The oil glut and low prices reflect an affordability problem

For a long time, there has been a belief that the decline in oil supply will come by way of high oil prices. Demand will exceed supply. It seems to me that this view is backward–the decline in supply will come through low oil prices.

The oil glut we are experiencing now reflects a worldwide affordability crisis. Because of a lack of affordability, demand is depressed. This lack of demand keeps prices low–below the cost of production for many producers. If the affordability issue cannot be fixed, it threatens to bring down the system by discouraging investment in oil production.

This lack of affordability is affecting far more than oil products. A recent article in The Economist talks about LNG prices being depressed. LNG capacity ramped up quickly in response to high prices a few years ago. Now there is a glut of LNG capacity, and prices are far below the cost of extraction and shipping for many LNG suppliers. At least temporary contraction seems likely in this sector.

If we look at World Bank Commodity Price data, we find that between 2011 and 2014, the inflation-adjusted price of Australian coal decreased by 41%. In the same period, the inflation-adjusted price of rubber is down 58%, and of iron ore is down 59%. With those types of price drops, we can expect huge cutbacks on production of many types of goods.

How Does this Lack of Affordability Come About?

The issue we are up against is diminishing returns. Diminishing returns mean that as we reach limits, it takes increased resources (usually both physical resources and human labor) to produce some type of product. Oil is product subject to diminishing returns. Metals of many kinds also are becoming increasingly expensive to extract. In many parts of the world, a shortage of water makes it necessary to use unusual techniques (desalination or long distance pipelines) to obtain adequate supply. The higher cost of pollution control can have a similar effect to diminishing returns on products with pollution issues.

When we graph of the cost of production of resources subject to diminishing reserves, the result is similar to that shown in Figure 1.

Figure 1. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

Figure 1. The way we would expect the cost of the extraction of energy supplies to rise, as finite supplies deplete.

What happens with diminishing returns is that cost increases tend to be quite small for a very long time, but then suddenly “turn a corner.” With oil, the shift to higher costs comes as we move from “conventional” oil to “unconventional” oil. With metals, the shift comes as high quality ores become depleted, and we need to move to mines that require moving a great deal more dirt to extract the same quantity of a given metal. With water, such a steep rise in diminishing returns comes when wells no longer provide a sufficient quantity of water, and we must go to extraordinary measures, such as desalination, to obtain water.

During the time when cost increases from diminishing returns were quite minor, it generally was possible to compensate for the small cost increases with technological improvements and efficiency gains elsewhere in the system. Thus, even though there was a small amount of diminishing returns going on, they could be hidden within the overall system.

Once the effect of diminishing returns becomes greater (as it has since about 2000), it becomes much harder to hide cost increases. The cost of finished products of many kinds (for example, food, gasoline, houses, and automobiles) starts rising, relative to the income of workers. Workers find that they must cut back on discretionary expenditures in order to have enough money to cover all of their expenses.

How Diminishing Returns Affect the Economy 

There are at least three ways that diminishing returns adversely affects the economy:

  1. Lower wages
  2. Less ability to borrow
  3. Squeezing out other sectors of the economy

The reason for lower wages relates to the fact that, as the cost of producing a commodity rises, the worker is, in some sense, becoming less and less productive. For example, if we calculate wages per worker in units of oil, as oil becomes more expensive to extract, we get something like this:

Figure 2. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 1.

Figure 2. Wages per worker in units of oil produced, corresponding to amounts shown in Figure 1.

A similar chart would hold for other resources that are becoming more difficult to extract, or whose cost of production is becoming higher because of greater pollution controls. For example, we would expect the wages of coal workers to be falling as well.

Also, as we shift to higher cost types of energy, we become increasingly inefficient in energy production. Based on a 2013 analysis, in the United States, there are more solar energy workers than coal miners, even though we use far more coal than solar energy. The large number of workers required to produce solar energy is one of the reason that solar energy tends to be high-priced to produce.

When we look at wages of workers, we indeed see a pattern of falling wages, especially for workers below the median wage. Figure 3 from the Economic Policy Institute shows that even the most educated workers are experiencing declining inflation-adjusted wages.

A second major issue affecting affordability is debt saturation. Affordability is favorably affected by rising debt–for example, it is a lot easier to buy a new car or house, if the would-be purchaser can obtain a new loan. If debt levels stay the same or fall, this becomes a problem–fewer goods can be purchased.

Governments in particular are reaching the limits of their borrowing capacity. They cannot keep adding new debt, and remain within historic debt to GDP ratios.

Another way debt saturation occurs relates to young people with student loans. They find it too expensive to borrow more money for a new car or for a home. Furthermore, the fact that wages are not keeping up with price increases for many workers reduces the borrowing ability of the workers with lagging wages. This is true, even if no student loans are involved.

As mentioned above, a third issue is the fact that the inefficient sectors tend to squeeze out other portions of the economy by gobbling up a disproportionate share of workers and resources. The use of all of these resources doesn’t produce a lot of goods in the traditional sense–a desalination plant is expensive, but the amount of water produced per dollar of investment is not large. To the extent that the high costs of inefficient sectors are passed on to consumers, consumers find that they must cut back on discretionary spending. This cut-back in spending squeezes out discretionary spending, leading to cutbacks in discretionary sectors, and to reduced employment overall.

Figure 4. Author's view of the effect of diminishing returns on economy.

Figure 4. Author’s view of the effect of diminishing returns on economy.

Wishful Thinking by Economists

Back before diminishing returns started becoming a major problem, economists created models regarding how the economy would react to higher cost of energy production and other symptoms of diminishing returns. In their view, if the cost of oil extraction rises, oil prices will rise to match these higher costs. Alternatively, substitution will take place, or technological changes will allow greater efficiency, or customers will cut back on their use of the high cost product. Somehow, these changes will take place without a particularly adverse impact on the economy.

Unfortunately, the models don’t correspond very well to what happens in practice–at least not for very long. It takes inexpensive energy to produce goods that workers can afford. Higher priced energy does not work well in this regard. Feedbacks that are not reflected in economic models reduce both wages and debt, making it harder to buy goods requiring the use of more-expensive energy products.

Furthermore, if the price of one commodity, for example oil, rises, then countries with very much oil in their energy mix find themselves handicapped in trade with other countries that use less oil in their energy mix. For example, a country that depends on tourism (which depends on oil use) for very much of its revenue, such as Greece, finds it difficult to find customers when oil prices are high. Lack of revenue can lead to financial problems for the country.

Because of the networked way the economy really works, prices for commodities can’t rise for the long-term. They may rise for a while, as consumers and governments borrow more, in an attempt to continue business as usual. Ultimately, though, the situation can’t “work.”  Customers can’t afford to buy more homes and cars, unless their own wages are rising in inflation adjusted terms, and governments can’t collect enough tax revenue.

The issue we are dealing with here is lack of affordability. This is what will bring the system down–not the high priced scenario imagined by many. Decline will come through low prices, and a glut in oil supply, even if we are not looking for it from that direction.

Can commodity prices rise again?

It is not all that clear that they can rise again. It would be a lot easier for commodity prices to rise, if the problem were simply inadequate prices of one commodity, leading to a lack of that commodity. If the problem is inadequate demand for crude oil, coal, LNG, and iron ore the problem is much greater–especially if wages are still lagging.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.
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602 Responses to The oil glut and low prices reflect an affordability problem

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  4. MG says:

    The Russian simple rafineries scale back:

    Here’s the Next Biggest Threat to Global Crude Oil Prices

    • ““When oil prices were high, it was profitable to sell fuel oil abroad and get a big tax discount,” Transneft’s Dyomin said. “We called it ‘spoiled crude’ because the product they produced was less valuable than the oil they used to make it. Now, the tables have turned.””

      Would be nice to know how much domestic consumption in Russia has dropped. Otherwise, it looks mostly like they are going to be increasing crude exports, but decreasing refined fuel exports proportionally.

      Also, it sounds like the refineries that are closing are inefficient, they only make fuel and waste all the rest of the oil products, and are only viable because of government subsidies. Overall, shuttering these “teapots” sounds like a good thing.

  5. Don Stewart says:

    Dear Gail and All
    I have mentioned Kelly McGonigal’s name on many occasions. Mostly in connection with The Neuroscience of Change. Kelly is a PhD at Stanford.

    She has a book coming out in about 60 days on the subject of stress, the good, the bad, and the ugly. Check her website, and either watch the TED talk or read the article in the Stanford newspaper.

    I mention this because handling stress may become even more important in the not too distant future.

    Don Stewart

  6. Don Stewart says:

    Dear Gail and All
    Chris Martenson has just published an interesting interview with Charles Hugh Smith. They discuss many topics, informally and with no script. In contrast to some of Martenson’s interviews, this one sounds like two guys just sitting down and talking with each other about some very serious subjects. Three of the subjects:
    *The fact that the whole world seems to be stuffed with debt, with no room for more.
    *The loss of legitimacy for official institutions such as the US government and the media.
    *The turn toward authoritarianism and repression by many governments, including the US. Chris likens the US to East Germany. Charles talks about the ‘asset seizure’ laws which deny due process and have become a funding source for the police.

    The interview is behind a paywall. Sometimes these show up as free after a week or two.

    Don Stewart

    • Don Stewart says:

      Dear All
      It’s not in the conversation, but keep in mind that the US government is now accumulating formal debts plus unfunded liabilities at the rate of 8 trillion dollars per year. Think about that as your local police pose for pictures with the fancy new guns they bought with seized assets.

      Don Stewart

      • garand555 says:

        Oh, you can get due process in civil asset forfeiture, but it will often cost you $20k to recover $10k. I have not seen any case law on civil asset forfeiture where the only reason that they used to justify seizing cash was that there was too much cash. The police argument for that is that nobody carries around that much cash, therefore, it is drug money. I’ve seen plenty of case law when there is over evidence of illegal activity in conjunction with the cash, but I’ve looked for it when the only red flag is the amount and have found none.

  7. Rodster says:

    They are now taxing shadows in Italy. I never would have imagined they could top adding illegal drugs and prostitution to pad their GDP but I was proven wrong. 😀

  8. Don Stewart says:

    Dear Gail and All
    Here is a link to four short vignettes from Elaine Ingham dealing with food and agriculture. (Actually 3 vignettes. You will find one duplicate).

    The first vignette about synthetic fertilizer lays out the basics regarding the failure of the Green Revolution. Far from saving us, it is poisoning us. Food is not the primary problem, the primary problem is water pollution. There are many other subtle nuances which are not covered in this short vignette.

    I also recommend the answer to the scale question. Scale is a common problem in agriculture. Elaine give a straightforward answer on what the farmer and gardener need to do. The answer does not involve chemicals. I will point out that spraying the underside of leaves on a small farm or garden is labor intensive. I have seen pictures of machines for large farms which can spray the underside of leaves.

    The vignette on biochar is also interesting. However, Elaine is not giving an answer which is comprehensive if one assumes that, as the Hills Group predicts, the Oil Age is ending. And, as George Mobus predicts, climate change is now a systemic threat to humans and lots of other species. Elaine assumes, as near as I can tell, that we are going to have lots of oil for a long time. Biochar comes into its own when it is made at the farm or community scale, is innoculated with the necessary biology, and is incorporated into the soil, perhaps with a key line plow. As such, the biochar can provide heat for cooking and warms a stove for heating, sequesters carbon for hundreds of years, and provides a welcoming home for microbes. Elaine is correct that plain biochar doesn’t do very much except sequester carbon. If you have followed the recent news that the trees in the Amazon have lost considerable ability to sequester carbon, the carbon sequestration alone may make biochar worthwhile.

    Don Stewart

    • “Elaine is correct that plain biochar doesn’t do very much except sequester carbon.”

      Isn’t the main reason to use biochar to hold moisture in the soil? Is there something that needs to be done to enable that?

      • Don Stewart says:

        Dear Matthew
        The thing that really holds water is humus. If bare biochar holds water, I am not aware of it….but I might just be ignorant on the subject. If the biochar is inoculated so that it harbors lots of microbes, then there will be a vigorous soil food web which will make lots of humus which will hold lots of water…and the microbes will release lots of minerals from the soil in the soluble form the plants need, when they need them.

        What about the ancient biochar? Did those people inoculate it? Or is it just that, over time, the microbes colonize it? Microbes colonize spaceships, so my guess is the latter. But again, I don’t know for sure.

        Don Stewart

        • garand555 says:

          I’ve not used biochar, but it is my understanding that the most likely way that the pre European Amazonian civilizations probably made biochar by simply burning waste in pits and burying those pits. However they actually did it, I do know that they were unaware of germ theory back then, so it is more likely that the colonization occurred naturally. I also know that even to this day, Terra Preta is still the most fertile soil in the Amazon.

  9. Don Stewart says:

    Dear Gail and All
    Informative post by Ron Patterson on January Texas oil production. Also see one of the first comments for some ‘adjusted’ numbers to take into account the very slow reporting in Texas. Production is down:

    Also, a doomerish post by George Mobus. Sapience is missing from homo.

    Don Stewart

    • Tolstoy's Degenerate Grandson says:

      “To me the notion of the economy not growing would be a good thing if it were done on purpose, i.e. the world governments planned for and intentionally implemented non-growth oriented policies.”

      Monbiot seems to not understand the dire implications of stopping growth, intentionally or otherwise.

      • Don Stewart says:

        Do you mean Mobus doesn’t understand?

        You can read the Mobus and Kalton textbook for more on systems which are shrinking, stable, and growing. All are possible.

        Don Stewart

  10. edpell says:

    Yes, this will end badly but what will give first? Now we are wash in oil heading for $20 per barrel. All our oil tanks are full. Life is good.

  11. edpell says:

    10 to 20 years ago China agreed to “sterilize” 1 trillion dollars of their U.S. government bond holdings. They have kept their word. China holds 1.250 trillion dollars. That is the 1.0 trillion sterilized that will “never” be used and 250 billion used for day to day account settlements. That is the way it looks to me.

