Most people believe that low oil prices are good for the United States, since the discretionary income of consumers will rise. There is the added benefit that Peak Oil must be far off in the distance, since “Peak Oilers” talked about high oil prices. Thus, low oil prices are viewed as an all around benefit.
In fact, nothing could be further from the truth. The Peak Oil story we have been told is wrong. The collapse in oil production comes from oil prices that are too low, not too high. If oil prices or prices of other commodities are too low, production will slow and eventually stop. Growth in the world economy will slow, lowering inflation rates as well as economic growth rates. We encountered this kind of the problem in the 1930s. We seem to be headed in the same direction today. Figure 1, used by Janet Yellen in her September 24 speech, shows a slowing inflation rate for Personal Consumption Expenditures (PCE), thanks to lower energy prices, lower relative import prices, and general “slack” in the economy.
Figure 1. “Why has PCE Inflation fallen below 2%?” from Janet Yellen speech, September 24, 2015.
What Janet Yellen is seeing in Figure 1, even though she does not recognize it, is evidence of a slowing world economy. The economy can no longer support energy prices as high as they have been, and they have gradually retreated. Currency relativities have also readjusted, leading to lower prices of imported goods for the United States. Both lower energy prices and lower prices of imported goods contribute to lower inflation rates.
Instead of reaching “Peak Oil” through the limit of high oil prices, we are reaching the opposite limit, sometimes called “Limits to Growth.” Limits to Growth describes the situation when an economy stops growing because the economy cannot handle high energy prices. In many ways, Limits to Growth with low oil prices is worse than Peak Oil with high oil prices. Slowing economic growth leads to commodity prices that can never rebound by very much, or for very long. Thus, this economic malaise leads to a fairly fast cutback in commodity production. It can also lead to massive debt defaults.
Let’s look at some of the pieces of our current predicament.
Part 1. Getting oil prices to rise again to a high level, and stay there, is likely to be difficult. High oil prices tend to lead to economic contraction.
Figure 2 shows an illustration I made over five years ago:
Figure 2. Chart made by author in Feb. 2010, for an article called Peak Oil: Looking for the Wrong Symptoms.
Clearly Figure 2 exaggerates some aspects of an oil price change, but it makes an important point. If oil prices rise–even if it is after prices have fallen from a higher level–there is likely to be an adverse impact on our pocketbooks. Our wages (represented by the size of the circles) don’t increase. Fixed expenses, including mortgages and other debt payments, don’t change either. The expenses that do increase in price are oil products, such as gasoline and diesel, and food, since oil is used to create and transport food. When the cost of food and gasoline rises, discretionary spending (in other words, “everything else”) shrinks.
When discretionary spending gets squeezed, layoffs are likely. Waitresses at restaurants may get laid off; workers in the home building and auto manufacturing industries may find their jobs eliminated. Some workers who get laid off from their jobs may default on their loans causing problems for banks as well. We start the cycle of recession and falling oil prices that we should be familiar with, after the crash in oil prices in 2008.
So instead of getting oil prices to rise permanently, at most we get a zigzag effect. Oil prices rise for a while, become hard to maintain, and then fall back again, as recessionary influences tend to reduce the demand for oil and bring the price of oil back down again.
Part 2. The world economy has been held together by increasing debt at ever-lower interest rates for many years. We are reaching limits on this process.
Back in the second half of 2008, oil prices dropped sharply. A number of steps were taken to get the world economy working better again. The US began Quantitative Easing (QE) in late 2008. This helped reduce longer-term interest rates, allowing consumers to better afford homes and cars. Since building cars and homes requires oil (and cars require oil to operate as well), their greater sales could stimulate the economy, and thus help raise demand for oil and other commodities.
Figure 3. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.
Following the 2008 crash, there were other stimulus efforts as well. China, in particular, ramped up its debt after 2008, as did many governments around the world. This additional governmental debt led to increased spending on roads and homes. This spending thus added to the demand for oil and helped bring the price of oil back up.
These stimulus effects gradually brought prices up to the $120 per barrel level in 2011. After this, stimulus efforts gradually tapered. Oil prices gradually slid down between 2011 and 2014, as the push for ever-higher debt levels faded. When the US discontinued its QE and China started scaling back on the amount of debt it added in 2014, oil prices began a severe drop, not too different from the way they dropped in 2008.
I reported earlier that the July 2008 crash corresponded with a reduction in debt levels. Both US credit card debt (Fig. 4) and mortgage debt (Fig. 5) decreased at precisely the time of the 2008 price crash.
Figure 4. US Revolving Debt Outstanding (mostly credit card debt) based on monthly data from the Federal Reserve.
Figure 5. US Mortgage Debt Outstanding, based on the Federal Reserve Z1 Report.
At this point, interest rates are at record low levels; they are even negative in some parts of Europe. Interest rates have been falling since 1981.
Figure 6. Chart prepared by the St. Louis Fed using data through July 20, 2015.
I showed in a recent post (How our energy problem leads to a debt collapse problem) that when the cost of oil production is over $20 per barrel, we need ever-higher debt ratios to GDP to produce economic growth. This need for ever-rising debt contributes to our inability to keep commodity prices high enough to satisfy the needs of commodity producers.
Part 3. We are reaching a demographic bottleneck with the “baby boomers” retiring. This demographic bottleneck causes an adverse impact on the demand for commodities.
Demand represents the amount of goods customers can afford. The amount consumers can afford doesn’t necessarily rise endlessly. One of the problems leading to falling demand is falling inflation-adjusted median wages. I have written about this issue previously in How Economic Growth Fails.
Figure 7. Median Inflation-Adjusted Family Income, in chart prepared by the Federal Reserve of St. Louis.
Another part of the problem of falling demand is a falling number of working-age individuals–something I approximate by using estimates of the population aged 20 to 64. Figure 8 shows how the population of these working-age individuals has been changing for the United States, Europe, and Japan.
Figure 8. Annual percentage growth in population aged 20 – 64, based on UN 2015 population estimates.
Figure 8 indicates that Japan’s working age population started shrinking in 1998 and now is shrinking by more than 1.0% per year. Europe’s working age population started shrinking in 2012. The United States’ working age population hasn’t started shrinking, but its rate of growth started slowing in 1999. This slowdown in growth rate is likely part of the reason that labor force participation rates have been falling in the United States since about 1999.
Figure 9. US Labor force participation rate. Chart prepared by the Federal Reserve of St. Louis.
When there are fewer workers, the economy has a tendency to shrink. Tax levels to pay for retirees are likely to start increasing. As the ratio of retirees rises, those still working find it increasingly difficult to afford new homes and cars. In fact, if the population of workers aged 20 to 64 is shrinking, there is little need to add new homes for this group; all that is needed is repairs for existing homes. Many retirees aged 65 and over would like their own homes, but providing separate living quarters for this population becomes increasingly unaffordable, as the elderly population becomes greater and greater, relative to the working age population.
Figure 10 shows that the population aged 65 and over already equals 47% of Japan’s working age population. (This fact no doubt explains some of Japan’s recent financial difficulties.) The ratios of the elderly to the working age population are lower for Europe and the United States, but are trending higher. This may be a reason why Germany has been open to adding new immigrants to its population.
Figure 10. Ratio of elderly (age 65+) to working age population (aged 20 to 64) based on UN 2015 population estimates.
For the Most Developed Regions in total (which includes US, Europe, and Japan), the UN projects that those aged 65 and over will equal 50% of those aged 20 to 64 by 2050. China is expected to have a similar percentage of elderly, relative to working age (51%), by 2050. With such a large elderly population, every two people aged 20 to 64 (not all of whom may be working) need to be supporting one person over 65, in addition to the children whom they are supporting.
Demand for commodities comes from workers having income to purchase goods that are made using commodities–things like roads, new houses, new schools, and new factories. Economies that are trying to care for an increasingly large percentage of elderly citizens don’t need a lot of new houses, roads and factories. This lower demand is part of what tends to hold commodity prices down, including oil prices.
Part 4. World oil demand, and in fact, energy demand in general, is now slowing.
If we calculate energy demand based on changes in world consumption, we see a definite pattern of slowing growth (Fig.11). I commented on this slowing growth in my recent post, BP Data Suggests We Are Reaching Peak Energy Demand.
Figure 11. Annual percent change in world oil and energy consumption, based on BP Statistical Review of World Energy 2015 data.
The pattern we are seeing is the one to be expected if the world is entering another recession. Economists may miss this point if they are focused primarily on the GDP indications of the United States.
World economic growth rates are not easily measured. China’s economic growth seems to be slowing now, but this change does not seem to be fully reflected in its recently reported GDP. Rapidly changing financial exchange rates also make the true world economic growth rate harder to discern. Countries whose currencies have dropped relative to the dollar are now less able to buy our goods and services, and are less able to repay dollar denominated debts.
Part 5. The low price problem is now affecting many commodities besides oil. The widespread nature of the problem suggests that the issue is a demand (affordability) problem–something that is hard to fix.
Many people focus only on oil, believing that it is in some way different from other commodities. Unfortunately, nearly all commodities are showing falling prices:
Figure 12. Monthly commodity price index from Commodity Markets Outlook, July 2015. Used under Creative Commons license.
Energy prices stayed high longer than other prices, perhaps because they were in some sense more essential. But now, they have fallen as much as other prices. The fact that commodities tend to move together tends to hold over the longer term, suggesting that demand (driven by growth in debt, working age population, and other factors) underlies many commodity price trends simultaneously.
Figure 13. Inflation adjusted prices adjusted to 1999 price = 100, based on World Bank “Pink Sheet” data.
The pattern of many commodities moving together is what we would expect if there were a demand problem leading to low prices. This demand problem would likely reflect several issues:
- The world economy cannot tolerate high priced energy because of the problem shown in Figure 2. We have increasingly used cheaper debt and larger quantities of debt to cover this basic problem, but are running out of fixes.
- The cost of producing energy products keeps trending upward, because we extracted the cheap-to-produce oil (and coal and natural gas) first. We have no alternative but to use more expensive-to-produce energy products.
- Many costs other than energy costs have been trending upward in inflation-adjusted terms, as well. These include fresh water costs, the cost of metal extraction, the cost of mitigating pollution, and the cost of advanced education. All of these tend to squeeze discretionary income in a pattern similar to the problem indicated in Figure 2. Thus, they tend to add to recessionary influences.
- We are now reaching a working population bottleneck as well, as described in Part 4.
Part 6. Oil prices seem to need to be under $60 barrel, and perhaps under $40 barrel, to encourage demand growth in US, Europe, and Japan.
If we look at the historical impact of oil prices on consumption for the US, Europe, and Japan combined, we find that whenever oil prices are above $60 per barrel in inflation-adjusted prices, consumption tends to fall. Consumption tends to be flat in the $40 to $60 per barrel range. It is only when prices are in the under $40 per barrel range that consumption has generally risen.
Figure 14. Historical consumption vs. price for the United States, Japan, and Europe. Based on a combination of EIA and BP data.
There is virtually no oil that can be produced in the under $40 barrel range–or even in the under $60 barrel a range, if tax needs of governments are included. Thus, we end up with non-overlapping ranges:
- The amount that consumers in advanced economies can afford.
- The amount the producers, with their current high-cost structure, actually need.
One issue, with lower oil prices, is, “What kinds of uses do the lower oil prices encourage?” Clearly, no one will build a new factory using oil, unless the price of oil is expected to be sufficiently low over the long-term for this use. Thus, adding industry will likely be difficult, even if the price of oil drops for a few years. We also note that the United States seems to have started losing its industrial production in the 1970s (Fig. 15), as its own oil production fell. Apart from the temporarily greater use of oil in shale drilling, the trend toward off-shoring industrial production will likely continue, regardless of the price of oil.
Figure 15. US per capita energy consumption by sector, based on EIA data. Includes all types of energy, including the amount of fossil fuels that would need to be burned to produce electricity.
If we cannot expect low oil prices to favorably affect the industrial sector, the primary impact of lower oil prices will likely be on the transportation sector. (Little oil is used in the residential and commercial sectors.) Goods shipped by truck will be cheaper to ship. This will make imported goods, which are already cheap (thanks to the rising dollar), cheaper yet. Airlines may be able to add more flights, and this may add some jobs. But more than anything else, lower oil prices will encourage people to drive more miles in personal automobiles and will encourage the use of larger, less fuel-efficient vehicles. These uses are much less beneficial to the economy than adding high-paid industrial jobs.
Part 7. Saudi Arabia is not in a position to help the world with its low price oil problem, even if it wanted to.
Many of the common beliefs about Saudi Arabia’s oil capacity are of doubtful validity. Saudi Arabia claims to have huge oil reserves, but as a practical matter, its growth in oil production has been modest. Its oil exports are actually down relative to its exports in the 1970s, and relative to the 2005-2006 period.
Figure 16. Saudi Arabia’s oil production, consumption, and exports based on BP Statistical Review of World Energy 2015 data.
Low oil prices are having an adverse impact on the revenues that Saudi Arabia receives for exporting oil. In 2015, Saudi Arabia has so far issued bonds worth $5 billion US$, and plans to issue more to fill the gap in its budget caused by falling oil prices. Saudi Arabia really needs $100+ per barrel oil prices to fund its budget. In fact, nearly all of the other OPEC countries also need $100+ prices to fund their budgets. Saudi Arabia also has a growing population, so it needs rising oil exports just to maintain its 2014 level of exports per capita. Saudi Arabia cannot reduce its exports by 10% to 25% to help the rest of the world. It would lose market share and likely not get it back. Losing market share would permanently leave a “hole” in its budget that could never be refilled.
Saudi Arabia and a number of the other OPEC countries have published “proven reserve” numbers that are widely believed to be inflated. Even if the reserves represent a reasonable outlook for very long term production, there is no way that Saudi oil production can be ramped up greatly, without a large investment of capital–something that is likely not to be available in a low price environment.
In the United States, there is an expectation that when estimates are published, the authors will do their best to produce correct amounts. In the real world, there is a lot of exaggeration that takes place. Most of us have heard about the recent Volkswagen emissions scandal and the uncertainty regarding China’s GDP growth rates. Saudi Arabia, on a monthly basis, does not give truthful oil production numbers to OPEC–OPEC regularly publishes “third party estimates” which are considered more reliable. If Saudi Arabia cannot be trusted to give accurate monthly oil production amounts, why should we believe any other unaudited amounts that it provides?
Part 8. We seem to be at a point where major debt defaults will soon start for oil and other commodities. Once this happens, the resulting layoffs and bank problems will put even more downward pressure on commodity prices.
Wolf Richter has recently written about huge jumps in interest rates that are being forced on some borrowers. Olin Corp., a manufacture of chlor-alkali products, recently attempted to sell $1.5 billion in eight and ten year bonds with yields of 6.5% and 6.75% respectively. Instead, it ended up selling $1.22 billion of bonds with the same maturities, with yields of 9.75% and 10.0% respectively.
Richter also mentions existing bonds of energy companies that are trading at big discounts, indicating that buyers have substantial questions regarding whether the bonds will pay off as expected. Chesapeake Energy, the second largest natural gas driller in the US, has 7% notes due in 2023 that are now trading at 67 cent on the dollar. Halcon Resources has 8.875% notes due in 2021 that are trading at 33.5 cents on the dollar. Lynn Energy has 6.5% notes due in 2021 that are trading at 23 cents on the dollar. Clearly, bond investors think that debt defaults are not far away.
The latest round of twice-yearly reevaluations is under way, and almost 80 percent of oil and natural gas producers will see a reduction in the maximum amount they can borrow, according to a survey by Haynes and Boone LLP, a law firm with offices in Houston, New York and other cities. Companies’ credit lines will be cut by an average of 39 percent, the survey showed.
Debts of mining companies are also being affected with today’s low prices of metals. Thus, we can expect defaults and cutbacks in areas other than oil and gas, too.
There is a widespread belief that if prices remain low, someone will come along, buy the distressed assets at low prices, and ramp up production as soon as prices rise again. If prices never rise for very long, though, this won’t happen. The bankruptcies that occur will mean the end for that particular resource play. We won’t really be able to get prices back up to where they need to be to extract the resources.
Thus low prices, with no way to get them back up, and no hope of making a profit on extraction, are likely the way we reach limits in a finite world. Because low demand affects all commodities simultaneously, “Limits to Growth” equates to what might be called “Peak Resources” of all kinds, at approximately the same time.
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Shooting in Oregon: So far in 2015, we’ve had 274 days and 294 mass shootings
Today a shooter opened fire at a community college in Oregon. Early media reports indicate numerous fatalities and a number of additional people wounded. That brings the total of mass shootings this year — incidents where 4 or more people are killed or injured by gunfire — to 294
https://www.washingtonpost.com/news/wonkblog/wp/2015/10/01/2015-274-days-294-mass-shootings-hundreds-dead/?tid=sm_fb
Yeah I mean these things are horrible, shows you how you can’t prepare for every circumstance. Just one moment and you’re gone.
America in particular is more dangerous that it seems on the surface. Lots of guns and psychos lurking about. If I were TPTB, which I’m not, I would have guns tightly regulated. That would at least keep the hoi polloi without the delusion of armed uprising.
It seems the TPTB in America are preparing civil war as a means to control our descent. Does anybody disagree?
I disagree. The US government has killed tens of millions in the last 80 years. I do not have an exact count. Let’s use 80 million as it makes the math easy. One million a year. Who do I want a well ordered militia to defend me against?
I had the same opinion as you, dolph. I changed my mind recently, though. I was living in “egalite fraternite liberte” world for most of my life, so it was quite painful, intellectual process.
Collapse changes perspective. If I was living in US in some remote, rural location, which I’m not fortunately, I would vote for keeping the things they are right now. And here is my reasoning:
– who do you think will still have guns after introducing arms restrictions? well, mostly criminals, gangs, militia and of course military and police…
– during the collapse process criminal behaviours will escalate – US will be back in “Wild West” scenario;
– all those gangs will be well equipped to dominate and seize the power,
so do you want to be a sheep or a wolf in these times? Watch again the best western movies and then decide…
You guys are missing my point. My point is not whether I do or do not want a gun, for whatever reason. Naturally I’m in favor of property rights and self defense, within reason. My point is, what would I do if I were TPTB? If I were a sociopathic control freak, as they are?
If I was, I would regulate guns. This really does keep populations in line. With massive amounts of guns floating around the U.S., the recipe is indeed there for violent armed uprisings and civil war when the time comes, and I don’t see what TPTB gain from that unless they actually want this to be a means by which the population is culled.
Look at the buildup to 9/11, and the masterful job done by TPTB. First, arm and train Islamic radicals, easy because you’ve already done it during the Cold War. Next, handcuff the people within the CIA and FBI who warn things are brewing. Next, when the inevitable attack happens, there is your reason for the restraint of civil liberties and permanent war in the Middle East.
Since then, however, it seems they are really bungling everything in America. I’m waiting for them to get their act together and they never do, as if events are beyond their control now.
It’s too late for such debate IMO. With 650.000.000+ guns all over US,
http://www.smallarmssurvey.org/fileadmin/docs/H-Research_Notes/SAS-Research-Note-9.pdf
ban for personal arms would be unimaginable operation for years. Very heavy involvement of law enforcement administration and lots of casualities. Very costly in terms of money/energy and social unrest. And the outcome is very questionable.
The 650 million number is worldwide firearms. The US is “only” 270 million. Plus military and law enforcement guns.
Right, sorry my mistake. I thought it was around 300million last time I checked.
Will the school allow the student to defend themselves tomorrow? Will it allow open carry? Cancelled carry? Why does it insist on forcing the students to risk their lives as targets for a gun ban propaganda event? Self defense is a natural right. Maybe the students should think about taking their tuition money elsewhere.
The question Ed is if they do allow open carry will the student’s be safer? Growing up here in Canada as a gun owner I’m used to some pretty rigorous safety both in my club and when I was getting my PAL and R-PAL and the two times I went shooting in the US I got the heck out of there within ten minutes the people were so unsafe. I’ve never seen such a lack of safety and etiquette in my life (of course both times I was in Ohio so maybe that’s the problem) but it just seems that the attitude of the gun owners I saw there was so lax and many were treating their guns as basically toys. I don’t know if this is representative of the majority of gun owners in the US but I watched guys down near Cincinnati walk around the club holding their handguns with a ROUND CHAMBERED while they chatted and gestured all over the place (with the gun IN THEIR HAND). I’m a fan of responsible gun ownership but it seems to me that there are too many immature and irresponsible people out there and I shudder to think what would happen if everyone was able to walk around with loaded weapons.
I have no problem with requiring classes and demonstrated knowledge before letting someone walk around with a gun.
When I bought some bulk ammunition recently … the shop owner mistook me for an American — I asked him why — he said Americans like to buy hundreds of rounds and just go out in the bush or desert and blast away…
Lol, I stopped buying much ammo a few years ago, I realized that if I ever found myself in the position of needing it I was probably already screwed. That and have you seen the cost of 5.56 up here? The cheap stuff is $28.00 a box! The .40 SW for my Glock is even worse!
