What is ahead for 2016? Most people don’t realize how tightly the following are linked:
- Growth in debt
- Growth in the economy
- Growth in cheap-to-extract energy supplies
- Inflation in the cost of producing commodities
- Growth in asset prices, such as the price of shares of stock and of farmland
- Growth in wages of non-elite workers
- Population growth
It looks to me as though this linkage is about to cause a very substantial disruption to the economy, as oil limits, as well as other energy limits, cause a rapid shift from the benevolent version of the economic supercycle to the portion of the economic supercycle reflecting contraction. Many people have talked about Peak Oil, the Limits to Growth, and the Debt Supercycle without realizing that the underlying problem is really the same–the fact the we are reaching the limits of a finite world.
There are actually a number of different kinds of limits to a finite world, all leading toward the rising cost of commodity production. I will discuss these in more detail later. In the past, the contraction phase of the supercycle seems to have been caused primarily by too high population relative to resources. This time, depleting fossil fuels–particularly oil–plays a major role. Other limits contributing to the end of the current debt supercycle include rising pollution and depletion of resources other than fossil fuels.
The problem of reaching limits in a finite world manifests itself in an unexpected way: slowing wage growth for non-elite workers. Lower wages mean that these workers become less able to afford the output of the system. These problems first lead to commodity oversupply and very low commodity prices. Eventually these problems lead to falling asset prices and widespread debt defaults. These problems are the opposite of what many expect, namely oil shortages and high prices. This strange situation exists because the economy is a networked system. Feedback loops in a networked system don’t necessarily work in the way people expect.
I expect that the particular problem we are likely to reach in 2016 is limits to oil storage. This may happen at different times for crude oil and the various types of refined products. As storage fills, prices can be expected to drop to a very low level–less than $10 per barrel for crude oil, and correspondingly low prices for the various types of oil products, such as gasoline, diesel, and asphalt. We can then expect to face a problem with debt defaults, failing banks, and failing governments (especially of oil exporters).
The idea of a bounce back to new higher oil prices seems exceedingly unlikely, in part because of the huge overhang of supply in storage, which owners will want to sell, keeping supply high for a long time. Furthermore, the underlying cause of the problem is the failure of wages of non-elite workers to rise rapidly enough to keep up with the rising cost of commodity production, particularly oil production. Because of falling inflation-adjusted wages, non-elite workers are becoming increasingly unable to afford the output of the economic system. As non-elite workers cut back on their purchases of goods, the economy tends to contract rather than expand. Efficiencies of scale are lost, and debt becomes increasingly difficult to repay with interest. The whole system tends to collapse.
How the Economic Growth Supercycle Works, in an Ideal Situation
In an ideal situation, growth in debt tends to stimulate the economy. The availability of debt makes the purchase of high-priced goods such as factories, homes, cars, and trucks more affordable. All of these high-priced goods require the use of commodities, including energy products and metals. Thus, growing debt tends to add to the demand for commodities, and helps keep their prices higher than the cost of production, making it profitable to produce these commodities. The availability of profits encourages the extraction of an ever-greater quantity of energy supplies and other commodities.
The growing quantity of energy supplies made possible by this profitability can be used to leverage human labor to an ever-greater extent, so that workers become increasingly productive. For example, energy supplies help build roads, trucks, and machines used in factories, making workers more productive. As a result, wages tend to rise, reflecting the greater productivity of workers in the context of these new investments. Businesses find that demand for their goods and services grows because of the growing wages of workers, and governments find that they can collect increasing tax revenue. The arrangement of repaying debt with interest tends to work well in this situation. GDP grows sufficiently rapidly that the ratio of debt to GDP stays relatively flat.
Over time, the cost of commodity production tends to rise for several reasons:
- Population tends to grow over time, so the quantity of agricultural land available per person tends to fall. Higher-priced techniques (such as irrigation, better seeds, fertilizer, pesticides, herbicides) are required to increase production per acre. Similarly, rising population gives rise to a need to produce fresh water using increasingly high-priced techniques, such as desalination.
- Businesses tend to extract the least expensive fuels such as oil, coal, natural gas, and uranium first. They later move on to more expensive to extract fuels, when the less-expensive fuels are depleted. For example, Figure 1 shows the sharp increase in the cost of oil extraction that took place about 1999.
Figure 1. Figure by Steve Kopits of Westwood Douglas showing the trend in per-barrel capital expenditures for oil exploration and production. CAGR is “Compound Annual Growth Rate.”
- Pollution tends to become an increasing problem because the least polluting commodity sources are used first. When mitigations such as substituting renewables for fossil fuels are used, they tend to be more expensive than the products they are replacing. The leads to the higher cost of final products.
- Overuse of resources other than fuels becomes a problem, leading to problems such as the higher cost of producing metals, deforestation, depleted fish stocks, and eroded topsoil. Some workarounds are available, but these tend to add costs as well.
As long as the cost of commodity production is rising only slowly, its increasing cost is benevolent. This increase in cost adds to inflation in the price of goods and helps inflate away prior debt, so that debt is easier to pay. It also leads to asset inflation, making the use of debt seem to be a worthwhile approach to finance future economic growth, including the growth of energy supplies. The whole system seems to work as an economic growth pump, with the rising wages of non-elite workers pushing the growth pump along.
The Big “Oops” Comes when the Price of Commodities Starts Rising Faster than Wages of Non-Elite Workers
Clearly the wages of non-elite workers need to be rising faster than commodity prices in order to push the economic growth pump along. The economic pump effect is lost when the wages of non-elite workers start falling, relative to the price of commodities. This tends to happen when the cost of commodity production begins rising rapidly, as it did for oil after 1999 (Figure 1).
The loss of the economic pump effect occurs because the rising cost of oil (or electricity, or food, or other energy products) forces workers to cut back on discretionary expenditures. This is what happened in the 2003 to 2008 period as oil prices spiked and other energy prices rose sharply. (See my article Oil Supply Limits and the Continuing Financial Crisis.) Non-elite workers found it increasingly difficult to afford expensive products such as homes, cars, and washing machines. Housing prices dropped. Debt growth slowed, leading to a sharp drop in oil prices and other commodity prices.
Figure 2. World oil supply and prices based on EIA data.
It was somewhat possible to “fix” low oil prices through the use of Quantitative Easing (QE) and the growth of debt at very low interest rates, after 2008. In fact, these very low interest rates are what encouraged the very rapid growth in the production of US crude oil, natural gas liquids, and biofuels.
Now, debt is reaching limits. Both the US and China have (in a sense) “taken their foot off the economic debt accelerator.” It doesn’t seem to make sense to encourage more use of debt, because recent very low interest rates have encouraged unwise investments. In China, more factories and homes have been built than the market can absorb. In the US, oil “liquids” production rose faster than it could be absorbed by the world market when prices were over $100 per barrel. This led to the big price drop. If it were possible to produce the additional oil for a very low price, say $20 per barrel, the world economy could probably absorb it. Such a low selling price doesn’t really “work” because of the high cost of production.
Debt is important because it can help an economy grow, as long as the total amount of debt does not become unmanageable. Thus, for a time, growing debt can offset the adverse impact of the rising cost of energy products. We know that oil prices began to rise sharply in the 1970s, and in fact other energy prices rose as well.
Figure 3. Historical World Energy Price in 2014$, from BP Statistical Review of World History 2015.
Looking at debt growth, we find that it rose rapidly, starting about the time oil prices started spiking. Former Director of the Office of Management and Budget, David Stockman, talks about “The Distastrous 40-Year Debt Supercycle,” which he believes is now ending.
Figure 4. Worldwide average inflation-adjusted annual growth rates in debt and GDP, for selected time periods. See post on debt for explanation of methodology.
In recent years, we have been reaching a situation where commodity prices have been rising faster than the wages of non-elite workers. Jobs that are available tend to be low-paid service jobs. Young people find it necessary to stay in school longer. They also find it necessary to delay marriage and postpone buying a car and home. All of these issues contribute to the falling wages of non-elite workers. Some of these individuals are, in fact, getting zero wages, because they are in school longer. Individuals who retire or voluntarily leave the work force further add to the problem of wages no longer rising sufficiently to afford the output of the system.
The US government has recently decided to raise interest rates. This further reduces the buying power of non-elite workers. We have a situation where the “economic growth pump,” created through the use of a rising quantity of cheap energy products plus rising debt, is disappearing. While homes, cars, and vacation travel are available, an increasing share of the population cannot afford them. This tends to lead to a situation where commodity prices fall below the cost of production for a wide range of types of commodities, making the production of commodities unprofitable. In such a situation, a person expects companies to cut back on production. Many defaults may occur.
China has acted as a major growth pump for the world for the last 15 years, since it joined the World Trade Organization in 2001. China’s growth is now slowing, and can be expected to slow further. Its growth was financed by a huge increase in debt. Paying back this debt is likely to be a problem.
Figure 5. Author’s illustration of problem we are now encountering.
Thus, we seem to be coming to the contraction portion of the debt supercycle. This is frightening, because if debt is contracting, asset prices (such as stock prices and the price of land) are likely to fall. Banks are likely to fail, unless they can transfer their problems to others–owners of the bank or even those with bank deposits. Governments will be affected as well, because it will become more expensive to borrow money, and because it becomes more difficult to obtain revenue through taxation. Many governments may fail as well for that reason.
The U. S. Oil Storage Problem
Oil prices began falling in the middle of 2014, so we might expect oil storage problems to start about that time, but this is not exactly the case. Supplies of US crude oil in storage didn’t start rising until about the end of 2014.
Figure 6. US crude oil in storage, excluding Strategic Petroleum Reserve, based on EIA data.
Once crude oil supplies started rising rapidly, they increased by about 90 million barrels between December 2014 and April 2015. After April 2015, supplies dipped again, suggesting that there is some seasonality to the growing crude oil supply. The most “dangerous” time for rapidly rising amounts added to storage would seem to be between December 31 and April 30. According to the EIA, maximum crude oil storage is 551 million barrels of crude oil (considering all storage facilities). Adding another 90 million barrels of oil (similar to the run-up between Dec. 2014 and April 2015) would put the total over the 551 million barrel crude oil capacity.
Cushing, Oklahoma, is the largest storage area for crude oil. According to the EIA, maximum working storage for the facility is 73 million barrels. Oil storage at Cushing since oil prices started declining is shown in Figure 7.
Figure 7. Quantity of crude oil stored at Cushing between June 27, 2014, and June 1, 2016, based on EIA data.
Clearly the same kind of run up in oil storage that occurred between December and April one year ago cannot all be stored at Cushing, if maximum working capacity is only 73 million barrels, and the amount currently in storage is 64 million barrels.
Another way of storing oil is as finished products. Here, the run-up in storage began earlier (starting in mid-2014) and stabilized at about 65 million barrels per day above the prior year, by January 2015. Clearly, if companies can do some pre-planning, they would prefer not to refine products for which there is little market. They would rather store unneeded oil as crude, rather than as refined products.
Figure 8. Total Oil Products in Storage, based on EIA data.
EIA indicates that the total capacity for oil products is 1,549 million barrels. Thus, in theory, the amount of oil products stored can be increased by as much as 700 million barrels, assuming that the products needing to be stored and the locations where storage are available match up exactly. In practice, the amount of additional storage available is probably quite a bit less than 700 million barrels because of mismatch problems.
In theory, if companies can be persuaded to refine more products than they can sell, the amount of products that can be stored can rise significantly. Even in this case, the amount of storage is not unlimited. Even if the full 700 million barrels of storage for crude oil products is available, this corresponds to less than one million barrels a day for two years, or two million barrels a day for one year. Thus, products storage could easily be filled as well, if demand remains low.
At this point, we don’t have the mismatch between oil production and consumption fixed. In fact, both Iraq and Iran would like to increase their production, adding to the production/consumption mismatch. China’s economy seems to be stalling, keeping its oil consumption from rising as quickly as in the past, and further adding to the supply/demand mismatch problem. Figure 9 shows an approximation to our mismatch problem. As far as I can tell, the problem is still getting worse, not better.
Figure 9. Total liquids oil production and consumption, based on a combination of BP and EIA data.
There has been a lot of talk about the United States reducing its production, but the impact so far has been small, based on data from EIA’s International Energy Statistics and its December 2015 Monthly Energy Review.
Figure 10. US quarterly oil liquids production data, based on EIA’s International Energy Statistics and Monthly Energy Review.
Based on information through November from EIA’s Monthly Energy Review, total liquids production for the US for the year 2015 will be about 700,000 barrels per day higher than it was for 2014. This increase is likely greater than the increase in production by either Saudi Arabia or Iraq. Perhaps in 2016, oil production of the US will start decreasing, but so far, increases in biofuels and natural gas liquids are partly offsetting recent reductions in crude oil production. Also, even when companies are forced into bankruptcy, oil production does not necessarily stop because of the potential value of the oil to new owners.
Figure 11 shows that very high stocks of oil were a problem, way back in the 1920s. There were other similarities to today’s problems as well, including a deflating debt bubble and low commodity prices. Thus, we should not be too surprised by high oil stocks now, when oil prices are low.
Figure 11. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure by EIA.
Many people overlook the problems today because the US economy tends to be doing better than that of the rest of the world. The oil storage problem is really a world problem, however, reflecting a combination of low demand growth (caused by low wage growth and lack of debt growth, as the world economy hits limits) continuing supply growth (related to very low interest rates making all kinds of investment appear profitable and new production from Iraq and, in the near future, Iran). Storage on ships is increasingly being filled up and storage in Western Europe is 97% filled. Thus, the US is quite likely to see a growing need for oil storage in the year ahead, partly because there are few other places to put the oil, and partly because the gap between supply and demand has not yet been fixed.
What is Ahead for 2016?
- Problems with a slowing world economy are likely to become more pronounced, as China’s growth problems continue, and as other commodity-producing countries such as Brazil, South Africa, and Australia experience recession. There may be rapid shifts in currencies, as countries attempt to devalue their currencies, to try to gain an advantage in world markets. Saudi Arabia may decide to devalue its currency, to get more benefit from the oil it sells.
- Oil storage seems likely to become a problem sometime in 2016. In fact, if the run-up in oil supply is heavily front-ended to the December to April period, similar to what happened a year ago, lack of crude oil storage space could become a problem within the next three months. Oil prices could fall to $10 or below. We know that for natural gas and electricity, prices often fall below zero when the ability of the system to absorb more supply disappears. It is not clear the oil prices can fall below zero, but they can certainly fall very low. Even if we can somehow manage to escape the problem of running out of crude oil storage capacity in 2016, we could encounter storage problems of some type in 2017 or 2018.
- Falling oil prices are likely to cause numerous problems. One is debt defaults, both for oil companies and for companies making products used by the oil industry. Another is layoffs in the oil industry. Another problem is negative inflation rates, making debt harder to repay. Still another issue is falling asset prices, such as stock prices and prices of land used to produce commodities. Part of the reason for the fall in price has to do with the falling price of the commodities produced. Also, sovereign wealth funds will need to sell securities, to have money to keep their economies going. The sale of these securities will put downward pressure on stock and bond prices.
- Debt defaults are likely to cause major problems in 2016. As noted in the introduction, we seem to be approaching the unwinding of a debt supercycle. We can expect one company after another to fail because of low commodity prices. The problems of these failing companies can be expected to spread to the economy as a whole. Failing companies will lay off workers, reducing the quantity of wages available to buy goods made with commodities. Debt will not be fully repaid, causing problems for banks, insurance companies, and pension funds. Even electricity companies may be affected, if their suppliers go bankrupt and their customers become less able to pay their bills.
- Governments of some oil exporters may collapse or be overthrown, if prices fall to a low level. The resulting disruption of oil exports may be welcomed, if storage is becoming an increased problem.
- It is not clear that the complete unwind will take place in 2016, but a major piece of this unwind could take place in 2016, especially if crude oil storage fills up, pushing oil prices to less than $10 per barrel.
- Whether or not oil storage fills up, oil prices are likely to remain very low, as the result of rising supply, barely rising demand, and no one willing to take steps to try to fix the problem. Everyone seems to think that someone else (Saudi Arabia?) can or should fix the problem. In fact, the problem is too large for Saudi Arabia to fix. The United States could in theory fix the current oil supply problem by taxing its own oil production at a confiscatory tax rate, but this seems exceedingly unlikely. Closing existing oil production before it is forced to close would guarantee future dependency on oil imports. A more likely approach would be to tax imported oil, to keep the amount imported down to a manageable level. This approach would likely cause the ire of oil exporters.
- The many problems of 2016 (including rapid moves in currencies, falling commodity prices, and loan defaults) are likely to cause large payouts of derivatives, potentially leading to the bankruptcies of financial institutions, as they did in 2008. To prevent such bankruptcies, most governments plan to move as much of the losses related to derivatives and debt defaults to private parties as possible. It is possible that this approach will lead to depositors losing what appear to be insured bank deposits. At first, any such losses will likely be limited to amounts in excess of FDIC insurance limits. As the crisis spreads, losses could spread to other deposits. Deposits of employers may be affected as well, leading to difficulty in paying employees.
- All in all, 2016 looks likely to be a much worse year than 2008 from a financial perspective. The problems will look similar to those that might have happened in 2008, but didn’t thanks to government intervention. This time, governments appear to be mostly out of approaches to fix the problems.
- Two years ago, I put together the chart shown as Figure 12. It shows the production of all energy products declining rapidly after 2015. I see no reason why this forecast should be changed. Once the debt supercycle starts its contraction phase, we can expect a major reduction in both the demand and supply of all kinds of energy products.
Figure 12. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.
Conclusion
We are certainly entering a worrying period. We have not really understood how the economy works, so we have tended to assume we could fix one or another part of the problem. The underlying problem seems to be a problem of physics. The economy is a dissipative structure, a type of self-organizing system that forms in thermodynamically open systems. As such, it requires energy to grow. Ultimately, diminishing returns with respect to human labor–what some of us would call falling inflation-adjusted wages of non-elite workers–tends to bring economies down. Thus all economies have finite lifetimes, just as humans, animals, plants, and hurricanes do. We are in the unfortunate position of observing the end of our economy’s lifetime.