  12. Artleads says:


    Friday March 20th, 2015
    Page 10A, 12A
    (Photos): Signs Cropping Up In Energy And Farm Sectors That Point To Weakening Rural Economy In Colorado, Neighboring States; Index At Lowest Level In Five Years
    (Inset): Rural Mainstreet Index – Figures greater than 50 indicate economic expansion . . . (see hard-copy or website for figures in this chart)
    by Steve Raabe
    Colorado and neighboring states are showing signs of a weakening rural economy amid challenges in the energy and farm sectors. Creighton University’s Rural Mainstreet Index sank to its lowest level in 5 years. The index uses surveys of bank CEOs to measure rural economic prospects in Colorado and 9 other Western and Midwestern states. “The stronger U.S. dollar is undermining the farm and energy sectors by weakening agricultural exports, crop prices, livestock prices and energy prices,” said the report’s author, Ernie Goss, a regional economics professor at Omaha-based Creighton University. “Rural main-street businesses dependent on export, agriculture or energy are experiencing pullbacks in economic activity,” Goss said. The regional index dropped to 43.6, its lowest level since February 2010. An index number above 50 suggest economic growth. Scores below 50 point toward future declines. Colorado’s index number in March was 40.6, down from 47.2 in February. It marked the second consecutive month of a sub-50 ranking after 11 straight months of tallying above 50. “It’s not dire by any stretch of the imagination,” Goss said. “The low numbers have not really hit the economy just yet. They are just a shot across the bow. We would have to see several months of low numbers before having a big concern.” The Mainstreet index report illustrates a dichotomy between rural and urban economies. Colorado’s strong growth in employment is largely a reflection of Front Range economic activity, while the index report uses indicators such as farmland prices, farm equipment sales and banking activity in rural areas. The fundamentals of supply and demand are affecting Colorado’s economy in different ways. The past year’s downturn in energy prices have been caused primarily by surging domestic oil production. But lower crop and livestock prices are a function of increased supply from large harvests as well as weakened demand in export markets. Goss said that potential job losses in Colorado’s energy sector will be offset, in part, by increases in tourism generated by cheap gasoline. In a separate report issued Thursday, the Applied Information Management Institute reported that Colorado has the nation’s 8th-best job prospects as measured by the ratio of unique online job postings to the number of unemployed people. Occupations showing the highest growth rates were automobile sales and service, sales and unskilled entry-level positions. The largest declines were in customer service, insurance and transportation.

  13. B9K9 says:

    I love it when philosophy professors arrive to enlighten us with the repetitive conflict between object and subject, whether it is cast as ‘amoral relativism’ or ‘protestant ethic’. There is only you, and you only exist in your head; no chemical bath, no self-awareness, no “you”. To be truly, fully enlightened, we should look to the French:

    Après moi, le déluge means “after me, the flood,” and is used to refer to a person’s irresponsible or selfish lack of concern in what will happen after they have gone or moved on. Today it’s often associated with politicians and CEOs looking to secure their own interests at the expense of other people’s, but popular history claims the words were first used by the French king Louis XV, who repeatedly disregarded warnings of discontent among the French people in the lead up to the French Revolution. When the Revolution finally broke out in 1789 (fifteen years after Louis’s death), it eventually led to the execution of his grandson, King Louis XVI, in 1793.

    PS Hi Paul – are you really living off royalties? What happened to the farm in Bali?

  14. Don Stewart says:

    Dear Gail and All
    See this link announcing a new Peak Oil journal:

    The usual European suspects are involved.

    You might particularly note the comments. Shortonoil explains why he thinks his methods are better than those employed by Colin Campbell and others.

    shortonoil states once again that 84 percent of all the oil which will ever be produced has already been produced. Which leads to this exchange in the comments:

    ‘So short, how does it feel to be the tip of the tip of the spear of truth?’

    ‘Over the next five years we will see an avalanche of bankruptcies in the petroleum industry. Production will plunge!’

    Don Stewart

  15. Tolstoy's Degenerate Grandson says:

    100,000 Layoffs And Counting: Is This The New Normal?

    Bullish! As we know., all bad news is good news in the matrix. Why? Because it prods the central banks to ACT. The worse the news the bigger the reaction i.e. the more money they print.

    Time to front the stock markets and go long on this news.

    The secret to investing in the new normal is to work out which industries, or too big to fail companies are going to fail, and buy their stocks.

    Because the central banks will also be buying their stocks to ensure they don’t collapse and they will also be shoveling billions of dollars at 0 interest which the companies will use to buy back their own stock so that they don’t collapse.

    Welcome to insanity.

  16. Tolstoy's Degenerate Grandson says:

    The War on Russia Explained

    The best analysis I have seen yet:

    Bingo. Ukraine has nothing to do with sovereignty, democracy or (alleged) Russian aggression. That’s all propaganda. It’s about power. It’s about imperial expansion. It’s about spheres of influence.

    It’s about staving off irreversible economic decline. It’s all part of the smash-mouth, scorched earth, take-no-prisoners geopolitical world in which we live, not the fake Disneyworld created by the western media.

    The US State Department and CIA toppled the elected-government in Ukraine and ordered the new junta regime to launch a desperate war of annihilation against its own people in the East, because, well, because they felt they had no other option. Had Putin’s ambitious plan to create a free trade zone between Lisbon to Vladivostok gone forward, then where would that leave the United States?

    Out in the cold, that’s where.

    The US would become an isolated island of dwindling significance whose massive account deficits and ballooning national debt would pave the way for years of brutal restructuring, declining standards of living, runaway inflation and burgeoning social unrest.

    He starts off well but finishes very badly.

    He says the countries involved are doing what countries have doing for centuries, namely fighting it out like junk yard dogs over a juicy bone.

    Then goes on a tirade against the US for uh hum, fighting for it’s life against junk yard dogs that are trying to tear America’s throat out.

    The author’s left-wingism seems to have gotten the better of him.

    Assuming he is an American surely he should not be trying to muzzle his side’s dog rather he should be injecting it with steroids and speed to give it an advantage. He should be hiring Michael Vick and Lance Armstrong to ensure his dog ‘can be all that he can be’

    Perhaps he is too deluded to understand that if his dog refuses to fight he, as an American enjoying 25% of the world’s resources thanks to his very vicious and successful dog, will be the one eating dog food.

    • Glenn Stehle says:

      Tolstoy’s Degenerate Grandson says:

      “Perhaps he is too deluded to understand that if his dog refuses to fight he, as an American enjoying 25% of the world’s resources thanks to his very vicious and successful dog, will be the one eating dog food.”

      This is an iteration of the “amoral realism,” — or “realpolitik,” as it is also referred to –of folks like Henry Kissinger. As Duncan Bell notes, it is “a deeply conservative position that fetishizes the state and military power, and disdains progressive change in the international order.”

      But in addition to its moral failings, it also departs significantly from factual reality. Surely you must realize that the transnational elite which now rules over the globe has no nation, and that national interest is not its holy grail. Individual self-interest is. Liberalism (re-branded as neo-liberalism) now reigns supreme, having trumped over the naive groupism of both nationalism and Marxism.

      As Bell goes on to explain, there is an option to amoral realism, and that is moral realism. E.H. Carr, Hans Morgenthau, and Reinhold Niebuhr were amongst its leading lights, and from the 1930s up until the Vietnam War pretty much dominated US political thought. Then, beginning in the 1960s, they were displaced first by the amoral realists, who were in turn displaced by the neo-conservatives, this final transition becoming complete in 2000 with the election of George Bush.

      And despite his election promises in 2008, Barak Obama has followed the neocon straight and narrow faithfully.

      • Tolstoy's Degenerate Grandson says:

        The fact that there are no Russian or Chinese names on this list leads me to believe that the elites of the world are not one cohesive transnational group.

        And as we are seeing, it is a Russian/Sino alliance that is taking on the ‘new world order’

        And those that were formerly kissing the ring of the ultimate power (which would be the owners of the Fed — and if anyone doubts that the Fed controls the world just think about what having the power to print the world’s reserve currency — decide on interest rates — and who gets that money — puts into the hands of the owners of the Fed. They have more power than God – but then God has no power for obvious reasons)

        Are now lining up to kowtow to the new new world order that appears to have the upper hand.

        Bilderberg delegates in full

        • Chairman: Henri de Castries, Chairman and CEO, AXA Group
        • Paul M. Achleitner, Chairman of the Supervisory Board, Deutsche Bank AG
        • Josef Ackermann, Chairman of the Board, Zurich Insurance Group Ltd
        • Marcus Agius, Former Chairman, Barclays plc
        • Helen Alexander, Chairman, UBM plc
        • Roger C. Altman, Executive Chairman, Evercore Partners
        • Matti Apunen, Director, Finnish Business and Policy Forum EVA
        • Susan Athey, Professor of Economics, Stanford Graduate School of Business
        • Asli Aydintasbas, Columnist, Milliyet Newspaper
        • Ali Babacan, Turkish Deputy Prime Minister for Economic and Financial Affairs
        • Ed Balls, Shadow Chancellor of the Exchequer
        • Francisco Pinto Balsemão, Chairman and CEO, IMPRESA
        • Nicolas Barré, Managing Editor, Les Echos
        • José Manuel Barroso, President, European Commission
        • Nicolas Baverez, Partner, Gibson, Dunn & Crutcher LLP
        • Olivier de Bavinchove, Commander, Eurocorps
        • John Bell, Regius Professor of Medicine, University of Oxford
        • Franco Bernabè, Chairman and CEO, Telecom Italia S.p.A.
        • Jeff Bezos, Founder and CEO,
        • Carl Bildt, Swedish Minister for Foreign Affairs
        • Anders Borg, Swedish Minister for Finance
        • Jean François van Boxmeer, CEO, Heineken
        • Svein Richard Brandtzæg, President and CEO, Norsk Hydro ASA
        • Oscar Bronner, Publisher, Der Standard Medienwelt
        • Peter Carrington, Former Honorary Chairman, Bilderberg Meetings
        • Juan Luis Cebrián, Executive Chairman, Grupo PRISA
        • Edmund Clark, President and CEO, TD Bank Group
        • Kenneth Clarke, Cabinet Minister
        • Bjarne Corydon, Danish Minister of Finance
        • Sherard Cowper-Coles, Business Development Director, International, BAE Systems plc
        • Enrico Cucchiani, CEO, Intesa Sanpaolo SpA
        • Etienne Davignon, Belgian Minister of State; Former Chairman, Bilderberg Meetings
        • Ian Davis, Senior Partner Emeritus, McKinsey & Company
        • Robbert H. Dijkgraaf, Director and Leon Levy Professor, Institute for Advanced Study
        • Haluk Dinçer, President, Retail and Insurance Group, Sabanci Holding A.S.
        • Robert Dudley, Group Chief Executive, BP plc
        • Nicholas N. Eberstadt, Henry Wendt Chair in Political Economy, American Enterprise Institute
        • Espen Barth Eide, Norwegian Minister of Foreign Affairs
        • Börje Ekholm, President and CEO, Investor AB
        • Thomas Enders, CEO, EADS
        • J. Michael Evans, Vice Chairman, Goldman Sachs & Co.
        • Ulrik Federspiel, Executive Vice President, Haldor Topsøe A/S
        • Martin S.Feldstein, Professor of Economics, Harvard University; President Emeritus, NBER
        • François Fillon, Former French Prime Minister
        • Mark C. Fishman, President, Novartis Institutes for BioMedical Research
        • Douglas J. Flint, Group Chairman, HSBC Holdings plc
        • Paul Gallagher, Senior Counsel
        • Timothy F Geithner, Former Secretary of the Treasury
        • Michael Gfoeller, US Political Consultant
        • Donald E. Graham, Chairman and CEO, The Washington Post Company
        • Ulrich Grillo, CEO, Grillo-Werke AG
        • Lilli Gruber, Journalist – Anchorwoman, La 7 TV
        • Luis de Guindos, Spanish Minister of Economy and Competitiveness
        • Stuart Gulliver, Group Chief Executive, HSBC Holdings plc
        • Felix Gutzwiller, Member of the Swiss Council of States
        • Victor Halberstadt, Professor of Economics, Leiden University; Former Honorary Secretary General of Bilderberg Meetings
        • Olli Heinonen, Senior Fellow, Belfer Center for Science and International Affairs, Harvard Kennedy School of Government
        • Simon Henry, CFO, Royal Dutch Shell plc
        • Paul Hermelin, Chairman and CEO, Capgemini Group
        • Pablo Isla, Chairman and CEO, Inditex Group
        • Kenneth M. Jacobs, Chairman and CEO, Lazard
        • James A. Johnson, Chairman, Johnson Capital Partners
        • Thomas J. Jordan, Chairman of the Governing Board, Swiss National Bank
        • Vernon E. Jordan, Jr., Managing Director, Lazard Freres & Co. LLC
        • Robert D. Kaplan, Chief Geopolitical Analyst, Stratfor
        • Alex Karp, Founder and CEO, Palantir Technologies
        • John Kerr, Independent Member, House of Lords
        • Henry A. Kissinger, Chairman, Kissinger Associates, Inc.
        • Klaus Kleinfeld, Chairman and CEO, Alcoa
        • Klaas H.W. Knot, President, De Nederlandsche Bank
        • Mustafa V Koç,. Chairman, Koç Holding A.S.
        • Roland Koch, CEO, Bilfinger SE
        • Henry R. Kravis, Co-Chairman and Co-CEO, Kohlberg Kravis Roberts & Co.
        • Marie-Josée Kravis, Senior Fellow and Vice Chair, Hudson Institute
        • André Kudelski, Chairman and CEO, Kudelski Group
        • Ulysses Kyriacopoulos, Chairman, S&B Industrial Minerals S.A.
        • Christine Lagarde, Managing Director, International Monetary Fund
        • J. Kurt Lauk, Chairman of the Economic Council to the CDU, Berlin
        • Lawrence Lessig, Roy L. Furman Professor of Law and Leadership, Harvard Law School
        • Thomas Leysen, Chairman of the Board of Directors, KBC Group
        • Christian Lindner, Party Leader, Free Democratic Party (FDP NRW)
        • Stefan Löfven, Party Leader, Social Democratic Party (SAP)
        • Peter Löscher, President and CEO, Siemens AG
        • Peter Mandelson, Chairman, Global Counsel; Chairman, Lazard International
        • Jessica T. Mathews, President, Carnegie Endowment for International Peace
        • Frank McKenna, Chair, Brookfield Asset Management
        • John Micklethwait, Editor-in-Chief, The Economist
        • Thierry de Montbrial, President, French Institute for International Relations
        • Mario Monti, Former Italian Prime Minister
        • Craig J. Mundie, Senior Advisor to the CEO, Microsoft Corporation
        • Alberto Nagel, CEO, Mediobanca
        • H.R.H. Princess Beatrix of The Netherlands
        • Andrew Y.Ng, Co-Founder, Coursera
        • Jorma Ollila, Chairman, Royal Dutch Shell, plc
        • David Omand, Visiting Professor, King’s College London
        • George Osborne, Chancellor of the Exchequer
        • Emanuele Ottolenghi, Senior Fellow, Foundation for Defense of Democracies
        • Soli Özel, Senior Lecturer, Kadir Has University; Columnist, Habertürk Newspaper
        • Alexis Papahelas, Executive Editor, Kathimerini Newspaper
        • Safak Pavey, Turkish MP
        • Valérie Pécresse, French MP
        • Richard N. Perle, Resident Fellow, American Enterprise Institute
        • David H. Petraeus, General, U.S. Army (Retired)
        • Paulo Portas, Portugal Minister of State and Foreign Affairs
        • J. Robert S Prichard, Chair, Torys LLP
        • Viviane Reding, Vice President and Commissioner for Justice, Fundamental Rights and Citizenship, European Commission
        • Heather M. Reisman, CEO, Indigo Books & Music Inc.
        • Hélène Rey, Professor of Economics, London Business School
        • Simon Robertson, Partner, Robertson Robey Associates LLP; Deputy Chairman, HSBC Holdings
        • Gianfelice Rocca, Chairman,Techint Group
        • Jacek Rostowski, Minister of Finance and Deputy Prime Minister
        • Robert E. Rubin, Co-Chairman, Council on Foreign Relations; Former Secretary of the Treasury
        • Mark Rutte, Dutch Prime Minister
        • Andreas Schieder, Austrian State Secretary of Finance
        • Eric E. Schmidt, Executive Chairman, Google Inc.
        • Rudolf Scholten, Member of the Board of Executive Directors, Oesterreichische Kontrollbank AG
        • António José Seguro, Secretary General, Portuguese Socialist Party
        • Jean-Dominique Senard, CEO, Michelin Group
        • Kristin Skogen Lund, Director General, Confederation of Norwegian Enterprise
        • Anne-Marie Slaughter, Bert G. Kerstetter ’66 University Professor of Politics and International Affairs, Princeton University
        • Peter D. Sutherland, Chairman, Goldman Sachs International
        • Martin Taylor, Former Chairman, Syngenta AG
        • Tidjane Thiam, Group CEO, Prudential plc
        • Peter A. Thiel, President, Thiel Capital
        • Craig B. Thompson, President and CEO, Memorial Sloan-Kettering Cancer Center
        • Jakob Haldor Topsøe, Partner, AMBROX Capital A/S
        • Jutta Urpilainen, Finnish Minister of Finance
        • Daniel L. Vasella, Honorary Chairman, Novartis AG
        • Peter R. Voser, CEO, Royal Dutch Shell plc
        • Brad Wall, Premier of Saskatchewan Province, Canada
        • Jacob Wallenberg, Chairman, Investor AB
        • Kevin Warsh, Distinguished Visiting Fellow, The Hoover Institution, Stanford University
        • Galen G.Weston, Executive Chairman, Loblaw Companies Limited
        • Baroness Williams of Crosby, Member, House of Lords
        • Martin H. Wolf, Chief Economics Commentator, The Financial Times
        • James D. Wolfensohn, Chairman and CEO, Wolfensohn and Company
        • David Wright, Vice Chairman, Barclays plc
        • Robert B. Zoellick, Distinguished Visiting Fellow, Peterson Institute for International Economics