There are loads of deer and wild pigs around here — in fact there are so many that there is not even a restricted hunting season …. so the logic of the ammo is all about food…. (that assumes the spent fuel pond thing can be dismissed…)
If it ever came to having to shoot it out defending the farm — that’s a no win situation … nobody’s going to be able to defend a stationary target like that …
Although this might be useful!
http://static.dezeen.com/uploads/2011/09/dezeen_Silo-Stay-Little-River-by-F3-Design_03.jpg
Fast, thank you at last someone says firefights are a losing proposition. Yes, maybe you can win one, maybe two, but by the third you are likely dead. Avoiding a fight is more likely to keep one alive.
This is a tribute to those who think they can win….
I have a friend–retired female actuary over 65–who likes skeet shooting. She has her own gun for that purpose.
When I was in consulting, one of the female consultants in our office was known for carrying a loaded gun under the driver’s seat in her car.
I cannot understand why people are so interested in guns. My own father liked to shoot ducks and geese as a hobby, though. It is sort of part of the culture here. Walmart sells a big variety of rifles (but I don’t think hand guns) at least in the 48 states.
My ex was the one who got me into shooting and when we were married we raised cattle so we had an old rim fire in the kitchen cabinet to scare aware the coyotes and put down the odd chicken for the pot (I just couldn’t ever bring myself to use the axe). I own a couple of firearms now because I enjoy the focus and zen of target shooting, I honestly don’t know if I could ever turn a gun on a person and don’t get the whole shoot-em-up culture that exists, especially in the prepping community. Maybe it’s a guy thing?
Easy to talk tough when you’ve never been there…
I’ve never been there — but played a bit of hockey — a somewhat violent sport — that makes you recognize that you don’t stand a chance against the seriously violent types…
Very true, I have met people over the years who just have this black heart and you know when they look at you that you wouldn’t stand a chance against them. I have a couple of friends who served with the PPCLI in Afghanistan and hearing the stories they came back with and the absolutely hard mentality of the people there made me realize that when it comes down to it I am, as a person just too soft to ever do the horrible things necessary to survive a ‘the Road’ kind of collapse, but I’m at peace with that and it has given me the impetus to get as much out of every day that I can and love the time (however much there is) that I have left. If somehow the grand masters of finance manage to stave off collapse for another year I have a few things left I want to see.
There is much good discussion here but let’s think very clearly and deliberately about this, to avoid making the mistakes that were made 7 years ago, when many people really did think things were over, and they prepared, but they wasted 7 years of their life and the people who benefited were the guns and bullets manufacturers, banks, and people who stayed invested in the system.
Will things play out the same way now? No, but neither does it mean it’s the end. Yes, low oil prices are going to shut in development of new fields which might have helped maintain production. But you see, so much energy in this world is wasted. We don’t really need as much as we think. Total global energy production could drop 50% or more and we wouldn’t miss a beat.
How is this possible? It’s because everything above ground has a certain lifespan, and a certain amount of minimum maintenance needed. We don’t actually need to create and produce as much as we currently do. Things really can be recycled and patched up. And when I say recycled, I don’t just mean tin cans. Think about entertainment, for example. The millions of movies, songs, etc. really can be played over and over at minimum cost and people can be relatively happy with them. People can live crowded in existing housing rather than building new housing, etc. The entire industrial economy could decline multiple times order, and yet still continue in some form.
Ok, but how do you get people to take their eyes away from industrial decline. How do you convince them that things are better than ever? It turns out you really don’t need to do that. All people need in this world are a paycheck, or welfare. That’s all. Give them a paycheck or welfare, however small, and they will gladly labor for 50 years or sit at home until they get a diabetic stroke.
Ok, but how do you convince the rest of the world not to upset the system too much? Easy, just use the most advanced intelligent and military machine ever created to keep them in line. Don’t want to play ball? Then you are out of the international payment system, or bombs drop on your heads. Heck you can even destabilize your competitors by, for example, bombing Syria, and the refugees end up in Europe, or destabilize Ukraine and Russia ends up having to clean up, etc.
Are you starting to get the idea folks. 2008-now was the peak moment/beginning of decline. We now begin the true descent into the post industrial scrap economy. It’s prudent to prepare for this, but if you run for the hills or become a miser out of some noble idea of preparing you are making the exact same mistake as 7 years ago.
I didn’t plan to run for the hills in 08 and I still don’t really have any plans today except to live each day to the fullest. This blog has made me appreciate the incredibly luxurious life I live. Luxurious especially when compared with people living only a few decades ago. I smell the roses so to speak and look up in the sky every night before I go to sleep and give thanks that I was able to live at the height of human existence. I harbour no illusions about what is coming I simply exists today in this world as it is today and am very thankful for all the blessings I have been given. The collapse could be fast, it could be slow, but at least when it comes it won’t be by surprise. I will have made my peace with the natural world and accept my fate when the time comes.
Anyone who is aware of the nature of what we are facing should – when the collapse arrives — have no regrets about how the years and months preceding the collapse were lived.
I’m getting in plenty of skiing and wine drinking before the crack up!
For the transient, yes.
There is so much more: http://www.chaosforum.com/docs/nieuws/Instability.pdf
But this really is intellectual.
Thanks!
as for inductivist Vs deductivist logics, I was still stuck on B.Russel’s turkey*.
Your paper gives a broader point of view; for example:
“The obvious demarcation between deduction and induction is an ideal abstract, not the real processes taking place in everywhere. We cannot commend one to the heaven and depreciate the other to the earth. Both deduction and induction are just the languages or tools created by our Homo sapiens. L.E.Szabó said that deduction is nothing but a particular case of induction (Szabó, 2003, p.117) from philosophical and neuro-physiological perspectives.”
*: Bertrand Russell’s Inductivist Turkey
“A turkey, in an american nurture, decide to shape its vision of the world scientifically well founded.
The turkey found that, on his first morning at the turkey farm, he was fed at 9 a.m. Being a good inductivist turkey he did not jump to conclusions. He waited until he collected a large number of observations that he was fed at 9 a.m. and made these observations under a wide range of circumstances, on Wednesdays, on Thursdays, on cold days, on warm days. Each day he added another observation statement to his list. Finally he was satisfied that he had collected a number of observation statements to inductively infer that “I am always fed at 9 a.m.”.
However on the morning of Christmas eve he was not fed but instead had his throat cut.
It doesn’t matter how many cases we list during our inductivist reasoning, nothing guarantees that the next case will lay in this inference we deducted from our observations, as the possible experiments and observations are infinite by number and type.
The only valid scientific method is to test the theory using the assertions which can be deducted.”
https://mashimo.wordpress.com/2013/03/12/bertrand-russells-inductivist-turkey/
Thanks. I think people need to understand this view is a real option.
The logic behind your comments is wrong in so many ways… I don’t know where to start…
“Chinese Cash Flow Shocker: More Than Half Of Commodity Companies Can’t Pay The Interest On Their Debt”
http://www.zerohedge.com/news/2015-10-01/chinese-cash-flow-shocker-more-half-commodity-companies-cant-pay-interest-their-debt
Macquarie focuses on the number of companies with “uncovered debt”, or those which can’t even cover a full year of interest expense with profit.
Wow thanks for the link.
Plug one hole… ten more open… it appears as if the central banks are on the verge of losing control….
from the ZH article:
“In other words, it is safe to assume that up to two-third of Chinese commodity companies are now at imminent danger of default, as they can’t even generate the cash to pay down the interest on their debt, let alone fund repayments.”
Ouch!
It looks like China is trying to corner the market in Ponzi schemes.
There’s a growing crowd/chorus who think China will be next in line to replace the $USD with the Yuan as the world’s next reserve currency and that China has it ALL figured out. Sometimes you can’t make this stuff up.
Corner the market in Ponzi schemes I like that 🙂
Wow! And in 2007, the companies had very little debt.
As you say, we all live in an interconnected world.
“Australia Is “Going Down Under”: “The Bubble Is About To Burst”, RBS Warns”
http://www.zerohedge.com/news/2015-10-02/australia-going-down-under-bubble-about-burst-rbs-warns
“Australia has benefited from China’s growth over the past decades, but has become a less diversified and commodity dependent economy in the process. It is now exposed to China’s slowdown, and may be unable to re-engineer itself quickly enough to avoid the end of the commodity super-cycle. The worst is yet to come, in our view.”
Dear Gail and All
This is to try to clear up some confusion that I may have sown in previous posts. The issue is competition versus cooperation.
The answer turns out to be teams competing against each other. To understand that statement, you must watch a rather lengthy lecture on YouTube by a biologist:
https://www.youtube.com/watch?v=N7osuDzmT5M
The YouTubes are Part 1 and Part 2. If you want the summary first, go to the 16 minute mark of Part 2.
The ‘team’ (from the standpoint of an animal or plant) is what we usually think of as the animal or plant plus all the microbial symbionts (partners). It turns out, on close inspection, that human development from the fertilized egg is not even possible without the symbionts.
To understand the discussion of cooperation versus competition, I suggest the discussion of parasitic wasps, in Part 1. Microbial symbionts have the ability to kill the parasitic wasp larvae to favor their own team..
In short, at one fundamental level the world is a competition between teams, with the respective teams being composed of critters which are dependent on each other in fundamental ways.
The Gaia hypothesis rests on top of the biological level talked about in this YouTube. The notion that Life is only possible when the teams cooperate, to some extent. I have nothing persuasive to say about the Gaia hypothesis.
Don Stewart
Bonjour Don,
I haven’t watched the videos yet, but what you’re saying about teams seems related to group-selection theory, which is quite often in conflict with the gene-centric view (Dawkins Selfish Gene, see also https://en.m.wikipedia.org/wiki/Gene-centered_view_of_evolution).
However, group-selection alone is also unsufficient to explain quite a lot of things. I recently came across another view, called MLS (Multi-Level Selection) that seems much more consistent and able to gather all previous findings, sometimes contradictory, under a single concept.
Of course, it’s a little bit more complex, as the “perimeter” of a considered “unit” can change, depending on the environment and what’s at stake, from the gene to the cell to the body and then to the group:
https://upload.wikimedia.org/wikipedia/commons/a/a0/Wilson%27s_Matryoshka_Doll_Multilevel_Selection_Model.jpg
The pic is from https://en.m.wikipedia.org/wiki/Group_selection#Multilevel_selection_theory
The Wiki article gives only a rough overview of MLS, and I myself have to dig a bit deeper into it. Anyhow, I feel like MLS could provide a good basis for a better understanding of how competition/cooperation works.
Just for fun, Evolution theories at work near you, very near:
http://navels.yourwildlife.org/bbb-project/results-and-data/
Makes me wonder what exactly “the body” means…
Dear Stefeun
One of the main points that the lecturer makes is that there is no such thing as what we have traditionally referred to as ‘us’. We simply cannot exist without partners. But the partners are promiscuous. Most of the bacteria which help us are also present in other creatures, which we may regard as ‘enemies’.
In fact, a bacteria that we regard as ‘the enemy’ may be ‘the friend’ in a different context. The complexity of life continues to surprise us.
Many humans still tend to think that ‘our genes’ are some gift from heaven which make us unique. They are mostly not unique. We got them from much earlier critters who learned to make some genes which performed a certain function which is also useful to us humans.
Of course, we also learn more about the epigenetic factors which either turn genes on or off. The lecturer has some things to say about that….you are a result of the epigenetic factors which influenced your grandmother, etc.
Don Stewart
Don,
I watched the 2 parts and it was really interesting, thanks for that.
It strengthens the idea that we live in a bacterial world, and this obliges us to look at things from a different point of view, to revise many conclusions, this time taking into account those critters and their (co-)history.
An individual is not an entity that can be isolated and survive by itself, instead it’s an assembly of several sub-ecosystems, themselves interacting with the environment (kinda fractal distribution of ecosystems). Boundaries are multiple, porous and moving, it’s all about networks constantly adapting to new equilibria. Slightly more complex than the “a+b” way of thinking we’re mostly using!
Another important (and simpler) takeaway is that the more diverse the “team” is (ie the higher the number of species of bacteria the individual hosts), the more resilient it is.
Already summarized as: the best pesticide is biodiversity.
What most of humanity refuses to accept is that we are not the dominant species here.
Humankind, in some like its presnt hominid form. has been around for a million years–give or take–
Bacteria on the other hand have been around for at least two billion years.
They have no awareness of us, other than to use our bodies as prairies. If humankind ceased to exist overnight, our passing would not be noticed.
If on the other hand, bacteria and similar micro organisms ceased to exist, we would all be dead inside a week.
So which is the top predator—us or them?
Right Norman,
except that it’s totally impossible to separate “them” from “us”.
As explained in Don’s videos, they are involved in many of our processes, which couldn’t happen without their “help” (included within each of our cells).
But there’s even more: we have integrated some of them into our genomes, they comprise up to 5-8% of it! they’re called transposons (see https://en.m.wikipedia.org/wiki/Endogenous_retrovirus#Endosymbiotic_ERVs_in_mammals).
They happen to have quite an important role. For instance, one of them is believed to have allowed the development of the mammals: “the ancestors of modern viviparous mammals evolved after an infection by this virus, enabling the fetus to better resist the immune system of the mother.”
https://en.m.wikipedia.org/wiki/Immune_tolerance_in_pregnancy
No genetic viral infection => no mammals!
+++++
http://www.zerohedge.com/news/2015-10-01/deflation-warning-next-wave
For some reason my copy & paste function is not working but anyway above is an article from Zero Hedge which says the world economy will have a Ka-Boom, 1-2 punch, the with Ka or first part being deflation as the next wave (which fits with Gail’s position), then the Boom part will be the worlds central banks adding so much QE it will lead to hyperinflation. Ka = Deflation, Boom = Hyperinflation. Sounds like a recipe for disaster.
Stilgar
QE won’t lead to hyperinflation. Collapse of the Petrodollar, yes.
Second: How about nationalization of the banks? And taking the power away from the bankers.
Third: I don’t see any talk of things becoming so bad overseas that the American psychic, by watching all the misery overseas, would NOT have the stomach to rock the boat. Thus go along with whatever the US massmedia direct at them.
Food for Thought:
South Korea, for example built a major steel industry, one of the most efficient in the world, by flatly violating the advice of the IMF and the World Bank, who said it was impossible. But they did it through state intervention, directing of resources, and also by restricting capital flight. Capital flight is a major problem for a developing country, and also for democracy. Capital flight could be controlled under Bretton Woods rules, but it was opened up in the last 30 years. In South Korea, you could get the death penalty for capital flight.
http://www.chomsky.info/interviews/20090210.htm
South Korea had the benefit of cheap energy and demand for steel. Energy is no longer cheap and demand is dead. So, the initial condition has changed. I am not convinced that nationalizing banks will do much. But, I have been wrong before.
“Second: How about nationalization of the banks? And taking the power away from the bankers.”
I’d venture that Bitcoin is halfway there. I can’t see it getting much further without help.
Re the World bank – I read something recently about electricity in Bangladesh. The World Bank insisted on competition as part of a deal for a loan. Bad idea. Cut off a bad customer and they just move to the next supplier.
Greg,
Before the end, all banks will be nationalized. Also, financial collapse will come first thus triggering state intervention. War (civil/nation) will be the last boost to these economies.
The banks will, eventually, not have any place to run, perhaps, to Israel.
US, alongside London, were a major, and the last successful for banking. US was a resounding victory for bankers. Actually, it still is.
Richard,
Bitcoin can be easily manipulated. And acquired by the bankers.
The points that I was trying to get across were:
a) Societal collapse will start overseas. By 2027 is all over for humanity.
b) US will offer safe harbor for global oligarchies. So, they will be running here (wealth flight to the US). I live in DC., US, by the way.
c) And State intervention.
Unfortunately, everyone will realize that, there’s no solution. We are all living a big economical, political, educational, and religious lie……. Welcome to the human race, right?
Anyway, religion, not science, wins on the end. Sharing, not capitalism, wins on the end.
In my opinion.
The thing I struggle with is after collapse on the scale we are headed to, what use is a bank after the collapse? Seems more logical the PTB would just head for the hills and let anarchy ensue.
I also do not see how banks will serve a purpose post collapse…. assuming there are any people post collapse…
The only thing that will matter post collapse is food… there will be extreme chaos….
Maybe 100 years down the line some form of banking will reassert itself…. but initially I see no need for banks…
Put a can of beans 50 metres up the hill from a kg of gold…. the hordes will race past the gold and beat each other to death over the can of beans….
I read that a 5% further drop in copper would pretty much kill Glencore…
Well…
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/09-overflow/20151001_nkt.jpg
And yet Glencore’s share price surged the other day….
The had to be the Plunge Protection team at work…
I wouldn’t put much faith in the old metrics of market analysis. I really don’t trust financial statistics anymore. After the 2008 bailouts and fed backstopping junk bets – the rules of the game were completely changed. This is no free market economy … I doubt it ever really was either. In a way it was free as in free flowing cheap oil. Once the free flowing cheap oil stopped the free market died with it.
I went to a meeting at the town hall yesterday about the new transmission lines the state plans to put through the town. Everyone at the meeting “knows” solar PV is the solution and no transmission lines are needed. Boy was that a spectacle to watch. Also off shore wind turbine for NYC. It is surprising how much humor can be had just sitting and listening.
It is like a slow motion train wreck.
Dolph, you cannot make people understand something if they have no facility for conceptualizing a differing reality from their personal belief system.
That is why the great mass of people, the ones who have been carefully domesticated over multiple generations – through a pervasive selection process that favored compliance – can not even begin to understand how the world really works. The same traits that were cultivated to ensure compliance with rules are also expressed in the a desire to believe in religious purpose & justice.
Since these are inherent traits, it is simply a waste of time trying to explain. They don’t believe such an alternative world exists, and if they do suspect it’s true, they don’t want to know; the truth is too overwhelming. Bottom line it’s why bread & circuses work.
But for the few who get exactly what you’re saying with respect to money has no value other than what the state creates in the form of demand (whether for the price of labor, purchase of goods/services, or payment of fees & taxes), then it becomes a very interesting game in which to study & play.
The one great advantage we have is we **know** what is going to occur. If you step back and contemplate that for moment and really savor what it means, you can really begin to sense the power that knowledge can provide.
Since the debt will never be paid – whether it is defaulted or devalued, the outcome is the same – here are few universal truths:
a. rationing
b. wage/price controls
c. media propaganda
d. assembly/speech restrictions
e. travel curtailment
But perhaps the biggest truth of all is that the people will never, ever be informed about the truth of the matter. Like all experienced livestock operators know, the very last thing they can allow is for the herd to be spooked.
So, if you want to play this game, stay out of rigged markets and focus on the information differential. Don’t try and educate anyone – join the side that is readying & fattening them for market.
“Join the side”
How do you do that?
“then it becomes a very interesting game in which to study & play”
Perhaps you could explain how you are playing…. how are you exploiting your profound knowledge to get ahead?
I listed them above – I know what is going to occur, the great masses do not. Simply arbitrage the information differential.
Don’t flee the conflict, stay right in the middle – isolation make you vulnerable. Safety in numbers and all that. Just make sure you’re in the right racial/social/religious group.
That doesn’t sound like getting ahead …. it sounds like a plan to survive… and not much more….
From an existential standpoint, I do personally plan on surviving as long as possible. I actually want to see how this thing plays out, it’s interesting. Somehow the thought of these criminals and dependents being supported by the system is unsettling. I’m not interested in them anymore, and when they pass I’m not going to be the hero saving them. But if I’m 80, crippled, and pissing myself in a nursing home, then no, pull the plug and give me some morphine.
I don’t have children myself but survival of one’s children is another thing to consider. Here little active thought is required, our genes do it for us.
As far as “getting ahead” I have no idea, or maybe I’m not ruthless enough. I’m a simple minded person, but I do have the capacity to think like a sociopath does. I haven’t figured out how to leverage this in real life, because there always seems to be a stronger, crazier fish out there.
“Don’t flee the conflict, stay right in the middle – isolation make you vulnerable.”
How do you stop them from taking your food?
The thing is….
What food will there be to take?
The truth ( or knowledge if you will ) puts me at peace. I am a scientist by nature and by trade now as well. I can blue collar with the best of them too. I simple desire the truth so I can mentally prepare myself for what is ahead.
Scenes from the 2008 (near) crash.
—–
Other financial workers in the City, who were at their desks after Lehman defaulted, described colleagues sitting frozen before their screens, paralysed – unable to act even when there was easy money to be made. Things were looking so bad, they said, that some got on the phone to their families: “Get as much money from the ATM as you can.” “Rush to the supermarket to hoard food.” “Buy gold.” “Get everything ready to evacuate the kids to the country.” As they recalled those days, there was often a note of shame in their voices, as if they felt humiliated by the memory of their vulnerability. Even some of the most macho traders became visibly uncomfortable. One said to me in a grim voice: “That was scary, mate. I mean, not film scary. Really scary.”