Most energy research to date has focused on the Second Law of Thermodynamics. While this is a contributing problem, this is really not the proximate cause of the impending collapse. The Second Law of Thermodynamics operates in thermodynamically closed systems, which is not precisely the issue here.
We know that historically collapses have tended to take many years. This collapse may take place more rapidly because today’s economy is dependent on international supply chains, electricity, and liquid fuels–things that previous economies were not dependent on.
I have written many articles on related subjects (unfortunately, no book). These are a few of them:
Oops! Low oil prices are related to a debt bubble
Why “supply and demand” doesn’t work for oil
Economic growth: How it works; how it fails; why wealth disparity occurs
We are at Peak Oil now; we need very low-cost energy to fix it
China Stocks Extend Rebound as State Funds Said to Buy Equities
Chinese stocks gained in volatile trading after the government suspended a controversial circuit breaker system, the central bank set a higher yuan fix and state-controlled funds were said to buy equities.
http://www.bloomberg.com/news/articles/2016-01-08/chinese-stocks-set-to-rally-after-circuit-breakers-scrapped
The central bank stuffs money into various funds and orders them to use it to buy up the stock market so that it stops collapsing….
Now that’s a relief!!!
It’s what you call a perpetual economic motion machine….
Also, the US premarket projection was for the Dow to go up about 180 points today. In early trading it was up about a 100 but now is only up last I looked 34 points. Not much of a rebound on the most optimistic day of the week, Friday, and considering the 1100 point drop the past 6 days of trading. Seems like at minimum there is a correction taking place. Guess we’ll know more on Monday.
Here’s a summary of market action so far today:
Shanghai Composite plunges 5.3 per cent at close
Shenzhen Composite sinks 6.3 per cent
Why didn’t I think of that idea? Maybe we can use it worldwide.
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“In China, more factories and homes have been built than the market can absorb.”
Do you call these homes: https://www.google.no/search?q=china+high+rise+apartment+blocks&rlz=1C1QJDB_enNO633NO633&espv=2&biw=1920&bih=989&tbm=isch&imgil=EC-Ni7JU0Xb_hM%253A%253BdTK7VU4dYarg0M%253Bhttp%25253A%25252F%25252Fajw.asahi.com%25252Farticle%25252Fviews%25252Feditorial%25252FAJ201307170028&source=iu&pf=m&fir=EC-Ni7JU0Xb_hM%253A%252CdTK7VU4dYarg0M%252C_&usg=__uZ1-cFuVTUwJw8z_gWQu1HQ-6CM%3D&ved=0ahUKEwjQ7r-FzpnKAhWIVhoKHfkNDrIQyjcILA&ei=G1qPVpD1JYitafmbuJAL#imgrc=EC-Ni7JU0Xb_hM%3A&usg=__uZ1-cFuVTUwJw8z_gWQu1HQ-6CM%3D
No, they are machines for living in!
Yep, the whole concrete housing projects idea is beyond awful, and not only in China, it’s a global disease with all sorts of problems like aging of this infrastructure, health risk from pollution/disease outbreaks, social deprivation, topsoil/habitat destruction etc.
One can only weep at the pre-WWII pictures of the world (both city and country) before the last leg of overpopulation spike, it was a way smaller and “nicer” world, often times still made by hand no kunstlerian pun intended. Not mentioning the decades and centuries even before that.
Well said. I often wax lyrical or maybe a better word is reminisce, along those lines. But we always wanted more, until now, when there is no more to be had.
Everyone wishes that they had been the last person to move into their paradise. Somehow they don’t see themselves as the first person to start the destruction of said paradise. The first human who planted a seed instead of simply eating it started the destruction of Earth’s paradise. Along with the first person to corral and domesticate a cow. Soon followed by the first miner to dig into Mother Earth’s covering and expose long buried treasures that were meant to stay hidden forever. They have doomed us and now most of the Earths creatures to extinction. To bad no one warned them.
Sorry, that’s too simplistic view and incorrect one.
What about those people who apparently increased biodiversity, health of the creatures, and beauty of the place they originally found impoverished on multitude of front? It has been demonstrated here in Don’s and other’s post so many times already. I’d only summarize this question as the tools to improve/re-balance (perhaps not fully recover) the Earth are known and available, but the dominant culture-civilization is not allowing this “self-healing” process yet, and as I read the situation at this point we would have to crash hard first. The know-how to rebuild and heal is out, this is only question of time (macro at human scale), although the option of total annihilation of life is at play, but in my book of negligent probability.
There are only to possibilities why “nature” put people on the planet.
First, in some erroneous haphazardly act of mutation people destroyed the myriad of stacked ecosystems for now reason/goal/role at all. Second, nature via people-civilization provided “intensive shock disturbance” to reset the beautiful act of this fully living planet, just to start a new version/cycle of it. For some years/decades I was deeply depressed and of the former opinion as you, and now switched to the latter.
i read somewhere that humanity evolved to its present form in order to dispose of an excess buildup of hydrocarbons.
when we’ve done that, we too will be surplus to requirements
We are dissipative structures. We do a good job of dissipating a build up of fossil fuel resources.
“What about those people who apparently increased biodiversity, health of the creatures, and beauty of the place they originally found impoverished on multitude of front?”
People increased biodiversity?
People increased the “health” of “the creatures”?
I would very much like to see the studies that show that those completely implausible claims happened and how. Humanity does not do either of those things. Never has, and never will.
Perhaps you are somehow referring to an area that was totally degraded to begin with. (Rivers in New Jersey no longer catch fire for example.) If that is the case, it is amazing that you think that a river no longer catching fire is an example of man “improving” the ecosystem.
“… the tools to improve/re-balance (perhaps not fully recover) the Earth are known and available, … ”
Yes indeed, if there were no people, the Earths ecosystems could recover. You however seem to imply that people could somehow do it. Absurd.
What are you smokin’ dude. I want some.
You are prolly not upto date on the topic, read few months and years back of discussions.
as ive said before—if there had been a health warning on every barrel of oil and every petrol pump since the 1860s,: OIL KILLS PLANETS we would still have burned the stuff as fast as possible
+10 you know your humans well.
And without a doubt if we discovered a sea of cheap oil the size of the pacific ocean this very day — we would do exactly the same thing….
Even the biggest koombayaists on this site would do exactly the same thing.
There is this insistence that if only we could all live like Scott Nearing we’d be all good.
When in fact Scott Nearing and his ilk were doing ‘exactly the same thing’ — they were partaking in the burning of the fossil fuels to make the shovels and pick up trucks and roads and medical clinics and shops that they used…. and so on…
Keep in mind – in his later years — Scott succumbed completely to the siren song of oil — he and the wife jetted off to warmer climes during the winter…
I guess that’s what happens when you the book royalties come pouring in….
Funny you should mention that…. it was the never-=ending refrain we heard in Bali…
The expats who had been there for decades derided the new settlers who were causing more traffic…. and building and destroying their views…
The new arrivals would soon be complaining about the next wave of arrivals…
Hypocrisy at its finest!
China wants to save flat land for farming, so puts everyone in high rise apartments. I saw the inside of one very fancy two level apartment. It was a 4 bedroom, 2 bathroom apartment. Only two adults lived in the apartment. Their young adult children had recently left home.
It’s not necessary to wreck people’s lives to achieve high population density. In central Paris where you hardly can’t find any building above 7 stores, they have about the same density as in Hong Kong and Manhattan.
Makes one think of a hive, or a termite tower.
Perhaps amazingly, China would do it all again, if it meant the Party survived.
Machines for living in – a joke at Le Corbusier’s expense. He proposed demolishing a large part of Paris for his 1920 City of Towers, regimented rows 60 storeys high. Quite a legacy!
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ShortonOil (BW Hill) came up with a price of something like $11.75 by 2020 with his ETP model.
At this level nobody makes a profit, so the extraction comes to a halt, at least under the current economic system. To keep pumping, you would need some sort of command economy, and besides that some way to control the mayhem likely to become a whole lot worse in the neighborhoods where the oil still exists to be pumped.
“Free” giveaways of remaining Energy is a non-starter. There probably will be big Going Out of Bizness sales to get rid of the current inventory, but nobody will pump to give it away for free in perpetuity.
RE
“ShortonOil (BW Hill) came up with a price of something like $11.75 by 2020 with his ETP model.”
The Hill Group came up with that graph and shortonoil is just a messenger. I think they do a weak job of explaining their price projection since there are many factors not included in their analysis. Not to say the projection is completely false, but rather their explanation is lacking.
ShortonOil is the ScreenID BW Hill used on PeakOil.com in 2006-2009. He also was on my Reverse Engineering Yahoo Group.
As to the accuracy of the projection, time will tell on that one.
RE
I agree that no one will pump at such low prices–certainly not for very long.
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So when the oil industry ebulliently crows that ‘the world is awash with oil’ and ‘peak oil is dead’ and always was dead… and other such headlines they were right? Why will the world run out of storage if world oil supply is on tenterhooks? It wasn’t long ago that we were arguing that a limit on oil supply was not empirical amounts of the resource that can be extracted but the refining and delivery bottleneck. Seems that bottleneck longer exists.
Are you clumsily trying to be a troll. Your first couple of sentences wilfully ignore the creeds of argument about peak oil that have been explained and refined by Gail over the course of several years. your last two sentences just don’t make sense at all.
To counter your claims: Production figures over the last few years do not indicate an overall increase in the supply of oil (only a change in the distribution of extraction types). Excess supply exists because of dips in demand. The proximate cause of oil is more being stored is the trouble with finding buyers. The price keeps dropping in order to attract more willing buyers.
You are displaying extreme ignorance. I suggest you read through Gail’s previous articles then come back and participate….
I don’t think anyone here can be bothered to educate you …. only you can help you….
Hey guys, take it easy, I’m being a deliberate devil’s advocate – articulating what most people would be thinking, and this thinking is being successfully reflected in the story that the oil industry wants to put across. On the surface it looks like the peak oil movement was saying one thing 4 years ago and now the opposite. This makes it rather hard to communicate with the average person-in-the-street. Most people don’t think analytically.
For a few years I ran a Peak Oil education group but as the world oil price dropped (against nearly everybody’s prediction) and the accepted message out now is that the world is awash with oil, most of the Peak Oiler advocates quietly slipped away. I believe this trend happened nearly everywhere.
I think the geological limit argument was always a bit shaky and the economic limit not very well understood by peak oil advocates.
These days I just bide time recognising that reality is the hard side of the argument. For a little while the industry will determine public opinion because conditions make their story easy.
OK. I’m taking my finger off the trigger now … 🙂
You raised a good point that the “PO movement” was more like an umbrella organization with very diverse mix of key media and lecture circuit figures. Almost everybody imaginable got on the bandwagon, from bearish oil professionals of very high or lower profiles to university profs, environmental activists, cultural critics and various doomers and malthusian theorists, ..
There was sort of building consensus about 2014-15 at last will provide a visible marker for reaching peak crude, well it didn’t happen, also for several reasons explained by Gail in this article. The story is so complex that lets say probably by 2020-25 of reaching more apparent cracks you will be offered a mix of “guaranteed voices/evidence” for the full blown crises such as wars and revolutions, economic dislocations, possibly large scale weather weirding events inducing desperate migration waves etc.
To make it short for now, it’s is doubtful the public at large will ever get the story right, it’s like asking the descendants of tribes which overgrazed landscape to ruinous erosion and deprivation what was the true cause in the first place, at best you get partial – tangential response..
Any group that is trying to raise money ends up trying to figure out where they can get their financial support from. I think the Peak Oil movement had some of that problem as well. People who wanted to make money on the rising prices of oil were one group to be courted. Also, the volunteers wouldn’t continue, unless their particular view was represented. Most of them wanted a happy ever after ending with solar panels, a garden, etc.
I agree in general with most of Gail’s economic outlooks, but not the timetables. Like Gail, you are confusing “crisis marketing” strategies – for a global peak in oil production resources and their economics. Surely you remember the first “oil crisis” in the 70s and noted shortly there after – that low in behold there was the “sugar crisis.” Then after these crises marketing strategies worked so well to justify much higher prices (profits), there was the “coffee crisis.” All made possible with today’s complicit business/market media and associated paid “experts.” Together they had effectively driven oil prices to near $150 a barrel in the not so distant past and as well projected even much higher oil costs in the near future because we were running out. Just a few articles in the business media along with a few “expert” charts and the public swallows the next crisis marketing strategy. Now with the low oil prices we are starting to see today the actual production cost economics of the bulk of the worlds oil. These sustained lower prices should make oil production economics is a bit more transparent – at least to some.
Saudi Arabia produces oil for between $5-11/barrel – depending on the social and other non-production costs you include in “oil production costs.” The US produces oil from about $30-40/barrel on average. Yes, there are much higher cost producers, but they are by far in the minority compared to the majors. Most people don’t get that the oil we burn today comes from a well that on avg. was drilled about 15 years ago (with the costs of 15 years ago) and even up to 30 years ago (avg. traditional oil well life span is about 30 years). Oil production cost accounting is by far, very far from transparent – deliberately occluded by oil marketing strategies – “crisis marketing strategies” – and not unlike most other critical commodities.
Now having said that, I would (and have) been one of those to attest to reality of the peak oil and other peak finite resources. However, I would hesitate to predict timelines for those peaks, wherein there are different peaks for different fields, countries, regions and then peaks by technologies and as said the occlusion of real numbers by the vast sums of money in marketing strategies that hide the truly gross profit margins of oil companies. Predicting where are and where we will run out of oil – is somewhere between extremely difficult, totally improbable, and or impossible. The best thing about the current low oil prices is that we can get a somewhat less occluded view of how far down the old oil barrel really is – or isn’t – in real non-crisis marketing economic terms. So, that peak resources are in our future is undeniable, saying exactly when – not so much.
Limits on a finite planet manifest in many ways. Before the fat lady sings we will seek growth any way possible, so, this http://www.usdebtclock.org/world-debt-clock.html shows we still have a miniscule little push to make, still.
But, our global financial system and that includes every monetary transaction wihin every country in the world, depends on profits. And profits seems to be tanking, now. The Baltic Dry Index measures how our rawmaterials, commodities, stuff, is being transported and it is in all time lows http://www.bloomberg.com/quote/BDIY:IND Without products to ship around the world, no profits. No profits, no jobs. No jobs, no banks, no governments, no stock markets, well, you get the picture, SHTF.
The problem with our global world is that we have invented financial tools called derivatives. We have a quadrillion of over the counter and under the counter derivatives. So, more then a decade of world GDP in liabilities to blow up the banks when the underlaying factors start to move too rapidly. When SHTF its SHTF because we will be having tons of deals blowing up the banks, much like this: http://www.bloombergview.com/articles/2014-07-18/portuguese-railroad-company-was-really-into-snowballs
And without a currency, no long distance trade, no global trade, no JIT economy, no jobs, no payrolls, no food in the groceries, and eventually, no grid.
Its happening now, but even if January goes by without a major crash, Q1 needs a miracle to avoid massive U.S. shale defaults. Q2 2016 needs a miracle to avoid emerging markets defaults. Q3 2016 needs a miracle to avoid Portugal, Ireland, Spain, Greece, Italy bond markets failures. You get the picture, miracles needed, almost every day now, luck will one day run out. So, any day now we can drive of the cliff with a panic selling of stocks, that panic would then rapidly expand to every part of the world economy ripping it apart, everywhere. And once it starts, nothing can stop it and nothing can bring back the world we have right now, ever.
Thats a short version of the story, follow Gail and the comments to get the big picture.
Nice summary Van Kent.
Hm, the world has been for past decade on unbalanced standard of exporting mercantilist countries which were vendor selling/sponsoring consumption and high heal living standards of their debtors. Sooner or later this system will be ditched for more balanced one, i.e. more poverty for the debtors and less work-employment for the exporters. Pickle of unknown side effect explosions indeed to be expected but not exactly the end of the civilization or at least most of its core aspects. If the PO story is more or less right and on time it might closely coincide with this bust/reset period, if there is more stuff (incl. various substitutes) left to burn, the doom can will be kicked for more decades out. Sorry, it’s really as simple as that lolz.
..correction “past decadeS!”
Actually the Baltic Dry Index also measures the amount of surplus ships competing for cargo. Today we have both problems, not much trade going on and too many ships to carry what we don’t have – which is why the BDI is so low.
Where is all this crisis marketing you talk about? i haven’t heard oil companies or the government or the media screaming about an oil crisis.
Durwood, I don’t know how much of my earlier posts you have read. I have written a lot on the subject–the issue has very little to do with running out of resources in the ground (even though that is what a lot of peak oil folks thought was the problem). The issue is that the whole networked economic system cannot be run with the output of the system, without “shorting” the non-elite workers–in other words, the factory workers, and the restaurant workers, and the ones in retail trade. Also, the many who can’t find work in the system, and the many who spend huge amounts to for advanced education, and still find their wages lacking.
The issue is not the direct cost of pulling the oil out of the ground. Governments are depending on that oil to provide the tax revenue they need to keep their countries from falling apart. This tax revenue is in some sense as important to pulling the oil out as the oil for direct extraction. Also, the cost of new fields tends to be very high, especially when tax levels are figured in.
Governments are only possible because of the surpluses of an economy. Oil has traditionally been a source that provided a big “energy surplus.” Because of this energy surplus, it could be taxes highly, and the owners still make a profit. One of my earlier articles you might read is http://ourfiniteworld.com/2015/08/10/how-economic-growth-fails/
Another is http://ourfiniteworld.com/2015/08/26/deflationary-collapse-ahead/
I don’t think we have a refining bottleneck. A lot of new capacity has been added, especially in China, India, and Saudi Arabia. Some facilities have been closed, in the US and Europe. With the US able to export its light tight oil, any bottleneck in refining that oil would seem to be gone.