        • Rodster says:

          “And as we are seeing, it is a Russian/Sino alliance that is taking on the ‘new world order’”

          From what i’m seeing is that they are no different than the West. They are making it obviously clear that they want a greater seat at the table of the IMF. So the same corrupt cartel that bankrupted the West are now moving to the East to finish the job. It will just be BAU 2 when the shift takes place. That off course is unless someone from NATO or from the US over in Ukraine decides to go nuclear if Putin gives them a major butt whoopin if they keep escalating things over in his backyard.

          • Tolstoy's Degenerate Grandson says:

            Absolutely no different.

            Why would it be any different?

            The game is called “King of the Castle” The king sits high and mighty eating the finest food and drinking the best wines and enjoying the prettiest damsels. He surrounds himself with allies who are kept sweet with titles and lands of their own, who will fight for him when an usurper shows up.

            Of course if the usurper is able to offer more to the king’s allies, and appears to be stronger than the king, the allies will change sides in a heart beat.

            Are we not seeing that happening now as America’s allies look to be forsaking their ‘king’

            If the world doesn’t collapse before this plays out then expect the Chinese and Russians to square off at some point. No room for two kings. Just like there is no room for two alphas in the chimp pack.

            Or in other words:

            • Glenn Stehle says:

              Tolstoy’s Degenerate Grandson says:

              “The game is called ‘King of the Castle’ The king sits high and mighty eating the finest food and drinking the best wines and enjoying the prettiest damsels. He surrounds himself with allies who are kept sweet with titles and lands of their own, who will fight for him when an usurper shows up.

              Of course if the usurper is able to offer more to the king’s allies, and appears to be stronger than the king, the allies will change sides in a heart beat.

              Are we not seeing that happening now as America’s allies look to be forsaking their ‘king’”

              Your narrative sounds very barbaric.

              In fact, it sounds almost identical to how William Manchester describes early barbarian societies and polities.

              “Because the first medieval rulers had been barbarians, most of what followed derived from their customs,” Manchester writes in ‘A World LIt Only by Fire’. “Chieftains like Ermanaric, Alaric, Attila, and Clovis rose as successful battlefield leaders whose fighting skills promised still more triumphs to come…. Lesser tribesmen were grateful to him for the spoils of victory…. [T]he early kings had been chosen for merit, and early kings wore crowns only ad vitam autoculpam — for life or until removed for fault.”

              But your narrative also sounds incomplete. It reduces the human condition to a materialistic meritocracy. But, as Manchester goes on to explain, a barbarian chieftain’s “retinue always included pagan priests — sometimes he himself was one — and he was believed to be either favored by the gods or descended from them.”

              And it wasn’t long before the barbarian chieftains and their descendants morphed into kings and monarchs, who were enthroned by the church. Manchester, for instance, describes how Pepin the Short, Charlemagne’s father, “was crowned and solemnly armed with a royal scepter. The Holy Father exacted promised from him that he would defend the Church, the poor, the weak, and the defenseless; he then proclaimed him anointed of the Lord.”

              “Hereditary monarchy, like heredity nobility, was largely a medieval innovation,” Manchester continues. “The conspicuous sacerdotal role in the crowning of kings, who then claimed that they ruled by divine right, was characteristic of Christianity’s domination of medieval Europe.”

              In societies which have not degenerated into decadence and corruption, things like sacredness. honor, chivalry, duty, and loyalty play extremely important roles in motivating human behavior.

              As the moral psychologist Jonathan Haidt put it, “the world we live in is not really one made of rocks, trees, and physical objects; it is a world of insults, opportunities, status symbols, betrayals, saints, and sinners.”

            • Tolstoy's Degenerate Grandson says:

              Remind me of the period when humans were not ‘barbaric’

              We are hard wired to be ‘barbaric’ because life at all levels is a battle for survival.

              When food is finite and populations are always growing, violence is the guaranteed result.

              Throw a piece of meat to 10 starving wolves. Is their reaction barbaric?

              Nothing has changed in the thousands of years that humans have existed. We are absolutely no different than the primitive tribes who were killing each other over control of hunting territories. The only difference is that we have more powerful weapons.

              Just wait a little longer if you disagree.

              Watch what happens when 7 billion humans are left with almost nothing to eat because the industrial farming machine grinds to a halt.

              All wars and violent acts that came before will be put mere sparks compared to the raging inferno that is coming.

        • Glenn Stehle says:

          @ Tolstoy’s Degenerate Grandson says: “The fact that there are no Russian or Chinese names on this list leads me to believe that the elites of the world are not one cohesive transnational group. And as we are seeing, it is a Russian/Sino alliance that is taking on the ‘new world order’ ”

          “Us” vs. “Them” framing is very beguiling because it has just enough truth to it to be verisimilar, and because it punches certain hot buttons in the human psyche — buried just below the surface within the ancient reptilian part of our brains. “Us” vs. “Them” framing, to cite a very recent example of this, worked like a charm for Benjamin Netanyahu in the final days of his just-completed campaign in Israel.

          “Us” vs. “Them” framing is, of course, what political and economic entrepreneurs do. As Rogers Brubaker explains, groups are “constructed” by political, economic and cultural (e.g., religious) leaders, and are not “real, substantial things-in-the-world.”

          So in this vein, riddle me this: If it’s Eurasia vs. the rest of us as you claim, then how do you explain that China has loaned the US government trillions of dollars, and that it is the owner of a substantial chunk of the US government’s $18 trillion in T-bills? And weren’t the Chinese some of the biggest buyers of agency debt, until they got spooked in the wake of the 2008 GFC and offloaded it?

          And how do you explain that “Chinese corporations have taken on $1.5 trillion in foreign debt in the past year or so, where previously they had none”?

          As Anne Stevenson-Yang goes on to explain: “If defaults start to cascade through the economy, it will be more difficult for China to hide its debt problems now that foreign investors are involved. It’s here that a credit crisis could start.”

          • Rodster says:

            “As Anne Stevenson-Yang goes on to explain: “If defaults start to cascade through the economy, it will be more difficult for China to hide its debt problems now that foreign investors are involved. It’s here that a credit crisis could start.”

            I’m amazed they’ve hid their situation this long. Their GDP according to Asian economists were not in the double digit range when China was claiming that growth. China has been able to get away with it by just reinvesting into it’s own economy “ghost cities and factories”. The US like to use the term drill baby drill, well China should coin the phrase build baby build even if it stays empty.

            No one mentions the larger shadow banking problem China could be faced with. Their shadow banking system is bigger than the US. The Chinese basically Xeroxed the financial, banking and economic models from the West and are just tweaking it.

            It appears the next phase of the economic world order is heading East but the East has many problems. Brazil’s economy and it’s currency are in bad shape. India is reliant on cheap labor and a growing population who now find themselves competing with other cheaper labor. Russia is too reliant on it’s energy supplies and China is too reliant on it’s Walmart trinkets and building Apple devices. When all hell breaks loose I seriously doubt China will be able to hold it all together with a 1.2B+ population that will be madder than hell, which is why China needs a GDP growth rate of at least 10% to keep their natives from being restless.

            • glennstehle says:

              @ Rodster

              If you happened to have missed it, here’s a very interesting article on China:

              The Coming China Crisis

              The author, Richard Vague, gets a lot right in his analysis. He doesn’t, for instance, succumb to the defactualized nonsense we hear from both sides of the ideological divide in the United States. To wit:

              “Neither of the two dominant economic theories of our time forecast the coming storm. The doves—those more in favor of lower interest rates and government stimulus—were sanguine, unconcerned by rapid loan growth. The hawks—those more focused on curbing the money-supply expansion through higher interest rates—were sounding dire warnings of inflation. Both were wrong, but neither has since changed its theory.”

              However, missing from Vague’s analysis are the factors which Gail brings to the conversation: depleting natural resources and environmental degredation.

              Unmistakable is the correlation between 1) the rapid run-up of private debt in the world’s major economic powers and 2) the onset of high oil prices. Both began in the early 1970s.

              I suppose the million dollar question is this: “Is the run-up in private debt being caused by high oil prices, or is it just another run-of-the-mill crisis of capitalism?”

              Gail argues the former. If she is right, then the problems facing the world are far more intractable than Vauge forsees. His solution to the surfeit of private debt: “If too much capacity and too many bad loans are the problems, the solutions are time and capital: time for organic growth to absorb the excess capacity, and capital to repair banks and borrowers.” But if Gail is right, then the real “organic growth” Vague speaks of will be extremely difficult to achieve, unless people can find some way of being productive without consuming large quantities of fossil fuels. And what are the possiblities of this?

            • glennstehle says:

              @ Rodster

              Michael Hudson’s interview on the RealNews Network is also very good:

              Europe Tilts East Towards China

              Hudson: The World Bank, under U.S. congressional pressure, has said, look, we’re not going to finance countries becoming independent of the United States; our function is to make them export more to the United States and to buy from the United States. So the funding of the World Bank has mainly been to fund infrastructure developments, vastly overpriced, to Third World countries to create money for American engineering firms; also to lend out dollars and to indebt countries to it; and worst of all, to promote privatization. And that’s really the big difference between the Chinese Development Bank’s philosophy and the World Bank.

              The interviwer, however, challenges Hudson’s notion that China is, or would be, any better than the US:

              PERIES: Now, I have actually seen and witnessed what China’s impact has been in some of the Latin American countries where they have huge investments in infrastructure development projects, which often isn’t in the best interests of those countries. For example, China brings in a number of their labor, thousands of Chinese workers, to those sites to work, and they’re basically importing labor, not hiring the local labor for these projects. Now, that’s what I witnessed. How do we know that China is really going to be different, apart from the discussions they’re having with you? Is that reflected in any policy? Or are they trying to have these conversations in a more collaborative way with the southern countries?

          • Tolstoy's Degenerate Grandson says:

            Why have the Chinese loaned the US money?

            Oh I dunno. Perhaps because the Chinese know that when you loan someone money you control them.

            Or that eventually you turn the foundation they are built on into quicksand.

            In case you hadn’t noticed that by purchasing US debt the Chinese currency weakens which means Chinese products are cheaper which means the US manufacturing industries get destroyed.

            It’s a chess game. And as we can see, America has lost.

            Irrelevant though, because everyone is about to lose.

      • Tolstoy's Degenerate Grandson says:

        Further on this, of course Obama followed the same strategies because a) he takes his orders from the people with the real power and b) he is no fool and he understands how the world works: you are either the brute or you are the brutalized.

        In the book the author references a leading Chinese philosopher who reflects on the brutality of the British and states to the effect:

        I have no problem with what the British did. In fact I expected them to do what they did because we were weak and corrupt. If it were not the British it would have been some other country.

        We can wallow in self pity and moan and bitch about the cruel British but that would accomplish nothing. We would continue to be pounded into submission and remain a vassal state.

        What we need to do is to modernize and move to a position of strength both economically and militarily. Only then will we be able to assert ourselves when powerful countries attempt to overrun us.

        He is exactly right.

        There is no room for kindness or weakness on the world stage. The world is finite and every group is fighting to the death for a piece of the limited pie.

        You better be ready to bare knuckle fight, or get behind a tough guy (and kiss the ring) otherwise you will be left beaten in the gutter scrambling around for scraps.

        If you think about this it is not much different from how primitive tribes operate.

        If you want to be the alpha you need to kill the existing leader. Alternatively you get on side with him (but he gets all the hot chicks and the choice cuts of meat) and you go to war to defend your resource base, or to seize the resources of other tribes.

        • Glenn Stehle says:

          “You are either the brute or you are the brutalized.”?

          “There is no room for kindness or weakness on the world stage”?

          “The world is finite and every group is fighting to the death for a piece of the limited pie”?