——-
“Back to business as usual.” This is how many interviewees described the post-crash atmosphere in the City. As the senior regulator put it with chilling equanimity: “Is the sector fixed, after the crisis? I don’t think so.” What we have now, he added, is “what you get with free-market capitalism – consolidation of all wealth into fewer and fewer banks, which end up dividing up the market as a cartel.”
—————————-
Seven years after the collapse of Lehman Brothers, it is often said that nothing was learned from the crash. This is too optimistic. The big banks have surely drawn a lesson from the crash and its aftermath: that in the end there is very little they will not get away with.
—–
Read the whole thing
http://www.theguardian.com/business/2015/sep/30/how-the-banks-ignored-lessons-of-crash?CMP=share_btn_tw
The thing is…
There is nothing to learn or fix…. what is happening in the financial markets are symptoms of the disease…
Of course The Guardian would — if they were able to acknowledge the disease — would take the position that we need more solar panels and EVs… those are the solutions to expensive to extract oil
That’s also how The Guardian thinks we can solve climate change.
There is no productive growth left. The only growth left is destructive/toxic growth. Examples of this would be Lehman, China, Goldman Sachs, Citigroup, sub-prime etc. A hockey stick graph of corruption. First the corruption increases slowly then all of the sudden everyone is doing it because that’s all that is left. The next step is money becomes useless and therefore banks become irrelevant and the system collapses.
Most definitely.
There is no such thing as an economic perpetual motion machine…. when the cheap energy runs out — the motion machine stops soon after…
We are approaching that moment….
Commodity producers are collapsing because of the lack of demand for their products i.e. consumers would like to buy more stuff — but haven’t the means…
I struggle to see how the central banks stop them from collapsing into bankruptcy … they have already tried to deal with this using macro policies — see China Ghost Towns etc…. so what more can they do?
They can step in to support failing giants like Glencore by bailing them out …. but this is not a one-off … this is literally an entire industry — many thousands of companies are involved….
Hei Gail!
I should be very happy if you could give me an answer to my questions, and some relevant facts to back it up. I see the central banker of Norway, Øystein Olsen, now starts mentioning negative interest rates: http://www.dn.no/nyheter/finans/2015/09/30/1433/Renten/-vi-har-n-lrt-at-null-ikke-er-en-absolutt-grense
Do you think this can happen? Why can it happen? How far down can negative interest rates go? Minus 5 – 10 percent or lower?
I see negative interest rates can be very positive for risky investment. If the interest rates in the bank is minus 10 percent, then a project offering minus 5 percent “return” on your money would become a “lucrative” alternative.
I discuss this question with someone who thinks negative interest rates is absolutely impossible, so I need some arguments and facts to prove him wrong.
?Are we talking nominal or real negative interest rates, I guess the former, because they are already (negative) there in terms of forced vaporization of real value parked in non speculative assets. Besides, if I’m not mistaken nominal negative interés rates are already in place for instance in Switzerland and Sweden?, the EU/ECB mandarins are also pushing it for wide adoption prior 2020.
Simply, TPTB are on purpose herding masses into speculative debt, junk rated financial instruments, it is a rehash of the 2007/8 conclusion with the distinction now they want to impoverish even the frugal, conservative savers, which are trying merely to survive with the nest egg. Nowhere to hide is the name of the game. Your own money are in fact NOT YOURS anymore, happy playing.
To a significant extent, our debt Ponzi arrangement depends on a combination of growth and inflation. The inflation helps get rid of old debt, and the need to repay it in the dollars in which it was lent.
Once we get to the reverse–deflation–we also tend to get to lower debt amounts. The combination tends to lead to a collapse of the whole Ponzi arrangement. I think that is the big issue.
Yes, but I think it would help a little on the debt situation if the banks had a negative interest rate on minus 10 percent or more. Then risky investments should become very lucrative.
“Once we get to the reverse–deflation–we also tend to get to lower debt amounts. The combination tends to lead to a collapse of the whole Ponzi arrangement. I think that is the big issue.”
Or otherwise known as a very rapid collapse….
Oyvind, I am with your friend. I do not see how real negative rates are possible. As in I put 100 krone in the bank, I come back a year later and they give me 98 krone. In that case I would just stick it under my mattress. Maybe even buy a safe and have it cemented in place.
As to effective negative we already have that inflation at 4% with bank interest of 0.25% is effective negative 3.75% rate.
That’s exactly why they plan to ban cash! You can’t store digital money under your mattress. To grow debt is no longer possible, so I think the only possibility left is to squeeze depositors with real negative interest rates. Then you can choose to lose your money with an annual rate of 10% per year plus inflation, or to spend them on very risky investments, as a last attempt to force the system to continue for a little longer.
U have shown that wages have not grown for most US workers, but r there really fewer cars on the road? r people driving lesser distances? have petroleum inputs in global agriculture fallen? are people flying less in the US? I have friends flying around the world simply by springing credit card bonus traps. the number of US air passengers tripled from 1970 to 2011
http://www.theatlantic.com/business/archive/2013/02/how-airline-ticket-prices-fell-50-in-30-years-and-why-nobody-noticed/273506/
the US isn’t the largest car market in the world anymore. what portion of China was driving when the US wage/productivity growth slowdown started? last year Chinese folks bought almost 20 million cars. wage growth in China is so stupendous that some industries have migrated almost entirely to SE Asia and S Asia. one expects those people r buying more cars and driving more, too.
http://www.wsj.com/articles/chinas-automobile-sales-slow-in-2014-1421046195
only a few years ago the US had inflation above 2%. if home prices in the rest of the Anglo-Saxon world indicate US potential, there’s a lot of mortgage credit yet to spit out.
labor markets r still tightening in the US. wage growth will get to the least skilled people last, which is important because low-income people in the US consume the marginal dollar of income. baristas, cooks, security guards, cashiers and nursing assistants were among the biggest raise recipients ytd. lots of cities and states have raised their statutory minimum wages in the last few years. given a new presidential electoral turnout and low unemployment rates, there will b more
http://money.cnn.com/2015/09/22/pf/jobs-biggest-raises/
I don’t c y the low prices of today portend such broad erasure of production. sure, we can expect a series of marginal producer closures, but won’t that show up in the price, eventually? I think u make a compelling case for oil’s preeminence in the business cycle, but I don’t understand how this necessarily leads to collapse. oil went much, much higher before the last recession
Have a read of this then come back if you still have questions:
THE PERFECT STORM (see p. 58 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.
But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.
http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
Great link, FE. For those that have not read it yet, ck. out figure 1.5 ‘Nearing the energy returns cliff edge’. It has EROEI declining to meet head on cost of energy as a % of GDP. That in a nutshell conceptually tells the tale and is what leads to all the knock on effects moving towards collapse. Gail does a good job of disseminating those knock on effects to help better understand exactly how it is unfolding.
The part that The Perfect Storm leaves out is that fact that the surplus energy equation is held up by debt. Without growing debt, the supposed surplus we have in energy disappears. Once we get above the $20 per barrel cost level that we had in the pre-1970 cost era, we don’t really have surplus energy, all we have is the illusion of surplus energy, held up by ever-more debt.
Let’s give some credit to the Austrian School of economics. Part of the story is zero cost money allowed people to invest in expensive to deliver oil, shale oil, shale gas. This created a glut of oil, nat gas. Not a glut of affordable oil, nat gas a glut of unaffordable oil and nat gas. So now people buy what they can afford and capital equipment that was built based on a distorted price of money will be stranded. The stranded assets are a REAL loss to human society they were built with real stuff like steel, energy, labor.
In a real capitalist economy no one would build oil fields that the customer could not afford to buy from. But in a rigged crony capitalist system investment are random without evaluation of risk, need, logic. I expect even more irrational investments, enable by the central authority, as fake solutions to real problems.
“Part of the story is zero cost money allowed people to invest in expensive to deliver oil, shale oil, shale gas.”
If not for this we would not be having this conversation….
The PTB made the decision to enable shale with cheap cash in order to keep BAU going a few years longer — it was a stroke of genius….
Gail, I think this is the data you are looking for.
http://www.eia.gov/todayinenergy/detail.cfm?id=22992
Basically US producers are going to collapse, because they are held up by debt.
The trick is not to be tank the economy when this happens.
Agree – it is not a definitive document …. but it is a good summary that helps people understand the problem
Gail – it might be useful to take this summary and rewrite it creating what would be the definitive document that people could share if they felt the need.
Even the MSM are able to see that things aren’t going perfectly well. For instance in the commodity market:
http://assets.bwbx.io/images/icKQE1G.q4fA/v2/-1x-1.png
“In commodities you’re going to get a lot of failures, companies closing up,”
http://www.bloomberg.com/news/articles/2015-09-28/with-glencore-commodity-rout-beginning-to-look-like-a-crisis
But the funny thing (ironic) is that they blame it on strange theories ; from this same article:
“Commodities may be in the fourth year of a 20-year “bear super-cycle,” according to an Aug. 14 research note. The analysts looked at commodity busts dating to the 18th century and found them driven by factors such as market momentum rather than fundamentals, LaForge said Monday in an interview.
The good news: most of the damage is done in the first six years, LaForge said.”
So, no problem, we’ll suffer for 2 more years, and then we can expect a slow-motion recovery for the following 14 years.
Er… Why?? what is such an oracle based on? the planets? sheep guts?
The research note isn’t linked in the article, but I think they refer to this one (http://www.cmgwealth.com/wp-content/uploads/2015/08/Oil-and-The-Super-Cycle-Overhang-John-LaForge-NDR-August-2015.pdf), in which I’ve not found any convincing argument. But maybe I’m wrong.
Thank you, Fast Eddy. I will read that after work today. In the meantime, please explain the monetary and energy disconnect.
Humans r doing more non-farm work than ever, around the world, and consuming more, too. It seems that everyone in the third world has a cell phone. More and more of them have cars. That’s measured in money, but it also means more consumption, and higher trend prices for goods whose supply grows slowly, doesn’t it?
Glencore reminds me a lot of Enron.
Looking backwards at this is not helpful… it is the here and now that is important…
China is by far the largest market for commodities… and demand in China is cratering…. growth in the auto market in China has fallen off dramatically..
Also consider the huge problems in Brazil, Australia, Canada, the US, Europe and just about every other country…
Commodity prices are the barometer for global demand… if they are tanking then there is definitely big issues with growth — as in there is very little… if any
Amazing … isn’t it… but the sheeple need to be given hope…
If the problem is lack of buying power around the world, closures in production don’t necessarily send prices back up by very much, for very long. There are simply too many commodities affected, in too widespread locations.
One important factor regarding the collapse is the fact that robotization and computerization systematically destroy the physical and intellectual skills of those who use them and this way the independence of the human beings. Thus the population reduction in case of longer interruptions of energy supplies will be very fast. The idea of interconnection via various energy/communications networks makes the human race more and more fragile. We have billions of people who will die within a short time span when those networks fail.
It is more than sure that not only brutal force is needed for survival, but also the intellectual skills. The combinations of these two gives the answer who will survive. All those who are “consumerist black holes” will die. The real humanism being not in giving money or food to others (as was proven wrong many times, when the hungry masses kill the leaders of their revolutions), but in reusing and transforming the damaged world so that it is beneficial for the man. Here, of course, not todays world or the past world is meant. (E.g. you can use the collapsed building as the new protected garden space, not destroying and removing it completely, or use your current house as a barn or stable and build a smaller house instead of it to continue living in it. I.e. using the things from the collapsed world so that you expend minimum energy in the process of changing them into the most suitable thing.)
Tourism in Vermont is dead compared to 20 years ago. Yes, there are FAR fewer cars, fewer hotel rooms rented, far fewer restaurant meals eaten.
“Tourism in Vermont is dead compared to 20 years ago. Yes, there are FAR fewer cars, fewer hotel rooms rented, far fewer restaurant meals eaten.”
Tourism in general is down from like 50 years ago, when everyone who was middle class or above jumped into the station wagon and rolled off to a camp for at least a month. Most families were single income. You could live on less money, because you didn’t have 1000/mo per child daycare bills. Most people were able to settle in the same spot for their lives and establish themselves in a community as well as develop things that took more time and space.
Two recent demographic cases from Slovakia:
Fahter disconnnects son from artificial ventilation that his son was long-time dependent on. The long term burden, when there was no place to put his son into care, forced him to do the euthanasia himself.
http://spravy.pravda.sk/domace/clanok/369284-vycerpanie-mohlo-dohnat-otca-k-eutanazii/
73-year old mother, a retired teacher, living with her son, commits suicide jumping out of the window of an apartment house. Her 34-year old son does the same in the afternoon of the same day after the interrogation by the police. As his father died when he was a child, mother was probably the only person he could rely on.
http://kosice.korzar.sme.sk/c/8019497/najprv-sa-zabila-mama-o-niekolko-hodin-syn.html
The next stage will be the spread of the Japanese “kodokushi”.
https://en.wikipedia.org/wiki/Kodokushi
A few years ago Chinese workers living in squalid conditions on a manufacturing job site location were jumping out of their apartment windows to commit suicide so frequently the corporation owners installed nets to save them for another long hard day of tedious minimal pay contractually locked on site employment with no chance for a better life or any opportunity to spend their meager earnings other than at the corporation store.
And let us remember the Pullman Car strike of 1894 where worker were not paid enough to feed themselves. Keep working until you die of starvation.
Great article.
I’m addicted to your blog, Gail.
Glad you liked it.
Gail, you have a unique product, civil discussion on the internet. You could build a business if you wanted. Pick 24 topics and have 24 civil discussions, hire 24 reasonable moderators. I would happily pay a nominal fee per year.
Empty shelves of the Carrefour retailer in Slovakia:
http://t4.aimg.sk/magaziny/C_xX77xYQIHbzpO8PdqS0A.1280.jpg?t=L2ZpdC1pbi84MDB4MA%3D%3D&h=K_W_AOVOv-_ORhEvqFrBSA&e=2145916800&v=3
http://www.aktuality.sk/clanok/300458/prazdne-regaly-a-ospravedlnenie-konci-carrefour-v-poluse/
Tesco in trouble:
http://www.irishtimes.com/business/retail-and-services/tesco-considering-selling-central-and-eastern-european-unit-1.2343396
What shifts are going on?
Profit margins of selected retailers in Slovakia (2013):
http://ako-investovat.sk/uploads/blogs/1025-12617.jpg
Lidl and Kaufland profited from the big loan provided by the World Bank, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC):
http://www.theguardian.com/business/2015/jul/02/lidl-1bn-public-development-funding-supermarket-world-bank-eastern-europe
“The banks said their funding for Lidl and Kaufland would help the companies expand across central and eastern Europe, creating jobs, opening new markets for local producers and bringing “good quality, affordable food” to poor consumers.
However, these claims have been attacked by trade unions and development groups. Luiz Vieira, coordinator of the Bretton Woods Project, a British NGO that monitors the World Bank, said: “This idea that an injection of capital to multinationals will lead necessarily to good, sustainable growth has been repeatedly proven false over the last 20 years.”
“sustainable growth”– that is the problem. It is a contradiction.
A real oxymoron isn’t it. Sustainable needs to be erased from the English dictionary as there really is no such thing.
“Sustainable needs to be erased from the English dictionary as there really is no such thing.”
It was applied to agriculture like 20+ years ago probably in the 70s. It usually refers to 3rd world farming techniques. But since the inception of organic farming, some of that has come more to the mainstream.
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This one is strictly for Gail in recognition of all of her good works.
Dennis Brown was 12 or 13 years old (1970) when he recorded this composition on the legendary Studio 1 label.
https://www.youtube.com/watch?v=4Bv1JFwDamw
This is Dennis in 1978
https://www.youtube.com/watch?v=mnNEaWj8sCQ
“The sun will be turning to darkness and the moon to blood.”
Dennis Brown died in 1999.
Thanks! I noticed that both of those recordings had 100% thumbs up ratings, with a fair number of ratings. A person doesn’t see that too often.
http://www.bloomberg.com/news/articles/2015-09-30/glencore-gains-for-second-day-in-london-as-metal-prices-rally
I smell the Plunge Protection Team in action here…..
So when Glencore wants to sell big pieces of its holdings, who is going to buy? Or won’t that be an issue?
Glencore hoped to do a hostile takeover of Rio Tinto last year IIRC, that was part of the reason for the debt. Rio Tinto is therefore unlikely to do Glencore any favours, though that is mere speculation on my part. Zerohedge seems to have covered this quite well. They seem to suggest parallels with Lehman Bros, and that seems a fair assessment.
All of Glencore’s competitors have similar problems…
What percentage does the cost of oil constitute as a part of the gross world product? And similarly, the percentage of the cost of fossile fuel ? I guess that the cost of remaining commodities (excluding agrarian products) is an order of a magnitude less than the cost of fossile fuels as a fraction of gross world product? This kind of data would be interesting to know. Continuing the business as usual scenario, these percentages can be expected to rise until the cost level of commodities gets unsustainably high. But in the “Tverberg scenario” it’s not necessarilly so, since GWP declines quickly but we also cut back on the most expensive commodity production.
Actually, the problem is that the energy percentage of GDP doesn’t rise until it gets unbearably high. Instead, the amount of energy purchased starts falling. Manufacturing shifts to other parts of the world with cheaper energy products. The growth of the part of the world with high priced energy products falls, so that it needs less energy products. Also, wages start falling in the area with the high energy costs, because of the shift of jobs overseas. Without wages, the former workers cannot buy energy products. This is part of what keeps energy use low.
The economy is an interconnected network. If the energy percentage tries to go high, the interconnected nature of the system makes its share fall, due to job loss, bankruptcies, and other adverse events.
The real situation is that economic growth comes from more and more energy use. To use more and more, the energy really has to be cheap, to be affordable. High priced energy causes economic contraction, keeping the economy from needing much of the high priced energy.
Gail,
IMHO your above comment is a good explanation why a redistribution policy wouldn’t work well or for very long (unfortunately).
Redistribution, or “Helicopter Money”, or “Cold-Fusion” (http://www.bloomberg.com/news/articles/2015-09-29/-cold-fusion-needed-as-central-banks-look-for-help-with-growth), etc… whatever consists in increasing the purchase power of lower and middle-class.
As summarized in your last sentence: “High priced energy causes economic contraction, keeping the economy from needing much of the high priced energy.”
In any case, I find this demonstration much more convincing than the psychological arguments previously advanced, such as “drawbacks of communism”, or “the wealthiest wouldn’t be happy”. Not that I deny the role of psychology in our financial economy, but wrt redistribution I think it’s far from being the priority, there are more sturdy reasons.
HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
The IMF wrote this and the IMF is an extension of the PTB — they know exactly what is going on.
Right. The major issue is that the high priced energy becomes non-competitive. If everyone knows that Hawaii has high industrial electricity rates, the industry will go elsewhere, even within the US. If a state has rates in the 10 cents per kWh range for electricity for industrial users, they will go elsewhere.
One of the major reasons that globalization took off the way it did is because China and India added lots of cheap coal to the energy mix. Industry left the US and Europe for the use of the cheap coal (As well as cheap employee costs, partly because the employees’ homes were heated with cheap coal). When Europe added carbon taxes, it just made the exodus worse.
http://www.bloomberg.com/news/articles/2015-10-01/fiat-chrysler-backed-by-jeep-lineup-extends-u-s-sales-streak
Another Sign That the Subprime Auto Market Is Getting Hot
http://www.bloomberg.com/news/articles/2015-04-22/another-sign-that-the-subprime-auto-market-is-getting-hot
“Studies show that subprime loans, which have been blamed for the country’s mortgage crisis, are growing at a staggering rate of more than 130 percent since the financial crisis,” said new York’s DCA Commissioner Julie Menin in a statement announcing that office’s probe. “For many families, especially those with low incomes, a car is one of the biggest purchases they make and if they are looking to a subprime loan, it’s because they are already struggling financially.”
http://blog.credit.com/2015/03/is-there-a-subprime-car-loan-bubble-111925/
Subprime is approaching 30% of total autos sold… this is a form of helicopter money …. you want a car? got a pulse? ok — you qualify….
That keeps GDP pumping …. that makes sure auto companies don’t lay people off…. lots of knock on effects happen when you increase sales by 30% by giving cars to bums…
But let’s not be fooled by these numbers — this will of course end badly.
This is what Gail and Fast Eddy have been saying that in order to depend on RE you need a system in place and functioning because they require maintenance. And our system depends on Fossil Fuels.
“Germany Now Faced With Thousands Of Aging Wind Farms”
http://www.zerohedge.com/news/2015-09-30/germany-now-faced-thousands-aging-wind-farms
Per a quote from the article. So the economy has to function or you just walk away from the repairs, much like leaving the oil in the ground.
“However, the problem now is that a large number of the 25,000 odd turbines have become too old. Close to 7,000 of those turbines will complete more than 15 years of operation by next year. Although these turbines can continue running, with some minor repairs and modifications, the question is whether it makes any economic sense to maintain them?”
I expect that most wind turbines will end up aging in place–no one ever takes them down.