If we start having financial problems, we definitely could have a delivery bottle neck. A hurricane also creates a bottleneck–there is not much back-up supply for Atlanta, for example, if problems develop in the Gulf of Mexico.
Oil doesn’t really have very good capacity for storing a very large amount of oil. It is surprisingly easy to go from shortfall to overage. In fact, the same thing is true for natural gas and electricity.
That’s an interesting observation, Gail. I read Kurt Cobb’s articles and he has often referred to the size of the tap being a hard limit (as opposed to the size of the resource) – i.e. the ability to get it out of the ground, refine it, ship it and deliver to world demand. But I take your word for it. Interesting that refinery capacity is no longer a defining limit at this historical juncture.
Most of Australia’s oil refinery capacity has been closed down in recent times and we now receive our hydrocarbon fuels mostly from refineries in South East Asia. I guess that poses a local energy security problem, not a global one.
Refineries are Southeast Asia are likely cheaper to operate.
Also, I think that Kurt Cobb is talking about the investment required for extraction being the limiting factor for extraction of oil. I would agree with that. If the price rises sufficiently, more investment dollars are available for extraction. This is why the size of the tap is not really a limit in a high-price environment.
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Gail;
How would a large scale non nuclear war effect your scenario?
A large scale non-nuclear war would at least temporarily increase demand, and because of this help prices (of quite a few things). I expect a lot more debt would be issued by the countries fighting the wars. This would help the situation as well.
A couple of years ago, I looked at US data when it went into World War II. Employment increased greatly. Entering into this war seems to have been what finally got us out of the depression. Of course, then, we had lots of cheap fuel we could use to leverage our efforts. After the more, a lot more consumer debt was added so that homes, cars, and appliances could be purchased.
Now, we can’t get production up very much without raising oil price a lot, and sending the economy into recession. So I am not sure a non-nuclear war would have a very long-lasting positive effect.
the USA won WW2 because all the necessary materiel for war was on hand and cheaply available
whereas Japan and Germany had to loot it from thousands of miles away, in particular oil.
At the end of the war the US govt was faced with the dilemma of shutting down warfactories and thus recreating unemployment, or turning factories over to shiny goods and keeping everyone in employment
There was no real choice in that, even though it meant creating infinite debt
It was system that could only work so long as oil remained cheap and all produced within the contiguous US mainland, and everyone was prepared to have debt in order to buy infinite ‘stuff’
Now the USA is effectively in the same position as Japan in 1940—oil has to be obtained from outside her borders to sustain world trade and economy.
It’s still a fight for survival
Hence—as in WW2, we have had ever increasing resource wars. The current glut is an anomaly, there’s no more oil, just a temporary surplus while the producers fight each other to the bottom of the barrel so to speak, having to produce as much oil as possible in a race to sustain their collapsing desert fantasies and corrupt medieval certainties.
I pretty much agree with you, except maybe the oil glut is temporary glut, maybe not. If low oil prices cut off production, the cut off will bring our system down. Once the system is down, any oil production will be a glut, because we won’t have a way of using it.
So why cant somebody issue some credit to a player, and get some some storage capacity built?
1; low price disaster averted.
2. materials to build cheap now
3.jobs
4 If it all goes to hell at least we gots more black gold
Let’s say we take your idea of storing oil and run with it using modern super tankers as the most cost effective way to store oil. A modern supertanker can hold 2 million barrels of oil. The world uses 90 million barrels a day. So let’s store oil at sea for 10 years. Our equation is 90 mbd x 365 days x 10 years divided by 2 = number of full super tankers = 164,250 so not a realistic strategy.
I am sure no one would plan on storing all of the oil produced for 10 years, but perhaps overage of 1 million barrels per day for a while. I ran across an article saying that Iran has the world’s largest super-tanker fleet with 42 VLCCs. I didn’t notice an easy source giving the number of supertankers in the world.
It takes a whole lot of storage to add even one days’ worth of normal oil consumption, if we consume something like 95 million barrels of liquids a day.
I’ve been searching for a commonplace idea to tie together Gail’s thoughts. The idea of efficiency comes to mind.
if the human economy is dissipative then its inherent efficiencies i.e. how effective its use of energy is, must be important.
With that in mind, so many of Gail’s ideas fall into place:
1) The relationship between debt and energy use.
If debt is an instrument by which economies use energy then there must be efficiencies at play. Debt is a function of money availability and money is a tool of control over energy use. When one considers the law of diminishing returns then it seems natural that increases in debt become less efficient at using energy sources. We have entered a time, as evidenced by the financial failure of fracking plays, where increases in debt do not lead to an increase in the efficiency of energy resource. Over time the usefulness of debt decreases. Debt is our primary mean of control over the use of energy. Declining efficiency of debt means declining efficiency of energy.
2) The relationship between wages and economic growth.
Gains in productivity usually equate to gains in profit. This is a measure of efficiency. the more efficient each worker is the more profit is produced. Investment in wages can become more efficient if profits rise more than workers wages rise. What we have seen however is that the age of globalisation is a reduction in wages allowing profitability. Efficiency has arisen by gutting workers’ wages. This increased efficiency is one subsystem has taken spending power away from other subsystems. Efficiencies in one area of the economy can have negative effects on the the dissipative efficiencies of the whole. Energy flows can be directed in ways that profit susbsystems at the expense of the higher system. Think fever leading to death.
3) EROEI is a measure of efficiency. However it measures efficiency in one narrow field – the extraction of energy sources. There are many other aspects of economy i.e. the harnessing of energy, at play. For example, automation and conservation can alter efficiencies of energy harnessing. Investment through debt instruments can introduce artificial efficiencies i.e efficiencies that are realisable in the short term at the expense of the long term.
4) GDP is a measure of how well societies convert energy into work. Economies can be more or less efficient in their use of energy. Economies can be more or less efficient in their extraction of energy sources. However natural system realities dictate how much energy is available (even advanced methods of energy extraction must fall victim to natural limits. While nuclear power can be seen as a kind of ‘post-natural’ method of energy use, it is a system that becomes determined by the levels of complexity within civilisation- itself determined by natural limits). Eventually efficiencies in the conversion of energy to work reach their peak and cannot be increased. the world of natural limits is reflected in the limits to gains – and reductions – in the endeavour to turn energy to work.
Maybe this concept of efficiency supports an argument that there can be no ‘economic alternative’ or BAU Lite.
An alternative economic has to replicate the efficiencies in energy harnessing we currently use to maintain the complexity of our system. The complexity of our system supports vital elements such as food production and the harnessing of surplus energy for modern health care and the welfare state. The collapse of just one of these elements would see a system shift (collapse).
One of the most important efficiencies we invented with the coming of the industrial revolution was credit. We used to credit as a tool to harness energy at quicker rates than was possible by other methods of capital accumulation. In the past forty years or so this efficiency was ratcheted up by decreasing barriers to credit (anyone could get it) and making credit easier to repay or ignore (decreasing interest rates and hiding bad debt).
Current energy flows depends on current efficiencies, chief among them the machinations available to us through the use of debt. Any set of arrangements that arise in replacement to BAU must equal those machinations somehow in order to stave off system collapse. High flows of energy are need to keep this dissipative system functioning. If anyone can put forward a counter measure other than debt that keep the energy flows high then they could help explain how BAU Lite or a slow collapse could happen. So far, hope seems to rest on energy substitutes such as solar power. Ignoring the fact that such energy extractive technologies are less efficient in energy production, these alternatives do not address the efficiencies of HARNESSING energy. How does one raise the capital needed to invest in alternatives without debt?
Some might argue that extreme authoritarian or command economies could remove the need for debt. Resources could be marshalled by the will of government rather than capital. This is where the function of time plays its hand. How quickly could a command economy take over the reins once this debt system fails? Historical examples might indicate that political change can happen rapidly and achieve economic changes in double quick time. Exponential changes in industrial output for example were achieved within five year brackets by Soviet and Maoist central planning. Such changes might be possible again but there are a few caveats: 1) Given that food production is tied to the complexities and efficiencies of the economic system and must inherently fail catastrophically with system collapse then how long is too long a gap between systems? 2) It would appear that command economies are pathetic at managing agriculture. This might have something to do with emphasis on industry in previous iterations but it doesn’t look good so far 3) Past occurrences of command economies seem to have made great gains at a time when there many efficiencies yet to be realised. For example the harnessing of oil for the Soviets and the Green Revolution for the Maoists gave them a lot of support in extending their complexity. Such meteoric gains in efficiency are unlike to happen again.
Valuable post. Perhaps people have to declare more what they mean by certain terms.
For instance, in my view “economic alternative / BAU lite” (not fond of this terminology) is in no way possible to realize before some prior stage of collapsing the current structure. i.e. downshift must come first, that also complies with larger cycle historical ~precedents. So, in the same vein I don’t look for meteoric gains in efficiency by openly authoritarian govs of the near/midterm future, but rather expecting push for redistribution and deepcut/abandonment of prior entire sections (frivolous and/or advanced complexity consumption) of the economy/society. One can look at it in a way of “first world” falling into “third world” status, but it is even deeper more profound, structural change.
I would like to agree with you.
But there’s been so much said (and proven?) about the destructive effects of unravelling complexity. The metaphor that works is the a ladder. On the way up its easy to add rungs. On the way down, removing rungs makes for a disastrous drop.
Further than that, food production, distribution and purchasing are so closely tied to current complexities. If there is to be a “profound, structural change” that abandons complexity there must be a correlating abandonment of “frivolous” things such as nutrition.
You might say “a little starvation will go a long way to achieving a new world order”. New world orders, or new civilisations, don’t arise in the same habitats, with the same (depleted) energy sources, with the same people all struggling find ways to feed themselves as existed in the old civilisation. That’s different from historical precedents. This current world order is the first to have a global habitat, to have depleted all possible energy sources, to encompass the entire human population.
“New world orders, or new civilisations, don’t arise in the same habitats, with the same (depleted) energy sources, with the same people all struggling find ways to feed themselves as existed in the old civilisation. That’s different from historical precedents. This current world order is the first to have a global habitat, to have depleted all possible energy sources, to encompass the entire human population.”
Excellent! Thank you Contributor!
I see our predicament just like that. Grow or collapse, and when SHTF, its fast and gruesome, like you so eloquently described. The BAU lite, slow collapse, conversation seems out of touch with the reality at hand. Thanks again Contributor.
I think you are without explanation of your nomenclature mixing several concepts.
For instance, the greco-roman civilization on the spot of Western Empire dissolved step by step most of the institutions and knowledge, mixed up with several waves of incoming new peoples/cultures be it germanic and others, which have not been in closer mutli-centuries contact and slow co-assimilation, the process of collapsing through several centuries is deemed to be case of a crash of civilization.
Similarly, I’m of the opinion the current trend of gradual impoverishment of the “~80%” group of peoples (as opposed to . elite and its 5-15% henchmen) will at relatively near/midterm future change profoundly the current civilization, not crash it per se. Specifically, I do expect some energy intensive areas to be cut off either by decree or during future crisis like milestones, so for instance the automotive industry would crush into one 1/25th of its former glory, ending the consumer segment more or less at one stage, leaving breathing space for some time for specific vehicles for the elite and its infrastructure services of the day (not limos mind you), at certain point it would also vanish alltoghether.
That being one example of my “frivolous consumption” and offering other you called “frivolous nutrition” concept whereby certain areas/regions would depopulate, some coastal and/or desert spots readily come to mind for obvious reasons.
However, this is still not a full scale crash of civilization, you have to go through nasty process of “eating most of the internal organs” first, a process which has apparently already started, but which will accelerate and go through several more steps blossoming much later in true civilization collapse. I’m repeating my speculative timelines again by ~2020-25 larger cracks in the structure appearing, i.e. multidimensional services cut in for the impoverished +80% of population openly visible, and by ~2045-55 possible full blown crash slide of civilization into much different setting along side early neo-feudalist principles.
1) You seem to be holding up contradictory ideas in order to support your thesis.
Compare your statements;
” no way possible to realize [change] before some prior stage of collapsing the current structure. i.e. downshift must come first”
and
“relatively near/midterm future change profoundly the current civilization, not crash it per se.”
You seem to be doing mental gymnastics. You say that change only comes AFTER collapse. You also say collapse can be averted by radical change BEFORE system shift.
2) The Greco-Roman civilisation did indeed unravel over time. Seemingly hundreds of years depending on your metrics. Why does the length of that collapse support a 2050 date for our civilisation’s demise rather rather than 2020? because it’s a wee little bit longer? If I pointed out a civilisation that had a 20 year collapse process could I argue for 2020 because it’s a wee little bit shorter?
3) I think your thought experiments in gradual change need some fine tuning. The automotive industry is more than a “consumer segment”. It is a vital part of a network of arrangements that maintain food production and distribution. If you collapse the automotive industry activities like oil refining and trucking collapse too.
No contradictory ideas, read it again, it’s a response to the “overnight doom school of though” narratives regularly voiced over here, which have no support in historical record/patterns, human nature in political/social sense.
I never ever said the collapse could be realistically averted by radical change with the exception perhaps mentioned in other discussions and an utmost theoretical notion of global population wising up to these complex issues now, walking away from the techno system, applying current knowledge of methods like no till agriculture, orderly abandonment of city infrastructure etc. This is in reality possible to be performed only by fringe minority and acknowledged/adopted way after the fact, i.e. after future step crashes on the complexity ladder of today’s world.
Again I repeat, most likely see staircase style collapse, where at certain point, let say somewhere (2025-50) most of the infrastructure for the “80%” is not maintained (patched at best) by the remnants of central authority, you no need “trucking” for Wally world “frivolous spending” anymore, there is no economy for that, people are just stuck to whatever stuff they acquired trying to make it operational diy (good luck with imported crap longevity), food system is increasingly disintegrating into state/region control, malnutrition and disease on the rise, cities are depopulating. Depending on regional arrangements most shipping in food and commodities goes by train and boat, 24/365 distribution non-existent to very slow/sporadic resupply lines on gov distribution points. Beyond the ~2050 the patched old infrastructure is no longer viable (hospitals, grid, even airtravel and other goodies for rich etc.), break down to even much lower equilibrium follows shortly, i.e. peasant existence plus perhaps few smallish pockets of grid and industry via brown coal open mine pits etc..
Valuable post, Contributor. Re: your comment, “2) It would appear that command economies are pathetic at managing agriculture,” if you are not already familliar with his work you may want to look at James C. Scott’s, “Seeing Like a State.” He makes a general argument about why centralized command fails to work – human activities esp things like agriculture require very particularized local knowledge, and centralized authority’s way of “seeing the world” is based on metrics that permit control, (i.e, the only knowledge they are really intersted in is that which makes their control possible) which misses all of the local details. He looks at failed develoment schemes including failed attempts at imposing industrial agricultural as evidence.
Snippet form Amazon’s review:
“James C. Scott’s research for this book began with an examination of the tensions between state authorities and various “unstable” individuals throughout history, from hunter-gatherer tribes to Gypsies to the homeless. He soon became fascinated, however, by the recurring patterns of failure and authoritarianism in certain social engineering programs aimed at bringing such people fully into the state’s fold. Soviet collectivization, the Maoist Great Leap Forward, the precisely planned city of Brasilia–these and other projects around the world, while deeply ambitious, extracted immeasurable tolls on the people they were designed to help.
One of the most important common factors that Scott found in these schemes is what he refers to as a high modernist ideology. In simplest terms, it is an extremely firm belief that progress can and will make the world a better place. But “scientific” theories about the betterment of life often fail to take into account “the indispensable role of practical knowledge, informal processes, and improvisation in the face of unpredictability” that Scott views as essential to an effective society. What high modernism lacks is metis, a Greek word which Scott translates as “the knowledge that can only come from practical experience.” Although metis is closely related to the concept of “mutuality” found in the anarchist writings of, among others, Kropotkin and Bakunin, Scott is careful to emphasize that he is not advocating the abolition of the state or championing a complete reliance on natural “truth.” He merely recognizes that some types of states can initiate programs which jeopardize the well-being of all their subjects. “
Interesting. Metis is largely lacking this time. But any possible future command economy won’t stand as a modernizing one
Thanks for expanding on that. Appreciated.
You forget several thousand years – in fact the majority of human agricultural history and the economies that were quite functional with slave/serf labor and even the Renaissance that occurred during same. A return to this system out of necessity is not only possible in a resource limited future, but far more probable than people realize.
Yes of course but are you going to reveal how many of the current 7.4 billion humans will function “in the resource limited future” and how they will get there.
Dugger, I don’t know who you mean by “you” above, but the key thing about the feudal system is that it was intensely LOCAL, in addition to being non-industrial. Serfs and their families were tied to the SAME LAND for centuries, assuring retention of local knowledge and pass-down of “metis.” It was not a centralized command and control economy under the direction of the King or his bureacrats hundreds or thousands of miles away, but under the oversight and military protection of the local lords who, I suspect, didn’t get very involved in telling the serfs how to farm, just making sure they collected their share of the annual bounty. In comparison with today’s world, the degree of surveillance, regulation and centralized command of feudal times is like some kind of freaking Randian libertarian utopia.
Well, that’s fairly good summary of key points, also mentioned before numerous times.
It is no way at odds with staircase style punctuated collapse.. but it won’t phase in overnight.
Please denote your terms more precisely. In one way the feudal age ended somewhere after WWI with land reforms rammed through even inside the capitalist countries. On the other hand feudals clearly supported “industries” in textile and iron/steel works at least since late Gothic, more profoundly Renaissance period. Some people would object to this as to them industry must be coal-steam and railways, which is not correct..
The world you are describing no longer exists. The planet’s easy resources have been already been found and tapped, the ecosystem including the soil ravaged and the human population has exploded.
The “solutions” and “arguments” you put forth are tired and have been rebutted a hundred times, both here and elsewhere. We are in overshoot, anything we do or avoid cannot make things better. It still leads to a crash. Wouldn’t you better off on some other style of forum, or just watching Fox?