          Well I must say, how very Machiavellian.

          And I suppose it goes without saying that this doctrine does run through Western Civilization like a thread: from Machiavelli to Thomas Hobbes, and then to Bernard Mandeville and Adam Smith (the liberals), to Herbert Spencer and William Graham Sumner (the social Darwinists), to the amoral realists like Henry Kissinger, and finally to the neoclassical economists, the neo-liberals and the neo-cons. As the Russian scientist Peter Turchin has observed, this doctrine climaxed in the the 20th century with what are now “the dominant theories in social and biological sciences: the rational choice in economics and the selfish gene in evolutionary biology.”

          But, as Turchin explains in great detail in “War and Peace and War,” the doctrine is, for the most part, fiction. Human behavior is far more complex than the two alternatives we’ve been presented: the naive group-ism of Marxism, Nazism and neo-conservatism, or the naive individualism of liberalism and neoliberalism. There is a moral universe out there which is completely absent from these supposedly competing, but in reality both fundamentally Machiavellian, theories. Man, it turns out, is a hyper-social animal who, now and in his ancient past, quite often found cooperation, both in his individual and group conduct, to be more conducive to human fitness than conflict. And, as Turchin goes on to explain, morality is the glue which makes cooperation possible.

          As Turchin goes on to explain, Machiavelli’s morality-free political philosophy ended up being a disaster for Florence. When the Spanish troops attacked Prato, which guarded the northern approaches to Florence, “after only a brief struggle the troops recruited by Machiavelli broke and ran away…. Machiavelli was dismissed from his post and banished. He withdrew to a small farm that his father left him, and there wrote the book that made him famous.”

          • Tolstoy's Degenerate Grandson says:

            “There is a moral universe out there which is completely absent from these supposedly competing, but in reality both fundamentally Machiavellian, theories.”

            Maybe in the exalted halls of the world’s ivory towers there is a moral universe. In the philosophy classes, or perhaps the theology classes.

            It does not apply to the real world. Never has. Never will.

            Try running a country using the moral universe theory. The jackals will be licking their lips as they prepare to fight amongst themselves to strip your bones.

            And let us not forget the most famous proponent of the moral universe. He met his end with nails through body and was left to rot on a cross.

            Most of us are coddled and have not the slightest clue that we are typing away here joyfully while having a cup of fine coffee and a light flaky croissant in our warm wonderful homes rather than stressing over how we will feed our kids another day is 100% on the backs of the losing countries that we pillage.

            Countries who would have at our throats without a second thought so that they could swap places with us.

            Ironically it is the pillaging (made possible by our reality based elites who understand you either pillage or be pillaged) that allows us to have our hallowed halls of higher learning where we foment these nonsensical ideas about a moral universe.

            And ironically we have nothing but vitriol for the men and women who make sure that we, the silly sheep who believe that the wolves across the pasture can be our friends, are kept safe from those wolves by any means necessary.

            You want to see the US empire go down quickly?

            Elect a philosophy professor who believes ina moral universe as president, give him or her real power, and you will soon have an intimate understanding of what it is like to live like this:


  17. Tolstoy's Degenerate Grandson says:

    Japan public pensions to follow GPIF into stocks from JGBs: sources

    TOKYO – Three Japanese public pension funds with a combined $250 billion in assets will follow the mammoth Government Pension Investment Fund and shift more of their investments out of government bonds and into stocks, two people involved in the decisions said.

    As the can clatters down the road another 20 metres

  18. John says:

    “Oil Glut” is interesting terminology and one used by the mass media with regular aplomb. It conjures up imagery of oil spraying out of vast oil fields like a giant oil sprinkler system. Of course that’s the imagery they want to convey but it’s not what it means at all. The amount of oil hasn’t changed at all. The only thing that has changed is how much people want and at what price.

    • “The amount of oil hasn’t changed at all. The only thing that has changed is how much people want and at what price.”

      The amount of oil in storage most certainly has changed. Soon, there will be nowhere to put it all. Maybe that will spur demand for new steel barrels, create a few jobs in Pittsburgh and West Virginia.

      • Daniel Hood says:

        Actually when you look at the size of US strategic reserves, when you hear huge XY x millions of barrels, you think wow, swimming in it!

        Then you calculate how many days useage it would last, (think it’s circa 1 months supply at current consumption rates) and back to reality whoop there goes gravity.

        Try it, calculate 18mb/d x 365 and check out US strategic reserve numbers.

    • Tolstoy's Degenerate Grandson says:


      We are to believe that over the space of a few months the amount of oil produced went off the charts?

      Same story with the Baltic Dry. The reason it is at record lows is because there are ‘too many ships’

      That has been exposed by one of the heads of shipping who indicated there was a demand problem

      Surely that would have been obvious given that commodity prices are collapsing.

      Oh, is that because there is suddenly a glut of copper, iron ore etc etc etc?

      Technically there is, but these gluts are primarily being caused by dying growth.

      Virtually every country in the world is slowing, in recession or in outright depression.

      Of course there is a glut of everything, and the biggest glut is in bullshit and lies from the MSM

      • MG says:

        The meaning of the”glut” is overproduction, oversupply, but, in my opinion, the better word for todays situation would be “clogging”, i.e. the costly oil can not flow freely into and through the economy. The economy slows down due to the costly oil and there is a need for cheap oil to remove the clogging. But with the removal of the clogging also the production of the costly oil will be removed…

        The cheap oil and the costly oil are two different commodities.

  19. Tolstoy's Degenerate Grandson says:

    Insane in the Membrane:

    The lies get more bald-faced by the day.

    cnBS and the rest of the world have been pumping the 200k+ job reports for months now.

    No. god. damn. way.

    Meanwhile Joe Six Pack is sitting at home wondering why he’s not got a pot to piss, or a job to go to, when the US is half a point off of full employment.

    And he’s contemplating picking up the 12 gauge and putting an end to the misery because he thinks there is something wrong with him (rather than having the smarts to work out that CNN is lying to him)

  20. dolph9 says:

    Absolutely, revel in the modern world, folks. This it, this is as good as it’s going to get.
    Eat good food, wear nice clothing and enjoy the benefits of dwellings that have heating, air conditioning, electricity, sewers. Turn the lights on, leave them on. Drive. Travel the world. Enjoy the company of family and friends. Work and spend your money on interesting things and hobbies. 90% of humans who have ever lived will never enjoy what you do today, and, arguably, 90% of humans to come won’t.
    Bathe yourselves in oil, and all of the products of industry.
    Absolutely, you get no argument from me there. I will not try to convince anyone to hoard cans of beans and gold coins, turn off the lights, and get a bicycle.
    But isn’t the point to keep one foot in, one foot out? Isn’t that what human beings have always done. Isn’t this the eternal debate between hedonism and responsibility, between the grasshopper and the ant. You have to do all of the above but also act as if it could all end soon, and when it does so, you are still going to want life, and a future for your children. Very few people are going to want to put a bullet in their head when that time comes.
    Not an easy thing to do, but that is the situation we face.

    • Tolstoy's Degenerate Grandson says:

      Some words of wisdom there dolph.

      I am dealing with this situation as if my doctor has sat me down and said “Mr Tolstoy, your years of degeneracy fueled by the royalties from your grandfathers books have taken their toll on your health. And you now have advanced cirrhosis of the liver. There is no cure. You are a dead man walking. We are unsure how long you will live but rest assured you will be fortunate to be around in 3 more years”

      I of course do not have a terminal illness. In fact I couldn’t feel better both physically and mentally. But I live each day as if the grim reaper were lurking in the shadows (which he is, for all of us).

      • InAlaska says:

        Yes, I think dolph sees the world with a clear eye. And in fact, we are all going to die whether it is in an apocalyptic collapse or through conventional old age or accident. So, knowing this, shouldn’t we all be living with one foot in the world of hedonism and one foot in the world of responsibility? If you have a clue, you plan for the worst and hope for the best. In the meantime, enjoy your life because any one of us can get taken out tomorrow by a bus while crossing the street. Take that vacation you always wanted to take, but save a few pennies too, because you never know.

        • Jan Steinman says:

          “In the meantime, enjoy your life”

          I have big, but vague, problems with the “live it up” argument.

          One can enjoy life without using it up. Anyone with children (and a conscience!) should not be following dolph’s hypothetical case.

          “Hedonism” is defined in my dictionary (in part) as, “sensual self-indulgence.” Is that all there is?

          Note the difference between “joy” and “pleasure.” I do enjoy my life. But part of that joy is striving to do as little as possible to negatively impact future generations.

          I’m inspired by Dan Gilbert’s work on happiness at MIT. (Search TED talks.) He talks about the “synthesis of happiness,” and has performed ingenious, scientific, double-blind experiments to show that “synthetic” happiness has no practical difference from “real” happiness. He notes that those with the most choice are generally the least happy.

          We’ve been brainwashed (oil-washed?) to think that “choice is good.” I spend considerable mental effort to purposely limit my choices, and I do believe I’m happier for it.

          So, what will that expensive vacation or that big car get you when you see the next generation starving? All that high-life will eventually ring hollow after a while. Hedonists tend to off themselves — if not with a gun or a noose, but more likely, with cirrhosis and diabetes.

          “Live simply, that others might simply live.” It can be a very happy, joyful existence.

          • Glenn Stehle says:

            This is an argument that’s been going on since at least the time of the ascetic saints of the late and post-Roman worlds.

            It gained new life in the 13th century with the various “primitivist” movements within the Catholic church, which culminated in the so-called Poverty Dispute. The Franciscans were the most prominent of these primitivists, but they also included the earlier Cathari, Waldensians, and Humiliati.

            It wouldn’t be until the 16th century, however, that it all came to a head, with the final product being the emergence of the now famous “protestant ethic.”

            No man can deny, Martin Luther excoriated the worldly, free-wheeling Pope Leo X, that the Roman Curia “is more corrupt than any Babylon or Sodom ever was.”

            But as C.R. Boxer has pointed out, there was always an irony as to “how the Dutch [who were some of the first to adopt the protestant ethic] managed to square the precepts of a religion which denounced this life as a mere nothing (dit leven is gants niet) with the practices involved in their possession of a world-wide commercial empire.” And furthermore, as Boxer goes on to explain, that commercial empire would quickly “transition from a merchant oligarchy to a rentier oligargy”

            “Cultivating the appearance of virtue,” the moral psychologist Jonathan Haidt has observed, “will make you successful, and therefore happy, regardless of your true character.” The Dutch, English and Americans (and now Germans in Europe) seem to have taken this lesson to heart, and played it to the hilt with their protestant ethic.

            If we fast-forward to the 21st century, what we find is that the ascetic saints of the late and post-Roman worlds are now highly fashionable in the universities, reports Bryan Ward-Perkins. “We have no wish to emulate the asceticism of a saint like Cuthbert of Lindisfarne, who spent solitary nights immersed in the North Sea praising God,” Ward-Perkins says. “But, viewed from a suitable distance, he is deeply attractive, in touch with both God and nature: after his vigils a pair of otters would come out of the sea to dry him with their fur and warm his feet with their breath.”

            “This is a much more beguiling vision of the past than mine,” Ward-Perkins concludes, “with its distribution maps of peasant settlements, and its discussion of good- and bad-quality pottery.”

            “Nowadays it is very difficult to persuade the average history student that it is worth spending even a few days researching an economic-history topic,” Ward-Perkins laments. “Most historians, and the reading public, seem to have withdrawn from economic history altogether.”

            • Jan Steinman says:

              Ah, the theologian/historian point-of-view!

              But I’m not suggesting we “denounce this life as a mere nothing.” And I have no evidence nor hopes for an afterlife.

              Rather, I do think the most important counter to the “live it up” argument is future generations.

              I don’t have any biological children. But I do hang out with a wide range of ages, as young as two, and I don’t wish to condemn them to the “business as usual” outcome, which looks pretty bleak.

            • Glenn Stehle says:

              @ Jan Steinman

              Your professed ethic, nevertheless, is an other-serving ethic, not a self-serving ethic.

              And your ethic is completely consistent with that of traditional religion. As the evolutionary biologist Sloan Wilson points out, “all of the major religious traditions….Hinduism, Buddhism, Judaism, Islam, and Christianity all portray worlds without trade-offs in which benefiting others results in a shower of material, psychological, and otherworldly benefits for oneself.” Other-interest is therefore a win-win proposition, with both I and you being ultimate winners.

              Diametrically opposed to this is the stealth secular religion of liberalism, which found its most extreme advocates in the likes of David Seabury and Ayn Rand. It is a self-serving ethic. In it, Sloan Wilson explains, “selfishness has been turned from a win-lose [I win, you lose] to a win-win [I win, you win] proposition. Selfishness is now a win-win proposition, with both I and you being ultimate winners, if only I am selfish enough. In both Seabury’s and Rand’s books, Sloan Wilson continues, certain words and phrases “were portrayed as bad for everyone: apparent unselfishness, coercive goodness, cruel virtue, denial, duty, pseudo-morality, pseudo-unselfishness, quasi-unselfishness, responsibility, sacrifice, self-denial, serfs of virtue, smirking self-sacrifice, tradition, unselfishness, virtuous conventionalists.”

          • Tolstoy's Degenerate Grandson says:

            I see the point but then I don’t see the point.

            Why bother to try to conserve the earth’s resources when last year nearly 100 million new humans were conjured out of nothing and now want iphones and televisions and cars, and meat at all meals.

            And by the end of this year there will be even more new consumers on the planet.

            I don’t know of a single person who is living a sustainable lifestyle. Some pillage more than others, but we are all pillaging.

            If living a simple life style growing food makes someone happy then fantastic.

            But if one is giving up comforts and other conveniences that our modern industrial economy has on offer, and the the person would like to enjoy but chooses not to, because one feels that he or she is doing his or her bit to save the world, well that is just plain pointless.

            Put it this way, I’d not be walking 5km in the middle of winter instead of driving my car because I think walking would with carbon emissions as well as saving the resources used to make the car.

            The reality is, there is no saving the world.

            As for leaving resources for future generations, that’s not an option because we have already picked all the low hanging fruit. Whatever is in the ground when collapse visits stays in the ground because nobody will have the tools to extract what’s left.

            Live like a hermit, or live like a rock start (on credit if necessary), it doesn’t matter a single bit.

            The hermit would likely mock the rock star, and he rock star would dismiss the hermit.

            It really does not matter. We are going to end up in the same place no matter what.

            • Jan Steinman says:

              “The reality is, there is no saving the world.”

              Who said anything about “saving the world?” I’m focused on saving one little bit of it. I think the best we can do is implement Richard Heinberg’s “Lifeboat Communities.”