I expect they take them down and put up the newer ones with the better technology, or retrofit the newer technology. They probably already have a lease, permits and such. They are making money.
“You are still the most dangerous person stalking this blog.”
+++++++++++++++++++++++
Maybe we can find another energy source that allows us to manufacture wind turbines inexpensively – eh?
Pardon my cynicism, I expect that governments will provide subsidies to replace old wind turbines with new. You know it makes sense because it’s only fair 🙂
Well in the last years they call it repowering. It is quite a business in Europe. Take down the old head and install a maybe a bit more efficient new one .
In CA there are huge fields of wind turbines and I’ve noticed there are always quite a large number of them not turning even in strong wind, suggesting they are in some stage of disrepair. I wonder what the costs are to change out the old head as MM suggests and what are the implications long term for their profit viability.
“In CA there are huge fields of wind turbines and I’ve noticed there are always quite a large number of them not turning even in strong wind, ”
If they are fairly short towers, then they were put in during like the late 70s or early 80s. Some of the others can only run when the migratory birds aren’t coming through. Some of them went EOL.
They figured out the taller towers and bigger turbines are more cost effective.
When the wind gets too strong, the blades turn into the wind and depower. This is one of the problems for the grid that spinning reserve has to deliver on.
I know that offshore, there are often maintenance people housed there 24/7 to take care of the wind turbines.
One insurance person I talked to told me, “Wind turbines don’t run on conventional fuels; they run on a steady supply of spare parts.” Actually changing out the head would be a major expenditure. Offshore, it would certainly require a helicopter, since even major repairs require helicopters offshore.
a steady supply of spare parts, especially off shore. That is a good one.
But the energy source used just to move the new part to where it is needed and do the actual installation is a fossil fuel derivative(i.e. diesel) not wind or solar or hydro etc.
I hadn’t run into the “repowering” term before.
The offshore wind turbines are much more effective bird killers than previously thought, a new study shows: http://onlinelibrary.wiley.com/doi/10.1111/1365-2664.12529/full
We need to build them higher to avoid the birds, according to the article. I am sure that adds costs.
“We need to build them higher to avoid the birds, according to the article. I am sure that adds costs.”
It adds to the cost but it also adds to the production because there is more wind more often at higher altitudes. They have been increasing in height over time. The tallest onshore one is now 720ft.
So wind turbines amortized over 15 years, nuclear power plant 40 miles north of NYC is over 40 years old and still going maybe 5 to 20 years. 45 to 60 year amortization period for nuclear.
“45 to 60 year amortization period for nuclear.”
It is probably 50. I think coal and NG are figured at 50.
Nuclear is still clocking more expensive then coal. They both have waste issues with spent fuel but nuclear is far more costly.
A big part of the cost issue with nuclear is the big rise in costs after Three Mile Island and Chernobyl.
This is not to say that nuclear even now is a very good idea, but there are still countries now building nuclear power plants with cost levels fairly similar to our original cost level. (China, India, etc.) So there is not a level playing field world-wide with respect to nuclear costs.
“So there is not a level playing field world-wide with respect to nuclear costs.”
Nope but the cost of building a unit is about the cheapest part of the whole process. Decommissioning them probably costs more then building them, and we have a huge and expensive nuclear waste issue as well. Also uranium is fairly expensive.
If you build the cheaper plants, you are looking at more 3 mile islands and Chernobyl incidents.
I think it was a good idea that just hasn’t developed. I know China is going gangbusters for nuclear right now.
I think they just commissioned a new one in Georgia. Which is next to an old one, and uses the latest tech. The nuclear industry hasn’t died. It keeps getting better but it hasn’t been leaps and bounds.
I live in the area that is paying for the new nuclear plant in Georgia. It has been subject to delays and cost over-runs. This is probably expected, when we have not building them for a while.
I do not know how the monopoly electric companies are “regulated” in Georgia but here in New York they are guaranteed a profit on every penny they spend. So cost over runs are increased profit. They are incentivized to spend spend spend. In theory the public service commission is supposed to limit them. In practice Roosevelt was complaining about the PSC in NY in the 19330 as not serving the public and nothing has changed in the intervening 80 years. Our PSC just selected the most expensive of four bidders as the winner in a competitive bidding process that offered better bids at half the price!!!!
Is there any chance that nuclear power will get drastically more efficient/cheap, given the new investment, learning by engineers in China and India? China seems to get great prices for its infrastructure, generally
I think they also take shortcuts that may at times affect safety. There have been some collapses. For example, Rail Line Collapses in China a talks about an overpass bridge collapsing shortly before a new train line was to go into operation in 2012.
Russia has contracts across the south for nuclear power plants. As you have pointed out business migrates to low cost nations. Part of low cost is willingness to build nuclear plants with less overhead.
That seems to be the way it works. The countries that ignore pollution and take the riskiest approaches come out ahead in international competition.
Gail, the graph is a bit old, there are reported severe cost over runs buy the current (latest) generation french nuclear industry both domestic and for exports, easily googlable.
I know that Areva (the French nuclear company) has serious financial problems because of the cost over-runs.
The distribution of nuclear power plants in Eastern Europe corresponds with the standard of living/economic development of the countries of this region before the collapse of the Soviet block:
The highest number of nuclear power plants capacity to inhabitants was in Czechoslovakia: 2 nuclear power plants in Czech Republic, 2 nuclear power plants in Slovakia. Other East European countries had only 1 nuclear power plant per country. Poland or East Germany having no nuclear power plant, were still relying on coal. Poland and East German were also among the first places where the fall of the communist bloc started:
https://en.wikipedia.org/wiki/Revolutions_of_1989#Poland
In my opinion, this high capacity of nuclear power that replaced costly coal was one of the key reasons why the communist regime could last so long in Czechoslovakia and the fall of the communist regime was quite soft with the so called Velvet Revolution.
Thanks to the nuclear power, Czechoslovakia could maintain its industrail character and become the new center of car-making in Europe. The new nuclear power capacity is also the reason why the new car maker comes to Slovakia, the new nuclear power capacity being just between 30-40 km from the new planned car factory:
http://www.liverpoolecho.co.uk/news/business/jaguar-land-rover-announces-intention-9831644
However, the costs of the new reactor units went beyond the original budget after Fukushima:
http://www.nucnet.org/all-the-news/2015/04/23/slovakia-implements-fukushima-lessons-at-mochovce-3-and-4
http://www.nucnet.org/all-the-news/2015/09/25/russia-plans-to-sign-contracts-for-30-to-40-overseas-reactors
Russians making friends and money.
Yes MG energy is the basis of wealth. Good on the Slovak Republic. Little unclear on Czech versus Slovak who has the nuclear plants?
What is interesting about the car industry in Slovakia is the fact, that lack of the suitable workforce is already being solved by workers from Romania. Low wages compared to the challenges of the technical education make the technical education not attractive to young people.
I am affraid, that Germany, needing to fill very high numbers of empty technical positions, will solve nothing by importing the workforce from the Middle East.
In general I’d agree, but to be fair in reality most of the nuclear sites get some sort of substantial efficiency overhaul each ~20yrs (new turbines, new controls/electronics, new HV powerline distribution block, ..), which is not cheap at all. Also nukes are not working 365/24 as generally assumed, usually several weeks/months per year they have to stop for planned or often times forced unplanned maintanance action.
But in the final analysis (for our current civilizational setup*) after 40-60yrs nuclear site lifespan should be a bit better overall proposition than faster dying RE installations, for details on nuclear check Euan’s site..
*obviously RE could work just fine but in very different setup, largely in nonurbanized setting.. but people for some reason don’t like to live like aggrarian monks in caves but rather breed like rabbits inside large cities with multistory buildings, which is an energy sink par excellance.. As we learned now quite impossible to easily let abandon for better models of living on this planet, so perhaps next time.. lolz
If electrical vehicles become a significant part of the landscape, it will change the way we think about a lot of things. I’m not saying this guy has nailed it, but things will change:
http://www.zerohedge.com/news/2015-10-01/apple-amazon-tesla-and-changing-dynamics-car-industry
“What is also amazing about electric cars is that they aren’t that much different from smartphones. Smartphone prices have declined significantly over the years because their components became ubiquitous and commoditized. With the exception of spark plugs and tires, most components of a GM car will be different from the ones you’ll find in a Ford. The opportunity for scaled manufacturing and so commoditization is very limited in the auto industry.”
Resources, energy and the economy required to build electric cars are all in a state of contraction. I don’t see how there can be a wholesale replacement of the current ICE transportation infrastructure with electric vehicles in a contracting world. Smartphones and electric cars serve two different needs and have little in common. The raw materials to build smartphones is absolutely decreasing with time as good sources of the elements of the periodic table (required to build computers and smart phones) are depleted. As society becomes more and more complex our gadgets span more and more of the periodic table. Critical elements become impossible to mine. Oh but we can recycle. Poppy cock. Recycling elements of smart phones will become increasingly energy intensive or nearly impossible as the elements become more dispersed. Recycling electronics is not like recycling clothing.
China warns its rare earth reserves are declining
http://www.bbc.com/news/business-18516461
Gail should consider installing a filter that treats any posts including topics related to renewable energy, electric vehicles and other such nonsense as spam.
Besides interrupting interesting discussions related to our developing reality, it also distracts Paul who spends half his time responding/refuting these misdirections instead of reconciling himself to a slow, grinding descent.
Let us once again review first principles: (central) banking and (technology) industry are the product of (cheap) energy. Both are only 400+- years old. No economical, easy to access/process/deliver fossil fuels, NO banking & industry.
Get it? It’s not very difficult to understand. So, yes, central banking goes away [state re-assumes role], as do (global) supply chains, JIT wholesale/retail goods, etc – the whole gamut of what we perceive today as “reality”.
But that doesn’t mean society ceases to function. For 12,000 years, domesticated man has lived within the construct of “civilization” ie the STATE. Long before wages, salaries, taxes and prison (for those not acceding to the system of voluntary slavery) created our modern control systems, first outright slavery, then feudal tithes & sworn allegiances were the favored means of supporting master:servant mechanisms.
Is everybody still with me? So why is it so difficult to understand the process of the long re-trace? And since the details of the long re-trace are really the only true variables, isn’t that what should be the topic of discussion? Shouldn’t there be a forum by which this process can be theorized, game played and otherwise dissected, analyzed and mulled?
We’re going back whether anyone likes it or not. Inserting yourself into processes that will be utilized to re-introduce these measures is one of many possible techniques for playing along as we go.
So, yes, central banking goes away [state re-assumes role], as do (global) supply chains, JIT wholesale/retail goods, etc – the whole gamut of what we perceive today as “reality”. I agree.
But in the absence of those things, and in a biosphere that is pitifully depauperate, poisoned and irradiated, any ‘society’ is hardly going to be worthy of the name, and those at the top of the food-chain are likely to be the hardiest and most brutal, surely?
And if the Bushes and their ilk really are planning to set up fiefdoms in Uruguay or similar, they will only last as long as their underling’s patience and loyalty in a lawless world, ie not long.
Why is the re-trace considered a negative event? Why is discussing these issues the domain of pessimists? Where are the players? Why are any assuming that players aren’t completely in tune with what is occurring?
Question: Does Musk really believe in technology, or is it just a vehicle for success? Likewise, do religious leaders really believe in doG, or is it simply a viable option for control? (You know, second sons and all.) Lastly, do western political leaders really believe the tripe about “exceptionalism”, or is it just an effective lever to manipulate the sheep & help satisfy personal ambition?
There are those – like myself – who are completely agnostic about specific details with respect to areas of opportunity. It simply does not matter; what matters are the advantages in either knowledge, timing, capital, etc available to achieve a dominant position aka “winning”.
So, let us discuss feudalism. Why is it considered in a negative light? What disadvantages does it hold (for the majority of people) with respect to the current construct? If we cannot prove that it is an inferior system of patronage & support, then why won’t it be readily embraced as we begin the descent? Why won’t guaranteed rations – in exchange for work (and no, it doesn’t have to be brutal whip bearing masters), with a nice allotment of drugs/alcohol, be welcomed & accepted as a proper manner of living?
You can see where this is going – it’s once again an argument against a sudden break. Those waiting for end of the world scenarios are going to be sorely disappointed. So too will those who think this is a taboo subject that is only whispered among the cognoscenti. What happens when the move towards carving out fiefdoms becomes the new gold rush?
“feudalism. Why is it considered in a negative light?”
From the perspective of the PTB —- no private jets, no BMW, no electricity
From the perspective of the average westerner — no mobile phones, no facebook, no electricity, get to live like a peasant in present day Bangladesh
If only I could see the look on your face when the global economy collapses into rapid uncontrolled deflation — then bankruptcy — the financial system dissolves — the grocery stores empty — and you are suddenly faced with the reality that ‘it does matter’ — that there is no ‘winning’ this time…. and you are thrown into a world of chaos…
To observe such a moment would be priceless. Liking watching cognitive dissonance lift and reality actually sink in.
“You can ignore reality, but you can’t ignore the consequences of ignoring reality”
I have plenty of friends who hold similar attitudes — they believe they are smart enough to handle anything — they believe the Fed will ultimately step in and make it all better — all they need to do is work out how to play this ….
Some of them made a great deal of money in 2008 — the kind of money that is referred to as ‘fuck you money’
They know their is something big on the way —they believe they are savvy enough to adapt to what is coming — but they do not understand the nature of this beast…. they do not understand that this time is different…
They’ll be under the bridge — fighting for their shares of dead cats roasted over plastic shopping bag fires….
Wondering ‘WTF just happened?’
I think the word that applies to B9’s position would be:
HUBRIS
“Gail should consider installing a filter that treats any posts including topics related to renewable energy, electric vehicles and other such nonsense as spam.”
She actually brought it up. Most of what I have seen posted is merely corrections in the inaccurate information being presented, and when corrected the posters resort insults and personal attacks. Now you are suggesting censorship, because you can’t win. What a brilliant way to have an honest discussion.
“Gail should consider installing a filter that treats any posts including topics related to renewable energy, electric vehicles and other such nonsense as spam.”
++++ this is not the right place for such discussions — the majority of the people are on this site because we understand that 1. renewable energy is nonsense and only exists to appease the green vote and 2. even if it had a chance of working it is far too late in the game
B9 – since JIT goes then of course oil goes.
There is a weak underbelly to your retracement argument….
1. Where will the food come from?
I’ve posted it before — but here it is again 7.3B people — who are fed from land that is almost all farmed using petro chemicals — which will not produce food without years of intensive organic inputs.
What will happen when 7.3B people are hungry?
What will happen when the military men are hungry?
2. What will we do about 4000+ spent fuel ponds?
No electricity or spare parts mean they water boils off and we get massive releases of radioactivity for decades. Not Fukushima-like releases… because the spent fuel ponds are still cooled there (and the cores are still cooled by spraying sea water onto them 24/7)…. we are talking explosions and releases of radiation on an epic scale – not one off’s like an atomic bomb…. these keep spewing for years….
Your story is like a bad investment prospectus…. it all sounds rosy …. until the hard questions start to get asked.
I am asking the hard questions. And I am not getting answers.
I am just getting another flavour of Koombaya — as in — don’t sweat the details — everything will be ok …. Captain America is on the job….
It has finally dawned on me why you have such a difficult time with the prospect of a slow, grinding descent, and that’s because you’ve never gotten your hands dirty. Now, please don’t take that as any form of criticism, but rather as an observation that you seem to think mechanical machines are some kind of exotic mystery.
They’re not. Oh sure, today they are machined with incredible precision and tolerances, and controlled with processors monitoring every operational aspect. But I’ve got a secret for you: all that shit isn’t necessary. The most rudimentary components can create/maintain a serviceable motor – whether internal combustion, steam, electrical – with very loose standards. Heck, did you know the earliest steam engines needed someone (actually a team) to manually operate each (pump) cycle?
So your notion that without existing supply lines continuing to provide precise components will send us all to perdition is nonsense. We are adaptable – stuff you see today is only as complicated as energy & finance have allowed, but it’s not a binary 0:1 proposition. Once again, please review the links I posted earlier about Speer’s production management in the face of the Allies’ strategic bombing campaign. Secondly, you apparently think you have some kind of trump card with the constant refrain of “who’s gonna feed the people?” What part of “95%+ of serfs worked the land” is being lost upon you?
Ditto for spend fuel storage and any other issue confronting the power down: people power. In the entire history of all species on Earth, only one, and only for 400 years, was able to tap into 200m of stored solar energy. But it’s not an either/or situation – we simply go back to the way things were order before.
Sure, population overshoot will have to be managed & scaled back (the magic 500), but that’s why it’s important to move beyond fantasy imagery of crashing doom and get a grip on the mundane, day-day processes in which the grind will take place.
That doesn’t answer the two questions:
How do you produce food when the soil is dead?
How do you maintain thousands of spend fuel ponds? These are very sophisticated installations — you can’t just drop a garden hose into the pond and have someone man the hand pump….
FE, I disagree. A garden hose and a hand pump will work fine.
About a quarter to a third of the total fuel load of a reactor is removed from the core every 12 to 24 months and replaced with fresh fuel. Spent fuel rods generate intense heat and dangerous radiation that must be contained.
Fuel is moved from the reactor and manipulated in the pool generally by automated handling systems, although some manual systems are still in use.
The fuel bundles fresh from the core are normally segregated for several months for initial cooling before being sorted into other parts of the pool to wait for final disposal. Metal racks keep the fuel in controlled positions for physical protection and for ease of tracking and rearrangement.
High-density racks also incorporate boron-10 or other neutron-absorbing material to ensure subcriticality. Water quality is tightly controlled to prevent the fuel or its cladding from degrading. Current regulations in the United States permit re-arranging of the spent rods so that maximum efficiency of storage can be achieved.[2]
The maximum temperature of the spent fuel bundles decreases significantly between 2 and 4 years, and less from 4 to 6 years. The fuel pool water is continuously cooled to remove the heat produced by the spent fuel assemblies.
Pumps circulate water from the spent fuel pool to heat exchangers, then back to the spent fuel pool. The water temperature in normal operating conditions is held below 50°C (120°F).[3] Radiolysis, the dissociation of molecules by radiation, is of particular concern in wet storage, as water may be split by residual radiation and hydrogen gas may accumulate increasing the risk of explosions.
For this reason the air in the room of the pools, as well as the water, must be continually monitored and treated
https://en.wikipedia.org/wiki/Spent_fuel_pool
Or if you want something more than the Readers Digest version:
Operation and Maintenance of Spent Fuel Storage and Transportation Casks/Containers
www-pub.iaea.org/MTCD/publications/PDF/te_1532_web.pdf
You got yourself the complete DIY user’s manual in 110 pages….
A search of that document does not bring up ‘in the event of an emergency garden hose’
Feel free to familiarize yourself with how one of these things operates — or just remain in a blissful state of ignorance — and dance around the fire singing koombaya
Or just chuck them in the nearest lake, river, ocean then no pump needed. Is it prefect no. Is it good enough yes.
It is right up there with my waiting for a post on how one years worth of food calories are being grow by a family using method x in only y square feet.
B9, FE is in love with the idea of fast collapse. He’s a misanthrope. And he thinks he has a crystal ball. Fast collapse is his passion and religion. There is no reasoning, not that I’ve seen, just hyperbole.
You are aware that Gail holds a very similar position.
Try re-reading the above article if you were unsure about that (as well as her earlier response to my question re fast vs slow collapse)
That would mean you are questioning the Grand Master of FW….
I still have yet to see anyone support this slow collapse with any facts — only wishful thinking.
I – on the other hand — have this:
http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/
Page 55 is the start of the punch line… feel free to explain how Korowicz is wrong…
“Or just chuck them in the nearest lake, river, ocean then no pump needed. Is it prefect no. Is it good enough yes.”
Now thats thinking outside of the box, well done.
No, no, no. The question of true cost of RE is a great interest to me. My hope is one day someone will make a post with an attempt at a cost calculation for and whole RE system. Not the levelized cost of electric at the PV panel edge on a sunny day but the whole cost at the end user in the middle of winter after three weeks of clouds two thousand miles away from Nevada or other sunny place.
Don’t let economics or “cost” cloud the principle of EROI. You can factor in all the economics or cost you like into energy systems but at the end of the day after the Economic Ponzi scheme collapses we are still left with EROI to survive. Presently we are living off surpluses that we are able to replenish. When the surpluses go away we begin to live off our stored fat, then we consume our muscle, then we die if our EROI in negative, no costing required. If your energy intake is less than the energy required to live, you are an anorexic, you will wither and die. The only thing fiat money has to do with energy is that if it is paper, you can burn it to cook a lizard, that you have expended energy on to catch and kill.
How it worked in the beginning with (relatively) easy energy like plentiful trees and unassuming wild animals and their fat, was we exploited the energy sources until they became more energy intensive to obtain….but…..we grew our numbers in the good times, we invented new ways and tools to recover energy, because there was always more, as we depleted nearby energy we moved on after all, the world is a big place for a few million people.