Even a change to slave/surf labor would probably be surprisingly difficult. Past systems grew up over a period of years, coming from simpler systems. Each person learned from those around them what the expectations of slaves/surfs were. There was no doubt a whole culture that grew up around they system. We would have to start over, making tools for the slaves/surfs, teaching them what to do, finding a full range of different kinds of crops to satisfy the needs of the area, etc.
‘Past systems grew up over a period of years, coming from simpler systems.’
That is a HUGE point — fathers passed down knowledge to sons…. apprentices learned from masters….. improvements in techniques happened over many generations…
it is not as if we can just return to pre industrial period and pick up where they left off…. the skills are not there… we know how to game … and type with our thumbs on smart phones…. we know what LOL means…. more than useless post collapse of course
“…children of the highly technological society into which more and more of the world’s peoples are being drawn will not know how to support themselves by hunting and gathering or by simple agriculture. In addition, the wealth of wild animals that once sustained hunting societies will be gone, and topsoil that has been spoiled by tractors will yield poorly to the hoe. A species that has come to depend on complex technologies to mediate its relationship with the environment may not long survive their loss.”
Energy & Human Evolution, David Price, 1995
I grew up on a small farm. I was driving a tractor when I was 7. We had cows to feed and I helped my father in the field. My oldest son wanted nothing to do with farming. I got him to drive a tractor for half a day once. Getting my 24 year old to do any work around the house involves much complaining and whining.
My 85 year old father plowed with mules as a teenager. He is in no shape to do that now and I hate large animals. Few are able to go back to a 1930’s lifestyle, much less an 1830’s. I almost want to see all those people clamoring for organically grown food forced to do the growing themselves but that means my cushy government funded retirement goes away and I actually will have to help them. Long live BAU!
I agree with you that debt certainly keeps energy flows high. It does this by promising future energy flows, which in some cases may not really be there.
It seems to me that renewables are singularly inefficient in manner they extract the energy, and in the way they get the benefits back to non-elite workers. Renewables require devices constructed in advance. This requires ramping up extraction of metals, coal, oil and other materials used in making and shipping these devices, in advance of the time when the energy will really be available for use. This all needs to be financed over a long period. I expect wind turbines require a lot of high paid legal and other consultants, as will big solar installations. (I am not sure that a command economy works well at getting high-paid consultants to do their work.)
If instead of making such devices, suppose that the decision is made to obtain energy by hiring workers to dig coal out of the ground, in the manner of India. In this case, we would have a situation with little debt, and wages that go almost entirely to the non-elite workers who need them. Cutting down trees grown locally would work similarly, in terms of most pay going to non-elite workers and little debt (except for buying the land in both cases).
I have been talking about the economy becoming “increasing inefficient,” because of the forces giving rise to higher commodity costs that I describe in this article. This seems to be related to what you are saying.
I would agree that adverse changes in EREOI measure one narrow aspect of one part of this problem.
I am not sure whether I would agree with “GDP is a measure of how well societies convert energy into work.” I see the issue as how well society is able to leverage human labor with supplemental energy so as to produce finished goods and services. The big issue here is the quantity of supplemental energy that can be put to work, and this quantity of supplemental energy is determined in large measure by how much the goods and services the non-elite workers can afford. This has do with the efficiency of the economy at providing enough goods and services for everyone. As the economy becomes increasingly inefficient, too much is skimmed off in a variety of ways–too low EROEI of energy products; too much investment is required in workarounds for pollution problems, low quality of metal ores, falling water availability etc.; too much management overhead; too much government overhead; too many payments for interest and dividends which are mostly funneled to the elite. Maybe what I am saying is the same as what you are saying–there are a lot of ways that the output of workers can be skimmed by others, and by the nature of the system. To a small extent, these adverse effects can be countered by improved technology. Some people have thought that the only issue of importance is declining EROEI, but it is not.
Thanks for making that distinction.
After thinking about it, I might have said that the quantity is really dependent on two things (not just the one I mentioned). The one I mentioned is rising wages of non-elite workers. The other is rising debt. After World War II, I expect that the big increase in GDP was mostly a function of rising debt (in the presence of a lot of cheap-to-extract fossil fuels).
I love your mind Gail!
You make sense out of this turmoil.
Glad you think so!
Dear Gail,
I wonder what would happen to the present low oil prices if the current conflict between Saudi Arabia and Iran was to result In the unexpected long-term closure of the Strait of Hormuz and the unfortunate destruction of key strategic oil production and transport facilities around the Persian Gulf…
John
I’ve saw somewhere in RT.com that most KSA oilfields are located in Shiite populated areas, and that the killing of the Mullah was a move to impede those guys from seceding from KSA. A bizarre idea, but not impossible
Reg. Hormuz, don’t even dream for a minute it can be closed long-term
To close the Strait of Hormuz for a very long period of time , Iran just has to sink one or two supertankers in the narrow navigation channel. A few cruise missiles or even a few “C4 speedboats” and “voilà”…
What do you mean by “long time period”? Weeks? Months? Years? Why nobody did blasted a supertanker yet, given even poor Somalian pirates do get a ransom for a tanker every now and then?
3 weeks should see the whole edifice of industrial civilisation scuttled to the bottom of the ocean…
Another question: if the price goes up, who will be able to afford it? Does debt will fill the gap?
We’ve done the debt thing. It’s losing its mojo because there aren’t enough people around who want, let alone afford 15 flat screen TV’s or 7 cars each. Which is what supporting uneconomic enterprises for years with free money gets you. A lot of junk that can’t be supported, hence the relentless drop in commodity prices we’ve been seeing.
Generating even more free money to create even more useless crap and keep alive zombie industries and banks won’t fix a thing, but will bring forth collapse that much sooner, as consumption is borrowed from the future.
Do you want light crude at USD 67,50? You can hire our new energy minister
http://www.lanacion.com.ar/1860321-por-que-las-naftas-aumentan-en-la-argentina-mientras-bajan-en-el-mundo
Barrel was previously set 74 and he dictated a 10% cut in the price, so we are now 67,50. It’s very funny those new guys are allegedly hyper free marketers, supposedly different from previous socialist administration.
Want to double oil price? Want to develop shale gas at 8 per Mbtu? Hire an Argentinean
This newspaper supports actual admin, so it is justifying we pay double at the pump because it is a way to support OCs. Of course it got an incredibly high number of comments complaining about the situation (a 9% increase of the price in pesos at the pump was simultaneously set, which doesn’t match 40% devaluation anyway) and people speculate the real goal is to maintain a high volume of tax income for the gov
Command economy can do a lot of things, while I’d be surprised if this can go on much longer without asphyxiating (more) overall economy: we lose at the pump the competitiveness we got with devaluation
Interesting. We can keep drilling in the Bakken, if we push the price that oil companies receive high enough.
The Argentinian situation is part of the reason world oil production is not declining.
I am not sure. We would still then have to deal with the too-low prices for coal, natural gas, uranium, steel, copper, etc.
The future is far from being linear and our recent financial history has shown that “black Swans” do exist…
How do you think the world economy would perform if you took out from its daily oil supply between 15 and 25 mbd?
I think the world economy would crash without between 15 and 25 mbd. Our banks would be closed. We wouldn’t have electricity or oil.
Dear Gail and Finite Worlders
I would like to add a postscript to the notion of Limits. We also hit limits on stupid behavior. I will mention just two behaviors which are long past their sell-by date: industrial agriculture and industrial processed food. The two together are a major ingredient in our bloated health care bill. So, all together, we are probably talking about 30 percent or so of the US economy. We could afford to keep doing these things so long as we had increasing amounts of energy available to use, and plenty of credit to pay whatever it cost to get the energy. Now that the cost of producing the energy is high, and we don’t have incremental credit to pay for it, things go wrong. One way or the other, the stupid behavior will stop.
If some of the much-maligned ‘second law’ studies are correct, and it now takes more than 50 percent of the energy content of a barrel of oil to get the oil products to the pump, then there is no price high enough to increase oil production…regardless of the amount of credit printed. We have hit a physical limit. The only alternatives are to either find a cheaper source of energy or reduce the cost of getting the products to the pump or to subsidize the production with energy from other sources. Manipulating the efficiency with which the oil products are used (e.g., high mileage cars) will make the remaining oil go further, but won’t make it possible to produce more oil.
Don Stewart
Don, once I was asked what is the cheapest way to get downtown from the airport…my answer was “walk”. In another words we will soon be living “cheap”, whether we like it or not and best learn to live with it. As far as stupid is concerned, the capacity of the human condition seems rather large if we were make a list.
http://www.indiatimes.com/culture/who-we-are/17-images-that-show-the-worst-of-what-humanity-has-done-to-the-earth-231922.html
It’s gone on far too long and too widespread for “fixes” and now we have deal with it.
BTW, without the Fritz Haber process of Nitrogen upwards to 40% of us would not be here today
http://www.scienceheroes.com/index.php?option=com_content&view=article&id=28&Itemid=58
Humankind is largely fed by food grown with synthetic chemical fertilizer. Because synthetic fertilizer requires a plentiful supply of nitrogen, inventing a process to fix it in ammonia was daunting. Attempts were made for over 100 years. Then in 1909 Fritz Haber, a German chemist, solved the problem in principal. In 1910, Carl Bosch, pioneering new engineering methods, commercialized the process. Known as the Haber-Bosch Process, it is now responsible for growing about half of the world’s food. It was one of the greatest inventions of the 20th century. Without it, 30-40% of the world’s population would not be alive.
Sorry, but a transition to another “process” or method will be daunting.
A++++++
Fast Eddy, to top it off another 30-40% or so are alive today because of simple improved hygiene, cleaniness, that includes uncontaminated water. That discovery was the other “greatest’ in the realm extending human life spans. As Randy Udall once wrote the descent back from the ‘heat ladder’ should prove our greatest challenge we humans face.
Right now we are acting like faux gods and because of it a tad bit crazy.
PS. Of course, we can always add to the list of ‘why’ humans are better off today.
MJ
The statistic on synthetic nitrogen is frequently quoted, but it doesn’t prove that there is not a solution.
For example, consider the statement that ‘if the taxing ability of the governments in the US decline, then they will no longer be able to fund the War on Drugs and everything will get much worse’. In practice, many experts consider that the War on Drugs itself makes everything worse. If government’s ability to make War on Drugs collapsed, then things would get better.
A somewhat similar situation holds for nitrogen. Synthetic nitrogen and industrial agriculture in general destroy the ability of natural biology to fix nitrogen in the soil. If industrial agriculture disappears, then the ability of natural biology to fix nitrogen will recover. In fact, we now know enough science to assist natural biology in fixing more nitrogen than ever before in our history.
Will there be enough nitrogen to feed some arbitrary number of humans? Opinions vary, but there is no question that a lot of nitrogen can be fixed biologically. When biology is used to deliver nitrogen to the plant, the efficiency of delivery is very high. Industrial nitrogen, in contrast, is delivered very inefficiently, washes away in the rain, and creates dead zones in the oceans. So the raw statement about what is true today DOES NOT prove that today’s methods are essential.
What the statistics DO prove is that we had better get busy on the biological front. Particularly if you agree with the statement from the Second Law crowd:
‘There is another explanation that is not quit so reliant on maybes. Petroleum can no longer supply enough energy to drive an integrated global production system. Maybe, the situation is not as complicated as some people are trying to make it out to be?’
Don Stewart
Hello Don, Please I wrote it would be ‘daunting’, and you even admit that the human population will only be a fraction of what it is today after the end of the power age.
Of course, this industrial agriculture destroys the life makeup of the soil.
I think you read what I wrote in a way not intended.
Here is a video that is very instructive from Permaculture teacher, Peter Bane,
On how to prepare
https://m.youtube.com/watch?v=DI4OWmTBgDo
My opinion is very few desire to move to a remote rural densely populated rural village in China that lives in ‘harmony’ with the natural cycles.
Watch the movie, “Mao’s Last Dancer” to see what survivors will live like, if they are lucky
http://movieweb.com/movie/maos-last-dancer/lis-mother/
MJ
My apology if I misinterpreted you. Don Stewart
Nice that war on drugs will collapse (but I’m affraid it will be replaced by another, nastier, one)
MJ, We are not nitrogen limited. We still have huge deposits of methane hydrates after we run out of petroleum feed stocks that can supply nitrogen. We are limited by the natural phosphorus cycle – the time it takes inorganic phosphates to become bio available through bacterial and fungal activity, which is generally measured in centuries. Nothing lives without adequate phosphorus – including us.
The petroleum industry scale brought us a petrochemical industry capable of making cheap nitrogen, but more importantly it brought cheap organic acids by which we could convert mineral phosphorus and potassium ores – into bio-availble fertilizer forms for the production of NPK fertilizers. This allowed the production of NPK shortly after the industrial revolution which in turn brought the green (NPK) revolution. The NPK revolution is responsible for the global population having enough food to advance past the natural phosphorus cycle that had limited the world to less than 2 billion. With India and China moving from manuring to NPK as we do in the west, the world food supply is now 95% dependent on NPK.
Without the petroleum industry economies-of-scale and or some other form of nearly free energy to support even cheaper NPK production and or phosphorus recycling (not currently economically feasible at agricultural scales), we will be heading back to the constraints of the natural phosphorus cycle – accelerated by – self-serving politics, resulting global chaos and resource wars – followed by gross global depopulation. (http://www.slideshare.net/DevFutures/dana-cordell-phosphorus-scarcity)
I understand N can easily be fixed by some plants in the soil, perhaps don’t even need those methane hydrates. As you say, P & K are the problem
Sure we do have loads of methane hydrates; do we now? Hmmm, another “greatest” discovery you imply. Well now, those molecules will not only feed us, but feed climate change. We are soon to also face peak phosphate. Sorry, DD, what you dream is just another pie in the sky hopieum fantasy.
What Gail has stressed is we need solutions NOW, not sometime in the foreseeable future.
As the Zen master like to warn’ “Life strikes at any time”
I’m not sure you really understand what I said – there were certainly no dreams there. Regarding methane hydrates, you are confusing methane released into the atmosphere instead of properly collected, controlled combusted, or used in other reactions. Methane hydrates have little more impact than natural gas when used as fuels or in controlled chemical processes. Methane hydrates are essentially crystallized natural gas – which is what we use to make nitrogen now. The low prices of gaseous – natural gas are primarily what prevents current development of methane hydrates, not lack of technology or even environmental concerns. It’s methane hydrates are there when we need it – so no worries about nitrogen shortages.
(https://en.wikipedia.org/wiki/Natural_gas#Crystallized_natural_gas.C2.A0.E2.80.94_hydrates_
(https://en.wikipedia.org/wiki/Methane)
(https://en.wikipedia.org/wiki/Methane_clathrate#Hydrates_in_natural_gas_processing)
Properly combusted?
Sounds like it a big hole your are in trying to crawl out of DD.
Numerous articles regarding natural gas that states burning it will not slow climate change
http://www.usnews.com/news/articles/2014/10/15/booming-natural-gas-wont-slow-global-warming
Booming Natural Gas Won’t Slow Global Warming
Natural gas burns more cleanly than coal, but that’s not enough to reduce global carbon emissions, researchers say.
http://www.psr.org/environment-and-health/environmental-health-policy-institute/responses/natural-gas-the-newest-danger-global-warming.html?referrer=https://www.google.com/
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Welcome to PSR’s Environmental Health Policy Institute, where we ask questions — then we ask the experts to answer them. Join us as physicians, health professionals, and environmental health experts share their ideas, inspiration, and analysis about toxic chemicals and environmental health policy.
This Month’s Contributors
Kathy Attar, MPH
Michael Ellenbecker, ScD
Polly Hoppin, ScD
Molly Jacobs, MPH
Chensheng (Alex) Lu, PhD MS
Cecilia Martinez, PhD
Nicky Sheats, PhD
Joel Ticker, ScD
Full list of contributors »
Topics
The Final Institute November 20, 2014
Food and Water Safety September 22, 2014
Childhood Cancer June 24, 2014
The Costs of Disease April 18, 2014
Male Infertility February 26, 2014
Flame Retardants December 13, 2013
Risk Assessment and Chemicals November 19, 2013
Preemption of State Chemical Reform October 18, 2013
Fracking Revisited August 5, 2013
Federal Chemical Policy Reform June 28, 2013
More Topics »
Natural Gas: The Newest Danger for Global Warming
By Catherine Thomasson, MD
Now that the atmosphere over the Arctic contains 400 parts per million of carbon dioxide and the world hasn’t significantly reduced its greenhouse gas emissions, we should be gravely concerned about the push for more natural gas, a potent greenhouse gas.
Fossil fuels come from drilling or mining deep underground to access stored energy sources from bygone millennia. We bring them to the surface and burn them for heat or electricity or to run our cars and buses. Burning fossil fuels creates carbon pollution. It doesn’t matter if it is coal, oil, propane, kerosene, gasoline or natural gas—it all contains carbon, which gets released as a greenhouse gas.
Methane or natural gas, however, is 72 times more potent at capturing heat in the atmosphere than carbon dioxide over the first 20 years after release. Methane gradually converts to carbon dioxide, so it’s worst in the short term; the global warming potential over 100 years is about 25 times that of carbon dioxide.[i]
So why did we think that natural gas could be a bridge fuel until non-carbon sources of energy are fully developed?
Is Methane Hydrate the Energy Source of the Future?
http://www.nationaljournal.com/energy/2013/12/24/is-methane-hydrate-energy-source-future
“At the end of the day, producing natural gas from hydrates is still much more expensive than shale gas or other conventional methods,” Flemings said.
But the costs incurred to extract shale gas have dropped dramatically over the past decade, and so, too, could the price of technology needed to grab gas from methane hydrates. If that day comes, a tidal wave of fossil fuels will flood the American energy landscape
At the end of the burn, we are still warming the atmosphere regardless, sorry.
I know that coal is used to make nitrogen fertilizer in China. We still have quite a lot of coal so if keeping our economy together weren’t a problem, we could use coal to make nitrogen fertilizer. We could also grow more beans and other nitrogen fixing crops.
Re: Methane Hydrates…
Apart from the global warming implications (a limit to growth). If this was remotely viable, either technically or economically, it would already have been tried. (more limits to growth).