              What you suggest seems rather defeatist. We can always work toward something that is sustainable in a restricted sense.

              I’m not interested in “saving the world.” It will have to save itself. But maybe, just maybe, there will be enough little groups of people working on saving their little part of the world, that there will be something left worth living in after the storm sweeps through.

            • Tolstoy's Degenerate Grandson says:

              Yes sure, but I still do not see any point in trying to conserve by not indulging in things that would make life easier/more enjoyable while BAU exists, provided one has the means to indulge in said things.

              That won’t make any difference to any of the Life Boat Communities.

              In fact some indulgences might soften the blow for these communities e.g. installing redundancies for irrigation including extra storage tanks, tools, etc…

              Or if you are Larry Ellison and you buy up an island and set up the Mother of All Life Boat operations, and spend your time flying about on your private jet, I see nothing wrong with that.

              We end up in the same place either way

            • Jan Steinman says:

              “We end up in the same place either way”

              Ah, but it’s the journey, not the destination, that counts, no?

              I’m amazed to even be having such a conversation with someone who chose to have “Tolstoy” in his pseudonym. You’re arguing against asceticism in favour of turpitude? Your grandfather is rolling in his grave.

            • Tolstoy's Degenerate Grandson says:

              Don’t forget, I am the degenerate grandson surviving on royalties from War and Peace.

              Everyone chooses their own path to follow. All that one can hope for is that the path chosen brings satisfaction.

            • kthatsaynii says:

              “Some pillage more than others, but we are all pillaging.”

              Yes! Yes! pillagers R us. A honest statement thank you!

              “The hermit would likely mock the rock star, and he rock star would dismiss the hermit. ”

              Both from a pedestal of pious righteousness. Myself I am a hermit rock star. 🙂

              “The reality is, there is no saving the world.”

              One might hope that the world (planet) needs not saving whether humans are here or not. It also remains to be seen if the better aspects of humanity can be salvaged or improved upon post collapse. Hope creates possibility. Certainly the structure we know as industrial civilization will not be saved in any aspect.

              “As for leaving resources for future generations, that’s not an option ”
              We can leave infrastructure. It depends on whether you think humans are worth leaving infrastructure for. Children have qualities I think are worth some effort. Adults are pretty much f***** up.

              “It really does not matter. We are going to end up in the same place no matter what.”

              I see the truth in this but there is another side. There are people, creatures and plants that need help. Individual contributions can change the fate of many many of these entities. My personal experience is without participating in active effort to cultivate the better qualities of humanity and helping all life forms life is empty and meaningless. Is helpigs possible when we are unable to separate pillaging from our very existence? All I know is when I genuinely help it gives meaning to my existence.

              Thank you for your writings, very refreshing.

            • garand555 says:

              “Yes sure, but I still do not see any point in trying to conserve by not indulging in things that would make life easier/more enjoyable while BAU exists, provided one has the means to indulge in said things. ”

              I’m not going to tell you not to enjoy the current energy infrastructure, as I am enjoying it right now by typing words on this keyboard that is hooked into a computer, but there is a point to trying to conserve. Perhaps conserve is the wrong word, but rather learning. You should learn how to do things without a lot of modern conveniences. I know that if everything went dark, I would miss the internet for about a day, then off and on for short bouts for a week or two. When the internet is here, it is addictive. When it is inaccessible, it is amazing how quickly one gets used to not having it. Or at least it’s amazing how quickly I do. Maybe I’m a weirdo in that regard.

              The question that you should ask, is do you have the knowledge to get buy with a largely diminished supply of energy? Could you grow your own food? Could you butcher an animal and preserve it with expensive or no refrigeration? What would you use for a knife if all of your current knives were stolen, worn out or otherwise unusable? All of those questions, along with many, many more go hand in hand with conservation because they’re asking about the extreme end of low energy lifestyles that we may very well be pushed into.

              So, yes, enjoy the day, but in the end, do a few things here and there that are hard work, are inconvenient in our oil world, and ultimately, are satisfying.

            • Tolstoy's Degenerate Grandson says:

              Sounds romantic. Like Swiss Family Robinson. Or Little House on the Prairie.

              It will be more like The Road.

            • gerryhiles says:

              You put it well, how could I not agree.

              In about 300 years our species has wasted billions of years of stored solar energy, in the form of forests, coal, oil and ocean resources.

              There is no turning back to anything

  21. Don Stewart says:

    Dear Gail and All
    David Stockman mentions the problem of overcapacity. He discusses it particularly with respect to steel and oil.

    I had not thought of this connection. If someone mentioned it, I apologize for for the oversight.

    The Central Banks have driven interest rates to zero and fostered easy money, which has held demand higher than it would otherwise have been. As a result, several industries have expanded their productive capacity, or at least have not let capacity decline. As the Chinese boom slows down or reverses, the demand for steel and many commodities falls. As the value of the commodities falls, the value of the physical plant needed for production falls and the financial value of the companies and their debt instruments will fall. We have deflation, as in the Great Depression.

    It is worth remembering that oil hit 17 cents a barrel in the Great Depression (if I remember correctly). Stockman observes that companies will be desperate for cash flow, and the preservation of book values or current financial values will not be an important consideration.

    This sounds to me very much like the scenarios for oil laid out by the Hills Group….falling prices.

    If the Hills Group is correct that the value to society of a barrel of oil is now lower than the cost of producing a barrel of oil, then it will be impossible for monetary policy to restart growth….at least I think so. Therefore, our situation is much worse than the Depression.

    However, oil may continue to be produced as companies desperately seek cash flow…as seems to be happening right now in the Tight Oil segment. But new drilling would evaporate. It is doubtful that Arctic oil would ever be developed. The value of oil companies would plummet. Leases would no longer provide windfalls to landowners. Tax receipts would decline.

    Don Stewart

    • Tolstoy's Degenerate Grandson says:

      Perhaps we can do as we did in the Depression and dispose of the commodity glut by tossing everything into the city dumps. Deflation problem solved (sarc)

  22. edpell says:

    In 1894 John Astor published A Journey in Other Worlds. In it he complains about the Rockefeller commitment to oil because it will run out! Folks the obvious has been the obvious for well over 100 years.

    • xabier says:

      It’s been appreciated for thousands of years:

      The Ancient Persian tale of Yima the Great and Good Shepherd.

      Offered the task of fulfilling the will of the God’s (or God, take your pick) on earth, he declines, and instead opts to use some divine power to make the earth more fruitful, and help humans to prosper and multiply. People will lead ever-longer lives, and be well-fed,a and live in peace.

      So successful is he that the Gods eventually warn him that the Earth cannot support Man and all his domesticated animals any longer. (NB no hint of a punishment for ‘sin’ in this, although Yima did decline the higher, divine, task).

      He does a little trick with some divinely-donated tools, and, Hey presto! the surface of the Earth multiplies and progress continues as before , until limits are once more reached.

      Again the trick is performed, with similar excellent results.

      But for the last time:

      Yima is called to a conference with the Gods, and they tell him that no further expansion is possible, that ‘Winter Is Coming’, a terrible, cruel, killing winter followed by devastating floods when the snows melt, and that a refuge must be built against the disaster, enabling a fraction of mankind and livestock and wild animals to survive.

      It is built underground, sealed, lit by the Divine Light. Great loss of life occurs, but life does continue after the terrible season has passed.

      There is no date to this tale. but it is certainly very ancient.

      • edpell says:

        Xabier, I enjoyed the story. It seems people long ago were more willing to talk about the obvious.

        • xabier says:



          Maybe someone who realised that flints were running short devised the tale?

          It’s all there: finite world under the apparent dominion of Man; constant extension of productivity through technology; unrestricted reproduction and ‘growth’; well-intentioned development (not greed as such); ultimate failure of that model and……. bottleneck!

          That’s calling a spade a spade alright: we didn’t need economic science, just old tales to give us a clear view.

      • Jan Steinman says:

        “Great loss of life occurs, but life does continue after the terrible season has passed. There is no date to this tale. but it is certainly very ancient.”

        I recall reading in Scientific American of a prehistoric “bottleneck event” that reduced the hominids of the day to under a thousand breeding pairs.

        Perhaps that event is not so “prehistoric.”

      • InAlaska says:

        Hmm…”winter is coming”? are you sure you’re not confusing this story with The Game of Thrones?

        • xabier says:

          In Alaska.

          I couldn’t resist the allusive quote, but is almost a literal translation of the myth in any case!

  23. dolph says:

    B9K9 is right to the extent that we are debating the intricacies of what is essentially a terminal system. Therefore, all of these debates about what money is and isn’t are fairly useless, because the monetary system itself is terminal and will be replaced by something else.

    Having said that, the deflation/hyperinflation debate is an interesting one, and does actually impact what you do in actual life, but timing is still important. You can make a general statement like “first the world deflates against the dollar, then the dollar hyperinflates” but if that statement is not backed up by any prediction as to the timing, again, it is pretty useless. Whether this happens 1 year or 10 years or 50 years from now is of huge importance.

    This is the same problem I have with the gold people, even though I am one myself. If you carefully hide and protect your gold, but in actual purchasing power terms it continually declines, you have gained nothing. And neither have your children, either, because you could just have easily done any number of things to benefit their future or leave an inheritance. The gold debate is only interesting if the revaluation occurs, and if gold is suddenly valuable. I can honestly say that I don’t care at all what gold does in 100 years. This is not short-termism, this is dealing with actual, real, on the ground life. You have to deal with life you actually have at the present time, with the circumstances you are in right now. I know, you are thinking, this is what got us into this mess, and I am not thinking sustainably, I am not thinking of future generations.

    But are any of us? Nothing, I repeat nothing is sustainable. There is not a single activity that human beings do that is sustainable. Never has been, never will be. And our modern world is anything but sustainable, and good luck to anybody who tries to change that. All systems rise and fall in time.

    On the other end, none of these debates are going to matter. All that matters is who gets what resources, and how. Typically, war is how this is all sorted out.

    • Tolstoy's Degenerate Grandson says:

      “you could just have easily done any number of things to benefit their future or leave an inheritance.”

      You think that there will be something to inherit?

      I’d suggest that you instead cash the gold in and spend the loot on wine women and song, then waste the rest

      • B9K9 says:

        I believe that’s his point; but, even more poignant, it’s what “leadership” is actually doing ie living it up. There are some, like Kunstler, who profess that it’s all confusion and stupidity. However, the smart money realizes oil was always a temporary salve. Hell, there were articles written in the 1910s worrying about the effects of the diminished supply.

        Just because we got a 100 year reprieve – in the form of ME discoveries (which precipitated GBs entry in WW1 to protect the Iraq/Iran fields) – doesn’t mean the problem went away. Rather, global population essentially tripled from around 2b to 7b, greatly exacerbating the situation.

        When you have a clear picture of what has always been the underlying reality of industrial civ, and what is currently occurring, then the various moves national governments are making to deal with the coming shakeout make perfect sense.

        The executioners are getting ready; party now or forever regret your mistake.

  24. B9K9 says:

    People must be really bored to continue debating ‘economic’ issues with a purposeful troll.

    ZH started 6 years ago in the spring of 2009. I was one of the first commenters, and typically responded to posts bemoaning Fed policy with the following observation:

    Humanity would need the miracle discovery of at least two more Ghawar oil fields to generate any more ‘real’ economic growth. Therefore, since that would not be forthcoming, Ben had only one option remaining, and that was to utilize the reserve status to fake a recovery.

    For those who live in the real world, have traveled, and have a modicum of historical knowledge, we know how this turns out. Badly. There isn’t any substitution, there isn’t any transition, and there isn’t any glide-path. There is only solution, and it’s same solution that’s been employed since two groups of proto-humans eyed each other across a pond: someone has got to be eliminated.

    As for this ridiculous notion that economics will play any part in continuing production, it seems as if only Creedon understands reality. Oil will continue to be pumped & transported even if it requires every man, woman and child to handle some kind of manually operated device.

    It really does appear that folks don’t understand the significance of the imperative for “continuity of government” and legal basis of the war declaration “by any means necessary”. What it means, is the ability of the state to (legally) summarily execute those who don’t go along with the program.

    And that’s just for starters. Knowing this, you’d be smart enough to refrain from debating angels on a pinhead and get out there and live it up.

    • Brunswickian says:

      “As for this ridiculous notion that economics will play any part in continuing production, it seems as if only Creedon understands reality. Oil will continue to be pumped & transported even if it requires every man, woman and child to handle some kind of manually operated device.”

      u have unconsciously edited out…….. reality see Gail Tverberg!

    • Tolstoy's Degenerate Grandson says:

      “Oil will continue to be pumped & transported even if it requires every man, woman and child to handle some kind of manually operated device.”

      You can’t pump oil with a manually operated device. You need very sophisticated computers and machinery that are made using other sophisticated computers and machinery.

      You can’t operate super tankers, or pipelines or the many thousands of other parts of the infrastructure required to transport oil to where there is none.

      And the biggest problem you have would be refining oil, a very complex process.

      This is an all or nothing situation.

      The economy that supports oil exploration, extraction, transportation and refining of oil must be fully functional otherwise all oil will remain in the ground forever.

      • InAlaska says:

        B9 is correct. We were pumping and processing crude oil in the 1870s. No computers, no supertankers, no complex cracking towers. Its need only be complex and computerized if you want it to be efficient. If you don’t care about efficiency, you can pump it by hand and move it by ox cart if you need to.

        • Tolstoy's Degenerate Grandson says:

          Unfortunately that type of oil, otherwise known as the low hanging fruit, is long gone.

      • glennstehle says:

        As a petroleum engineer, I cannot help but be gobsmacked at how little understanding most people have of what goes into producing a barrel of oil, or, as far as that is concerned, almost any product in our present-day world capitalist system. Adding insult to injury, it seems the most collossally ignornat have no compunctions about portraying their vision of truth as self-evident and beyond dispute.

        The engines on that drilling rig you pictured below may come from England, the drill bit from the United States, the drill pipe and collars from China, and the sophisticated electronic gear that makes it all work from Saudi Arabia and Brazil.

        Too many people, it appears, have OD’ed on the Beverly Hillbillies:

        • edpell says:

          Hold on there Jethro. Let go out to the cement pool and set a spell. Even Granny and Elli May knows how to drill oil.

    • garand555 says:

      At some point, oil extraction will require a large enough chunk of our economic input as to crowd out other sectors. That will break things. If you have a choice between feeding your population and extracting oil, you would be a fool to put every man, woman and child to work extracting oil.

      • “If you have a choice between feeding your population and extracting oil, you would be a fool to put every man, woman and child to work extracting oil.”