But say now you or everyone had an energy device in the backyard that delivered 100 units of energy for every 1 unit of energy to pump a handle. Now if you require 2000 units of energy daily to live and there are 4 members of you family………..Several things happen though, the energy is not forever that easy to pump. The amount of energy available is finite and it over time requires more pumps of the handle to deliver the 2000 units of energy you need. To get around it we used slaves to pump the handle, slaves like horses, steam engines and solar panels etc. We built those devices with the surplus energy we were able to obtain, by pumping the handle far more times than we actually required to live.
With the surplus energy we built an economic system to supply the luxuries of life and slaves to pump the handle for us. Depletion was always there though, our energy supply was/is finite. We are now pumping the handle as many times as we can, there are only so many hours in a day and the amount of energy we obtain by pumping the handle, is less than required to obtain and feed (maintain) the slaves. We have become totally reliant on the slaves, we cannot pump the handle without them. As they go away so does our way of life…..and everything else really.
The amount of energy available is finite and it over time requires more pumps of the handle to deliver the 2000 units of energy you need.
Excellent! That’s probably the best analogy I have seen to explain the problem.
With surplus energy and lots of debt we built the system we have today. So-called “surplus energy” only exists thanks to debt. We keep adding more debt, but we can’t pay back the newly added debt with our so-called surplus energy. So we have to keep adding more debt, to keep the Ponzi scheme going.
“My hope is one day someone will make a post with an attempt at a cost calculation for and whole RE system.”
I can’t do that, but as of this evening’s comparison we just did with our utility bills for the last 3 months, we went from 368 to 279 to 179. All 3 months in the Summer using AC approx. the same number of days a month. Why did it go down so much? We had a Mitsubishi quad mini split ductless system installed to replace our giant old AC unit using ducting. Went from a Seer estimated at about 5 to 15-30 depending on how many of the four separate units were engaged. The 279 was a partial month with the new system and the 179 was a whole month with the new system. The system cost 9500. installed vs. about 5-6k for a replacement AC unit, so it cost a little more but it won’t take long to pay for the difference, plus it is so much better. That crappy air that came through the ducting would do awful things to our sinuses and this new system gets cooler so much faster. Plus each unit has it’s own remote control so you don’t have to cool the whole house. There’s only one exterior unit and four interior units, so the one thing you need to remember is either they are all on AC mode or heat, and not a combination which won’t work.
I did a lot of research and found that Mitsubishi is the best because they are the only company that engineers and manufactures them. They are the Cadillac of Mini splits. They also provide the best warranty: 12 years on parts and 5 on labor, but to get that you need to find a Mitsubishi Platinum Certified Dealer. Hint, do not let a Home Depot referred company come to your house even though they install Mitsubishi too. Hard sell rip off artists trying to make money for themselves and Home Depot. Quoted $20,000 for a quad mini split system. We got ours for less than half that amount as shown above.
All the other mini split companies put systems together from parts from different companies. The 2nd best system gets their parts from Taiwan and that is Daikin, but that system was more expensive and not quite as good as Mitsubishi.
There are numerous companies and most do not fix them when they break and are considered disposable even though they are expensive. In fact, most companies have a customer service phone number that you cannot get through to, so avoid other makes and models. At least that’s my advice.
“My hope is one day someone will make a post with an attempt at a cost calculation for and whole RE system. ”
The original estimate from 2006 during the Bush Administration was around 7% intermittent renewable energy without any changes to the grid.
2000 miles north of nevada is in canada somewhere. but not to alaska.. Canada is 65% hydro.
The Russians actually put solar at some of their stations in the arctic circle.
Stilgar, first is that name from Dune? I installed a Fujitsu heat pump myself. Cost about $2000. It takes me from $4000+ oil heating in winter to $1500 electric heating in winter. The resource to make a heat pump are minimal. I recommend heat pumps.
And exactly how does this fix the problem of having run out of cheap to extract oil? Please remind me….
Ed, very astute, Dune, yes – love sci-fi movies. Is your unit a single unit? We of course have four interior (16k, 9k, 6k & 6k)and one 36k exterior unit. Good for you for installing your own. I do a lot of stuff myself, but didn’t feel comfortable with the installation process. It requires specialized equipment, no? Fujitsu is a good name too but no dealers nearby.
FE, it doesn’t avoid collapse, but it does help reduce utility bills. People off the grid use mini splits. I’m moving us in that direction. Just as a sideline, I’m not so certain of near term complete collapse. It seems more likely it will break down in stages over a longer period of time than many expect. I use to think in terms of a big quick hard collapse, but TPTB are very good at changing the rules, i.e. moving the uprights. Collapse will occur moving up the socio-economic ladder.
Stilgar, 15K one head, which is not enough to uniformly heat the house. It is a start. I had some vacuum pumps on hand from cold fusion experiments so it was a lower barrier for me to DIY. I will say making prefect joints the first time is a challenge. I did have one slow leak, six months. It turned out to be easy to find after six months of discoloration from the leak. Fine now over a year. One if the reasons I did it my self is I wanted it away from the house. Contractors do not want to do the work of trenching the lines 20 feet away from the house. I love it 20 feet away and five down slope, it is unnoticed.
FE it’s a forlorn hope that dissonance will dissolve. I received a reply from PeterEV on the previous page that begged me to understand that if it wasn’t for technology we wouldn’t be able to put the massive fires out, that are burning world wide. Deliberately overlooking the fact that we burned and overpopulated to cause the global warming that is both a direct and indirect cause of the fires in the first place. He wants me to be thankful that we can expend more energy, create more pollution and grow more of our population to be able to fight the fires we started in the first place.
The point being that engineering and the use of technology got us into this mess. Everyone thinks more of the same is the solution.
Case in point … the Green Revolution … obviously not a sustainable system…. and now we have 7.3B people because of it…
And most people would call this progress… ingenuity….
I call it mass suicide…
I digress… I was in a place called Omaru earlier today … a splendid little town … http://www.victorianoamaru.co.nz/
http://www.vhc.co.nz/ Apparently plenty of people living off grid — rejecting Progress —many eschew all modern stuff and live very hard lives (no cement and Florida holidays like the Nearings…)
Thanks for the info. Ed. The crew chief who installed ours said they pump up the system to a certain PSI (which I don’t remember how much) then they let it sit for 2 hours while they have a long lunch, and if it holds then the system will not leak and that is the secret according to him to a good mini split system, so they don’t have to come back. Not sure if that tip will help if you have to fix a leak again.
Next stop is solar. Not sure whether to have a system installed or do it myself. I’m researching both avenues. All comes down to price point and how much I want to get involved, or should I say how much my wife will let me get involved – lol.
I rearranged the comments today, putting the newest first. I think that is only per page, but I am not sure. I would be interested in hearing if commenters like the change.
I also added the most recent 15 comments down the side column on the front of the blog, a few days ago. Both of these are an attempt to try to make it easier to find new comments.
Top posts and recent columns is very useful – new visitors can easily find and read those and hopefully we don’t see the same questions coming up over and over on the comments section of the latest columns….
And likewise from yourself.
On the contrary — how about a Fast Eddy’s Greatest Hits section ….
That way I wouldn’t have to keep posting the same facts over and over and over…. and be met with the same Koombaya…
If we could bottle the massive volumes of Koombaya that spew through FW on a monthly basis — and set it on fire — we’d be able to power enough turbines to generate enough electricity to kick the end of the world can at least a decade down the road
Boy, are you stuck on yourself, GAG!
Must be a whole 3 comments I have read without having to endure more about EVs and solar panels…. that’s gotta be a record….
“I rearranged the comments today, putting the newest first.”
Great idea! Thanks. I think it will invigorate the threads for much longer on each article.
One person wrote to me and said that she found the new order confusing. Any others have thoughts on the matter?
I wish comments started in order and stayed in order. Given that they do not I use the comments link on the upper right. This is good for seeing the last ten comments. If there were say 30 comments since last I visited I just miss 20-30. Oh well, I likely catch some of them looking around the ten I do see. It is not prefect but good enough.
I wasn’t aware of this feature, but will try to find it. For a while now I’ve been clicking on the most recent article, then posting only on the first (earliest) page. I either do C+ F to see if anyone replied to me or if there is something I want to reply to.
If you have had no history of involvement with oil and economics, the subject is too unfamiliar to understand. I know Gail tries her best to be clear, and to respond kindly to even the most uninformed people. This is most welcome. So I don’t find it necessary to follow links about the price of oil or of stocks. The subject is just too foreign. I might as well look at the first comment page as on the seventh. But something very central to my thinking manages to filter through from this blog: reality the way it is today.
But the issue still remains confusing.
– The economy is winding down and is slated soon to crash (I know it will be papered over to carry on, possibly for quite some time.).
– It can’t crash gradually, but is so interconnected that a crash at one end precipitates a total crash.
– It suits those of us who are dependent on BAU for the economy to keep going as long as possible, for we have no ability to survive without it. And here’s where it gets confusing:
– Many of us try to reduce our costs–for environmental reasons, to cope with the unaffordable prices, etc.
– But we need to buy things so that the economy can be supported.
There is contradiction in these last two points. We must consume less to save ourselves and our habitat. We must consume more to save the economy.
My tendencies are to subscribe to both. I need certain aspects of the economy to continue while others to go away (which I hear is impossible to do). I want things like scotch tape, wire, utility knives, band aid, water from the local well, serviceable but inexpensive local government, extremely limited and strategic national government, palliative and preventive health care, I don’t want more cars, more new houses, bigger government, new roads, or more tar sands mines. I understand that we need to know where things come from to produce the goods we want. I’m not sure why some form of made-up money or reward system can’t get new (barely well enough compensated) workers within a whole system that calculates the environmental and sustainability costs of making the things I want, can’t work.
Existing roads can be repaired with paper pulp. Small and targeted amounts of rationed fuel can be made from vegetable oil. Houses can be made with paper and cardboard. (I don’t suggest anything that I haven’t tried.) What would need to change are behavior and cultural expectation, not the finite physical world. But I have no doubt that I’m missing crucial connections…
The need for banks to pay people is an important link. The need for debt to make the system work is another non-obvious link. These items are just as important as the energy products and the other products used to repair roads and make cars.
I found your comment about the conundrum between economic growth and environmental concerns most interesting. Curious about your thoughts about carbon pricing.
I view carbon pricing as worse than useless unless done on a worldwide basis. http://ourfiniteworld.com/2012/11/20/climate-change-the-standard-fixes-dont-work/
If the carbon prices does work, it helps collapse come quicker. Is that what we want?
Thanks, Thomas Simon,
“Curious about your thoughts about carbon pricing.”
This is part of what I say I don’t understand and so have no opinion about. My reverie about directing the industrial process only to producing the limited supplies/services that I think I can live with assumes a kind of collapse of this high speed, grow-at-all costs economy. It’s an idea to run a no profit economy to just barely get by without starvation, undue strife, and freezing to death. I’m told it is impossible. I’m not seeing a great deal of private transportation or profit-driven activity, so there wouldn’t be much to tax. Somehow, I don’t see that kind of taxable economy as something that might restrain over exploitation (which is already in overshoot) of natural resources.
There is also a way of using a comment reader, to just get the most recent comments, I believe.
So you like the original order. I know a few times I have tried to look at the comments on my phone, and given up scrolling down indefinitely. There was also the problem of comments being about one word wide on a small screen.
In my confusion, I’m seeing the original order as pretty much the same as this. I stick with the first page no matter what. If there’s something that grabs me on the first page, no matter when it is dated, I’ll respond to it. As long as you occasionally weigh in on that first page too, I’m doing as well as I’m likely to do. So the old way is A OK, especially if it’s the easiest way to manage.
The view I use is chronological, not the view on the front of OurFiniteWorld.com. Readers can’t get this view. Also, there is a link back to what the comment is responding to, but it doesn’t always work. This is probably another version of the problem experienced by those seeing e-mail versions of comments.
So it doesn’t really matter to me which way the comments are ordered–it is for the readers.
I find the most recent 15 comments down the side column on the front of the blog a very good idea. As regards rearranging the comments, with the newest first, I am trying to see a difference, but can not see it…
In the previous version, if one comment was first, it would stay as number 1 on the front page indefinitely (even if it was a sort of stupid comment that no one cared about). Now, the first comment is a comment that is currently being discussed. If the topic we are now talking about is the order of comments, my request for comments on this question would come to the top of the first page comments. This can be helpful to someone looking for items currently being discussed, versus older comments that others are not commenting on at this time.
The drawback is that comments can jump around in a confusing manner. If a person starts at the top, and starts reading down, once you refresh your screen you will likely find that the comments have jumped around, so you cannot figure out what you have missed.
“The drawback is that comments can jump around in a confusing manner. ”
I had issues before the change with it. I tried poking through the threads and it was gastly. I just go through the emails now which is why sometimes I have a delay responding since I do them chronologically from newest to oldest, and don’t get through them all.
I have noticed that sometimes the emails, don’t jump to the actual comment in the forum anymore from the link in the email.
If that is confusing then your extraordinary content must be mind boggling to her.
Dear Thomas Simon,
“If that is confusing then your extraordinary content must be mind boggling to her.”
Sorry, but I can not see any connection between your words and the way the comments are arranged…
Here are some numbers on energy investment. Over 1/3 of US investments , and debt, are for energy. http://www.realclearenergy.org/charticles/2015/09/30/energy_makes_up_more_than_13_of_us_investment_108794.html
interguru and others,
Shell Oil announced yesterday that they are exiting the Arctic and will not be drilling in the Chukchi Sea. They are citing the low price of oil and the high cost of production in Alaska. http://www.nytimes.com/2015/09/29/business/international/royal-dutch-shell-alaska-oil-exploration-halt.html?_r=0
Would be interested to see how that compares to what was happening 20 years ago…
“Would be interested to see how that compares to what was happening 20 years ago…”
I think it would be more interesting to see the breakdown by sources for the energy industry. I think it would give more clues.
Wow!
Great post Gail!
Things are really beginning to pick up steam now, I don’t think that we have ever seen a time where resources were so low, interest rates were almost nothing AND the global economy was slowing/shrinking. Truly a crazy time to be alive! Thank you very much for your tireless work and analysis.
You are welcome. And thanks for your good summary of where we are.
SymbolikGirl,
No one alive has ever seen a time where resources were so low, interest rates were so low and the global economy was shrinking. Not even in the Great Depression. We live in interesting times.
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great work as usual not more to say though we can not do much for a better outcome to much misbelief mentioned your last post in this short limit of all rant in german
http://www.be24.at/blog/entry/700019/the-illusion-of-choice-von-shell-in-der-arktis-bis-zum-donaulachs-und-migration
I see you have linked a post in German, linking to my last article, and several other articles. Thanks!
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Charles Hugh Smith posted a great article on why China is in deep do-do.
“China’s Leadership: Brilliant Or Clueless?”
http://www.zerohedge.com/news/2015-09-29/chinas-leadership-brilliant-or-clueless
Thanks!
As I understand the Chinese system, China is divided into geographical units, and GDP growth goals are allocated to each unit.
The leader of each unit has historically been given a lot of discretion on how to meet those goals. My impression is that they could add as much debt as needed, using shadow banking or other approaches, if necessary. The compensation of the leaders of these units was based on how well they met their GDP goals, so they tended to add lots of debt so as to overshoot their goals, rather than undershoot. There were not good records of how much debt was created in this way; instead, after the fact, it was necessary to go out and do a survey to try to figure out how much debt was really in place, thanks to this approach.
The new leaders seem to be taking a more cautious approach–this unlimited debt to produced high GDP growth can’t really work forever. Unfortunately, world GDP growth has depended on China’s growth. The resulting slowdown in China is a problem.
A road that was paved with good intentions…
http://www.planetizen.com/node/81189/electric-vehicles-when-too-much-good-thing-bad
I think the weak link in all of the things we do are the fixed systems that enable the variable usage:
1. Roads + tunnels, cars
2. Pipelines + refineries, oil
3. Electric transmission, electricity
It is easy to forget that we somehow need to keep funding our fixed expenses. Refineries often are adapted to a particular type of oil. Certainty they are in a particular location. Pipelines cannot run on empty, something we are close to encountering in Alaska.
If we pay for roads, we have to have enough taxes or tolls to do this. Otherwise the system doesn’t work.
Letting large electric customers produce all of their electricity some of the time doesn’t work, unless they pay the full cost of their electric transmission 24/7. I am not even sure it works then, if it causes other businesses with fixed expenses to go broke.
The whole idea of electric transport replacing ICE transport is built on a vast network of assumptions.
* The resources need to build the vehicle exist and are plentiful enough.
* The energy to mine the resources exists and is plentiful and cheap.
* There are highly educated persons who know how to locate the resources
* There are highly educated persons who can build the equipment to mine the resources
* There are people available to mine the resources
* The rate of mining does not pollute too much.
* The persons that train and educate the people are well fed and housed and clothed.
* The roads the electric cars will drive on will be well maintained
* The electric grid will be well maintained.
* Resources will be available, found and extracted to provide electricity.
* There will be an excess of energy available in the world for well paying jobs so a person
can buy and electric car.
* There will be grocery stores and jobs so people have a need for a car.
As one quickly realizes, It is a nearly endless list of assumptions. The electric car is at the top of a very large pyramid of assumptions. If any of these assumptions are not met, the conversion of our transportation fleet to electric will never happen.
In short, we need BAU to continue. BAU continuing is the basic assumption of rising oil prices, in the peak oil theory as well.
BAU must continue to keep BAU going to keep BAU functioning to keep BAU……..
It’s not for BAU’s sake. The point is that we’re in an “All or Nothing” situation.
We cannot expect to keep just one part OK while all the rest will be down.
Corollary (as suggested by Greg): if one key-part breaks, the whole system (BAU) falls apart.
I like Stefeun’s point. IC works is a system. I’m for trying to alter ALL parts of the system as one integrated whole. But such notions don’t go down all that well on OFW (although I have only come to this understanding by reading here). 🙂
Musk/Tesla: paraphrasing from memory “..there is 7000k chain of supplier individual parts, and the army can move only as fast as the slowest soldier, meaning one stupid part stops the whole chain of production..” So, what’s the the proper sub 1-5% to do? Easy, buy a family fleet of these, lock them in garage under RE equipped house and you are set for the next 10-15yrs. Your chances to duke it out in early chaos, greatly extended, or so they seem to think.. ps great addons for skiing too!
“..there is 7000k chain of supplier individual parts, and the army can move only as fast as the slowest soldier, meaning one stupid part stops the whole chain of production..”
That’s how the world stops on a dime when the just in time global supply chain stops working….
Yep, nevertheless for some segments of global society purchasing power + incentives (e.g. US, Norway, ..) it’s a no brainer to buy NOW or SOON quality EV/plugin with technically guaranteed +10yrs lifespan of batteries, and so far only Tesla and GM are providing it via acrive temperature management in the batt compartment to give you the years. To my knowledge other brands like Nissan, Ford, VW, Toyota are just not dependable in the longevity of batteries question. The 2016 GM Volt (ver2.0) goes for usd27k after tax incentives, which is in purchasing power very close even for the lower brackets of middle class there, there is some cargo area with the hatch door and collapsing rear seats. On the other hand the Tesla models are still luxury items but are equipped with selectable ground clearance air suspension, which the cheaper low rider Volt doesn’t have obviously, and most likely the ~3yrs away cheaper mass adoption hopefull Tesla model won’t have either. Individual conversions or luxury offroady EVs do exist but that’s experimental quality. For people who could burn the money to purchase basic plugin like Volt now or lease it, this might be one of important decisions to make even with the ground clearance issue.
Let say the economy will drag down for another 3-5yrs before serious systemic issues, if you buy quality plugin car in 2017/8, you can expect functionality/battery range into the chaos of early 2030s (plus have to secure some local energy generation via PV, wind, genset of what’s applicable). That’s why it is good to be “rich” in these times, you simply increase your chances to out run the others, in this particular case in terms of “independent” mobility.
“Yep, nevertheless for some segments of global society purchasing power + incentives (e.g. US, Norway, ..) it’s a no brainer to buy NOW or SOON quality EV/plugin with technically guaranteed +10yrs lifespan of batteries,”
I like the Volt. You can do whole house backup or energy production with it with some minor modifications. If you add solar panels + storage. You get all of the wiring you need.
It really is a no brainer if you are worried about a major collapse, or if you don’t want to pay taxes or support ponzi schemes. You can save a ton of money before the collapse even occurs.
re; volt ing
I guess im not in that segment.
I just keep on maintaining my old baja bug.
27k buys a lot of parts
“I just keep on maintaining my old baja bug.
27k buys a lot of parts”
The Baja Bug doesn’t work with electric, nor can it generate electric.
That was kind of the point of my post. You don’t need fuel, but if you have it, you can use it for whole house generation, data center, or whatever.. If you have solar too, then you don’t need fuel.