A++++
Haber also invented the poison gas used in ww1—when he refused to stop, his wife committed suicide
I knew that…and how do we say, “What goes around, comes around….karma”.
I suppose those that discovered how to create CFC’s had no idea of what trouble they were unleashing upon the planet! I remember reading it was thought to be a stable, somewhat inert useful gas, non existent before. One later comment by a scientist was it probably indeed was formed naturally by some event and was tossed aside by the natural intelligence in the dustbin as undesirable. Who knows…best intentions and all that
Don, you are right. 50 years ago there was a lot of small farmers with a reasonably steady but low income. Long days of hard work and no vacation at all, not to mention a vacation abroad. But because of their number they constituted a very solid energy system. I still recall farmers cultivating the land with horses. But then mechanization/ industrializing took over. Now only 3 % are occupied directly in farming (Denmark USA probably even less). Horses also required energy – hay, oats. A big horse ate energy equivalent of 7 kg of oats a day which was taken from the output of the farm. But still agriculture yielded an energy surplus. Now the input of energy in farming is a little higher than the output! But of course it is absolutely unthinkable that we can go back in time to the 50ies. Two women I know, however, insist on it and try to grow their own food with more or less luck. If Gail is right, and I am afraid she is, I fear the future of the young generation.
Agreed and more over the small local farmer resiliency was enhanced in many ways like fruit orchards, wines, herds of small animals, local employment operations for family members like breweries and small scale local industries. It was down to the Earth networked system very hard to uproot, effectively dented (usually not even destroy-able completely) only by hands on burning – killing armies and plaque. Today’s system is in several orders of magnitude way more fragile, and that’s an understatement. Not mentioning it’s soul less and visually very ugly..
For those that went to see the movie “The Big Short”, the highlight scene for me was one of Brad Pitt preparing a meal in a kitchen espousing the virtues of having a kitchen garden and the skills of growing ones own food with heritage seeds, what he called “the currency of the future”
Sorry there is no trailer footage…go see it.
A quote today from the much-maligned Second Law camp…Don Stewart
‘There is another explanation that is not quite so reliant on maybes. Petroleum can no longer supply enough energy to drive an integrated global production system. Maybe, the situation is not as complicated as some people are trying to make it out to be?’
Thank you Gail. I appreciate your analysis because most of the other analyst that I read focus on single dimensions of the economy such as housing , retail, transportation, currency, etc. Additionally, most of the articles directly or indirectly focus on how to make a buck in the Wall St. casino.
Initially, I questioned your analysis because from my perspective it is counter intuitive. It took me a while to understand that resource scarcity does not always lead to higher prices. No matter the need, if the consumer is short of funds, the price increases can not be sustained. Today, the US consumer is under severe financial stress. In the past two months I have read three different studies that claim that 53% to 62% (depending on which study) do not have $1000 to cope with an emergency. Median household income has decreased in real dollars over the past decade. Personal debt, especially education and auto, is at record levels and continues to increase. The consumer has no financial cushion to fund increased production cost.
Due to central bank actions since 2008, the world is inundated with mal investment in production facilities thus the fall in commodity prices. This mal investment will be devastating for pension funds and personal retirement accounts.
Until the inevitable collapse automation will continue to displace human labor putting more downward pressure on consumer income. Those who say automation will create more jobs are suffering from delusion. Large and increasing numbers of the displaced do not have the intelligence and/or education to compete in an increasingly automated economy. This places increasing stress on social safety nets; all of which are at risk because government revenue will decline.
These stresses have led to a world that is even today is in chaos: Middle East, South America, Africa, and in my opinion Asia is not far behind.
“Due to central bank actions since 2008, the world is inundated with mal investment in production facilities thus the fall in commodity prices. This mal investment will be devastating for pension funds and personal retirement accounts.”
Give the man a cigar!
http://forevertwentysomethings.com/wp-content/uploads/2013/06/james-cigar.gif
Thanks for your thoughts. Some of the higher-income folks I have talked to recently seem to think that employers are trying to squeeze more out of them today, as well. This makes for bad work relations, and some who want to quit as soon as they can find an excuse–retire at age 62, or take disability, or let their spouse work instead.
Hey – I resemble that remark!
Dear Gail and Finite Worlders
From time to time the subject turns to ‘dissipative structures’. For a good picture, see:
http://earth.nullschool.net/#current/wind/surface/level/overlay=temp/patterson
I particularly suggest that you look at the gigantic storm between Iceland and Greenland. There has been a storm in that vicinity for a long time now. Top winds are at hurricane levels, as evidenced by the reddish color that you see in places. You will see that the storm is drawing in cold air from Siberia. If you look at the temperature gradient, you will see that the storm is using the energy in the warm air over the tropics to mix with the cold air from the Arctic, which powers the storm and the flooding in Britain and the peculiar weather patterns in Europe.
If you like to think in analogies, think about the super rich and the bottom 80 percent in the US. Is Donald Trump a storm? An artifact of a storm? Can Hillary’s boat stay afloat in the turbulence?
Have fun…Don Stewart
Regarding the storm that you mentioned:
http://robertscribbler.com/2016/01/08/this-is-what-the-athropocene-looks-like-tropical-storms-are-now-forming-during-winter/
No, the Donald is not a storm. More of a blowhard.
Wow, $10 oil, mass defaults and economic ruin??
Problem with that logic is it makes no business sense for the Saudis and GCC (and Russia) to do that. All they wanted is the market displace the US shale – and their job looks all but done (but you never know about US investors and creditors given their willingness to burn dollars year after year).
Perhaps a few more announced budget cutbacks or bankruptcies…not sure what the Sauds are waiting for at this point since the current rig count gets the 1.5M barrels cut. Might as well take the price up to $45 or $50 with Open Mouth Opps and/or minor cutbacks.
It is not in Saudi et al interest to cause massive US shale BKs, and have new money lower their cost basis. Better to have all this excess investor capital bleed out the the consumer and increasing demand than transferring it to the new buyers and enabling them to compete with OPEC at a lower price. Keep the E&P walking zombies alive is the best strategy…unless they could buy them up en-masse Carnegie-style…but no way US would allow that.
It is not in Saudi interest to cause a “contained” junk bond crisis. It is not in Saudi interest to cause a bunch of negative headlines cause the US consumer to retrench. It is not in Saudi et all interest to have barrels get sold at one dollar less that what gets the job done. All that does is cause hundreds of billions of dollars of wealth to be transferred from oil producers to US, EU,Japan. Not high on the list of things to do. It is not in Saudi interest to cause a large super-spike in the future.
And those that think this is all about a fight with Iran or Russia?? So the Saudis are going to out-suffer either of those countries – or cause them to throw out their leadership. That’s a multi-year struggle given the low cost of production of all involved, and more likely to cause the various populations to hunker down and rally-around-the-dictator. Job #1 is done.
I guess it comes down to what the BIS owners want.
If this were the case they (the Saudis) would have cut production a long while ago. Try to look at the bigger picture please, all commodities, not just oil are falling, because there aren’t enough people around to afford to purchase 15 flat screen TV’s each, or seven cars. Even Bill Gates could only afford to buy every American just 2 such items! Lol…That’s what you get when you prop up uneconomic enterprises year after year. A glut of junk that nobody wanted in 2008, let alone now. Let’s burn!
http://media.tumblr.com/tumblr_m5gunpXMrC1qbldd1.gif
think it is wise to separate every day consumables required to live (food and energy) from building materials (of course they are crashing given china over build) and optional items that everyone has already…and that esp. applies to US natgas. Last i checked, China did not use much US natgas. 😉 …and US demand will be ramping these next several years as Associated Gas production gets cut with US shale oil production. Buy and hold US 2019 natgas as $3 and watch. By the way, only asset in energy already breaking away from the carnage (about 45 days ago). Not for the get rich quick club…go watch fast money.
Regarding the Saudis would have done so by now. We will see. Not sure what metrics they are using. Obviously things did not work out last year when oil rose and all these rigs got deployed, and fast money jumped into E&Ps. Maybe they decided to press a bit more.
All i am arguing is the business case. Don’t assume they are not intelligent, and argue from there…or not.
Paper securities, no matter how good a deal they look to be, aren’t worth anything if the system goes down. I wouldn’t count on US natural gas at $3 in 2019 actually paying out as planned. If we can assume BAU will continue, then indeed a person could expect that prices would rise (they would have to because natural gas can’t be profitably extracted at $3).
By the way, I am one of the coauthors of a China unconventional natural gas paper in Energy Policy, published this month. http://www.sciencedirect.com/science/article/pii/S0301421515301695
They don’t have a whole lot, especially if prices are low.
Nice video!
Live large to the bitter end —- to do otherwise only brings us closer to the bitter end faster….
We are now — as we were meant to be….
Soon we will resemble 7.5 billion rats in a frenzy after a few hunks of cheese….
Good point!
You are right in that the Saudis will want as high a price as possible. I don’t know that they will cut back production to get that price, any more than we would. If the production for Saudi Arabia “goes private,” I could imagine it will be even harder for them to voluntarily reduce production.
I think part of the problem is the quite possibly falling demand from China, Brazil, and South Africa, as their economies stop growing/shrink. Another problem is that effect that derivatives have, on keeping oil production from stopping when it really should stop. The impact of derivatives can look beneficial from the point of the company involved, but from the point of the market, they tend to make the overall pain worse.
Greg, you began your tirade with a false premise and of course, it went down hill from there:
You say, “All they wanted is the market displace the US shale … ” Wrong. That is a myth perpetuated by the media to what end, I don’t know. The first indication that it is bunk is that the Saudis said it. Why no one did any fact checking … regardless it it pure nonsense.
All they want is to keep their welfare state running, fight two wars, and maintain the standard of living the king is used to. To do that, they must pump as fast as they possibly can, regardless of price.
In fact, the lower the price goes, the faster they must pump to keep up.
A+++…. this has nothing at all to do with beating shale into the ground…
Remember – the Elders are like Tony Soprano — you pay him to protect you from him … and you kiss his ass..
The Saudis would never attack the shale industry … unless the Elders for some reason wanted them to….
There’s one mistake in your analysis, Gail. The price of oil is not what you or I can afford. The price of anything is not what you and I can afford.
I know that many here keep insisting that it is. You then say that demand by non elite workers for the products of industry is low, creating a deflationary spiral in commodity prices that will ripple throughout the economy.
This is only true temporarily. What matters is the price that producers need. Currently, there are many producers doing just fine with the price hovering around $30, but that may not remain the case. If oil production declines, and there is a threat of shutting in production, then the governments will step in and fix the price for the producers. I’m telling everybody here, the price of oil will be fixed. You can’t imagine this now, because there is so much oil around the world that it remains something of a freely traded commodity, with the resultant huge swings in prices.
That’s how it’s actually going to play out. If a system is in its death throes, then you have to look ahead to see the formation of the next system.
“There’s one mistake in your analysis, Gail. The price of oil is not what you or I can afford. The price of anything is not what you and I can afford.” I think your ignorance is only exceeded by your stupidity…….so is it more, or is it less than we can afford, and will the price be fixed at more than we can afford or what?
dolph, I agree with you that there will be price fixing. There has to be. With the master resource (oil) there can be no other way to tamp down the volitility.
Who is going to fix the price of who’s oil?
I don’t see how fixing the price would work anyway…
If it is high enough to ensure that producers don’t collapse i.e. over $100 per barrel — that destroys growth and collapses the global economy.
If the price is low enough so as to allow growth — say $20 — producers collapse into bankruptcy and supply stops as does BAU.
We will see.
The formation of the next system may look like people cutting down trees in their back yards. It certainly will not be a program centered on huge numbers of solar panels on the electric grid.
Big LOLS
I wrote about exactly that back in July last year
and on and off for years before that.
http://collapseofindustrialcivilization.com/2015/07/29/and-you-thought-greece-had-a-problem/
No nation which has to spend one third of its (finite) bank balance (NOT income–they don’t have any income) to stay seemingly solvent, by definition cannot be solvent…any more than if you or I took out a $million bank loan and pretended to be millionaires. Our lifestyle would be sustainable only until the money ran out. (In Saudis case—read oil)
The Saudis are effectively spending their kids inheritance, and given the Arab inclination towards physical violence, those kids are going to be decidely pissed off when they find there’s nothing left and they have to go back to camel trading and goat herding
For you there is only the desert…
http://www.moviequotesandmore.com/wp-content/uploads/2015/05/lawrence-of-arabia-1.jpg
“The Saudis are effectively spending their kids inheritance, and given the Arab inclination towards physical violence,…”
There should be a scientific study conducted to analyze why those people are so prone to violence. Is it genetic or for some other reason?
“There should be a scientific study conducted to analyze why those people (Americans, Russians, Brits, French, Germans…) are so prone to violence. Is it genetic or for some other reason?”
I guess you meant the proper order rather as Americans, Brits, French, Germans, Russians..?
In short oversimplification it’s just the process of keeping and lifting up the worst traits of past ~5K yrs of humanoid attempts at civilization, it has spread from ClubMed/MENA and mutated all over the place, today we just witness the very latest updated version.
Naw, you gotta flip it around some more: Russians and Germans first (read WWI and WWII), then Americans, Brits and Frenchies. Probably it would be China if we knew all there is to know, and lets not forget Pol Pot.
Good response, Christian!
“The Saudis are effectively spending their kids inheritance, and given the Arab inclination towards physical violence,…”
Arab inclination towards violence….. hmmm…. I could easily name a dozen countries that are more inclined towards violence…
America comes to mind…. see Libya… Iraq… Syria — all bombed back to the stone age….by F16 jets… piloted by Team America!
https://www.youtube.com/watch?v=IhnUgAaea4M
(don’t get me wrong – I support Team America)
You are confusing institutionalized violence with individual tendencies. What country is the most heavily armed? When was the last time a Southern Baptist blowup a Kingdom Hall? The US government may rain death and destruction on some Muslim lands for some reason but outside of that we are very peaceful.
Our present president was elected because he promised to stop all of that. He hasn’t so it is some deep part of our government that is not answering to the people.
I’m sorry that you have not been able to keep up with current events Daddio7. Perhaps a few links that I found in about 1 second of searching will help bring you up to speed:
http://www.nytimes.com/2015/04/08/us/south-carolina-officer-is-charged-with-murder-in-black-mans-death.html?_r=0
http://www.cnn.com/2015/01/12/us/albuquerque-police-murder-charges/index.html
http://www.gunviolencearchive.org
https://en.wikipedia.org/wiki/Sandy_Hook_Elementary_School_shooting
You mean like this;
http://www.euronews.com/2015/10/17/clashes-stabbings-and-shootings-violence-escalates-in-middle-east/
https://www.washingtonpost.com/news/worldviews/wp/2015/09/09/7-middle-east-crises-that-are-a-bigger-problem-than-irans-nuclear-program/
And the deadliest mass shooting in 2015 was carried out by Muslims. Yes, evil is everywhere but why does so much of it involve Middle East Muslims?
‘And the deadliest mass shooting in 2015 was carried out by Muslims.’
Anger rises after apparent US drone strike killed 12 people on the way to a wedding last month.
http://www.aljazeera.com/indepth/features/2014/01/yemenis-seek-justice-wedding-drone-strike-201418135352298935.html
Documented civilian deaths from violence
151,406 – 170,983
Total violent deaths including combatants
242,000
https://www.iraqbodycount.org/
Of course it is different when the US kills people right.
After all — they are just dirty Arabs right? It’s like exterminating rats…. (although these rats have what we want to live large — oil…)
Last year my wife’s brother hosted a red neck wedding for his daughter. The grooms men drove up in two 4X4s and looked ready to take on Seal Team 6. Now our skys are NOT patrolled by drones ready to blast anything in sight. However in the case you state these people know driving around visibly armed to the teeth is a sure way to leave the bride an early widow. It happens so much it is now a parody. Why they tempt fate and why the Military continues to shred them is beyond me.
Obama was supposed to stop this. What else can the average American do? Occupy the Pentagon?
I don’t expect the average american to do anything — if they did they should be shot on the spot.
I want to LIVE LARGE. I want on demand gasoline and I want it at a reasonable price. I want to drive my truck and car — I want to continue to fly around the world and eat food and drink wine and stay in nice hotels.
And in order for me to do that we need to blow the living shit out of countries that stand in my way — we need to blast them back to the stone age — so we can enjoy the resources that just happen to be located on their lands.
I really don’t give a shit about the wedding party —- bad stuff happens —- when you are fighting over scarce resources in a world with 7.5B people who all want those resources – very badly.
KILL KILL KILL!!! PILLAGE PILLAGE PILLAGE!!!!
Call them Krauts… call them communists… call them dirty terrorists…. call them whatever you need to in order to raise a crescendo of hatred so that we can kill them and pillage their resources.
Then tell the sheeple we are spreading democracy in those god forsaken lands where people attend wedding parties armed to the teeth (even though there are no photos of any guns…)
And they will sleep well because they believe they stand for righteousness…
God Bless America…. God Bless Humanity….
Perhaps because they are the ones from whom resources are being taken away to the greatest extent today. Low oil prices are terrible for the Middle East!
What country is the most heavily armed?
https://en.wikipedia.org/wiki/Number_of_guns_per_capita_by_country
USA! USA! USA!
I mainly follow finance news — so maybe you could remind me of how many mass murders there have been in America in 2015…..
I would like to add that the low marginal cost of producing developed fields, within the context of a declining economy, is likely to keep the oil price low for at least a year or two.
I see fireworks and police cars…
Show me the MONEY!
I want to see dark skinned men grabbing T&A
I want to see German men beating the piss out of dark skinned men who grabbed T&A.
You think that if 1000 dark skinned men did such a thing…. an English search would not bring it up?
You think CNN BBC would not be streaming this round the clock?
Give your head a shake buddy — if this happened the video would be online within minutes….
If it is not online — then it did NOT happen.