        Unless you depend on oil and natural gas to produce, store and distribute that food … with the current system, we only need ~1% of the population to produce all of the food. We’ll see how quickly that changes. The California drought could be the test run, we’ll see what happens over the next three or so years.

        • garand555 says:

          I think that we’re going to have a bond crisis before three years passes. The energy sector was issuing junk bonds when oil was $100/bbl, which not only casts a lot of doubt on some of the alleged break even prices, but also tells you that at sub-$50/bbl, we’ve got problems.

          And yes, a small percentage does produce all of our food, and yes, that is made possible by oil. The more of our economic input that goes into oil, the more expensive everything that depends on oil will become. At some point, long before every man, woman and child is forced to produce oil, the goods and services that it allows will be beyond what people can afford. There won’t be any markets for all of the goodies that oil makes possible. The system will break.

      • Tolstoy's Degenerate Grandson says:

        I believe this is an oil extraction operation. Post collapse, if I ordered you and your family at gun point to extract the oil from that rig, refine it and deliver it to me in usable form in let’s say London.

        Does anyone think that could be done?×1200.jpg

  25. Max says:

    Fascinating post Gail, as always. However, one question has been nagging me for months now about the hypothesis that sees a potential collapse as early as 2016. It’s only a timing issue that’s bugging me, not unfortunately the destination.

    If an oil company or state owned oil producer has to spend $100 to get a barrel of oil to market which they can only sell for $60, eventually they go ‘bust’: it takes a little while but the ability to borrow will dry up, there are no assets left to sell or ‘fat’ to cut and production ceases. Understood.

    But that scenario replicated across, say, the 200 largest global oil producers essentially leads to the collapse of our industrial civilisation. So why wouldn’t central banks print and directly gift enough currency to prop up the key energy producers (or basically those who are collectively supplying say 90% of current production)? In the above example directly crediting the company – secretly or not – with $40 per barrel sold to keep the company going. That ends badly eventually of course, but probably not next year. And in the meantime, oil producers at least service the interest on debt so it doesn’t lead to a bank run. If we leave aside war etc, it would probably end either when physical supply just can’t be extracted in sufficient amounts any more (20 years if you include fracking++?) or when the currency concerned hyperinflates. The latter might hit first, but given the trillions being conjured up since 2008, I suspect the cost in ‘new dollars’ to balance the books of enough of the oil producing entities would be a small fraction of current global money printing. With sufficient spin etc I could see that largely being ignored by the markets, or even seen as positive (!). Goodness knows if we can magic up a few hundred billion for Greece (which they will) what price keeping the global food chain going?

    So my question is, why wouldn’t governments and central banks faced with cascading defaults among key systemic oil and gas producers do this, rather than watch everything collapse? We must assume at some point when it gets really in your face that they will. Therefore why doesn’t this postpone for a decade or more the type of vertical decline in production that Gail is saying might happen as soon as next year? I’m not saying we are not in a tight spot folks. Just questioning why, if prices do stay low, either this type of triage won’t happen or, if it does, why it won’t work to keep us going for some years yet?

    • Brunswickian says:

      CONfidence, there will be no warning queue. Do u understand the concept of finite?

    • edpell says:

      Targeted QE. I think you have a winner. I expect they will do exactly as you suggest. Cars, roads, farms, oil, refineries. They will say it is just temporary. But of course it can never end until physical reality forces it to end.

      • MG says:

        Dear edpell,

        this individual subsidizing of cars, roads, farms, oil production is already happening. The bankruptcy of the whole sectors of our fossil fuel based economy will be the next step after the fall of the individual companies.

    • Tolstoy's Degenerate Grandson says:

      Max – haven’t they already done that?

      The shale oil industry would not exist without QE and ZIRP.

      The government is directly subsidizing these plays.

      I suppose they could take this a step further and step in to directly purchase shares as shale companies founder. Or better still, lend money to these companies so that they could buy back their own shares.

      There is precedent for this:

      In case it is unclear just what the chart above shows, here is DB’s explanation: “buyback announcements have surged with February ($98bn) posting the largest monthly tally on record. The pace of actual buybacks tends to closely follow that of announcements.”

      If central banks are puffing up any company that needs puffing (need to kill off anyone who dares short the market!) then if push came to shove surely they would protect the shale industry as they cannot stand by and watch it collapse given it is the only thing between us and the end of the world.

    • Jan Steinman says:

      “So why wouldn’t central banks print and directly gift enough currency to prop up the key energy producers”

      I thought that’s what QE was all about, albeit thinly disguised?

      • garand555 says:

        I don’t think that central bankers are that smart. They printed to prop up the financial sector, and a side effect was propping up expensive oil.

        • edpell says:

          I agree 100%. They are a one trick pony. Keep the banks alive.

        • Tolstoy's Degenerate Grandson says:

          I am with Jan.

          We needed high oil prices and we needed fracking or we would have collapsed. QE and ZIRP made that possible.

          I have no doubt that the think tanks recommended this strategy to the central bankers.

        • glennstehle says:

          On this one, I’m going to have to throw my hat in the ring with grand555. When it comes to central bankers, color me skeptical, if not downright cynical.

          With these guys (and now gals), it’s 100% the financial economy, 100% of the time. They could give a rat’s rear end about the real economy.

          As grand555 said, “They printed to prop up the financial sector, and a side effect was propping up expensive oil.”

          There was a time, back in the hey days of the Connally Hot Oil Act and the Texas Railroad Commission, when oil was viewed as a strategic asset. But those days are long gone. Market fundamentalism now trumps everything.

    • garand555 says:

      At some point, that currency has to trickle down to us common folk. Production is useless if there is no market for what is produced. When those printed dollars start making it down to us, you know that people are going to loose faith in the currency. Currently, those dollars are locked up at the fed collecting interest or going towards asset price (stocks and luxury items that most people don’t buy) inflation. That’s one of the reasons that the Fed’s actions haven’t resulted in hyperinflation. They printed, and the currency that they just printed just sat there.

  26. Brunswickian says:

    If WW1 was fought to knock down a burgeoning economic powerhouse and WW2 was fought to finish the job, then it would be reasonable to assume that WW3 would be fought for economic survival.

    Then, all bets are off.

    I thought it deserved a repeat.

  27. Robotku3 says:

    Agree that a lot of things (including oil) will fall in real value post peak, but not as fast as electronic ledger entries issued by a bankrupt debtor, or inky promises scrawled on cotton pulp.

    • MG says:

      The falling value of the houses, cars and machines bought using mortgage or leasing was one of the big problems after 2008 crash. The huge amounts of money was injected into the system to stop the falling prices. In fact, it is no more about the economic growth but about the desparate attempts to keep the bubbles from popping or deflating.

  28. MG says:


    it is about the deflation of price of everything. Without the energy, the things lose value. Its the energy that gives the things their value. You can have US dollars and buy a lot of things with the given currency, but if these things have little value in reale life, you are buing rubbish. E.g. a light wooden waggon has a higher value than a haeavy hi-tech tractor, when you have no oil for this tractor to power it.

    • Jan Steinman says:

      “it is about the deflation of price of everything. Without the energy, the things lose value.”

      Everything? What about essentials?

      I keep going back to Maslow’s Hierarchy. At it’s base are air, water, food, shelter.

      Seven billion can give up smart phones. Seven billion can give up television. Seven billion can give up motorized transport. But we all eat for a living.

      It seems to my feeble mind that food cannot deflate until attrition kicks in.

      It may be that we can give up restaurants, out-of-season fruit shipped from the opposite hemisphere, and frozen pizza. But can basic staples, such as flour, sugar, eggs, etc. really deflate while there are seven billion eaters?

      I continuously struggle with the inflation/deflation arguments, but surely, demand for some things is more “inelastic” than others, no?

      • MG says:

        Dear Jan Steinman,

        the problem is that when our civilization loses energy, there will be no big farms to provide food. All the food will be self-grown. Nobody will sell you food that will be grown under the harsh conditions of the low fertility soil, no tractors, combines etc. There will be very little surpluses. That is why it will be like in during the Medieval Ages – you give me some chickens and I give you a pig.

        When the food requires a lot of energy to grow, it can not be bought with money. It is the same way as somebody has billions of USD on his or her accounts, but can not buy everything he or she wants.

        Would you sell me food, if money has almost no value and you had to spend extra energy to grow food for selling? Definitely no. You would have no motivation to grow more food than it is necessary for your own consumption…

        The food itself replaces money as the carrier of the energy.

        • Jan Steinman says:

          “The food itself replaces money as the carrier of the energy.”

          That’s all I wanted to hear. 🙂

          And I think it makes my point: food will not deflate; what it will take to obtain it will remain dear, although it may not be little bits of coloured paper. It might be that 2,400 calories will be worth a full day’s labour, which will mean that food will have inflated considerably, relative to other things of value.

        • garand555 says:

          “You would have no motivation to grow more food than it is necessary for your own consumption…”

          Yes, you would. There are a few reasons for this. One is that you would always want to assume that next year is going to be bad, so you had better have enough food to last through next year. The other is that if food is to replace currency, you would gain influence. There was trade before fossil fuels, and if there are humans, there will be trade after fossil fuels. If three people can grow enough to feed 30 people, they will be wealthy relative to anybody who can just barely grow enough to survive.

          • MG says:

            Dear garand555,

            if others do not have money to pay for food or can not provide some useful and affordable services in exchange, then 90% of the population must be farmers. As it was before in the poorest regions.

            • Jan Steinman says:

              “90% of the population must be farmers”

              The small organic farm greatly discomforts the corporate/industrial mind because the small organic farm is one of the most relentlessly subversive forces on the planet. Over centuries both the communist and the capitalist systems have tried to destroy small farms because small farmers are a threat to the consolidation of absolute power. Thomas Jefferson said he didn’t think we could have democracy unless at least 20% of the population was self-supporting on small farms so they were independent enough to be able to tell an oppressive government to stuff it. It is very difficult to control people who can create products without purchasing inputs from the system, who can market their products directly thus avoiding the involvement of mercenary middlemen, who can butcher animals and preserve foods without reliance on industrial conglomerates, and who can’t be bullied because they can feed their own faces. — Eliot Coleman

              I agree. We won’t be a free people until 80% are farming small freeholds.

            • Glenn Stehle says:

              @ Jan Steinman said: “We won’t be a free people until 80% are farming small freeholds.”

              Well that’s all very Jeffersonian, Thoreauian and Whitmanish, but it leaves a rather large question unanswered. And that is: “What do we do with the vast majority of humankind which now lives in urban areas?”

            • Jan Steinman says:

              “What do we do with the vast majority of humankind which now lives in urban areas?”

              “We” don’t do anything, except take care of ourselves, our loved ones, and our local community, as best we are able, hopefully being an example so that others can see the light.

            • Glenn Stehle says:

              Well all that Brahma stuff about how “the imperial self,” confident in its individualism, tells others to shuttle off communal ties and enjoy a self-made universe in all its purity, is very romantic. In fact, it is the quintessence of German romanticism, which had many American converts.

              But, as Hannah Arendt warned,

              “On a more sophisticated level, we may consider this disappearance of the ‘taste for political freedom’ as the withdrawal of the individual into an ‘inward domain of consciousness’ where it finds the only ‘appropriate region of human liberty’; from this region, as though from a crumbling fortress, the individual, having got the better of the citizen, will then defend himself against a society which in its turn gets ‘the better of individuality’.”

              “This process,” Arendt concludes, “determined the physiognomy of the nineteenth century as it partly does even that of the twentieth century.”

            • Artleads says:

              People can grow food in the cities.

            • “People can grow food in the cities.”

              First, I want to say that every little bit helps, and more gardening is definitely a good thing. Using space that would otherwise be just hedges and lawns is a great idea.

              However, we need to be realistic here. Even from the permaculture people themselves, they’re looking at 4 acres per person to produce enough food for a year. I see some people claiming 2 acres per person if you include a mix of animals, aquaponics, etc.

              A 1/8 acre city lot with a house, driveway and garage on it is not going to be able to feed a family of four. Doing things sustainably, so that you do not need to add synthetic fertilizer every year, means you need more land so you can have trees, herd animals, etc.

              A whole family could probably feed themselves with a 40′ cargo container using hydroponics, with abundant electricity and fertilizer, but that is probably not going to be in the cards.

              On top of that, you’re going to potentially have mass displacement of people; we’ll see what happens when California runs out of water, whether 20 million people are suddenly going to migrate somewhere, or whether the federal government puts in a giant aqueduct to try to maintain order.

            • gerryhiles says:

              “People can grow food in the cities.”

              Are you serous!? Have you ever lived in a city where millions of people live on tiny blocks of land, at best, or in apartments which maybe can accommodate a window box growing a few herbs.

              You have no idea about how much space is required for growing sufficient food for one family, nor any real idea of gardening/horticulture, etc..

              Sorry but your ignorance is mind-blowing on so many levels.

              OK about forty years ago I had vaguely similar ideas to yours, when living on a 1/4 acre block in a suburb of Perth, Western Australia, but the soil was deficient, water was scarce and when I did manage to grow crops , e.g. tomatoes and apricots, they peaked at the same time as everyone else doing the same thing.

              Please tell us al about how you have grown food in cities, not what you have read somewhere.

              Tell us how YOU grow all of your own food in a city, or suburb, or even a country town.

            • Tolstoy's Degenerate Grandson says:

              This ranks up there with ‘forcing people to keep keep oil production going with gang labour’

              How many people in New York? And they are going to feed themselves by growing food in the parks? Where does the water come from when the pumps go down. What happens in the winter?

            • Artleads says:

              People think it takes way more to grow food than it has to, giving considerable training, interest and skill. John Jeavons helped me enormously with an urban ag program my non profit instigated in a low-income community. He explained that food could be grown for a family in a 100 square ft. (Hope I’m not misquoting him, ridiculous sounding as this is.) It requires “double digging” and *everything* returned to the soil, including the remains of those who take from the land.

              I believe Jeavons, and saw great things done. But I was much more interested in community planning. It’s not that I ever stopped trying to grow food, but my quest is to do it with next to no human effort. Stubborn me. Anyway, here’s information on Jeavons and his biointensive methods.


              “Ecology Action’s research (Jeavons, J.C., 2001. Biointensive Mini-Farming Journal of Sustainable Agriculture (Vol. 19 (2), 2001, p. 81‐83) shows that bioinby tensive methods can enable small‐scale farms and farmers to significantly increase food production and income, utilize predominantly local, renewable resources and decrease expense and energy inputs while building fertile topsoil at a rate 60 times faster than in nature (Worldwide Loss of Soil – and a Possible Solution Ecology Action, 1996).