The bugs are nice because they are air cooled. I personally don’t fit in them very well.
correct, like the global supply came to a virtual halt in 2008 when letters of credit weren’t accepted/honored due to distrust amongst banks. It can surely happen again. And partly because the requirement of “mark to market” is gone, when times get ugly, trust amongst banks might be even worse. Everyone would be wondering just what is on the balance sheets at the various banks (not to mention off-balance sheet chicanery). Recent capital raises at Credit Suisse and Deutsche Bank show that financial distress must be building. I think we’re living in a global house of cards.
The problem of maintaining the electricity supply is more orientated towards people stealing electricity, and people stealing copper. If particular areas cause enough problems supply to the area may be abandoned.
“If any of these assumptions are not met, the conversion of our transportation fleet to electric will never happen.”
You have the similar situation with ICE vehicles as well. The difference -I- see, is that I can make electricity at home. I can’t make gas at home in a reasonable quantity.
The battery pack life issue is a bit overstated. Manufacturers give the battery pack lifes as well as solar panel life as 80% of original capacity. The point is more that even after 10 years they is still useful. Just not as useful.
The point I keep making is that we have an interconnected system. We will lose electricity in pretty much the same timeframe as oil. The story about oil becoming in short supply and high priced is wrong. The real story is about lack of ability to afford any of these things–electric cars, roads, oil. The price doesn’t stay high enough, so the businesses keep going bankrupt. No other business can buy the assets and make an adequate return selling these energy products either. We can’t collect enough taxes or tolls for the roads.
US coal and natural gas are very cheap (less than $20 per bbl equiv), so there’s a bit of saving grace there for the US. Coal could make a comeback once we get the Democrats out of the WH. I’d rather have a little pollution but have an economy (we’re already scrubbing SOX at many plants since the 1970s anyway). (Don’t even mention global warming in response as it’s nothing to panic about now or in the future. The effects are mild, slow to change and the hydrocarbon era will mostly come to an end in the next 100 years anyway)
Regarding gloom and doom scenarios, I don’t see where electric utilities will fail as governments can nationalize those industries and divert necessary resources there to keep them running (on coal and cheap natural gas). If electricity grid doesn’t fail, I don’t see the apocalypse, just a Great Depression II.
I think it depends on whether the lending for coal and natural gas gets shut off, because of low prices and bankruptcies in those industries. Bankruptcies are already starting to occur in the coal industry, along with mine closures.Stepping in and fixing the electric industry is a step too late. The government really needs to fix the industries that the electric industry depends on.
“once we get the Democrats out of the WH”
Do you really believe that political parties really make the important decisions?
Do you really think the president is something other than a minion taking orders from the men who control the world — the owners of the Fed?
“Coal could make a comeback once we get the Democrats out of the WH. I’d rather have a little pollution but have an economy ”
“getting Democrats out of the WH” doesn’t fix anything. The Republicans were really the ones that put the fracking laws in the books which lowered NG prices. NG is Coal’s biggest competition. I would love to say it was alternatives, as they are increasingly competitive in price, but that isn’t the case.
Even you realize at some point, we need to make a change. The object of the Democrats plan is to get off -foreign- oil. It was really based around doubling the coal industry output and moving to -some- of the vehicles to EVs, and making the rest of them more efficient, but the coal industry spent all their R&D money on lawsuits and lobbying instead of improving their product. The NG industry was willing to work with alternative sources.
EVs aren’t intended for everyone just enough to reduce oil use to get the US back to a self-sustainable energy economy. Even Alternatives, really weren’t in the books. They are just 5-10 years ahead of any cost projections from 10 years ago and are increasingly competitive in price.
Importing foreign oil results in a real economic loss of around 200B+/yr for our country. (IE don’t stop domestic production.) It is money that would otherwise be used to prop up our economy. It isn’t the -majority- of the money we lose in exports every year. However, it is a huge chunk of it, and one that can be addressed without completely tanking our economy. It helps fix the need to borrow money to sustain the economy. And it also reduces the need to spend trillions on overseas wars.
Gail sides with the doomers, and thinks it is too little to late. I don’t necessarily agree with all her points. I think we have a chance at getting out of this in the US.
The radical Obama Democrats are not supporting ANY energy! I’m not sure what ur talking about. They have a silly fantasy that conservation is enough to squeak by. They don’t want nuclear, they don’t want coal. They don’t want oil. They sort of tolerate the fracking nat gas revolution. These radical environmentalists and know-nothings don’t want any growth (or jobs) which would require more oil and energy. It’s working! The economy is slowing to nothing which is not the end of the world in itself. But the mountain of debt accumulated to get to our current point is set to go KABOOM! In this sense Gail is correct to expect a huge problem.
Thanks to the fracking revolution, we are importing less energy but it’s still about 6 million bpd.
“The radical Obama Democrats are not supporting ANY energy! I’m not sure what ur talking about. They have a silly fantasy that conservation is enough to squeak by.”
The not so radical ones are more entrenched in reality.
It is technically not “conservation”, it is “efficiency”. It is a federal definition. For instance solar under 1mw is not tracked by the Feds. The only place it shows up is in the total usage by not being used. In otherwords, the reduced usage could come from LED lighting or solar panels systems under 1mw. It is all just termed efficiency.
Even the “radical” democrats aren’t totally stupid. It is a lot of rooftops, but if you do say 1/3 of an acre on a small amount of property owners with greater then 2.5 acres it covers it. (I want to say the number was like 5% using the 4.2 hours of sun/day which is most of the US.)
It is a -lot- but it isn’t completely so far off base, that is isn’t possible.
The trick is once you hit the payback period for the installation, it is all basically free which results in a lower cost of energy, then fossil fuels since there is no input cost. The impossible task is getting the financing. Gail is right if it was all done at once, it would constipate the economy. This also isn’t mentioning the fact you have the whole intermittent thing going on, and a few other issues. But the plan was 30 years to get it done. The price point for solar and storage is 5-10 years ahead of the initial estimates.
Given that we are basically rocking the house by being 5-10 years ahead, it is pretty easy to get excited and think in terms of everything, but it isn’t going to happen for a long, long time if it ever does. It is something we need to just keep plugging away at until we hit a wall.
Politicians do not solve problems, they bank money for themselves and get reelected. They have no need or motivation to solve the energy problem. They spin a simple story natural gas is infinite we have no problems, frack oil is infinite we have no problems.
The system is broken wining about it will not fix it.
Mad, yes, coal and lots of it, Illinois and Montana if one wants BAU for as long as possible. If one wants to get it over with then Democrat kill America with zero energy, no coal, no nuclear.
It will never happen, but nothing will stop us from trying to make it happen.
I know of no other technology that has such universal and popular support in society as does the EV. Car manufacturers, power utilities, most citizens, most environmentalists talk them up. Nearly everyone imagines themselves slipping out of their petroleum car and slipping behind the wheel of a ‘pollution free’ EV – though they may judiciously wait a bit before making the switch.
It’s the market that will mostly determine sales. It will take 2 decades for the existing world car fleet of 1.3 billion vehicles to reach the end of their lives. Most consumers will aim to buy a new one at that point, or sooner if they are wealthy enough. Buying an EV will seemingly make that switch an ethical, planet saving decision. We can do that, feel good and keep driving.
Long before we reach a complete planetary vehicle conversion, a few things will happen that will change the whole scene. But nothing will stop us taking it as far as it can go.
What are you proposing as the input energy source for the electric generators?
1) natural gas delivered by pipeline?
2) oil delivered by truck, train, pipeline?
3) coal delivered by train, truck, or co-located with long transmission lines to user
4) nuclear co-located with user no transmission lines just nukes in downtown Manhattan
5) land based wind turbines with long transmission lines to use and to storage
6) PV with long transmission lines to use and to storage
Now the one question that rules them all how much will it cost? pennies per KWHr? Dollars per MWHr?
“2. Pipelines + refineries, oil”
If we switch to electric vehicles, there is no reason to invest any money in pipelines and refineries. They have become obsolete like a typewriter.
Then we can focus on the source of energy we actually all need.
Unfortunately, we still need pipelines and refineries for oil, if we expect to have roads for the cars to drive on and transmission lines for electricity. The whole system has to work, or it crashes. This is a point many people miss.
“Unfortunately, we still need pipelines and refineries for oil, if we expect to have roads for the cars to drive on and transmission lines for electricity. The whole system has to work, or it crashes. This is a point many people miss.”
Currently, I would agree. Our dependence on oil, and other products because of dimishing returns is causing economic crashes as you are quite adept at pointing out. So eliminate what you -can- without breaking BAU, and BAU can continue. It is a weaning process that will most likely take longer then we both have left in this world. At some point it has to start to happen, and while I would agree the tech we currently have isn’t that great and in some cases seems primitive, you do have to start somewhere, the tech will improve.
We will stop using natural gas to heat houses in the northeast? Please explain that to TPTB, we are building in town and in city natural gas pipelines like crazy right now.
“We will stop using natural gas to heat houses in the northeast? Please explain that to TPTB, we are building in town and in city natural gas pipelines like crazy right now.”
Eventually, but the northeast used a lot of fuel oil even when prices were high.
If we don’t frack, you will have a major shortage on your hands, which maybe what the utilities and what your PTB actually want.. The wells for fracked gas don’t last that long, and I could be wrong but I read fracking only buys us about 30 years.
If prices don’t move up, frack buys a whole lot less than 30 years.
“If prices don’t move up, frack buys a whole lot less than 30 years.”
Once some go out of business, then prices do go up, because of supply and demand curves. I don’t doubt for a second it will go up in price. Speculators will provide funding for a new round of investment. Just like when prices went up the last time, there was a lot of money being tossed at oil/gas plays.
There is always variability and risk in commodity markets. Ag commodities are typically far more volatile in part due to the volatility of nature.
You have too much faith in supply and demand curves. They were created when we were away from limits. When we are approaching limits of a finite world, relationships change. All commodity prices are too low, not just one commodity price. Wages of workers tend to be too low, and the increase in debt lags behind, in part because the minimal growth in wages doesn’t support more debt.
If the world were infinite, your reasoning would work.
“You have too much faith in supply and demand curves. They were created when we were away from limits. When we are approaching limits of a finite world, relationships change.”
Market forces have been around far longer.
What we saw, was attempts to corner the mining and FF markets which sent prices high. Then we improved disruptive technology to counter the high prices that killed the economy and increased commodity production with more costly production techniques. This sent the commodity prices low. Prices will rebound back to a sustainable level
What we haven’t ever really seen is the effect of disruptive technology in the energy sector.
Russia is installing 175gw of renewable energy, and mostly solar in their far east region, and a lot of it in the arctic circle and other remote regions that aren’t connected to the main distribution grid. It saves diesel fuel costs especially the transport costs.
It is about the same amount, and same time line as what India is doing. The US will most likely be far behind in the renewable race until prices rise.
There are definitely places where renewable energy is the cheapest available. The problem comes when government try to substitute high priced energy for low, and don’t pay attention to all of the distribution costs, just to be “green.”
“The problem comes when government try to substitute high priced energy for low, and don’t pay attention to all of the distribution costs, just to be “green.””
I -think- you are trying to take a stab at the infrastructure upgrades to the electric system.
Most of the upgrades and high power lines were already wanted and planned in some cases decades but they couldn’t figure out how to fund them. It was mainly to create job growth in poorer, low population areas, but utilities couldn’t justify the cost because there wasn’t enough use. Adding renewable energy in the remote area is a way to justify the cost.
The utility picks up some of the tab, the project picks up some of the tab, and in a number of cases state governments also put some money in. The best part about it is, they built the lines, and wind/solar will be using them for the next 20-30 years. Manufacturing is cyclical, so it might be out of business in 5 years then the utility ends up eating costs for the next 30 years.
There are probably well over 100 examples of this in the US, but probably the biggest one was the line to West Texas.
This building of the new gas pipelines was booming in Slovakia during the 90s, after the fall of the Soviet bloc, and it reached a very high number: today around 90% of the inhabitants of Slovakia have access to natural gas for their homes, which is the 2nd highest in Europe after Netherlands.
When the prices of the natural gas from Russia were favorable and the new pipelines were built, the consumption went up. But prices were constantly rising and since 2000 the total consumption of the natural gas in Slovakia fell quite substantially:
http://www.spnz.sk/UserFiles/Plyn.jpg
Source: http://www.spnz.sk/distribucia-plynu
(in mil. cubic meters)
The trend in rising price of the natural gas for homes in Central Europe until 2008 shows the following graph for the Czech Republic:
http://www.jednotne.cz/data/imgs/8b.jpg
Source: http://www.jednotne.cz/clanky/vyvoj-cen-energii1.html
(in CZK per cubic meter)
After 2008 the prices are stagnating or going down…
The trend in European natural gas prices seems very similar to the trend in US natural gas prices. High prices cannot be tolerated for very long.
Gail,
You talk about debt and credit a whole lot. Because (I think) the sudden Financial system collapse will happen when Ponzi debt collapses and credit is no longer available. At that point the financial system is torn apart will be unable to finance large projects or international trade.
I am just curious (not that it makes a difference at this point) but had financing of our world been much more equity (common stock), rather than debt, would the fall be gradual/slower?
Mansoor
Gail, you are right that in Alaska we are getting very close to not having enough “thru-put” to keep the trans Alaska pipeline operating. Its down to 600,000 barrels per day. Any lower, and pressure falls, the parafin in the oil settles out and begins to obstruct flow, the pipe begins cavitation. The biggest concern now is finding new sources close enough to Prudhoe Bay to feed into the pipe and keep it running.
Exactly. I know that Peak Oilers have been talking about this issue for a while. It would theoretically be possible to heat the pipeline, but that would take time and not make economic sense if the price of oil is low.
Routine pigging cleans the paraffin. That’s normal operation. Colder flowing temperatures, usually means higher oil viscosity and higher pressures but since flow is so low, pumping pressures are surely less than design which doesn’t hurt anything. I don’t see where low flow is an insurmountable issue. A 30 year veteran in the oil and gas business speaking here.
This is an article by retired Professor Dave Summers on the subject. http://bittooth.blogspot.com/2011/08/ogpss-coming-problems-for-alaskan.html
In 2011, he said,
The article says quite a bit more. There is a need to add more hot oil to keep it flowing properly.
Thanks for the new post!
Thus low prices, with no way to get them back up, and no hope of making a profit on extraction, are likely the way we reach limits in a finite world. Because low demand affects all commodities simultaneously, “Limits to Growth” equates to what might be called “Peak Resources” of all kinds, at approximately the same time.
Funny how we ever imagined otherwise, given our exponential growth paradigm. How do things fail? Gradually at first, and then all at once, as consumer-based demand fails first gradually, and then debt-driven profits fail all at once.
Gail – I gather from this article that you are in the slow burn leading to a very sudden and rapid collapse camp?
https://socioecohistory.files.wordpress.com/2014/05/dynamite-fuse-burning.jpg
It is looking increasingly like things could fall apart quickly. Janet Yellen is still taking about raising interest rates, which is exactly the wrong thing to do.
But even if things fall apart quickly, there may be things that governments do that slow down the fall. We really can’t know exactly how things will work out. Some parts of the world may hold together beer than others.
Gail – do you think it is possible that we might just stay in this slow collapse phase a lot longer then some have suggested? Would you be surprised if the same state of affairs were still going on by, say, 2019 or 2020?
I just wonder sometimes how much effort the Governments of the world will put into keeping BAU from going into a tailspin. For example, I thought at one point that Greece really would leave the Eurozone this year. I also thought when the stock market crashed in China and elsewhere that it would keep going and there really would be economic chaos before the end of 2015.
However forces in the EU made completely sure that Greece would stay no matter how indebted they were and the fact that they cannot ever repay what they owe. We now have plunge protection teams working in stock markets all over the world to maintain some semblance of normality in the markets. We may have another source of high-EROI oil coming from Iran if relations keep getting better.
I know we still have 3 months left of this year but it seems that (maybe) we won’t see the real collapse start in 2015 thanks to work going on behind the scenes. Also, if Governments keep putting off interest rate rises for years more then could debt still be allowed to rise and rise without causing a collapse?
More oil from Iran makes our oversupply problem worse, not better. So that tends to make the collapse sooner, not later. I doubt that Iran’s supply would continue, if prices drop to $20 a barrel in the future, which they may well do.
Timing is really difficult. It may be that some sort of helicopter money can keep things going for a while longer.
Interguru keeps reminding us:
Stein’s Law: ” Things that can’t go on forever eventually stop”
Two lemmas ( mine — Interguru’s Lemmas )
1) They go on a lot longer than you think they can.
2) They stop suddenly without warning. Even those who see it coming have no idea when.
++++++++++++++++++++++
Very few people saw 2008 coming. Those that did made buckets of cash…. (see The Big Short).
The reason most people did not see it coming is because they trust CNBs and the rest of the MSM — who right until the end — will tell the sheeple — it’s all good
Gail,
Helicopter money is a big part of the answer to keep systems in place. But the helicopter money needs to be enough to provide the absolute basics for the massive number of un-employed people I expect. This can be done via EBT cards. This way of cash distribution fights/balances deflationary forces now in full swing.
Also, we need to extend Medicare to the entire population. This will have to be part of the helicopter cash. Emergency room care will be too expensive. Medicare will have to be re-formed to provided the most basic of medical care and forego expensive procedures and long hospital stays.
If too much inflation ensues then the rich can be taxed more. Also, some inflation (like 5% or so) would be good to inflate out of debts. EBT cash can be indexed to inflation. This means that the value of non-EBIT income goes down over time. But this will (I think) probably salvage the financial system just enough to keep it functioning bare-bones. Checks will clear.
Also, we need to get away from debt financing and rely much more on equity financing for corporations. Municipalities will probably not be able to borrow due to massive unemployment and extremely eroded tax base. But that is ok. Municipalities and cut expenses and still survive to provide bare bones of services. Military can severely downsize.
We can then slowly go downslope along the geologic decline of oil supplies and learn to live without it over the next decade or two.
Homeowners can be help via HAMP type programs. Also, bankruptcy judges can be given the power to cram-down mortgages to market value. I expect marked values of homes to drop steeply with massive unemployment.
I agree that if anything will keep BAU going for a little while, it is likely to be helicopter money. I am not involved enough with the ERT system to know how it works now. My impression was that most programs are state programs. Fixing those will be more difficult than a single federal program.
I am not convinced that a very large number of us can live without oil supplies.
I understand that Hamp modifies home mortgage programs so that they are no more than 31% of pretax income. This sounds a lot like the mortgage modifications for student loans. The catch is that future loans cannot be packaged and resold, because potential buyers of the packages of loans don’t know when/if they will ever be repaid. So it makes a system that doesn’t work well.
Oversimplified, but you’ll get the point:
(Mansoor) VERSUS the way I see:
(Helicopter money): Plan-C/D. Coming up. But tricky to manage while having the dollar as the global currency.
(Medicare to the entire population): Already in progress. Lots of jobs there.
(Rich can be taxed more): Plan-D. It will be implemented/confiscated just like Gold and High taxes of 1930’s.
(EBT cards instead of cash): I like it. Very convenient, especially compared to other alternatives.
(Get away from debt financing and rely much more on equity financing): It still wouldn’t solve/address the problem of money power. Also, we live in a finite planet. It wouldn’t last very long.
(Municipalities and cut expenses and still survive to provide bare bones of services): Exactly. Bare bones will become the new “temporary” parading, before the final collapse.
(Military can severely downsize): World War, because they will take by force.
(Slowly go downslope along the geologic decline of oil supplies and learn to live without it over the next decade or two): Interesting. Who will break these news to the masses? It will take years for them to sinking-in before they will act.
(Homeowners can be help via HAMP): Dead man walking. Being in a sub-tropical weather is more important.
Anyway Mansoor, great list/summation. And haven’t’ seeing you commenting for a while.
Mansoor, YES! rationalize the government paid for medical system. It should be basic care not heroic care. Rank medical procedures by benefit/cost ratio and pay for the top X that total to 5% of GDP in cost per year. Stop there. If individuals want to spend more of their own money that is fine. The government is not a pinata it has limits.
Limit the military to 5% of GDP. There pension payments alone would eat all of that. Place payments to wounded soldiers on the military not social security. Place weapons development costs on the military not the department of energy. Place fighter plane development costs of the military not NASA.
Smart for iran would be to leave the oil in the ground, but invenst on infrastructure. when unconventional oil producing nations start running out of oil, restart extraction and sales abroad just to staisfy its primary industry and repay its debts, then stop supplying the world market. Oil will become a rare commodity to trade with in the way the global market works today, mostly due to the reasons explained by Gail.
No, I think the system will fall apart. It won’t become a rare commodity; it will become a non-existent commodity. It will stay in the ground. If you want the oil out, you need to get the oil out while systems are still in place. You can’t “save” oil for the future.
I’m all for the “beer” part…
It’s the beer bit I’m looking forward to.😀
Response to Escrava Isaura:
It is possible to live with much much much lower energy consumption per capita. Large populations in India, Pakistan and Bangladesh do it.
The trick is to keep the systems in place. Financial system is the glue that holds the entire economy together. However, due to the debt based monetary system dependent on continued economic growth it is in danger of sudden collapse and of course it would take down all other systems with it. We can have a basic check clearing system with 100% reserve money (no fractional reserve banking) and financing of large projects can either be by direct government printing of money (via the FED) and/or by common stock issuance.