And if you don’t have actual video — then save us all some time — and stop with this
Is that why you moved to NZ? You wanted to show support for the liberal immigration policies and multicultural society they are so famous for right? I applaud your open mindedness. Perhaps there is room for a refugee or two in your compound? Im sure you and your family will bond fabulously!
What does this have to do with the 1000+ brown skinned men feeling up German women?
I’ve already made my position clear on refugees — if I were PM of NZ – or any other country — I would not let any of them in — period. I would also continue bombing and stealing their resources. Period
Show me the money! Where are the videos?
Where are the videos of the neo-nazi chaps taking revenge on brown skinned men for touching up the frauleins?
Can you explain why there are no videos – no photos — no nothing?
Ah right …. because it didn’t happen…..
I’m surprised at you FE. You do so love a good conspiracy!
“Can you explain why there are no videos – no photos — no nothing?”
Yes, of course you are going to stop to photograph those threatening people, when they crowd you, grope you, threaten you – all in the matter of seconds. Yes, of course you were expecting that to happen, and of course you would have filmed it. Get real! So we are now so far into the technological wonders and surveillance age that you will not be believed unless you have a video or photo as proof?
Cologne is not a hive of Neo-Nazis, incidentally. They are mainly to be found in the deprived territory of the former East Germany.
There would have been tens of thousands of people on the streets —- no bystander took video?
Borrow my assistant — google — and search for video of beatings …
Here’s one of the better ones https://www.youtube.com/watch?v=O7h8qT1jYSU
Funny the person videoing this was not afraid of being beaten as well….
The men of Cologne must be the world’s most effeminate — they just stood by afraid to come to the aid of the pretty frauleins being touched up by the dark skinned men…
I guess they were afraid to do anything… they were all afraid to do anything… they were even afraid to pull out their phones and take video…
Strange people these Germans —- if I were walking down the street and some men were attacking my wife I would not care how many there were —- I would not stand there cowering in fear…. letting them have their way…
I guess in Koombaya Land things work differently … the men are docile as sheep…. they are pacifists …..
Can I call them cowards? Would that be going too far?
Or perhaps this incident didn’t really happen …. perhaps there were a few random incidents that the Elders have blown all out of proportion to create FEAR and LOATHING….
But 1000+ brown skinned men in a mass attack…..
I call bullshit.
Strange people these Germans —- if I were walking down the street and some men were attacking my wife I would not care how many there were —- I would not stand there cowering in fear…. letting them have their way…
You might be willing to get beaten up for your wife, but would you go up against so many for a complete stranger? I know I wouldn’t.
The assailants would go for women unaccompanied by men. Certainly unaccompanied by men that looked dangerous.
The lack of the release of CCTV images from Cologne station is, if anything, evidence of the attempted cover up by the authorities.
Are you really suggesting all the women who have come forward to report being sexually assaulted are actors? What about the woman with firework burns after a firework was put in her hood? You do the victims a great disservice.
The German men could not fight back. The attackers were organised and too many.
Other than that, what Realist said and my previous comment.
Well… Attacks were real. But a thousand organised people is hardly something spontaneous, and it is still suprising police intelligence neither got a possible plot nor came instantly to suppress the attackers. An initial covering up of the story doesn’t mean authorities didn’t knew it will be made public later anyway. Perhaps somebody was rather looking for a new Pearl Harbour…
That’s possible, Christian. At the very least we can expect sweeping new police powers. The public demand it 😉
‘The German men could not fight back. The attackers were organised and too many.’
Cologne is a city of over 1 million inhabitants…. so there would be hundreds of thousands of males capable of fighting back…
1000+ attackers vs hundreds of thousands….
And yet nothing. Not a single word about retaliatory violence. Not a single video. Not an image. Nothing. Nadda, Zero.
Impossible.
I have known many individuals who have been raped some of whom I have been very close to, Rape is much more common where I reside than is commonly believed. Male on female rape is commonly not reported. Male on male rape is unreported at a percentage approaching 100. I am familiar with the various different effects a rape has on individuals. Some coping mechanisms are more healthy than others,
I would say that I have a above average understanding of the atrocity known as rape, Part of this understanding came from personal experience and part from a former profession in criminal justice. It is a understanding that comes with both great sadness and strong belief in rape prevention up to and including lethal force. I understand that most rapists have been raped. I understand that the risk of punishment provides very little deterrence for this crime. I understand the very best treatment for rapists reduces the chances of recidivism by only about 8%.
When I hear a report of rape I am have two basic concerns. The first is that the victim receives counseling and support. The second is that whatever the circumstances are regarding the rape, that knowledge is used to prevent future rapes.
From the introduction of this topic your every comments would suggest you do not share my concerns. Your sole focus is to deny any possibility of the rape and thus any concern for the victims. I will ask you point blank. Do you condone rape?
I am not a big fan of rape either…
That is quite irrelevant…. where are the videos of the ‘1000+ brown skinned men who rampaged through a major German city touching up women’
CCTV… iphone… samsung… youtube….
In this day and age where our every move is monitored by some form of camera — surely there would be video of this — or at least of the German men who I cannot imagine would stand by and just let this happening without beating these brown skinned men.
Surely the POLICE would have the CCTV and they’d be reviewing it in great detail — putting photos of the perps on the news so that they could be apprehended — and put in jail or DEPORTED????
Remember when the riots and looting happened in the UK awhile back —- did I dream this or do I not recall a major campaign including posting photos of the looters on the MSM so that the cops could identify and arrest them??? Did I dream that????
I assume you have a brain. That you have at least a bit of common sense.
So when you see a report on CNN about something like this — do you act like a dumb animal… like a stupid tree stump — and nod yes yes master — whatever you say it must be…. never question because ‘the news’ never lies….
Or do you say to yourself — as I did — ok — 1000+ men went on a rampage — that’s pretty crazy stuff…. maybe it happened ….
But where is the video evidence?
Where are the reprisal attacks by the men who surely must have witnessed this rampage?
I find it amazing that even when I spell this out and connect the dots you continue to insist ‘Fast Eddy it happened — CNN said it did — you must be pro rapist if you disagree’
Tell you what – you show me the video evidence and I will change my mind on this
99.9% of all people are dumb as stumps…. unquestioning idiots… as easily manipulated as a rat in a maze….
And the Elders know that — Bernays knew that — making it so easy to control them via the MSM which is the matrix maker…
http://www.age-of-the-sage.org/psychology/pavlov_classical_conditioning_dogs.gif
“The idea of a bounce back to new higher oil prices seems exceedingly unlikely, in part because of the huge overhang of supply in storage, which owners will want to sell, keeping supply high for a long time.”
This overhang is probably in the order of only 10 days supply. The margin between high and low oil inventories is very low compared with other raw materials. This is the reason the price reacts so quickly. It only takes a small war in the the right place (not very unlikely) and your ‘huge overhang’ is gone overnight.
Good point. Even 300 million barrels in storage (or perhaps two or three times that amount if a person includes ships) is not a large amount, if we are using over 90 million barrels a day. The small margin does emphasize why price is so volatile. The gap between supply and demand is probably smaller than I showed it to be, because the two necessarily have to match up–there is no way to store very much excess. This observation raises questions regarding some of the reports by the EIA and IEA suggesting a big gap between supply and demand. The EIA is showing stock changes approaching 2 million barrels a day in the middle of 2015–this would fill storage fast. I was surprised at how little was being added to storage compared to the supposed mismatch between supply and demand.
The IEA is forecasting additional growth of 300 million barrels of stocks in 2016. It seems like it would take some doing to store all of this oil, but the IEA claims that there is enough capacity for it.
If you think oil is bad for a small overhang, think about electricity. There is pretty much no margin for electricity. If we can’t use it, it needs to be dumped.
Natural gas has a margin for winter, but if storage tanks for winter get filled up, the price can and does go to zero.
“A more likely approach would be to tax imported oil, to keep the amount imported down to a manageable level. This approach would likely cause the ire of oil exporters.”
Keep in mind that imported oil from Canada makes up close to 40% of the total into the U.S., and NAFTA applies. You could expect more than just ire from Canadian producers. With tar sands oil already selling in the $20/bbl range, it would also be seen as a final nail in the coffin of the entire industry by the Alberta and Canadian governments. (Note that a NAFTA suit is pending regarding the cancellation of the KXL pipeline.)
https://www.eia.gov/dnav/pet/pet_move_impcus_a2_nus_ep00_im0_mbbl_m.htm
Good points! Also, there is a need for the “correct match” with the type of refinery. We may have a surplus of very light oil, but we don’t have a lot of domestically produced very heavy oil.
Excellent article. Tilting towards disaster but not inciting panic…
If the banker crowd is reading this — they are not thinking guns and ammo and spam (yet) — they are thinking ….. how can I go long oil storage plays….. 🙂
How about investing in disappointment?
They could make a killing!
Thanks Gail for another very good post.
RE Grain, My little part of the planet has had record harvests of corn and soybeans. Prices crashed (below cost of production), elevators full and ground storage is being used. Of course each bushel was enabled with a generous portion of oil for planting, chemical fertilizers, harvesting etc.
There is no reason to expect anyone to go hungry around here soon, but I am concerned about sustainability. The networked model of pick up sticks posted by Gail comes to mind.
Remove the petro based inputs… and….
It is very helpful to keep banks operating, to keep the whole system going. It is also helpful to keep oil flowing and grid electricity operating. Once one of those things disappears, it will be very difficult to get the food out of the elevators and to the people. Hopefully, things will stay together a while longer.
Saudi Devaluation Odds Highest In 20 Years, Kingdom Now More Likely To Default Than Portugal
http://www.zerohedge.com/news/2016-01-07/saudi-devaluation-odds-highest-20-years-kingdom-now-more-likely-default-portugal
http://s20.postimg.org/h4v2kgxjx/Screen_Shot_2016_01_08_at_11_15_17_pm.png
“overhang of supply in storage”
I have done this analysis:
29/12/2015
Where actually is that much-hyped global oil glut?
http://crudeoilpeak.info/where-actually-is-that-much-hyped-global-oil-glut
Hi there, I was just about to link your article here, thanks for the effort.
I guess the “glut mania” is largely based on the facts and opinion surrounding the unique position of frackers access to cheap money, as they can seemingly produce deep red numbers into the future as long as at least some oil drips out, and also the general sentiment of falling demand, plus Iraq-Iran aim returning to higher production. In aggregate these factors could mask the depletion question for years. Now that Aramco of Saudi Arabia is toying with the idea of IPO, but most likely inside some opaque local market, plays will be played, PO pushed away by increasingly bizarre events..
I don’t think oil production stops until it is forced to stop, and the reason it is forced to stop may be bizarre. It may be lack of storage capacity or overturned governments or something else.
Thanks! What you have to compare is the amount of stored crude oil and products to is storage space. My numbers would suggest that the US on shore has about 155 million barrels of the 300 million barrel surplus, or about half–in other words, what I about what I would expect of the total. There seems to be a fair amount of “products” storage space, but not a lot of crude oil storage space, except on ships.
If there really does get to be a wide gap between what we produce and what we use, we will be in very tough shape. This is why oil prices drop so fast, as storage fills up.
https://www.google.com/?gws_rd=ssl#q=dow
Dow down 427 points !!!
They got the China futures up http://www.bloomberg.com/markets/stocks/futures for tomorrow, so, the big crash will not start tomorrow. But since they removed the China circuit breaker, after having just 29 minutes of trading before the stock closed, so on Monday, we might have a fairly good chance to experience another Black Monday-event.
Another day, another fresh all-time record low in The Baltic Dry Index http://www.zerohedge.com/news/2016-01-07/nowhere-hide-baltic-fried-index-careens-fresh-record-low
Given it was flatlined…. this is like being more than dead
Ah … great … we get to live another weekend….
Liking Salzbug…. if the SHTF tomorrow and I was holed up here to stave that wouldn’t be so bad…. lying in the room drinking credit card champagne and eating caviar looking at the mountains and the castle…. to die for????
“They got the China futures up”
VK, Friday is usually the most up stocks day because workers have the weekend to look forward to and probably thinking they can pick up some bargains. However, come Monday the tide may head out again and then look out. At minimum it would seem the markets are in a correction or worse case scenario they are no where near bottoming out. I wouldn’t want to be holding over the weekend – palpitations!
Agreed.
The Futures are up for the Dow for today. But next week looks grim.
This is getting a little repetitive. One report I read said the average P/E is 65:1 on the China stock market. It is not very surprising that prices are going down.
Great post, Gail!
“Thus all economies have finite lifetimes, just as humans, animals, plants, and hurricanes do. We are in the unfortunate position of observing the end of our economy’s lifetime.”
Ouch! This year is starting off on some rough notes, i.e. stock markets either going through needed corrections or dumping equities on a scale that denotes a quick slide into recession. Oil price is not rebounding due to oversupply and producers are too busy selling as much as possible to agree collectively to reduce supply to raise price enough to avoid major defaults in the industry.
I’m amazed at the disconnect of producers from price. They are all producing flat out. Why doesn’t OPEC, the US, Canada, Russia and other big players have a conference call? In any case, it probably does not matter for the reasons you very astutely put together in your post, Gail. Maybe the best summary so far and they have all been very informative. 2016 may go down as the year of consequences – not the final one’s maybe, but certainly a harbinger of events to come.
Everyone desperately needs the benefits that oil production can provide, even if price is very low. They can’t/won’t cut back. Furthermore, the ability to hedge partly reduces the need to cut back production when prices drop.
The fact that only part of the money goes for oil extraction and the rest tends to go for taxes makes oil a unique product. Companies can continue drilling, even with very low prices, but governments desperately need the high prices so that they can get enough tax revenue. The availability of any tax revenue is helpful. Even in the Bakken, something like half of total revenue was going for taxes, back when prices were high. I could find the article in the Oil and Gas Journal if I looked. This is a chart of tax rates (as a percentage of what is left over direct expenses) on oil production. Many tax rates are 90%.
“The fact that only part of the money goes for oil extraction and the rest tends to go for taxes makes oil a unique product.”
Not so much unique, Gail. That’s rather true for everything which is taxed. For exemple, in Argentina mining (excluding oil & gas business) is generally not taxed, while ag export is taxed indeed. In ag business, “part of the money goes for grains production and the rest tends to go (or rather just go) for taxes…”
I think that the large percent that goes for taxes on oil is perhaps unusual. The fact that there is a world market and production costs vary allow governments to take the surplus–in fact, to plan on using the surplus to balance their budget. Someone told me that coal is heavily taxed in China (but I am less than 100% certain about this being the case). China does not seem to collect taxes from individuals. I can imagine that agricultural products used for export would be heavily taxed. If it is “only” the government whose revenue is being reduced by low prices, production will go on, regardless of the low prices. Long term, the government needs adequate revenue as well.
This article will be a classic. Thanks Gail.
Great line “We are in the unfortunate position of observing the end of our economy’s lifetime.”
AAAAAA+++++
Back on January 25, 2013, someone writing under the name Lindon made the comment,
So the idea wasn’t entirely original. Actually, quite a lot of what I say isn’t entirely original. I pick up a lot from commenters.
Gail,
Thank you, this is an unbelieveably fantastic, informative article!
I had two off-topic thoughts while reading this. One, have you ever thought of creating a link to a file that included all of the fantastic charts you have created over the years? It woudl be great for your readers to just go there and look at them from time to time, but it also might be discovered as a source by writers and analysts in the financial media, which would bring some great much-warranted attention to your work here at OFW.
Two, the oil storage problem jogged some questions about grain storage — our surplus food supply, with which we will feed ourselves as climate events and declining soil productiviy impact us. I have been wondering about this lately, In Biblical times, grain storage was the province of the priests and government – that was one of their key functions, to handle the agricultural surplus – and administering the surplus food supply was a strong foundation for their legitimacy and elite status. (In case the propaganda that they were gods or descendants of gods wasn’t quite sufficient.)
Nowadays, (with limited exceptions) governments and religions don’t take custody of the grain, we regulate distribution of the food supply via the credit system, and government performs its time-honored function of handing out the surplus to the needy via the credit system. Grain silos are basically owned by the private agricultural sector. Casual searches on the Google indicate it is not easy to gather cumulative information about this, but you can find information for various states through the Dept. of Ag website. Just having a U.S. map showing locations (or distribution) of grain silos would be a fantastic resource. An interesting article would be, how much storage capacity do we really have (distinguishing carry of agricultural animals and people) how long would this carry us, where is it, what are the logistic issues with distributing it, etc. The private de-centralized ownership of the storage facilities raises interesting problems of supply-chain breakdowns triggered by credit-system breakdowns (vide Korowicz).
If I were involved in the resilient towns movement, the two biggest things I would be arguing for are control over water storage and resources (gravity fed from a local reservoir) and the development of local grain storage facilites under town control. Permaculture gardening and local farming initiatives would be third.
If people were ever truly capable of adhering to a “religious law” requiring storage of a 7 years of grain for the Biblical “7 lean years,” that alone would limit population growth. My uneducated guess is that we perhaps have grain storage for at best a little over a year, but I haven’t really examined this. If anyone in the OFW comunity can point me to articles that have studied this, I would be grateful,
Most of the industrialized countries run their own strategic supply depots (grains, oil, ..) But here comes the question about the potential max storage days per capita, most likely tthey can’t handle widespread undersupply of the commodities by failed commercial channels, should it happen for whatever reason natural or of other origin.
Changes in strategic grain reserves http://www.world-grain.com/News/News%20Home/Features/2011/5/Strategic%20grain%20reserves.aspx?cck=1
FAO recommends a three month minimum reserve http://www.fao.org/docrep/w4979e/w4979e0a.htm#size of reserve
thanks!
You are only going to get data on the storage facilities run by the middleman buyers or government. Trust me there are plenty of individually owned grain silos of quite large capacity all over the plains and Midwest. Not to mention any storage data you do find will be useless as far as your question goes unless current energy inputs can be maintained. Without sufficient energy inputs the current modern day storage facilities would be useless for actual storage as there would be no way to dry the grains properly without natural gas.
I am not sure what the total grain storage is atm but it has declined drastically through ethanol production over the last several years.