              According to Jeavons and other proponents, when properly implemented, farmers using biointensive techniques have the potential to:
              ##Use 67% to 88% less water than conventional agricultural methods.
              ##Use 50% to 100% less purchased (organic, locally available) fertilizer.
              ##Use up to 99% less energy than commercial agriculture, while using a fraction of the resources.
              ##Produce 2 to 6 times more food at intermediate yields, assuming a reasonable level of farmer skill and soil fertility (which increase over time as the method is practiced)
              ##Produce a 100% increase in soil fertility.
              ##Reduce by 50% or more the amount of land required to grow a comparable amount of food. This allows more land to remain in a wild state, preserving ecosystem services and promoting genetic diversity.[2]”

          • Artleads says:

            I don’t believe that it’s the responsibility of a centralized global power (let’s remember the rest of the world) to tell everybody how to grow their food. Or that government only means central government. Living arrangements within urban industrial society is based on centralized food production through fossil fuels and coming from far and wide. But government can happen on a small scale–a city, a neighborhood, a block. A lot of food can be grown and equitably distributed where people can’t individually grow their own. And even central government, if done sensibly, can help foster local food production and distribution. It won’t be done in America under the current economic and political system, and if one believes those can never be changed or modified, one will of course be stuck in the mud forever.

  29. Robotku3 says:

    This is not about timing.

    All of us here agree that the current financial system is unsustainable.

    All of us therefore agree that the current system must end (likely very badly).

    All of us agree that exponentially expanding debt cannot be repaid in real terms in a contracting post peak economy. These instruments and the underlying currency only have value in an exponentially expanding economy. However, it is easy (and relatively painless) for such debt to be honoured in nominal terms. All this requires is for the currency to be trashed.

    The timing of the end is certainly going to be decided by loss of confidence in the USD (and a USD denominated debt instruments) as a savings medium, or store of value.

    Loss of confidence is a phenomenon characterised by herd psychology, and will likely be sudden, catastrophic, self reinforcing, irreversible and impossible to time. My guess is that this loss of confidence will take place when a critical mass of sheep realise that the world economy will contract for the rest of their lives, and that saving ones’ surplus as the obligations of perpetual debtors is a bad idea, and try to leave the party by cashing out.

    When the purchasing power of the US starts to drop, the endgame for the USD will be determined by the response of owner of the USD printing press. My guess is that it will not leave the party quietly, but will continue to try living beyond its means by emitting ever larger quantities of dollars. The US trade deficit will contract in real terms, just as it approaches infinity in dollar terms. That last surplus shipping container will cost quadrillions.

    What this argument is about is what this end will look like. I say there is no free lunch, and that it will look like the sudden catastrophic loss of purchasing power of the dollar, and all instruments that promise it’s delivery (hyperinflation). Gail argues that the end will result in the progressive gain in purchasing power of the dollar (deflation), which means that the entity which is the biggest spender and debtor in the history of the world (the USG and all its stooges) gets a free lunch via the electronic printing press and lives happily every after. According to Gail’s thesis, the nett exporters of the world will happily keep shipping ever more scarce oil (and other goods and services) to the US in exchange for ever more dear electronic ledger entries, or IOU’s. The big winners in this deflationary world will be the owner of the USD printing press (the USG) all its dependents (potentially the whole US population), Treasury holders (no default, as USD’s can always be printed) and those foresightful enough to stuff their mattress with cotton pulp.

    It is very clear that many of the nett producers of the world have stopped buying Treasury’s, and are signing trade and energy deals denominated in their own currencies. This necessitated the purchase of Treasuries by the Fed via QE. Now that QE has temporarily ended, “Belgium” seems to have an unusually ravenous appetite for worthless US debt for a tiny country.

    We live in interesting times

    • Brunswickian says:

      If WW1 was fought to knock down a burgeoning economic powerhouse and WW2 was fought to finish the job, then it would be reasonable to assume that WW3 would be fought for economic survival.

      Then, all bets are off.

    • Glenn Stehle says:

      • Robotku3 said:

      “All of us agree that exponentially expanding debt cannot be repaid in real terms in a contracting post peak economy. These instruments and the underlying currency only have value in an exponentially expanding economy.”

      Yes, but your anti-government bias, and blatantly false statements like “the USG’s spending can and will be funded by QE” (in your March 15, 2015 at 5:07 pm comment), behoove neither your credibility nor your argument.

      QE stimulates borrowing and spending by the private sector, not the government sector.

      And in the case of the O&G industry, it has worked like a charm. Arthur Berman explains all of this here:

      Due to the liquidity and low interest rates created by QE, as Berman spells out, borrowed money flooded into the O&G industry for the drilling of shale oil and gas wells. (And mind you, it is the PRIVATE sector banks and shadow banks who loaned this money, and the PRIVATE sector O&G industry that drilled these wells, not the government). And while these investments may have made some economic sense with oil prices in excess of $100/barrel, and with the expectation prices might go even higher, at oil prices of $75 or less what we have on our hands is a huge mal-investment BY THE PRIVATE SECTOR. If oil prices do not return to the $100+ level, then the mountain of PRIVATE debt incurred by the PRIVATE O&G companies and their PRIVATE bankers and PRIVATE shadow bankers will be extremely difficult, if not impossible, to repay.

      • Robotku3 said:

      “These instruments and the underlying currency only have value in an exponentially expanding economy. However, it is easy (and relatively painless) for such debt to be honoured in nominal terms. All this requires is for the currency to be trashed.”

      You conflate “these instruments” with the underlying currency. While I do agree that private debt is money, “these instruments” (e.g., debt issued by the PRIVATE sector) are not the same as government-issued money (e.g., government coin, currency or debt).

      The decision to expand, or not to expand, the supply of government-issued money is a political decision, which can go either way. Government-issued money can remain strong and extremely valuable, even if and when the private sector struggles to or cannot repay its debt. The decades immediately following the Civil War provide the perfect example of this.

      Initially QE was derided as the Fed trading “cash for trash.” But as it turns out, what reports I’ve read indicate that the Fed’s QE operations actually made the government a profit. If this is so, then QE was the very opposite of government spending, and worked to reduce the supply of government-issued money. So unless you are a disbeliever in the quantity theory of money, then the effect of QE was actually deflationary, and made government-issued money more valuable, not less so.

      The US dollar is also backed by US conquest and plunder, especially since Jimmy Carter militarized US energy policy with his Carter Doctrine. But the wheels, IMHO, are now coming off this strategy. (Speaking of EROEI, what is the EROEI of US military operations, of US conquest and plunder?) The neocons, needless to say, would disagree with me.

      • Brunswickian says:

        Haven’t seen you around before Glenn, you sound like a space making noise machine

        QE is good for you!!!!

      • “QE stimulates borrowing and spending by the private sector, not the government sector.”

        QE certainly enables a government to have a huge outstanding debt, and service it well beyond the point it should have gone bankrupt. At 8 percent interest on $18 Trillion, the US federal government would be spending all of its tax revenues just on interest, and all spending would have to be funded with new debt.

        If interest rates are suppressed down to 0.5%, the government could easily double its outstanding debt and still be able to service the debt and run its essentials.

        At negative interest rates, things get pretty interesting.

        • Glenn Stehle says:

          “QE certainly enables a government to have a huge outstanding debt, and service it well beyond the point it should have gone bankrupt”?

          “At 8 percent interest on $18 Trillion, the US federal government would be spending all of its tax revenues just on interest, and all spending would have to be funded with new debt”?

          That sounds a lot like banking doctrine or banking school teaching. Unfortunately, we have been so brainwashed by the bankers and financiers that few can think outside that box.

          As Joseph Huber explains, under the current system, “Far from being the originator or creditor of the money, government is the debtor — actually the biggest debtor of all. The taxpayer’s role in this game is to pay for state institutions and public infrastructure, for government transfers and for interest to banks — and to nonbanks, to the degree that banks on-sell government bonds to investment funds and individuals.”

          The fact is, Huber continues, “that government has to borrow from the banks, becoming ever more dependent on these the more indebted government gets; and that central banks primarily serve private banking interest rather than those of the government.”

          But, despite all the banker propaganda to the contrary, it doesn’t have to be that way.

          Money could be “debt-free money — if created by sovereign fiat and spent, not loaned, into circulation,” Huber asserts.

          Most lamentably, however, “all contemporary money is loaned into existence, and a residual amount of cash (i.e. coin and notes) is exchanged out of and back into the original non-cash money supply.”

          “This, however, is no timeless truth,” Huber adds. “It applies to the contemporary condition of fractional reserve banking. It did not apply for more than two thousand
          years when sovereign currency creation and commercial credit creation were two different things apart from one another and the currency entered into circulation as debt-free money, up until around the 1700s… [S]tarting with Greece and Rome up until around the 1700s when current-account deposits and bank notes came into somewhat wider use, currency was spent into circulation, thus creating genuine seigniorage free
          of interest and redemption, i.e. debt-free money.”

          Huber goes on to conclude that “the US government could spend its own banknotes, also its own currency on account, if Congress decided to update its constitutional prerogative of ‘coinage’ and take back the monetary prerogative from the banking sector. As long as this is not the case, the government cannot freely spend any amount of money. The central bank does not, either. It does not spend money other than for its own office, but lends reserves to the banks according to banks’ demand. As an action of quantitative easing in times of crisis, the central bank may lavishly offer reserves to the banks nearly for free, but it is up to the banks how far they make use of this and what they do with the reserves.”

          The most amazing part of all this is the extent to which the bankers have come to dominate American society and culture. Lawrence Goodwyn puts it this way in “The Populist Moment”:

          “[T]he power of the hegemony achieved in 1896 [by the bankers] was perhaps most clearly illustrated though the banishment of the one clear issue that animated Populism throughout its history — the greenback critique of American finance capitalism…. [T]he idea of substantial democratic influence over the structure of the nation’s financial system, a principle that had been the operative political objective of greenbackers, quietly passed out of American political dialogue…. Aspirations for financial reform on a scale imagined by greenbackers had expired, even among those who thought of themselves as reformers. Inevitably, such reformers had lost the possibility of understanding how the system worked. Structural reform of American banking no longer existed as an issue in America. The ultimate cultural victory being not merely to win an argument but to remove the subject form the agenda of future contention, the consolidation of values that so successfully submerged the ‘financial question’ beyond the purview of succeeding generations was self-sustaining and largely invisible.”

          • “That sounds a lot like banking doctrine or banking school teaching. ”

            It is not a teaching, it is a mathematical certainty and fact. This is and has been happening.

            ““that government has to borrow from the banks, becoming ever more dependent on these the more indebted government gets; and that central banks primarily serve private banking interest rather than those of the government.””

            Who do you think is the primary holder of treasuries, bank stocks and bonds? Pensions. The interest goes mainly to pay old people. If you abolished the system, first you would be relying entirely on the fiscal discipline of elected officials, and secondly you would have to print money to give to old people for nothing, thus diluting the value of all existing units of currency much more quickly.

            Government wants to spend $100 it does not have. Under the current system, someone who has $100 lends it to the government, and the government pays back $110 at the end of 5 years. Total dilution: $10 over 5 years, or $2 per year.

            Under your system, the government spends an extra $100, there is an instant $100 dilution of all money, at that very instant as the government simply makes that new money pop into existence. So, inflation would be much higher and kick in much faster.

            • glennstehle says:

              What is “a mathematical certainty and fact”? That you are a mouthpiece for the banking industry?

              And “pensions” are “the primary holder of treasuries”? “The interest goes mainly to pay old people”?

              What a beautiful story! It makes bankers sound like such swell folks, and explains why banker propagandists invariably trot out this fairy tale. But it is, notwithstanding, a crock.

              As Forbes reported recently, a whopping 34.4% of treasuries are held by foreign governments, with social security a distant second with 16%, other federal entities third with 13%, and the Federal Reserve fourth with 12%.

              What this means is that more than 40% of the interest paid on treasuries is merely the government moving money from one pocket to the other. And as the Forbes writer asks, “how can the government own its own debt?”

              “Good question,” the Forbes writer responds. “This is where the ‘house of cards’ theory resides. Some believe the federal government is merely moving the IOUs from one shell to another, hoping to escape the watchful eye of its citizens.”

              Yep. Those bankers are such swell folks, helping unscrupulous policymakers keep U.S. citizens confused and in the dark.

              And when we finally do manage to work our way down to private pension funds, what we find is they hold a measly 3.5% of treasuries. State, local, and federal retirement funds hold an even more measly 2.2%. U.S. households hold only 6.6%.

              And “If you abolished the system, first you would be relying entirely on the fiscal discipline of elected officials”? Well I suppose that’s right, at least in the eyes of the banking overlords. Leaving the money creation power to democratic processes is, without a doubt, a definite no no for them. It’s far better to leave such important tasks to the banking elite.

              And “secondly you would have to print money to give to old people for nothing, thus diluting the value of all existing units of currency much more quickly”? Well I reckon so. it’s uch better to have a handful of bankers decide what portion of the entirety of the nation’s goods and services go to old people, all in the name of “fighting inflation” of course.

              And “Under the current system, someone who has $100 lends it to the government”? Now that one is a dead giveaway. Anytime someone trots out this neoclassical loanable funds model of banking, we know we have us a banker apologist on our hands.

            • gerryhiles says:

              I can’t be bothered to reply to much, but your reply to Matthew Krajcik warrants a mention.

              How can anyone still believe that banks are benevolent?

              What with Matthew believing that banks are benevolent and sundry others believing that “alternatives” can replace “easy oil”, I have to conclude that many people here have very low comprehension, though one might expect better of people frequenting a blog explicitly called Our FINITE World..

  30. Greg says:

    You have a huge pile of wood. You can cook, boil water and generate heat for warmth. A few years go by and your forest is depleted and there are more people consuming the wood. You have enough wood to either cook or boil water or generate heat for warmth. But you can only pick one. That in a nutshell is why understanding EROEI is critical even if it’s a positive return. When we first embarked on our oil binge the EROEI was around 100:1. It’s now around 14:1. At around 10:1 and lower things are going to get real interesting in a bad way. So called Green energy is no where near even the 10:1 to one mark. It doesn’t matter how much energy we generate what matters is how much net energy we generate. The greater the return the more available net energy is for all those little things that make up our civilisation like street lights, stoves etc. Just as a depressing side note. When the oil crunch really smacks home, how long do you think our forests will last? This is going to be Easter Island on a Global scale.