Here how 100% reserve system transition can be done:
1) Immediately end usury. The banking system should become 100% reserve. F. Beard (screen name) has a great idea. F. Beard often comments on Naked Capitalism blog website. It goes as follows:
a) Ban Banks from issuing more credit money.
b) As credit is paid off (as in payment of principal and interest) to banks. The government should issue 100% reserve currency (i.e., greenbacks) to bail out/help the public via a monthly check or a bank deposit to the public.
c) Doing item b will not change the net money supply. Because credit money goes out of circulation once paid to banks. Government newly issued currency simply replaces credit paid off.
d) Keep doing this until all credit money is extinguished. Good riddance to this haram/riba/usury. It is Lanut (a curse) on humanity.
2) The only quibble I have with F. Beard’s suggestion is that inflation needs to drive the issuance by government. If inflation is low the government can print greenbacks and help the public it should not amount of credit paid off.
3) Given scarcity of fossil fuels and its importance to the industrial economy fossil fuels are in fact the real money which determines which economic activity is conducted and how much it.
4) Since fossil fuels are a natural resource belonging to humanity we need to allocate this resource (via money) fairly and equitably.
5) We should impose consumption curbs via heavy consumption taxes which would then be rebated to the non-rich. Rich have currency (a claim on fossil fuels) but the problem is this resource belongs to all. So there is the justification of curbing Rich People’s consumption.
6) The economy allocates (distributes) consumption rights currently by savings (acquired via salary, interest, dividend, business activity, or a job) or via being granted credit.
7) Since I am suggesting traditional lending based bank credit should be removed and social credit instituted instead to share the fossil fuel resource which is the real money and which actually limits economic production in this day and age.
8) Instead of fighting over fossil fuels we should allocate it among nations and let the nations allocate to their citizens via 100% issuance of currency paid to them as social credit. Therefore citizen fossil fuel money becomes a vote of what goods and services are produced. And of course, consumption by high spenders (who will spend from savings) will need to be severely curbed via high consumption/sales tax which can then be rebated back to non-rich.
9) The modern economy should be viewed like a car (a piece of capital equipment) which needs fuel (money) to be useful.
Mansoor
Dear Mansoor H. Khan,
we do not have “scarcity of fossil fuels”, but lack of cheap energy. There are no “good poor people” and “bad rich people”, therefore curbing rich people’s consumption will not solve the problem, as there are less and less of the rich people…
The “credit money” just keeps the system going on, although with less and less success due to the diminishing returns…
so, what is your suggestion? plan? the way forward? I am curious.
Dear Mansoor H. Khan,
as the deflation is continuing, the system is torn into pieces, individual parts are shrinking. The money creation just fills the gaps that arise between individual elements and keeps its spatial continuity. There is no other system that could replace current system and be successful. As, basically, we are moving towards the future where the self-help will be the main source of energy and the trade will consist in exchanging the energy with the closest parts of the system. There is no need for money, as the survival will be measured by its success. When the population is shrnking, the money, whether printied, real or electronic, will have value only insofar there is something to buy or a will to sell etc. As the amount of the things that can be bought will be falling, no money will help you, when the money will not be backed by something more than its quantity.
The money is created by the states and as these will be crumbling, also their value will go down. The barter trade will be on the rise. So why change anything and loosing energy in changing to something that will fail?
Money will be quite useful post BAU — if you keep it dry it will burn easily — so when you are fortunate enough to be able to kill a cat or a dog… or catch a rat or two….
You can pull out a handful of $100 bills — then rip the cushion from a sofa — pull out your lighter and set the bills aflame and use them to ignite the cushion…
Then you can roast your dinner.
Thanks for a thoughtful reply.
But I still have a hard time with not being able to come up with a monetary system that matches the geologic decline in fossil fuels.
It seems like we should be able to come up with one because non-cheap fossil fuel energy is still net energy positive for now.
Mansoor
One thing that you need to understand is that the “geologic decline in fossil fuels” is pretty much irrelevant, when it comes to the way our use of fossil fuels will decline. In fact, the “net energy” calculations are pretty much nonsense as well.
We have built a system that requires a huge amount of debt (in fact, a rising percentage of GDP) to extract these fuels that are supposedly net energy positive. The likely thing that will happen is that Ponzi debt system will fail, and things will fall apart far faster than any theoretical “geologic decline in fossil fuels.” The whole net energy theory doesn’t have enough variables in it–it doesn’t consider the huge amount of debt that is needed for production of energy products (including renewables). See my post http://ourfiniteworld.com/2015/09/14/how-our-energy-problem-leads-to-a-debt-collapse-problem/
kesar0 says:
How to feed the masses? EBT cards
What to the masses to with free time? Video Games, Gladiator Games (Football) and Religion
This only buys us time to learn how to live like how Bangladeshi’s live (i.e., extremely low energy footprint).
Sure, many and maybe even most will die in the process or commit suicide.
Mansoor
“This only buys us time to learn how to live like how Bangladeshi’s live (i.e., extremely low energy footprint).”
I was recently reading http://www.susanwisebauer.com/books/ and research indicated that pre-industrial revolution the average person lived roughly like a peasant in Bangladesh — they referenced another country — a very poor one in Africa…
So anyone who is hoping to be around post collapse would be well served to do an apprenticeship in a place like Bangladesh… you might also want to get some military training in with a focus on hand to hand combat….
We talk about red and blue pills and matrices…. perhaps we should be talking about entire bottles of pills….
Mansoor!
Now you’re talking. The only problem is that you are just describing the current situtation:
EBT cards – check
Video Games, Gladiator Games (Football) and Religion – check.
In previous post we were discussing – at least I thought we were – the next stage. In the third and mostly in the last point you come to the same conclusion, as I did. It won’t be pretty.
The phrase “We have tons of wiggle room. Just think of all the toys and useless activities we in the western world/industrialized countries have that consume tons of energy.” is gone, I guess. We don’t have the space, from now on it’s free fall.
“The modern economy should be viewed like a car (a piece of capital equipment) which needs fuel (money) to be useful.”
Unfortunately, your view on how economy works is oversimplified. You should change the “fuel (money)” to “fuel (fuel=energy)” and then see what happens. And only then you can assess your monetary prescription in full.
Are you sure your monetary mind trick will increase energy production? If not you better study the standards of living in countries registering decreased energy consumption. It’s not pretty.
kesaro said:
“If not you better study the standards of living in countries registering decreased energy consumption. It’s not pretty.”
True but our per capita energy consumption is very, very high compared to those places BEFORE they collapsed
We have tons of wiggle room. Just think of all the toys and useless activities we in the western world/industrialized countries have that consume tons of energy.
Mansoor
Think of how many jobs the toys and useless things provide. One of our big problems is a lack of good paying jobs.
I guess we all here agree, that our culture/economy produces a lot of waste, as RE likes to call it. Unfortunately, when the crisis arrives it hits mostly the poor before it hits the wealthy. So you can see carnival in Rio with favelas in a few miles away. Decreasing the energy consupmtion will make poor even poorer but the wealthy will still have a party.
Additionally what do you plan to do with all people loosing their jobs because of economy shrinking? Aren’t they go violently to the streets? How do you feed them and find something useful to do? When economy crashes all the demons are out: violence, drugs, stealing, radical politics. You want to avoid it in your society.
I know that BAU is interconnected. I still don’t see why it can’t step down the EROEI ladder (reversing the earlier climb) as an *interconnected* whole. Another reversal would have to be focusing attention more on the poor than the rich. The lifestyle of the poor would have to become the new status symbol–as in how the rage now is for tiny houses that cost less. The relative popularity of the Bernie Sanders campaign is another case in point…
I think there are many reasons why it can’t be soft landing and Gail described most of them.
Demographics – 7.3 billion humans,
Diminishing returns – low hanging fruit syndrom,
Financial systems dynamics,
Logic of history and politics,
Systems theory – bifurcation process.
These are main factors, IMO. Again, it won’t be pretty.
Outlawing usury is a great idea.
“How do things fail? Gradually at first, and then all at once, as consumer-based demand fails first gradually, and then debt-driven profits fail all at once.”
You probably are right. It is sort of like I graphed the situation with respect to early collapses, when there was a stagflation period, followed by actual crisis (or collapse). This time’s collapse may be steeper though, because debt is more of an issue, and we are more dependent on electricity, international trade, and many specialized occupations.
A steep collapse followed probably by a brief period of BAU that peters out perhaps as governments attempt to maintain things after the fall.
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Dear Gail,
I want to propose to check the data related to natural gas. Many industries have switched from oil to natural gas and a lot of agro stuff can also be made from gas. Germany builds a new pipeline to Russia and Iran is likely also to become a major gas producer. Germany has also reduced carbon emissions due to replacing coal plants with highly efficient gas turbine cycle power plants. Wkipedia claims some 40 CMO of gas are left and some 40 CMO of oil. That should be enough for the next 30 years or so. I think it is fair to say that peak oil is somewhat shaddowed by the shift to gas and thus not so pressing a problem.
Thank you for the good work
MM
MM – how I wish what you said was true. Low oil prices are in part because oil is unaffordable for some applications, not because there are cheaper subsitutes. And in many currencies, oil prices have fallen only marginally. Thus in some countries trucks are travelling faster, and aircraft are flying more miles, but are oil prices high enough and stable enough to attract long term investment in oil field infrastructure, because without that there will be less oil for that in the future?
New York State is counting on natural gas. It is shutting down all coal electrical generation and replacing with natural gas. It is believed to be infinite. Though winter it was in short supply and electric rate tripled. Though new pipelines must be built to deliver it and nobody wants them in their backyard. We will see.
though last winter
There are a lot of folks who think we will have infinite natural gas. Its price is too low as well, and many companies produce both oil and natural gas. So failures in the oil industry will reduce natural gas supplies as well.
I show both total energy and oil in my Figure 11. The increase in natural gas usage is actually lower than the increase in oil consumption. I found this hard to believe, because usually the switch goes the other way.
How much oil and gas is left in the ground is in some sense irrelevant, as long as it is > 0. We can only extract fossil fuels as long as our systems stay in place. Then the rest of the fossil fuels stay in the ground forever. The belief that all of the fossil fuels can be burned is simply not true–we have to keep the whole system together. It is really a Liebig’s Law of the Minimum issue. I showed in my last post that we really need fuels that are equivalent to $20 per barrel oil or cheaper. This is probably equivalent to an EROEI of 50:1 or higher. All of the rest greatly increases debt ratios. In some sense, we really can’t get it out–we are just living on borrowed time with it. We can only use it if we keep pushing up our debt to GDP ratio. The question is when the whole system will “snap”.
Spending a lot of time looking at how much fossil fuels are in the ground is another error “Peak Oil” folks have made. Just because we can see the fuel doesn’t mean that we can get it out. The economy may stop functioning before we ever get to it.
Hypothetical question. What if population was reduced by 30% without destroying infrastructure , especially if it was a part of the population that uses more than it produces? No conspiracy theory inferred but if those in power see the situation as you do, you better believe they have thought of it. I am more interested in if you thick we could get by quite a while longer without running out of resources. We might better hope they don’t see it the way you do.
For us hillbillies I think you are saying a chain is only as strong as it’s weakest link and you feel the financial system is the weakest link.
I think our basic problems now are
(1) Too much debt
(2) Resources sufficiently depleted that they are costly to extract
(3) Way too much population to live without fossil fuels
(4) A fragile financial system that collapses if it stops growing
Getting rid of 30% of the population doesn’t really get rid of any of those problems. We would need a much larger population reduction to live without fossil fuels.
The problem would be easier to solve if we didn’t have a lot of weak links. Back when we humans just farmed the land, and our problem was simply too much population for the arable land, a 30% population reduction would have fixed the problem for a while. Economies could grow after a plague came through and cut population back a little.
You’ve nailed all the high points there Gail. Unfortunately, we’re at the point now where homo sapiens needs to cull the herd by about 13/14 or so (93%), to get back to our estimated 500M or so carrying capacity if current estimates are correct. Anyone want to guess how that elimination will be distributed or whether it will be “managed” at all?
Population control? Easy peasy, already happening.
1) Birth control/abortion. Especially used by the responsible people, very useful as it culls this population and keeps future dissent to a minimum.
2) Ration healthcare, make it especially difficult for the middle aged who are not yet in Medicare, to ensure that they indeed never make it to Medicare. The elderly are in the system already and you don’t want to piss them off because they tend to vote, so here you just sabotage the pharmaceutical companies, make sure they don’t invest in anything real, but instead in new forms of Viagra etc. Eventually the hospitals and clinics will just run out of supplies. But you know the hard working doctors and nurses will just suck it up and soldier on, so you’re covered there.
3) Ensure just enough immigration of various groups from around the world who hate each other. For awhile, they will think they have it good in America, until too late and then they can be made to violently turn against each other. And the native whites and blacks will enter the fray as well. A sort of quasi civil/racial war.
Voila. Population will probably peak somewhere around 350-400 million, and then all of the above will lead to a rapid decline to 100 million that can still be supported in a scrap economy while all of your assets are locked up and ready to pass on, and you hardly miss a beat. And the remaining military capacity, once it withdraws from the Middle East oil wars, can be used to defend fortress North America so you hardly even need to concern yourself anymore with what does or does not happen in the rest of the world.
Are you talking about US population peaking around 350-400 million? This is clearly a problem.
I think your comment is strange.
I don’t think we really know. If there is a Divine Power behind everything (including the big bang, evolution, and our long human history), then there may be a way that is different from anything any of us has imagined. I am not a believer in the Rapture. According to the link, there are even different beliefs amount those who do believe in the rapture.
I am not sure that imagining all of the bad things that can happen will do any of us any good. Plagues seem to have been the method of reducing population in the past.
I object to using 500 million if the source is some silly stones in Georgia. But yes massive overshoot. My favorite number if 100 million. But who really knows.
1) and 4) are manmade and in theory, fixable. The financial system is likely unstable when it tries to contract more that the few percent that happens in the business cycle. I *think* that is why the central banks want negative interest rates and the end of physical forms of money. They want this to both control and to stabilise the contraction. Since the GFC happened on their watch, good luck with that.
Wealth exists independently of the financial system, and I’d see wealth as a combination of resources and innovation. And there seems to be an unlimited supply of pixiedust BTW.
Just to save a load of headscratching about “unstable” – think about the price of a perpetual bond paying 10% interest in a 1% deflation world. The value of the bond is indeterminate, theoretically infinite. It is similar to a situation where more shares in a company have been (illegally) sold short than there are shares in issue. Or if you prefer, there is more debt tha wealth available to extinguish it, and if Gail is right, what wealth we have will shrink. “Unstable”
I agree. We would need a much greater than 30% reduction in population. I feel the reduction would have to be so great there wouldn’t be enough population left to support the key industries that are needed to maintain our lifestyles. The population numbers would be below a critical population level needed to maintain extraction and electronic industries as well as the transportation, education and food production processes. I think this is why there hasn’t been any purposeful mass de-population event yet. It is too risky and wouldn’t solve anything either. Either grow or die it would seem.
That was where I came up with the 30% number. I feel much more than this and we wouldn’t be able to keep BAU going. Also 30% is about the hard core base of the left and right ends of the political spectrum. I could see if either the right or left could get a monopoly on power that they might be able to dispose of the opposing 30% and still keep society functioning in some matter. I was wondering if a 30% reduction would buy us enough time to possibly convert to other technologies. It seems Gail doesn’t think so. Fantasy I guess but I was just looking for “possibilities”.
This study indicates population reduction is difficult (unless it’s very catastrophic). Fast Eddy is sure to like it.
http://www.pnas.org/content/111/46/16610.full.pdf (“Human population reduction is not a quick fix for environmental problems”)
Thanks. Even a rapid change to a one child policy world-wide leads to a population similar to today’s by 2100, assuming current mortality trends continue.
Another great post Gail. There are vast liquid hydrocarbon seas on Titan. NASA spent a lot of petrodollars to find them. There they are, but our civilization can only peer at them, and send tiny robots to study them. As they say, these resources might as well be on the moon. They’d be a whole lot closer, too.
I hadn’t thought of that–our resources might as well be on the moon. You are right!
The last thing the biosphere needs is for us to find another accessible reservoir of cheap energy.
Yes, I was thinking again about my assumptions. I calculated once that we need 20 Superankers of LNG a day to keep the US running without oil. That is quite a lot when you take the time it takes to load and unload such a vessel. I read somewhere that in the USA 10 LNG ports are planned. In the end I bet that a supertanker of oil holds much much more energy as a supertanker of LNG. What is the thing we pay all those fleets with? ah, debt. right. Additionally I see a very relevant point in the increase of oil consumption faster than gas consumption. That makes clear that my assumption was not really based on facts.
Thank you Gail, for nailing this down again!
MM
Germany has hardly replaced any emissions as it continues to be a large electricity importer from CEE region, be it nuclear and brown coal based (Czech, Poland, Austria, ..). The german renewables overcapacity (needed for not well insolated place) is creating havoc throughout the grid in that region as well. So far the recommended solution from Germans is to “shut up and continue slave for us” in terms of its supplier countries, and in terms of domestic situation it just wants to blow even bigger bubble (print gazzillion Euros) to promote buy/build up of millions of plugin hybrid/electric cars and grid tied home energy storage appliances.
This article http://www.wcre.de/index.php/presse/articles-mainmenu-17/104-sustainability-and-energy differentiates between “below-ground” and “above-ground” sources” of energy.
If we start using “above-ground” sources of energy, then we sacrifice the place needed by humans…
Right. I think the author of the article you linked to has oversimplified. He is praising the use of above ground resources.
Overusing trees can easily be a problem. Even the above-ground sources use minerals from below the ground (with limits) and produce pollution in the mining. They also have impacts on the plants and animals nearby.
This is a good analysis but let me remind that neither Limits to Growth nor many of the bloggers now are taking into account the nature of our financial or political system into their models.
The price of oil in any currency, be it dollars, euros, yen, or whatever, is meaningless, because fiat currency itself has no value. Oil can be one dollar per barrel, it can be 50, 200, 1000, take your pick. When measuring oil in dollars, you are using the incorrect measuring stick. But this is still useful, to some degree.
One thing is absolutely guaranteed…if oil prices in dollars stay so low that producers can no longer produce, the central banks/governments will step in to support it, and will control the demand end by rationing (people will be given just enough to afford, but not enough to cause another spike). This is already happening. By hook or crook, every last gram of material that the industrial economy can extract from the ground is going to be extracted. Count on it.
The problem that you Gail and many in the doomer blogosphere have is that you can’t think like a criminal. You are just too honest. It really is a handicap. In your case it comes from your history of being an honest accountant. You are assuming that dollars have value, and that our system is a well-regulated, honest free market. Neither of these is true. Currency has no value, and our system is a centralized control economy about to be turned into a command economy.
Try to think like this, and you will realize that oil will still be produced. The discussion is still interesting, of course, but you are mistaken if you believe that low prices in key commodities will lead to shortages. I’m telling you, nothing like the kind will happen because the government will just step in and guarantee production.
“Currency has no value”. Yep I’m hearin’ ya man. Er can I have all your currency?
Well you know what I mean. Of course fiat currencies are accepted in trade, and they are indeed what we all use now. The value of a currency is that it buys goods and services. It therefore obtains a certain mind value, relative to the world of real stuff.
But it has no fixed value, and that is what I mean that currency has no value. You can’t actually measure it, or use it to measure anything. Convince yourself all you want that it’s possible. But if something can be created or destroyed at will (as fiat currency can) then it contradicts all the laws of the natural universe, and therefore we can conclude that it’s valueless, even if we accept it’s momentary value in trade.
You think you are making a clever and funny point, but you are doing nothing of the sort. I know that when I have a certain amount of currency that is mine, it’s only value is that it acquires real things. In the case of us proles, shelter, clothing, food, etc. And in the case of the rich, assets and businesses.
So no, you can’t have my currency, but not because it has value, but because it obtains things of value that I need.
The explanation is as meaningless as the statement. Things or currency have as much value as another desires and/or can afford. Gold, a glass of water, heart transplant, vial of insulin, information, AK47, can of beans……… Like “currency” things or services have value until they don’t………that is not news to anyone.
All you can really acquire (other than more promises) with your money is what we actually produce in a given year. This is why ratios of elderly to the total population become important. Even if they think they have “saved up” enough, as a practical matter, those savings usually represent debt of others (directly or indirectly) or stock market valuations will go away. The question gets to be: (1) How much will an economy produce in a given year, and (2) How will it be distributed between workers and retirees (plus amounts for other government services and business overhead)? If something goes wrong, and there is no electricity, no matter how much money you think you have in the bank, it won’t change that basic problem. Or if the amount of food drops in half, somehow that change must be allocated among real people.