The problem will be in the harvesting. Without continued inputs the actual farmers will have to change the harvest times and methods drastically and farm labor numbers would have to explode over night to get it all done.
Thanks for your thoughts.
Regarding a big file of images, I have such a file myself, because of the way WordPress stores my images for later use. When I pretend to add an image to a post, WordPress lets me search on all of the images I have made. If I add a word such as GDP, it gives me all images with GDP in the name. If I don’t add a search word, it lists my images in order–most recent first. I find myself using the feature quite a bit. I try to always label my images with a description that will allow them to be found either by myself, or by Google Images. I don’t know how to make such a file for users myself. (And I probably don’t have the time to keep such a file up to date.)
Actually, I have discovered that “Google images” tends to display a large number of my images. They pretty much get lost in the overall group if a person is searching on something very general, such as “GDP.” If you search for something more specific, such as “GDP and energy consumption,” you will find several of my images right near the top of the search list. At one time, when I was getting information regarding “number of hits” separately for images, I discovered that a lot of people were accessing my images. So I think you will have more success than you might expect finding my images simply by searching using Google images.
I am fairly sure there is information on grain storage–I remember seeing such numbers. A person can even find interesting articles by searching for images using a search term such as “Grain storage capacity,” and then following the images back to the relevant article.
Back when we did not have irrigation and herbicides and pesticides, people appreciated the need for grain storage more. Now, people mostly take the system for granted. We need to be more aware of the need for storage of both food and water.
The amount of storage capacity does not seem to be fixed. When I Googled “grain storage,” one of the first articles that came up was “U.S. grain farmers resort to giant storage bags to avoid cheap sales.” If you are really interested in the subject, I would suggest using Google to help you.
We call them bagsilos. Since 2007, farmers didn’t used them to wait for a price spike but rather as a political weapon: they stored cheaply their grains instead of selling them for export, depriving the gov of the corresponding export revenues. This way they expected to force the gov to change the tax index implemented that year.
It made a lot of political noise but farmers didn’t got their goal. It wasn’t until last month, when administration changed, that the index was (a bit) changed. In fact, the new admin was dollars thirsty and expected these small tax cuts + devaluation of the peso (wich was significant, 35%) will stimulate farmers to sell all their soya; but they just sold a third of what -it is supposed- they had. They are rather waiting for more devaluation.
I understand food prices are falling, so US farmers goal is not met neither (while it’s possible prices would fall even more without this policy).
It’s true that it’s difficult to assess how much grains are stored in bagsilos, given there is no requirement to make a statement on them and I guess aerial photography + computer calculation of stocks is expensive and complicated.
An interesting side use “permaculturalists” did got for bagsilos is waterproofing green roofs, given those multilayer bags are not pierced by plants roots -unlike polypropylene, which was the choice before. So, they are supposed to go on for many decades.
Thanks! Interesting!
Gail, you can Download your entire Media File from the WordPress Database. Once you have the file downloaded, you can sort it into folders by topic, then upload it to Google Drive or another Cloud Storage disk for readers to download.
Download can be done via FTP, or with this WP Plugin:
https://youtu.be/izfX2VuUTO4
RE
Thanks!
Just add the world “Gail” to your “GDP” Google search….. magic 😉
I read somewhere recently that there is an 8 month supply of food world-wide.
“have you ever thought of creating a link to a file that included all of the fantastic charts you have created over the years?”
Go to Google’s image search, and type in this command:
site:http://ourfiniteworld.com
and see what comes up. Put a key word after the command to filter the images:
site:http://ourfiniteworld.com GDP
https://www.google.co.uk/search?q=site:http://ourfiniteworld.com&source=lnms&tbm=isch&sa=X&ved=0ahUKEwigyPbYi5rKAhULXBQKHUBZCrMQ_AUIBygB&biw=1366&bih=644#tbm=isch&q=site:http:%2F%2Fourfiniteworld.com+gdp
Thanks! Good suggestion! Sounds easier than my trying to keep a separate database up with these images.
Time to plea for the Great Buddha to act again?
http://www.skynews.com.au/business/business/international/2015/12/16/ben-bernanke-s-vow-
of–whatever-it-takes-.html
Cue Bernanke’s vow to do ‘whatever it takes’, short-hand for taking the Fed’s playbook to the edge of the legal precipice, stretching its mandate beyond the traditional role of lender of last resort to the core of the banking system to a far broader coalition of the needy: investment banks, insurance companies, auto finance outfits, industrial companies and, incredibly, indirectly to homeowners and consumers. As the Wall Street Journal’s former economics editor David Wessel noted: ‘The Great Panic exposed the alchemy of central banking: the Fed could create money from nothing’. Such was the price paid to ensure the panic cancer didn’t ‘metastasize’, that history didn’t repeat. Not for nothing would Geithner dub Bernanke ‘The Buddha of Central Banking –
although Ben still has that region on his mind when telling me emerging markets represent the one risk to financial stability today. It’s a Classic Catch 22 of course: fight the Fed and keep rates low means accepting the possibility the decision will trigger another round of damaging capital outflows. Keep pace with the Fed and sign your own political death warrant by sending already struggling domestic economies into recession. –
It still irks Bernanke (and rightly so) that Congress compounded the recession — compelling him to slash rates to zero — by doubling down on austerity when it could have stopped playing politics and acted for the greater good: pump-priming after an economic slump to create the conditions John Maynard Keynes famously dubbed ‘animal spirits’. –
See ahead what other magic tricks can be performed
Thank you , Gail, for another effort in explanation.
More debt creation might temporarily help, but it would need to get down to the people–not stay with the asset owners and the banks. Also, we need very cheap energy to pull us out of this–solar PV is nowhere near cheap enough.
In another words, Gail, what we really need is some MAGIC
Whammer Jammer by the one and only Magic Dick of the J Giels Band
https://m.youtube.com/watch?v=2s7VICj7D8c
BTW…just took in the movie “The Big Short” and retort the “system” is so corrupt and stupid, along with the folks that swim in it…we all may be in for a number of surprises.
When do we get a movie call ‘Our Finite World’…………..
Fast Eddy, I am certain Brad Pitt would be very interested in producing and starring in the movie. Perhaps you’ll have the good fortune to put the idea across his way.
IF the fed had the authority to print money and give it to people (as you say) – for example to pay off student loan debt, or mortgages, or pay for new Giant PV farms the economy would rebound quickly. At least for a while.
Since the oligarchs know that the main street economy keeps them going ultimately they must know that soon that type of program (helicopter drops of money) will be needed to kick BAU down the road a little more. Can you imagine Ted Cruz (Rand Paul, etc.) face when he is told by the people that own him that he must vote for some helicopter drop program? It would be hilarious. How will the GOP explain why they voted for it?
Interesting question about Ted Cruz (Rand Paul), etc. I don’t know whether they would catch on. The gold standard is going in precisely the wrong direction–makes everything crash.
Paying down student loans and mortgages would remove some of the handicapping effect that current debt in place has, and thus be somewhat helpful for that reason.
I don’t think printed money for Giant PV farms would be all that helpful. First, we don’t really need the PV farms–total demand for electricity is not really rising. Even if an argument could be made that we need the Giant PV farms, they don’t provide enough output to make up for all of the wages and pensions lost by workers who were formerly in the coal industry, and got laid off because of low prices or failure of their employers. Somehow, the Giant PV farms would have to be capable of paying high taxes, so that their output could truly help the economy as a whole. (To me, this is the only true evidence of “net energy.”) This is a very long way off.
Hi Gail,
Thanks for this article.
Do you think that there is a chance that the U.S. could anticipate the storage problem by building enough storage capacity before they reach its limits?
If we need storage between now and the end of April–actually between now and the end of February–I don’t think there is much chance that storage can be added soon enough. If we have a year or two lead time, then there is some possibility of building new storage. There is also the possibility of chartering more ships to hold oil. The problem with this approach is that if more ships are used for storing oil, there are fewer ships for transporting oil. Rates for oil transport tend to rise.
Looking at this — wonder if all those empty ships can be converted to hold crude – plenty of capacity there….
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2016/01/20160107_bdiy_0.jpg
I think the ships more or less have to built for carrying liquids. It seems like “dry” capacity would need a lot of change. Of course, if the ships are sitting empty, someone might try it.
Talking about shipping, here’s something unique.
Not a single ship is plying the Atlantic at this time. All ships are laid up or idle. This has never happened before;
http://rielpolitik.com/2016/01/10/crossroads-in-an-historic-first-north-atlantic-empty-of-cargo-ships-in-transit-all-anchored-along-coasts-none-moving/
I think it’s a hoax
Recent information suggests that there is something wrong with the way this chart is put together. The way the technology works, it can only locate ships near the coast. The center will always be empty.
There’s a more comprehensive analysis on shipping situation here:
http://globaleconomicanalysis.blogspot.com.au/2016/01/investigating-claims-north-atlantic.html
Decline in shipping is an issue, but not to the extent of that other article.
“The first thing I do when I see reports like “No Ships Moving” is look for mainstream news confirmation. If no ships were moving, this would indeed be news and some reputable news site would have the story. The “no ships moving” story failed the “sniff test” from moment one.’
This would be the last thing I would expect to see in the MSM…. if this was splashed across CNN imagine the impact this would have on CONfidence of the sheeple…
Shipping hasn’t stopped — but it looks to be pretty darn close to stopping:
Container Ships http://4.bp.blogspot.com/-KY1UY2arwHM/VpQOUpN0Z3I/AAAAAAAAg9U/TbAcZJZDEwM/s400/Ships%2BMoving.png
Oil Tankers http://4.bp.blogspot.com/-ASvjrSsCKaA/VpQScJg53RI/AAAAAAAAg9g/Il3s-At-AiY/s400/Tankers%2BUnderway.png
That is a better article than the many hysterical ones.
Actually …. that was rhetorical…. I doubt these ships are engineered to hold crude… they would probably sink
Pingback: 2016: Oil Limits and the End of the Debt Supercycle – Olduvai.ca
The Chinese government recently paid $12 million dollars to Foxconn to slowdown layoffs at their factories because iPhone orders are down. And the Chinese stock market is crashing again.
It just shows how interconnected we are globally and how something insignificant by many standards can create oscillation in the system.
If there were a lot of other companies increasing their orders, Apple’s cut in orders would not be such a big problem. If Chinese workers get laid off, they cannot pay their mortgages. Civil unrest becomes more likely.
One has to wonder what new ‘tricks’ the-powers-that-be will try to keep the party going. More financial repression? Manufactured war? World government? The possibilities seem endless…
The tricks that the powers that be will try may be endless, but the question is whether they really will work.
I can see imagine one country bombing another’s oil production, to reduce it. Starting a war is usually a good excuse to ramp up debt; that is why it works so well.
The thing is….
It would be easy to spike oil prices…. the CIA could instruct ISIS to blow up an oil operation in Saudi Arabia….
The gesture would likely push oil prices up extremely quickly…
But high oil prices would just pound the nail deeper into the wood….
High oil prices — low oil prices… doesn’t matter…. the economy is damaged too badly….the consumer is moribund…
Epitaph for Glob Civ 1…
http://38.media.tumblr.com/0fb4dcfda6bf98a936dc9e4551b38739/tumblr_inline_mz1zkfCwhL1rs4nv6.gif
Why would the CIA instruct ISIS to blow up SA oil fields, when we can blow them up ourselves? At the point that such a manuever would be necessary, the pretense of friendship between us and them would be lost anyway. BTW, the CIA doesn’t “instruct ISIS” to do anything, you loon!
Oh but the CIA always gets others to do their dirty work so that the US can continue to claim to be a beacon of light in a dark world… a purveyor of democracy …. the global policeman (I agree with that last one — the US is like the cop on the beat strangling and shooting innocent people)….
See Malaysian Airlines shoot down Ukraine + gassing women and children in Syria .. the CIA didn’t pull the triggers… they gave the orders though….
Secret Pentagon Report Reveals US “Created” ISIS As A “Tool” To Overthrow Syria’s President Assad
http://www.zerohedge.com/news/2015-05-23/secret-pentagon-report-reveals-us-created-isis-tool-overthrow-syrias-president-assad
https://www.washingtonpost.com/world/national-security/lawmakers-move-to-curb-1-billion-cia-program-to-train-syrian-rebels/2015/06/12/b0f45a9e-1114-11e5-adec-e82f8395c032_story.html
http://www.infowars.com/sy-hersh-isis-funded-by-usa/
Of course you will reject that and drape yourself in the flag and flip on CNN to watch ‘the news’ for more in the terrorists ….
However you might consider that this is not the first time the US has created and armed terrorists….
Remember Afghanistan? Remember the Cold War?
Frankenstein the CIA created
American officials estimate that, from 1985 to 1992, 12,500 foreigners were trained in bomb-making, sabotage and urban guerrilla warfare in Afghan camps the CIA helped to set up.
Since the fall of the Soviet puppet government in 1992, another 2,500 are believed to have passed through the camps. They are now run by an assortment of Islamic extremists, including Osama bin Laden, the world’s most wanted terrorist.
Bin Laden arrived in Afghanistan from Saudi Arabia in 1979, aged 22. Though he saw a considerable amount of combat – around the eastern city of Jalalabad in March 1989 and, earlier, around the border town of Khost – his speciality was logistics.
http://www.theguardian.com/world/1999/jan/17/yemen.islam
http://www.globalresearch.ca/america-created-al-qaeda-and-the-isis-terror-group/5402881
It is so easy to toy with Sheeple….. to get them all ruffled and angry ….
Even when presented with details of the very simple formula that has been used hundreds of times by the CIA the world over….. the sheeple are so deeply brain-washed that they still refuse to accept the fact that the US — when it is in their interests — will side with the devil if need be…..
The US is not a good guy — if anything it is the meanest dog in a very mean neighbourhood that is getting meaner by the day.
Instead of sitting there wallowing in cognitive dissonance and watching CNN ….
You should accept that your dog is a killer…. he is a mean son of a bitch…. and it is because he is the meanest son of a bitch that you get to LIVE LARGE!!!
If he stopped being a mean son of a bitch — you — and I — and all of us here —– would be trading places with those that we bomb the shit out of …. those that are terrorized by our terrorists….
Rejoice! Rejoice!! Rejoice!!!! Your dog is the world champion!!! And he is sharing a bit of the spoils with you – and me….
Thank god our dog is a pit bull jacked on steroids!!!
And he’s ripping the throat out poodles — and tearing the entrails out of the other mean dogs…. to keep us fed … to keep us safe…..
Or you can just go back to singing the anthem and believing all the crap that you have been force fed from grade 1….
Shall we sing? Yes — a song would be appropriate right now:
GO FE. 🙂
Next time I want to read a true and hilarious rant I will definitely call you a loon!
War certainly seems to be a commonly used means to help extend and pretend economic growth, but in a world of ‘peak debt’ and diminishing returns as we reach various limits to growth, one has to wonder how much longer it will ‘work’.
Depends if you are talking actual war or a police action/large skirmish. War between any two or more real world powers would be the end of the world economic order and send all this debt crashing in one big wave. I agree the world economy is all connected but the US is only doing better than everyone else because everyone else is helping to hold up it’s debt. I don’t think the extend and pretend would work without the right extender helping to pretend if you get my meaning.
Yes, Preppy, I believe you are correct. Large scale war just won’t work anymore due to the global nature of the economy. You can’t go to war with yourself. You are also correct that it only appears that the US economy is doing better than everyone else. We are being propped up by the rest of the world due to the structural advantage we have as the world reserve currency. It won’t last long, but it’ll last longer than anywhere else. The only way out of this is for the US (and perhaps a few small key allies) to establish global hegemony, enslave the rest of the world, and parasitise it for the remaining juice we can suck out. There was only ever room enough for one US-style economy to exist in the world (and that for only so long). Once the rest of the developed world started to emulate the American Dream (like China), it accelerated the whole process of collapse.
“… to establish global hegemony, enslave the rest of the world, and parasitise it for the remaining juice we can suck out.”
Already done.
InAlaska – You are spot on I think. The rest of the world supports US debt not because of being enslaved but because the elites of the third world countries require the US to stay financially stable so they retain their own power. This is largely the problem with so many “US bad types” out there today, they refuse to see that it isn’t the US enslaving the world it is the world’s leaders enslaving themselves to the US economy and materialism.
The only way out of this in the short term is in fact for the US to do exactly what so many already accuse it of which is taking over the yoke and using the whip but it will never happen and even if it did it is too late to last very long at this point. The collapse will happen when the world can no longer support the US debt and the all mighty dollar becomes worthless at which point the US government becomes powerless.
Interesting observation!
“The rest of the world supports US debt not because of being enslaved but because the elites of the third world countries require the US to stay financially stable so they retain their own power. ”
Yes and no. You can’t forget the US did bombed many places, and did trained and supported dictators forces in so many more. You can’t forget the concept of “regime change”, which clearly sets the source of the motion in the US
Just as ancient Romans and so many others did, the center and the peripheral elites tend to act synergestically: if you put a puppy gov somewhere who’s fault is it? Is it of the master or of the puppy? I can tell you who’s fault is not: peripheral masses, which are dominated by their elites and by the center at the same time.
Don’t misunderstand me Christian I am not saying the corporate and political elite of the US are innocents by any stretch. I am just pointing out that in almost every case when ya have someone screaming about the West plundering some third world country they are typically ignoring the elite of that particular country standing there with a wide open door and a big smile on their faces helping it along and generally profiting from it individually more than the bad guys sitting in their offices back in the West.
In general the numbers of natives that benefit from US financial control and resource blundering is a quite larger segment of the population than anyone wants to admit and much larger than in Roman times.
Western tyrants learned that you could still make a lot of money and decrease problems by expanding the benefit base a little more and they have been using that knowledge.
The elites of those countries are generally gangsters — they cut deals with the US to sell out their countries — in return they get a share of the spoils….
If they refuse — or better still if they attempt to organize resistance — they get the graveyard.
And someone is easily found who will play along….