  31. Robotku2 says:

    Right on cue:

    Gail also talks about the collapse of governments due to falling tax revenues. I think this shows a lack of understanding the “inflation tax” that the US government can extract from anyone dim enough to have savings denominated in US dollars or dollar denominated financial instruments which promise dollars, such as bank deposits, Treasuries, equities, money market funds or bonds (i.e. nearly everyone). Holders of such instruments (including the Central Banks of “surplus” countries who until recently have been happy to accumulate Treasuries in exchange for real exports) are in direct competition with the USG for real goods and services priced in dollars, and have their savings diluted in proportion to the USG’s deficit spending. This extraction can continue until the dollar becomes worthless.

    Gail does not seem to recognise the fact that an unpayable debt can be completely resolved in one of two ways:
    1)Outright default (hugely deflationary, immediately painful for both debtors and creditors).
    2)Default by making the currency the debt is denominated in worth less (ultimately worthless).
    The second route is the least painful, as the losses are socialised amongst EVERYONE whose savings are denominated in that currency, and the debtor (the biggest debtor and spender in the history of the world in this case, the USG) gets to keep spending via the printing press right until the very end.

    In extremis, all of the USG’s spending can and will be funded by QE, as tax receipts plummet and government spending (e.g. unemployment benefits, Food Stamps, deposit insurance, corporate bailouts, banking bailouts, interest on existing debt) soars in a collapsing economy. When this occurs the USG will have to choose between living below its means and letting the banking system collapse immediately or printing dollars, at the risk of the dollar depreciating; recent history is very clear on which path it will choose.

    In Gail’s proposed deflationary world of a perpetually appreciating dollar, there is no limit to such a scheme: the USG and all its dependents can live happily ever after by printing and exchanging freshly printed dollars for ever cheaper real goods and services. All the dollar denominated FDIC insured savings accounts and money market accounts in the US can be bailed out with a few keystrokes with no consequences for the purchasing power of the dollar.

    In the real world, what is more likely to happen is that trillions of low velocity dollar savings of even the sleepiest of sheep will eventually flood into circulation and compete for anything of tangible value with the USG. This will paradoxically cause an initial strengthening of the dollar, as dollar denominated instruments have to be sold for dollars prior to the dollars being exchanged for real goods (the “pass through effect”). This will look like asset price deflation! And a dollar rally.

    The tragicomedy that is the current financial system will then conclude with the dollar worthless, any further printing impotent, the dollar denominated savings of an entire generation of “savers” wiped out, and all the “unpayable” debt of the world fully repaid (in nominal terms anyway).

    The irony of the above endgame is that the well meaning “deflationary” folk who worry about leaving future generations with unpayable debt will wake up one day with the debt fully repaid at the expense of their now worthless life savings. A debt jubilee called hyperinflation, if you like.

    In such a scenario, the price of oil will be low in real terms, but astronomical in dollar terms. I therefore respectfully suggest that it is a mistake to predict oil priced low in dollars in the medium to long term.

    • gtyur56 says:

      I see no hyperinflation. I see everything being liquidated as income flows end. 401ks gold silver autos whatever. People who do have jobs decide to work longer to pay for there kids who don’t have jobs. Cash is tight. There has been commentary since QE started that Hyperinflation will come. I dont see it. what my perusals in craigs list tell me is lots of people trading real goods for dollars. dollars pay the mortgage. Dollars buy food.

    • glennstehle says:

      @ Robotku2

      It would be interesting to know just what it is you believe QE to be, and how in Sam’s hill you believe QE is capable of stimulating government spending

    • dolph says:

      Robotku, I am on a very similar line of thought as yours and I appreciate your erudite writing. But it’s still a question of timing.

      In theory, the dollar should have hyperinflated way back in 1980, and even if you understand the mechanisms of why it didn’t, you still are left with the problem of why didn’t it hyperinflate in 2008, and why isn’t it hyperinflating now, 7 years later, and a full 44 years after it became fiat.

      And the answers to those questions take us to some very dark places, but basically it has to do with psychology. As many have pointed out here and at many other forums. In short, the mechanism of hyperinflation is for people and governments worldwide to reject it and to reject saving in dollar denominated instruments. To treat it like a hot potato, in other words, and drive up dollar velocity. As long as there are people out there who don’t do this, it doesn’t hyperinflate. Case in point, my brother-in-law cardiologist, who is smarter than me in many ways, but simply cannot be convinced, no matter how much evidence is presented to him, that dollars are worthless. It will not dawn on him until the very end, when it costs a billion dollars to buy a gallon of milk. Nothing less than that will convince him.

      You say that if this doesn’t happen, then the government might very well have found the perpetual motion machine, and can simply print however many of these dollars it wishes, without consequence.

      It is here that I begin to disagree slightly with your analysis. Even in a regime of money printing, the government still has a wide variety of real world decisions it has to make and the consequences that flow from them. How much to spend and where. There is actually, some coordination of policy, even if the clowns in D.C. make it seem like they are completely incompetent and thoughtless. This too prolongs the time before the reckoning. They just have to bailout some people, they key players, the key distribution (banks/energy/food) and then decide who to throw under the bus, and voila, another group of people reduced to poverty, less dollar velocity/spending which means they can continue to be printed and hoarded.

      My point is that dollar printing can indeed continue for a long time before hyperinflation. If you disagree, you have to make a coherent argument as to why hyperinflation has not happened, and present a reasonable timeframe for hyperinflation. It you can’t do that, then it remains speculation.

      • Daddio7 says:

        There are 7 billion people in the world who want dollars, otherwise they wouldn’t take so few of them in trade for their labor and oil. These people will decide when to devalue the dollar, right now they are inflating the other currencies .

    • dolph says:

      Let me clarify the above post. My point is that none of us are actually arguing about a perpetual motion machine. We all agree that it is impossible.

      But the hyperinflation/deflation debate is a different one. Both of these are mirrors of each other, and are opposite of the “perpetual motion” 2% inflation to infinity that central banks previously thought they could create.

  32. robotku1 says:

    I want to congratulate Gail on an absolutely fabulous website. There are few better places to read about Peak Oil and the economy IMO. I agree with nearly everything she has to say.

    However, I believe Gail’s vision of the cost of crude oil deflating against the US dollar is correct in the short term, but wrong in the medium to long term.

    I have no doubt that oil prices will continue to deflate in real terms, but not in terms of the purely arbitrary, easily produced, unpayable currency unit called the US dollar. How can the most precious commodity in the world, desired by all the developed and developing countries of the world, depreciate in the long term against arbitrarily produced digits on a computer screen, printed into existence by a bankrupt spendthrift government?

    If this were true, the US government could suck in ever larger proportion of the world’s oil production (and other goods and services) by printing ever appreciating dollars, all the while not producing anything of value in return. The US trade deficit and budget deficit could grow ever larger in real terms, whist shrinking in nominal terms as the the dollar appreciates ad infinitum. There would be no need to tax the US population, as all the funding needs of the USG could be met by printing ever appreciating US dollars. This sounds like a financial perpetual motion machine, otherwise known as a “free lunch”.

    I do not think Gail appreciates that in the context of a collapsing private sector, the US government is ultimately the spender, borrower and printer of last resort, and that it has a technology called “QE” to produce dollars in unlimited quantities to fund itself and all its dependents (e.g. the US military, SS recipients, Medicare and Medicaid recipients, Food Stamp recipients, student “loan” recipients, its overseas stooges (e.g. Ukraine) and US corporate stooges (e.g. GM, Tesla) via bailouts). In extremis, USG can more than make up for the loss of private wages and demand by “employing everyone”, or sending everyone benefits cheques. A determined government can eventually produce inflation even in the midst of the most desperate deflationary depression:

    Anyone who doubts the USG’s willingness and ability to do the above to preserve the lifestyle of itself and its stooges and to save the banking system from a terminal deflationary collapse should reread the history of the GFC.

    We will see massive deflation. Just not in terms of the unpayable unit of debt called the US dollar.

    • Glenn Stehle says:

      robotkui1 said:

      “I do not think Gail appreciates that in the context of a collapsing private sector, the US government is ultimately the spender, borrower and printer of last resort, and that it has a technology called “QE” to produce dollars in unlimited quantities to fund itself and all its dependents (e.g. the US military, SS recipients, Medicare and Medicaid recipients, Food Stamp recipients, student “loan” recipients, its overseas stooges (e.g. Ukraine) and US corporate stooges (e.g. GM, Tesla) via bailouts).”

      QE has nothing to do with fiscal policy. It has to do with monetary policy.

      The only way QE becomes government “spending” is if the central bank ends up eating the non-government securities which it traded government-issued securities for.

    • edpell says:

      Robotku1, I used to think the US government would print without restriction but it seems a higher power has told them they can only print at a rate that keeps the total real debt constant. That is debt*inflation=allowed printing. With debt of 17 trillion and inflation of 4.5% that would be 765 billion for the year.

      Maybe that higher power is the owner of the federal reserve bank.

      You are on one of my favorite topics. If printing works let’s just go to the 100% printing economy for the U.S.. That is we all stop working and the government just sends us checks. We will have to have some non-citizens to work the distribution system so all the stuff we buy from the ROW is delivered to our door. Or maybe robots can do the distribution work.

      • edpell says:

        Holy cow even shadstat is down to 3.5% CPI. So make printing this year 595 billion. Looks like something will have to be cut. Only three somethings to choose from social security, medicare, military. My choice is military but I doubt it will be the one chosen by the PTB.

        • gtyur56 says:

          SS will be cut by december 2016

          • Jan Steinman says:

            “SS will be cut by december 2016”

            Damn. I won’t qualify until fall 2017.

            But from the first day I paid into it in 1972 or so, I thought I’d never see a penny of it.

            So my strategy has been to not make enough money to be subject to it. And as a farmer, this has been amazingly easy to accomplish! But I get to eat tax-free food and live in a tax-free house.

            As such a life-style becomes more popular, look for governments to figure out some way to tax subsistence farmers. I could afford to give them a few bushels of wormy turnips every year.

            • kthatsaynii says:

              “Damn. I won’t qualify until fall 2017.”
              You will be grandfathered in. I’m sure with your high moral standards you wont file. LOL
              A cut doesn’t mean a end to SS just a reduction of “benefits”.

      • edpell says:

        On the other hand the M3 money supply is still being increased 5% annually.

      • Tolstoy's Degenerate Grandson says:

        I am sure we could have almost all work done by robots and everyone just sits back and drinks beer, eats pizza and watches NFL matches.

        Not so bad?

    • edpell says:

      What does GFC stand for?

  33. Don Stewart says:

    Dear Gail and All
    Following up on my notes about my visit to the money printing plant.

    I will try to put a few things together:

    See particularly the comments by shortonoil and penury. The non-oil economy simply has no more capital to lend to the oil economy, and so the oil economy, which cannot produce a surplus, must shrink. As the oil economy shrinks, the ability of the public to pay for oil declines, and prices remain low or decline.

    There is also the peculiar comment that EROEI is irrelevant:

    ‘Energy return on investment (EROI) does not matter so much as energy return on consumption (EROC). This turns out to be a negative number. Because the energy return on extraction was so great during the beginning of the twentieth century, the absence of returns on the consumption side didn’t matter.’

    I am not sure what the author means. But let me give an example. The people who work at the paper money plant are almost certain to need automobiles to get to the plant, and, in general, to live a high oil consumption lifestyle. The question is: does the work they are doing generate enough oil production to pay for the oil they are consuming. It they are not generating oil, then are other people generating enough oil to ‘loan’ them some, out of the other people’s surplus. If there isn’t any surplus out of which to give loans, then the question is entirely hypothetical.

    What the people who work in the plant are doing is literally printing fiat money. If it has any value at all, it is simply as a medium of exchange. It is very hard to imagine anyone who is producing surplus oil being willing to give them very much of their surplus in order to get fiat money to facilitate exchange. Therefore, this begins to look very much like a ponzi scheme.

    Everywhere I drove in Dallas and Ft. Worth, I saw enormous highway interchanges under construction. Do these interchanges help us produce energy in any measurable way? They facilitate consumption, as people are enabled to drive to far-flung shopping centers to buy oil intensive products on credit. But the whole thing looks very unstable. Richard Fisher’s statement that oil price isn’t a problem because ‘we are a consumer economy’ begins to sound simply stupid.

    Don Stewart

    • Glenn Stehle says:

      Don Stewart said:

      “What the people who work in the plant are doing is literally printing fiat money. If it has any value at all, it is simply as a medium of exchange. It is very hard to imagine anyone who is producing surplus oil being willing to give them very much of their surplus in order to get fiat money to facilitate exchange. Therefore, this begins to look very much like a ponzi scheme.”

      Absent from your analysis is the element of coercion, or state violence, at which the US is the world’s master.

      Despite all the liberal cant and monetary operations which are meant to obscure reality, the actual formulation at work is this: Give us your surplus oil (or other primary materials), or die. And this formula works (for any neo-imperialist power), until it doesn’t. Economies based exclusively, or almost exclusively, on conquest and plunder, after all, can be successful and survive, if for only a short time.

      Robert L. Heilbroner put it this way in “Behind the Veil of Economics,”

      “For I have gradually come to see the market system as one in which the same underlying processes that assure discipline and order as those of older societies continue to exert their force, although in a manner that escapes our recognition.”

      Jonathan Schell wrote a great deal about liberal imperialism, but perhaps it was Edward W. Said who put it most succinctly:

      “Even with all its terrible failings and its appalling dictator (who was partly created by U.S. policy two decades ago), were Iraq to have been the world’s largest exporter of bananas or oranges, surely there would have been no war, no hysteria over mysteriously vanished weapons of mass destruction, no transporting of an enormous army, navy, and air force 7000 miles away to destroy a country scarcely known even to the educated American, all in the name of ‘freedom’.”

    • richard says:

      Don – “the whole thing looks very unstable”
      I would have some difficulty explaining just why this link points to the financial and banking equivalent of your example, and I suspect youe ther “get-it” or your don’t ..
      It should not look like this, and if you think that the US bonds supporting shale oil are daft, I am left speechless by this, though I guessed bits of Europe would be this way.

    • Daddio7 says:

      Just west of St. Augustine, Fl is the new town of St. Johns. A four lane fly over is being built to connect it to I-95. A few miles north I-295 is being expanded to 10 lanes over to Orange Park. Most of this growth is tied to new medical complexes for Medicare recipients. You’ll be very unpopular if you say all those dialysis treatments for granny are bad for the economy.

  34. VPK says:
    BP CEO on oil, It’s going to very painful
    with four years of oil drilling collapse in seconds

  35. edpell says:

    So far the run up to WW3 likes like the run up to WW1. We have troops being mobilized and deployed. But if they just add a false flag across border attack then it will look like the WW2 run up.

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