55-60% presently).
The remaining portions of the cost, refining costs, transportation, and especially taxes, are not as responsive in terms of percentage change.  At $3.50/gal average, crude price is almost 65% of the total cost, so crude price does not have to increase as much to have a more pronounced effect at the pump.  
Yeah, this will probably be the case going forward. I'm working on a table/graph to display the relationship. Formulas never seem to hold up.
You of course know of the national gas temperature map. Now you can see the West coast is eating it for gas prices, esp. CA. I saw a pic of Tahoe prices--over $4 for 87 octane.

I'm hoping for $5 this summer. I just hope the extra $$ is for new taxes that fund solar power and rail lines, and not money  going into the "Free" global oil market, which we all know funds terrorism on one end and the war machine on the other.

While I'm confident higher gas taxes will eventually happen, it doesn't look like it will be any time real soon.
Hmm, the gas teperature map looks alot like the blue state / red state map.
I've pointed this out before, but it's time again.

You cannot compare gasoline prices adjusted for inflation. Higher gasoline prices ARE A MAJOR PART OF that same inflation!

In effect, you are saying "higher gasoline prices are not that high, adjusted for higher gasoline prices."  Circular logic.

I was thinking the same thing.  

Oil CEO, when you talk about the relationship of crude barrel prices and gas prices there have to be math errors.  It makes far more sense that the barrel/gas relationship is feeding itself and putting these normal parameters out of context.

When oil in and of itself feeds the same inflation that is going to skew the numbers and over time that problem gets compounded and inaccurate.

I kind of see what you are saying, but you've got to be more specific with examples and numbers. Do you have a suggestion as to how I should have done something differently?
Ok, but I want to step back and concentrate on crude oil ONLY.  Lets look at this simply: 70 Crude as we speak give or take....national avg is $2.94 a gal as we speak....there's 42 gal in a barrel of crude.  

What's the average # of gal of 87 octane per 42 gal barrel of crude?  If we get say 25 gal of 87 octane out of 42 gal then it's like 25/42 or roughly 59%.  So if oil is trading at $70 a barrel you would think that the gas cost is somewhere around $70*59%=$41.3 is Total Cost of 87 octane.  Per gal it would be $41.3/25 or $1.65/gal.  Now we pay $1.30 on top of that in taxes and profits.

This doesn't answer your question.  In this case crude prices would reflect only 55% of the price at the pump.  I suppose it is higher though.

Not exactly. And the reason is because inflation is not higher gas prices. They are two different things that effect each other. They are each a separate entity. Higher gas prices make inflation go up partially. At the same time economically/mathematically inflation makes the relative value of dollars greater in the past, for the very reason of comparing the significance of gas prices in two distinct historical periods.
Gasoline (and energy as a whole) price increases are an important contributor to inflation, as we can clearly see today, and as one can rationalize given that petroleum-derived energy cost increases affect the cost of MOST purchaseable commodities, from food (diesel and fertilizer increases) to durable goods (raw material, manufacturing, and transportation cost increases).  These higher energy costs get passed along in the end net cost of each such product or service, resulting in a substantial PART of the increase in reported inflation.

However, as you correctly cite the value of a dollar has declined significantly in recent years, thanks not only to inflation, but to monetary policies, debt loading, falling confidence in the currency, newly created credit and debt, foreign borrowing, and the like.

It is not my assertion that gasoline prices are out of line with other costs, adjusted for inflation, I agree with that completely.
Rather, I assert that that higher energy costs have, to a sizeable degree, contributed significantly to that same inflation.   High inflation and high gas prices have, historically, gone hand in hand.
Using the old fashioned GDP deflator, rather than the bogus chained conumer price index as an inflationary measurement, you get a different graph:

I'm not criticizing your efforts, Oil CEO. There is no easy answer.  But it is extremely difficult to get a "fair" comparison of something so fundamentally critical to all economic activity as energy, past vs. present, when the 'ruler' itself changes size.

Note that at US minimum wage, in 1996 I would receive 4.2 gallons ($4.75/national average of $1.25/gal) for my hour's worth of work, while today I would receive only 1.78 gallons ($5.25/$2.95/gal).
Is an hour of your time 2.3 times less valuable today than it was a decade ago?  I'm betting not.

I totally agree. It is just that we need some standard to look at things with so that we are all on the same page. If you look at the graph you presented, it really doesn't show anything significantly different(aside from the time-frame, obviously) from mine. The numbers are only slightly different and they go up and down in the same places. There is no easy answer, as you say, and although I am aware of these issues, my focus is obviously somewhere else. I appreciate your input as always, fallout, and you should know by now that I invite criticism.
Many say we will see $3.50/gal this summer.  If you factor in Iran, who knows how high it could go. Everyone knows America MUST get off the oil.  After September 11, 2001 I expected our President to call on Americans to GET OFF THE OIL.  I was expecting a speech like the one JFK gave that motivated us to reach for the moon. As you know, this never happened.  Eventually I realized that the only way this is going to happen is for us to do it ourselves.  To that end I created this idea and have been trying to make it a reality..

The EPA is offering a research grant opportunity that I believe is a perfect fit for this idea.  I have sent an e-mail to a hand picked list of university professors who have experience with government research projects.  I'm looking to form a research team to apply for the EPA grant, conduct a social-economic experiment and surveys to determine to what extent the American public will support it, project the economic potential of WPH, and identify logistical, social and political obstacles as well as opportunities.

All government grants are awarded based on merit of the proposed research.  I believe WPH has merit but your help is needed to verify it. You can help by posting your feedback.  Let the professors and the EPA know what you think about WPH.  Do you think this idea is worth pursuing? We need to know if Americans will support a plan like this.

Do you have any ideas to improve the plan?

Share any and all of your thoughts.

Tell your friends and family about this Blog post and ask them to post their thoughts on WPH


Thank you


The American people will support where a leader leads them.

What is lacking is political courage to ask people to make sacrifices for the common good.

You don't lead people primarily by asking their opinion, you listen to them, yes, but you set a direction and ask them to follow you.

Such is the nature of politics at the current time.  But any of the great leaders of American (or British) history decided what should be done, and then worked towards persuading the public.  This is true of Lloyd George, Churchill, Thatcher, FDR even Lyndon Johnson (he failed over Vietnam, but his Great Society and Civil Rights record has never been equalled).

They did not simply poll the public to find out what the public thought should be done.