If I were in that position — I’d take my cut … that’s the only option
Ok
https://www.google.com/?gws_rd=ssl#q=dow -336 so far today -1100 points in last 6 trading days.
What I am writing about certainly seems to be relevant to the way the stock market is behaving.
“What I am writing about certainly seems to be relevant to the way the stock market is behaving.”
Yes, agreed and partly why I have been posting information about the markets lately. Interesting that things seem to hold together only so long then finally give way, and interesting the timing just as 2016 gets started. The dam was held back as long as possible but now it appears we are seeing consequences to reaching limits.
Imagine if Plunge Protection were not in there ….
Tomorrow we’d wake up to a brand new day!
Dream on white boy
Dream on black girl
Then wake up to a brand new day
To find your dreams are washed away
https://youtu.be/1XHU6Zk240c
About the Future Energy Production Estimate (fig. 12) you put together 2 years ago:
you are spot on for col-production.
Last year China, USA and Indonesia (3 of the biggest coalproducers) produced less coal than in 2014. I hope coal-production continues its decline.
Remember that coal is a major source of electricity production in several countries. Coal prices are very low. As these coal companies go bankrupt, electricity companies are going to lose the suppliers that they had contracts with. This could cause disruption to grid electricity production.
I find it hard to believe that utilities with millions of customers are too stupid to make long term contracts for the lifeblood of their business.
I guess I should try to understand what I read. So suppliers with contracts will simply default rather than sell product. Would not the utilities agree to pay more so we don’t end up in the dark?
The question is whether new owners feel that they can raise their prices enough so that they can make a profit.
I understand that the new owners of one coal company that went bankrupt plans to eliminate pensions and cut wages, to try to make the “numbers work.” This is hardly good for the workers in coal mines. Actions like this are what contribute to the problem of falling wages of non-elite workers.
I will never denigrate my daughter’s English PhD again. I am trying to say that the users of electricity will be willing to pay more for each Kwh than sit in the dark. I know I could easily pay double what I pay now. Yes, I would have to save somewhere else. I guess that is the root of the problem, not enough money to go around.
The question is whether in the aggregate, all of the people in the economy are willing to pay enough so that the quantity of electricity produced continues to rise. One of the “problems” is more energy efficient light bulbs. Having more of these doesn’t help coal companies to pay their employees, or utilities to pay their employees or repay their debt.
Efficiency in general is a problem, when the system needs growth in order to pay people’s pensions, and to keep away what happened to Wayne Energy workers. https://www.wsws.org/en/articles/2016/01/11/walt-j11.html
A general slowdown in the economy is also a problem, and so is sending more manufacturing of goods overseas. It is unfortunate that the system works this way. Coal may be bad, but the workers extracting coal and the pensioners in the coal industry still need to be paid, or the system tends to collapse. These kinds of wage reductions contribute to the tendency of the system to collapse.
Maybe even if companies go bankrupt, there are still work-arounds–make a contract with a new owner, or different supplier.
The real problems may not come until the utilities have problems with their bank taking the funds they planned to pay their employees with, or pay their bondholders.
“A general slowdown in the economy is also a problem, and so is sending more manufacturing of goods overseas. It is unfortunate that the system works this way. … These kinds of wage reductions contribute to the tendency of the system to collapse.
Is this not the fundamental problem of capitalism? Trying to reduce cost by looking for cheap labor elsewhere, and at the same time destroying the buying power of its customer base? Marx noticed that long time ago:
https://www.google.com/search?q=capitalism+contains+the+seeds+of+its+own+destruction&oq=capitalism+contains+the+seeds+of+its+own+destruction&aqs=chrome..69i57j0l5.12111j0j7&sourceid=chrome&es_sm=91&ie=UTF-8
We don’t seem to have learned the lesson Marx taught, though.
When we had plenty of cheap oil and other energy products, back in the 1950s and 1960s, men could support families fairly well, even without advanced education or their spouse working. That has gradually gone downhill.
Now we have huge wage disparities. This makes it impossible for those with minimum wage jobs to afford the services of doctors, who have much higher wages, even with insurance programs to level out year to year fluctuations in costs.
In the early summer it might be great opportunity to take huge delivery (I mean few tons for several years) on the cheap of some quality coal for heating/hot water, however by 2020 EU plans to again ban even the very efficient modern burners. I guess in the US you don’t have these units with tertiary smooth clean burning anyway, so this information is valid/of interest only to few around the old continent, nordic/baltic + CIS countries..
I think people in the US tend to use wood for home heating, if they use something other than the standard fuels.
This is an interesting point. As I drive around the area where i live, within about 300 miles I see coal exposed in the road-cuts. It is very easy to see if one knows what to look for. That coal will be very readily available far into the future, and might be used heavily. The coal that I have seen is likely bituminous coal, or lignite, but it will burn and it would keep one warm.
If one had a boiler, it would be easy to make a steam turbine and turn a generator. Not something that I had considered before.
It takes more than coal to make steam turbines and generators. A person also needs metal ores (or perhaps recycled metals) and a means of transportation for the ores. When you start figuring it all out, it is not clear that you can get along without an economy similar to today’s economy. This is especially the case if you have to educate workers, keep them from disease, and keep them housed. We already know that we are having difficulty making our current economy “work.” It is not at all clear that we can just put together a few things, and make more than a toy that might entertain a few children–not repower society.
Yes, everything we propose that would appear to render society more sustainable (reducing consumption of commodities being one of them) helps to spell the end of the industrial economy that we have – known as business-as-usual (BAU).
I too support killing off the coal industry (it has to be done) and arguably the meat and livestock industry and also the mass tourism industry and several other industries that are bart of BAU.
Success in these endeavours = economic collapse = social chaos = no control over anything, not even important things like climate change.
You can’t just pick and choose which industries go…. without collapsing everything.
I agree–the situation is very frustrating. If there were no connection with jobs and pensions and taxes, we would not have a problem.
..Oil storage seems likely to become a problem sometime in 2016…
..Oil prices could fall to $10 or below…
Can you imagine the effect on NOK and RUB (crudeoil/natgas proxy) currencies?
That would be one terrifying sight indeed.
Gail, great article, thanks.
I just foresee the gov structure reaction to such events in different light, the dependency of population on vast supporting infrastructure might actually smooth the move to more authoritarian rule. The bail-ins now serve more as a first defensive line of fire, so in times of crash they have the days and weeks available to pre-announce and possible launch in short order the next gen QE like measures, probably oriented on various direct consumption support schemes. Governments and regimes might go down in short order, but the human farm project must go on even as the economic pump effect is lost, the next attempt will be some sort of semi-command autarky..
For those who do not follow currency abbreviations, NOK is the abbreviation for the Norwegian Krone; RUB is the abbreviation for the Russian Ruble.
I agree that there is a possibility that governments may launch a next generation QE–definitely a good idea. You might be right that the bail-ins might be a first defensive line of fire. Bailins would work best if there are only a few small failures, not if we have major problems.
It is impossible to have enough fingers to plug all the holes…. we need a macro policy such as a new QE to shore up the dam for a little longer….
Hi Gail,
Thanks for your analysis. However, I disagree with your point that “Most energy research to date has focused on the Second Law of Thermodynamics. While this is a contributing problem, this is really not the proximate cause of the impending collapse. The Second Law of Thermodynamics operates in thermodynamically closed systems, which is not precisely the issue here.”
Even if the second law of thermodynamics is applied to isolated systems I think that what is relevant is the fact that Earth is 1) closed to materials at human scales (geological times take a long time to develop) and 2) fixed in terms of energy (the sun + what has been “accumulated” as an asset is being depleted and transformed into debt while economists account this depletion as an asset itself because they assume there are “no limits to growth”). What do you think about this?
Have you approached any of Georgescu-Roegen’s work, teacher of Herman Daly and himself a student of Schumpeter? He pointed out many of the problems we are facing today in great detali in 1971, before the limits to growth.
The system I am talking about is the economic system, existing in the world today. It gets its energy from fossil fuels and a variety of other primary sources–including nuclear energy, hydroelectric, and the burning of biomass. Viewed as a group, these energy sources have historically represented an open system. Energy from the sun, used to heat the earth and to provide light for growing crops is also part of this system. Energy consumption has grown in parallel with the economy for a very long time.
A growing economy is in many ways analogous to a human being. A human being starts from a very small beginning. A living person self-organizes over time. The person needs food to eat, and it needs energy products in other forms–heat to cook at least part of its food, and protection from extremes of weather, from germs, and from wild animals. It is the economy that provides the energy products that humans need.
The economy also self-organizes over time. New businesses are gradually added, and unneeded ones disappear. New consumers are added, and others die or move away. Governments gradually change. They add rules to encourage desired types of businesses. They establish financial systems, to make transactions easier. They charge taxes to fund their own operations. Thus, the economy requires energy to operate. What I am saying is that the economy tends to collapse, because of limits it reaches. These limits not “running out” of energy products. They have to do with a different energy limit–one that was not known until fairly recently. Ilya Prigogine received a Nobel Prize in Chemistry in 1977 for his work in this area. There is not much writing in English about the fact that the economy is a dissipative structure. Francois Roddier (with whom I have corresponded) has written about this subject in French.
Regarding Georgescu-Roegen, I read from Wikipedia,”Georgescu-Roegen was the first economist of some standing to theorize on the premise that all of Earth’s mineral resources will eventually be exhausted at some point.” This is basically a Second Law of Thermodynamics problem. I agree that what he is saying is true. It is not the particular problem that I am concerned about, however.
Herman Daly’s “Steady State Economy” is in my view equivalent to a perpetual motion machine. It does not reflect any reasonable understanding of diminishing returns. I am not sure I have read very much of Daly’s work. Some of it seems so absurd that I have wondered why it was published. I have had many run-ins with those operating the “Steady State Economy” website.
In my view, a great deal of our inability to understand the way the economy works is the result of placing too much reliance on the work of early authors. The requirement that academic professors churn out a large number of peer-reviewed papers tends to add to this effect. Too much confidence is placed in relying on past thinking. Once authors have started down a somewhat wrong road, they tend to go farther and farther in the same direction, simply because that is the path where it is easiest to churn out more papers. No one stops to ask, “What is the real answer? Is this something we could figure out by applying a little common sense?”
When Adam Smith started with the “Wealth of Nations”, he tried to apply some common sense to the workings of economics. Originally that was the point in that science. Now economics seems void of any common sense.
During the past years many Nobel prizes have been awarded to “asymmetrical information” economics. It´s like the Nobel committee is trying to hint again and again to the economists to “please add some common sense to this nonsense”.
Gail, a very educational article, I am new to much of macroeconomics and your articles in general have been helpful to provide hooks to hang things on. You have been right in the face of much opposing noise from those in more mainstream financial information sources. Many insist on being perpetually optimistic about our future, but I think reality and human limitation paint a far more negative outlook. Your article on deflationary collapse is a red pill for many “bulls” out there. I look forward to watching this all unfold.
Two thirds of Germans have a smart phone
http://static6.businessinsider.com/image/54f0956169bedd1b1dcb7819/the-smartphone-report-by-country-adoption-platform-and-vendor-trends-in-major-mobile-markets-around-world.jpg
But nobody took even a single video of a 1000 refugee rape rampage…… hmmmm…..
https://www.google.at/search?q=cologne+attacks&ie=utf-8&oe=utf-8&gws_rd=cr&ei=op6OVovLCoG5UvnErJAO#q=cologne+attacks&tbm=vid
Problem perhaps exaggerated?
Yep – as I suggested there may have been an incident or two — but 1000 dark men on a rampage?
No way.
That’s the MSM for you…
I like that word…. we need to use it more often….
moribund
ˈmɒrɪbʌnd/
adjective
adjective: moribund
(of a person) at the point of death.
“on examination she was moribund and dehydrated”
synonyms: dying, expiring, on one’s deathbed, near death, near the end, at death’s door, breathing one’s last, fading/sinking fast, not long for this world, failing rapidly, on one’s last legs, in extremis; informalwith one foot in the grave
“the patient was moribund”
antonyms: thriving, recovering
(of a thing) in terminal decline; lacking vitality or vigour.
“the moribund commercial property market”
synonyms: declining, in decline, on the decline, waning, dying, stagnating, stagnant, decaying, crumbling, atrophying, obsolescent, on its last legs; informalon the way out
“the country’s moribund shipbuilding industry”
antonyms: flourishing
Origin
early 18th century: from Latin moribundus, from mori ‘to die’.
Translate moribund to
Use over time for: moribund
No, but it may help to search with German words for the videos: https://www.google.de/search?q=video+k%C3%B6ln&ie=utf-8&oe=utf-8&gws_rd=cr&ei=YNeOVuneBsLfO5TJgvAG#tbm=vid&q=video+k%C3%B6ln+silvester 😉
Here a google-Translate link to a part of the official and confirmed police report regarding to Cologne as posted at a Germany public TV (WDR) website: https://translate.google.com/translate?hl=de&sl=auto&tl=en&u=http%3A%2F%2Fwww1.wdr.de%2Fthemen%2Faktuell%2Fdokumentation-bundespolizei-100.html&sandbox=1
And in Germany ‘we’ have a high “standard” on not (or wrongly) reporting certain things if the public media or newspapers.
There must be surveillance cameras in Cologne’s railwaystation and main square. Maybe some CCTV-video will be leaked…
AAAAAAAAAAAAAAAAAAAAAAAAAAAAAA ++++++++++++++++++++++++++++++
That is god damn brilliant!
https://sociorocketnewsen.files.wordpress.com/2013/05/top14.jpg
I did not see any inside and I was looking.
Ert I know Facebook and Utube are washing vids away. They are on the dark net though.
Not sure but I think they fired the police chief for under reporting.
I work with Germans all the time. My small Canadian city has direct flights and a ton of daily one stop flights to cater to them. Any that I talked with say it is far worse than we are seeing on MSM.
I’m in Germany right now — I don’t see any perverts — in fact I have spent about 6 days in Germany on this month long trip and I haven’t seen any refugees….
Well — we bought some bananas at the grocery store last night and I said to my wife — hey look at those two ladies in burkas …. I wonder if they are refugees… and I marveled at how they laughed and paid with real money for a cart of food…. and they left….
I guess if you are a refugee with money then you are ok…. is that how it works?
Well… Smart remarks. So, as of today no videos? MSM reported later some assaults in Switzerland and somewhere else I don’t recall
In case this is a fak situation, who will profit?
Helsinki police: Asylum seekers harassed women on NYE, mass assault possibly planned https://www.rt.com/news/328261-helsinki-sexual-assault-women-migrants/
‘Male-dominant migrant wave threatens Europe’s gender equality’ https://www.rt.com/op-edge/328280-europe-male-dominant-migrant-wave/
around 1880, grey squirrels were introduced into the UK as an “interesting species”
now the native redsquirrels are confined to a very few isolated pockets in the uk,and a few offshore islands
Just a point worth making maybe
Exactly. None so blind as them what won’t see….
It is evolution and it is alive and well in the human species. Those that through genes or through culture have lots of children will populate the future and the others will become and increasing minor percent of the population.
There is no value judgement attached to the fact that one group does not have the genes and/or culture to reproduce. It is just an algorithm called natural selection.
And there is the whole k versus R strategy. If a low reproduction group allows its territory to be used by a high reproduction group, the result will be mostly high reproduction types after a few generations.
So, low reproduction without the will to protect ones territory is a evolutionary loosing strategy. Does anyone care? It appears not (OK maybe xabier and endof and myself).
Not really. R’s have many offspring, but few survive to maturity. k’s have many fewer offspring, but a larger proportion survive to maturity. It doesn’t matter. A mix is needed, to fill ecological niches.
I am sure the refugees are right now speaking to venture capitalists in Silicon Valley …. they are after funding for the new Flash Mob software that allows them to organize 1000+ people at a time … descend upon a city …. touch up women … while remaining invisible to CCTV and smartphone cameras… as well as to the men of Germany who would normally beat them to death…
it is truly brilliant software — I believe the refugees are pitching it as having great value to the military ….
And now we know why the refugees were allowed into Europe — Merkel has been fighting to get them to relocated in Germany —- the next Google will be based in Cologne apparently …. the site of the first test of the revolutionary new software….
It’s all beginning to make sense
Thanks for the new article Gail!
Copper Futures Crash Below $2 For First Time Since 2009
Dr. Copper is sick. For the first time since May 2009, Copper futures prices traded with a $1 handle this morning ($1.99) as Nomura analysts warn the commodity is likely to see more downside risk over the medium term as the market is expected to remain in surplus through the end of the decade.
http://www.zerohedge.com/news/2016-01-07/copper-futures-crash-below-2-first-time-2009
Bye bye Glencore…..
My article helps explain why everything is crashing. Glencore is so big, no one would want it to fail.
TBTF….
I wish I could get classified as such …. I’d just keep rolling through Europe upping the ante by running the plastic red hot…. knowing the Fed will bail me out … I am far too important (in my own mind) to fail….
I need to ring Janet Yellen to make sure she has my back — anyone have the hotlne number?
Gail, this is a great article. So articulate and easy to read. My one suggestion is to tie the whole thing up at the end with a summarizing statement that brings it all back to resource scarcity caused by a finite world. In effect: scarcity of resources causes cost of production to rise which causes a rise in debt to continue production which causes a rise in prices leading to demand destruction. At first, commodity prices spike in response to scarcity and then crash in response to declining demand. Increases in debt and a decrease in non-elite wage growth coupled with scarcity of resources thus causes any networked economy to collapse as debt and demand destruction work together to bring the whole system down.
Again, great article, and thanks. The US stock market has lost, like, 1000 points in a week.
Adding a summarizing statement at the end might be a good idea. I keep the idea in mind if I reuse the article.
The stock market went down again today. Total loss for the week 1,079 points, or 6.2%. The WSJ says, “Corporate-earnings reports are widely expected to be underwhelming. . . Fourth-quarter earnings by companies in the S&P 500 are expected to come in 4.7% lower than they were a year earlier, according to FactSet.” This is not good for future oil demand.
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