I think this is a great simplified insight. Whenever floating Gail’s theories by people they can’t comprehend how the system could possible stop – they can only comprehend gradual reductions… which is understandable given the complexity of sytems now. Related to this is not being able to comprehend a massive reduction in value of people’s savings etc … but when we reduce it to savings = promises and what the system actually can produce over a certain period, its easier to comprehend. Basically a whole lot of promises cant be kept if BAU doesnt truck on. Once people dont trust promises, fiat money cant get anything done.
I didn’t include any of my usual charts showing what happens to debt repayment when an economy shrinks. This is the kind of problem a person gets:
Another way of looking at the problem is that we are borrowing from the future. This works fine when the future is better than today:
It doesn’t work well when the future is less good.
“So no, you can’t have my currency, but not because it has value, but because it obtains things of value that I need.”
Exactly – you need things – things are made by energy – Money is a meter of consumed energy!
dolph9, yes it is close to a command economy and will be closer very soon. This get to the stage of you will work for almost no money otherwise you will not eat. Which leads to the response oh yes we are working just don’t be surprised that not much get done. The Plymouth Plantation/Soviet Union death spiral.
As I replied earlier, I am not convinced that central governments will understand what is going on. They will just see that they have a huge number of businesses going bankrupt–oil companies, natural gas companies, coal companies, steel companies, copper companies, aluminum companies, electric companies, and banks. They will also realize that their own debt ratios to GDP are already high, and that the market seems to be oversupplied for all of these products (except perhaps money from banks). I don’t think that they are going to go to Congress and say, “Let’s put ourselves deeper in debt to bail out all of our fossil fuel companies.” Instead, they will say something like, “The cure for low oil prices is low oil prices. The problem will solve itself,” and not be concerned.
We already have a Chinese coal company layoff 100,000 workers because their business is no longer there to justify all those workers. Which probably what we are going out see more of as we get closer to the Wile E. Coyote moment.
for those who’ve not seen FE’s link on previous post:
http://europe.chinadaily.com.cn/business/2015-09/26/content_21987803.htm
“Faced with falling prices and weak demand in a slowing economy, coal companies will find it an opportune time for mergers and acquisitions, industry experts said on Tuesday. [Photo/China Daily]
Non-core businesses being sold to pay off debts as mining group reels from continued losses
The largest coal mining group in Northeast China is cutting 100,000 jobs within the next three months to reduce its losses – one of the biggest mass layoffs in recent years.
Heilongjiang Longmay Mining Holding Group Co Ltd, which has a 240,000 workforce, said a special center would be created to help those losing their jobs to either relocate or start their own businesses.
Chaiman of the group Wang Zhikui said the job losses were a way of helping the company “stop bleeding”.
It also plans to sell its non-coal related businesses to help pay off its debts, said Wang.”
Looks like keeping their staff untouched is no longer an option, even for state-owned companies like Longmay. One wonders what the hell all these people will do once fired.
Riot … eventually?
I met a Shanghia ‘princeling’ on the ski lift today … young kid maybe 17.. from Shanghai … told him I left HK because of the filthy air… lived in Shanghai for a year … also rather polluted…
Asked him if he’d go back after school (his plan was to go to a high powered US college after high school in Perth) — he said no worries the population will decrease along with the pollution…os he may consider a triumphant return
It must be a Wonderful Life being a princeling… he was a pretty shit skier ….
“The Start Of China’s Unrest? Southern China City Rocked By “Massive” Bomb Explosions, At Least 6 Dead”
http://www.zerohedge.com/news/2015-09-30/start-chinas-unrest-southern-china-city-rocked-massive-bomb-explosions-3-dead
Over the weekend when we reported that one of China’s largest coal miners had laid off 100,000, or 40% of its workforce, we noted that China’s hard-landing is starting to hit where it really hurts: employment, or rather the lack thereof, and the one logical consequence: “now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest.”
Yes, I am afraid unrest will be the problem.
More bombs http://www.bbc.com/news/world-asia-china-34409394
Call me a cynic … but might the US be involved here… as they are in Ukraine and Syria?
Suddenly multiple bomb attacks in China….
And might this be the motive?
http://www.zerohedge.com/news/2015-09-27/us-ropes-china-join-russian-military-syria-while-iraq-strikes-intel-deal-moscow-tehr
Your batteries can go flat if you go away skiing.
That is a good link. I know that concern for workers having jobs is a big issue in China. I don’t think that they have the unemployment system we have here. In recent years, my impression has been that anyone who wanted a job (at least in the cities in the east of China) could get one. There would seem to need to be a way to find new jobs for these people — the article says “relocate of start businesses of their own.”
I did read that China was going to go through a ‘lack of workers’ crisis soon as the number of working age people was going to drop by 3 million a year so maybe this problem won’t be as bad as feared.
I think it also shows just how labour-intensive Coal mining still is in China. 240,000 workers in one company! Although the UK did have over 1 million people working for coal mining as late as 1947.
If China could add huge amount of energy to farming, it could remove more workers from farming and add to its labor availability. Otherwise, it is getting close to the point where the young people are more from one child families, pulling down the growth in the labor supply.
At first you are right, they won’t recognize it. But when the problems hit, and there is severe unemployment and lack of food distribution, they are faced with riots.
Then they step in with guaranteed production, and rationing cards to allocate demand.
So yes, you need another crisis first, and the crisis sets the state for the next round of government intervention and centralized control.
All the central banks needs to do is guarantee a certain minimal amount of fiat money creation. They don’t even need to absorb all of the bad debts anymore because they’ve already done it. They can then collude with the big private banks to make sure they are making zero-interest loans to the remaining oil producers. The banks can also use derivatives to put a floor on the dollar oil price so it can’t fall anymore. At last resort just shut down the markets entirely.
So, now you have a fixed lower bound on the oil price, guaranteeing there will be no deflation. You also need a fixed upper bound to make sure a spiking price cannot crash the system again. To do this, a certain level of unemployment is tolerable and indeed desirable, and now you just ramp up the benefit/rationing cards so people can fill their tanks enough to get to the grocery store and back and that’s it. You already are subsidizing their food and housing so they don’t really need employment anymore.
So, there you have it. Fixed supply, fixed demand. Lower bound on price, upper bound on price. Populace is fed and can be entertained on recycled Hollywood sequels (you hardly even need to produce new ones anymore) and kept comfortable for another 10-20 years before it’s your turn to get out of the game and hit the lecture circuit.
Afraid I don’t understand. Magic?
Oil producers need an increasing share of the world’s workers and other resources. So do natural gas producers, coal producers, and those producing education. So do those producing water, and those producing pollution control equipment. Those producing food also need an increasing share of the world’s resources and workers as well. So we kick out all other industries? What do we do when the total exceeds 100% of the resources available? Central banks cannot allocate resources that aren’t there, no matter how much fiat money they create.
I guess you have already noticed that some people are providing more to the society than their nominal paycheck would take home aka life is not fair! Obviously it depends on location, but usually teachers, “real” doctors on emergency and other professions are heavily overloaded, while there are dozen of percents of freeloaders, and also few percent/ile of true parasites at the top of the entire society.
So, what Dolph9 had probably in mind, and what I mentioned in previous debates is that given the resources still available (fossil energy, know how/managerial class) TPTB have still some breathing-maneouvering space to tweak the system and deflect total meltdown, for a while. Apparently, they will again focus on reshuffling the lower classes bellow them in such a manner, the system is still somewhat under control and they keep the power, and the “newly” disadvantaged classes of the society are boxed into arrangement where protest or other actions are still avoidable or could be ignored completely.
As to where we stand now, the great empirical test ahead in aprox. next 1-3yrs would be the “planned” referendum in the UK about their fututre role inside/outside EU, and also the case of Catalan province of Spain, which is finally going hard on the path of unilaterally declaring independence. Meanwhile immigration crises going on. And with likely severe recession likely before 2020 or perhaps even reply of 2007/8 style crash, we would be able to meassure TPTBs responses from the front seat. By that time it won’t be that hard to make the evalution if there is going to be serious meltdown or a mere reshuffle and yet another can kicking excercise..
PS last night Musk launched their production version of SUV model X, it’s on ytube, around 11minute into the presentation he showed this +100k vehicle is equipped with biohazzard grade air filtration systems. Perhaps another tangetial clue, how the new caste system will operate, although this would suggest that even the upper middle class is somehow invited into the club of post depopulation world, which is hard to believe, who knows..
I just do not feel that Dolph9’s scenario is plausible. I don’t see how a government can guarantee food production. They cannot wave a magic wand and have fertilizers and fuels and spare parts (many of these things are globally sourced) to keep food production going. What you are describing is a collapse of the economic system. That would be chaotic and unpredictable. In my estimation, governments would be more likely to loose control of the economy and their people if there were a collapse. You seem to imply that not only would government continue to function after a collapse but, that the government would also be able to take on even more roles (that were once private or global roles) as well. Kind of reminds me of an old “I Love Lucy” rerun where Lucy is working a production line and falls behind and becomes overloaded. I think a more likely scenario is the government and some portion of its military would protect itself and the elite from the masses and head for the bunkers.
Case-in-point, just pulled this in from the St. Louis Fed, the velocity of Money is at an all time low:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1xED
So the Fed is printing more and more money but that money is being spent on less and less real goods/services.
more recent:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?width=880&height=440&id=M2V
Sorry. Trying post through Word Press is an abomination. I had to open a facebook account, against my better judgment, so I can post.
SymbolikGirl
By MEFOBILLS, at Zero Hedge:
QE is directed at financial assets e.g. debt instruments, mortgage backed securities, and the like. This then channels Fed keyboard money into those debt/asset holders. Often those holders are those who create credit money, i.e. the banks – therefore they are rewarded as the swap magick holds prices high, in their favor.
A Bill can also be issued and channeled into means of production, to then be later removed from circulation. MEFOBILLS were re-discounted, and thus when they traded for cash, they could be withdrawn from circulation. While residing on Company ledgers, MEFOBILLS acted as savings so companies could trade with each other.
Rentenmarks (debt free type of money), MefoBills and other vehicles can be used as tools. QE is simpleminded cash swapping for trash, but benefiting Oligarchy due to where it channels. A money supply should have different types of money, and they should be non-usurious. A government can issue money to the benefit of the people, this has been demonstrated many times. Usually when it is private money, the government becomes usurped.
I’m saying this: the FED, nor the government, nor most economists are very astute when it comes to money. Economists are taught falsehoods in school; they also don’t study monetary history. Modern economists actually believe money is a neutral veil.
M0 or M1 type money is a bearer instrument that says pay to the bearer on demand. This type of wallet money may enter into unwanted channels, causing inflation in that sector. When the whole economy is in debt deflation (like today and due to housing bubble) then it is appropriate. Helicopter money will become wallet money.
In a balance sheet recession like today (debt depression), where debt instruments are demanding excessively (due to fraud), said debts need to be legally canceled, or worked down. The right kind of money can vector into debt instruments to work them down. Working debts down would reward the fraud of course, but at least would give labor a fighting chance.
http://www.zerohedge.com/search/user_comments?username=MEFOBILLS
Isn’t part of the issue that returns on investment on alternative investment have been terribly low recently? At least bank deposits are insured. People tend to leave more of their money in the bank. So it seems like the function of money and near money (M2’s definition) has changed.
I’m not very good at explaining things, hence if you want an explanation of the QE process search youtube for Peter Schiff + Steve Keen. The low velocity of money is a result of this process. A bigger question is that the process equates mortgage backed securities with US etc government debt (Treasuries), hence if the (US) housing market collapses the Federal Reserve Bank is left holding the bag (IMHO).
Yes they will ….
But…
Commodity prices are not likely to go up because of the demand issues… (maybe we get another blast of QE to kick the can a little… but it seems QE is no longer working — see Japan)
Perhaps the central banks will attempt to bail out a few of the big commodity companies
See http://www.zerohedge.com/news/2015-09-29/peak-japaganda-advisers-call-more-qe-admit-failure-qe-chinas-yuan-hits-3-week-high
But as the Trailer Park boys would say — a shit storm coming our way — it will not be possible to bail out thousands of businesses…(think AIG x 10,000)
https://www.youtube.com/watch?v=tjMkqFmRGL4
No doubt BAU will produce oil right up until the moment it collapses…. we will not collapse because oil stops being pumped and refined…
We will collapse because a massive tidal wave of deflation washes over the economy causing massive bankruptcies and layoffs…. which will unleash a second bigger wave of bankruptcies and layoffs…. and a third….
And then the waters calm. And billions of dead bodies will be floating about….
Yep human nature factor has also to be considered, although pointing fingers to political groups would be like… “being right when the government is wrong is dangerous”.
I agree with you of course and I think we see it happening all around us as governments pick winners and losers with their FIAT cash now. The catch 22 is that the same governments give value to the currency through force and mutual support. I also suspect that most central banks are willingly losing money, at least as far as amounts on paper would look, just to keep the entire thing floating along. They eat bad debt like crazy but don’t care because as you point out from their perspective the cash has no real value anyway.
The weak link is the mutual support clause between governments and central banks I suspect. If a large enough player goes rogue the entire thing falls apart. What we are seeing is that FIAT manipulation works well when you are stealing from your own people or bleeding resources from another willing (and smaller) country but it doesn’t play so well in the international resource arena of the big guys. From a global political perspective we are nearing the end of this mutual support being lucrative for the big players. Eventually one of them is going to over step or side step and that is when the entire house of cards falls. Currently the US is totally dependent on the mutual support thing so when the time is right one or more of the other big players will initiate the fun at which point the US can roll over or descend into chaos.
Dolph9 you say:
“The price of oil in any currency, be it dollars, euros, yen, or whatever, is meaningless, because fiat currency itself has no value. Oil can be one dollar per barrel, it can be 50, 200, 1000, take your pick. When measuring oil in dollars, you are using the incorrect measuring stick.”
Money is only a meter of energy consumption. World GPD and world energy consumption correlate perfectly. Every amount of money – also your salary, your taxes, your paid interests etc. – will eventually drop down and take its claim on a corresponding usage of energy. Or you can go some thousands years back in time and you will find out that the “newly” introduced money only was a meter of the energy of these times, i.e. farming products which had to be supplemented continuously in order to let people survive. This did not change when new energy forms as coal and oil were introduced. It only initiated a much, much bigger production of goods which all came out with a price tag on them corresponding to the total energy hidden in that product.
Gail is right when she uses money a measuring stick.
Watcher?
Excellent analysis, thanks Gail.
Reblogged this on Strategic Business Advisor.
There has always been a ‘truth’ in the commodities world — “the cure for low prices is low prices, and the cure for high prices is high prices”. At the low end of the spectrum, excess ‘finanicialized’ supply gets destroyed, and those burned in the process won’t lend again for some time. Real supply diminishes and prices go up. On the high price side, high prices bring on high cost production that is profitable at those higher prices until saturation occurs and the supply exceeds the demand. We cycle back to low prices once again.
Current world demand is higher now than a few years ago, and most likely will be higher still a few years from now again. Pricing will ‘recover’ as high-cost, marginal producers loaded to the gills default out.
It’s been this way in pretty much every commodity ever produced, from sorts to hards. It’s a continuous cycle.
Mark Twain is famous for saying, “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.”
As we approach limits of a finite world, things that seemed to be true in the past are no longer true. This is why it is not possible to bounce back to high prices again. People are lulled into a false sense of security, because they are absolutely certain that the cure for low prices is low price. Sometimes it is; sometimes it isn’t. Sometimes the patient really has cancer instead of a headache.
Sometimes it is; sometimes it isn’t. Sometimes the patient really has cancer instead of a headache.
Someone should write that down for future reference.
E.g. some people go deeply into debt, get a big house on mortgage, require low prices from the suppliers of the materials and workers during its construction and you can even see them how they work on Sunday finishing their house and its surroundings, as they do not have neither time, nor money to finish it on working days and for engaging the workers.
They do not get it, as their intellectual skills are too weak to see the whole picture… And there is a big portion of the population that is not able to see it.
Mrs Yellen also said, inflation will go up again in some 2 years. She thinks, we ar just in a normal cycle…
Keep in mind — what she says and what she knows — are almost certainly very different….
There are parallel universes at play when it comes to the MSM — they create a matrix for general consumption of the sheeple… pretty much a totally false world…
That said… you can pick up hints of the alternate universe aka reality from their press releases…. but to do that you need to be aware that the majority of what they say is a lie — propaganda….
Then you need to piece things together from different sources and you might get 10% of what is really happening.
I recall during the era of the USSR reading how US analysts would scour news stories out of the USSR using the exact technique described above…. apparently it was one of their best sources for insights on what was really going on behind the iron curtain.
The truth is hiding in plain site….
I am not sure how much Janet Yellen know. If she understood the situation, it is hard to believe she would be interested in raising interest rates.
She of course has to say she is going to raise rates… just like they have to say things like ‘green shoots are around the corner’
Raising rates would mean that things are improving …. that people without jobs will soon find employment and happy times will be hear again…
How many years now have we heard the Fed cry wolf on rates?
Zero Hedge has published numerous articles that explain how a raise in rates would crater the US economy — how it would destroy companies outside of the US that are leveraged up in USD but earning in their own currencies.
Perhaps there could be a tiny rate rise — a token increase — so they can say look — things are getting better — but I very much doubt that — because things are getting worse by the minute — and doing that would spook the markets …
I am 99.9% certain rates will stay zero bound till the bitter end…
I am 100% sure the Fed will continue to state that rates are going to rise… over and over and over…
“Raising rates would mean that things are improving …. that people without ”
Your country must be officially in a recession. The US is back to cars sales of the “boom” years around 2002 again. Not the most on record by far, but cars also last quite a bit longer then the 70s. 66 months of sales increases.. not exactly looking like a recession in the states.
madflower69 – not exactly looking like a recession in the states.
That really depends on where you are. If you are near a government spending spigot like a subsidized industry or some education hub then things look great. If you are not so lucky? Well let’s just say stores are closing and businesses are struggling.
As to those auto sales, I am employed by a large dealership and all these new auto loans are as toxic as the home loans were in 07. I also question your call about autos lasting longer these days. Certainly the automakers are swallowing more higher mileage repairs and giving longer warranties to make the sales numbers but I can assure you that the life span of an auto once it falls out of warranty is very short indeed now. You almost cannot afford to have them fixed and the number of minuscule things that can break and render the auto useless are uncountable.
“madflower69 – not exactly looking like a recession in the states.”
I agree with you evaluation. The last I looked the economic numbers were sort of split down the red and blue state lines. The ones that seemed to support alt-e basically have recovering economies. The ones that focused on FFs aren’t doing as well.
The difference is favorably for investment. You big some federal money, some state money, the people are generally for it, and help fast track your projects, so they are going to be the states you invest in. You create the jobs there.
If you look at a state like Florida, who has as much sun as California, yet. there have been fights from the utilities and the government the whole time. It isn’t worth your time to invest any of your private money into that situation. You just go to a different state with your project.
There are literally billions of dollars being tossed around, and the vast majority of it is private sector money, but you have to be in a position to catch it.
“As to those auto sales, I am employed by a large dealership and all these new auto loans are as toxic as the home loans were in 07. I also question your call about autos lasting longer these days.”
I agree some of the auto loans are toxic. There are other toxic investments as well right now.
The cars are lasting longer then they did in the 70s and 80s.
http://www.rita.dot.gov/bts/sites/rita.dot.gov.bts/files/publications/national_transportation_statistics/html/table_01_26.html_mfd
In the 70s you didn’t expect a car to last 10 years. Now the average is 11 years. The cars last longer, and are made better. Part of it is also economic.
Perhaps the states that depend on fossil fuels represent the “real” economy. The states that take federal and state money to prop of alternative energy have the temporary bubble that the extra funding provides, but they really don’t have anything solid for the future. They have a high cost replacement for the fuel that operates today’s fossil fuel plants–that is about all. The whole rest of the system needs to be in place for the times of year and times of day that alternative energy isn’t in place. We aren’t even growing enough that we can kid ourselves that alternative energy is even helpful, to meet our rising long term needs. Our long term needs are likely shrinking, thanks to conservation and recession.
100 miles north of NYC 30% of mall stores empty. IBM was 33,000 employees 30 years ago now 1500. There are no real jobs. Yes, jobs waiting tables for the NYC second home crowd. High heating cost, high taxes, no jobs. Just closed on 2 acres in California.
“100 miles north of NYC 30% of mall stores empty. IBM was 33,000 employees 30 years ago now 1500. There are no real jobs. Yes, jobs waiting tables for the NYC second home crowd. High heating cost, high taxes, no jobs. Just closed on 2 acres in California.”
yup. It has happened a lot of places not just upstate NY. I grew up in an area decimated because of the 70s auto industry collapse, and have friends that live in essentially ghost towns because the steel and coal industries collapsed. It isn’t pretty. It doesn’t matter what industry leaves.
Cali seems to do well. I have friends out there, and almost moved out there a few times, and probably should have at the beginning of the tech boom.
It is my belief the reason Yellen talks about raising interest rates is to keep the dollar strong. A bait and switch. She does know the economy is weak and a raise would make it worse.
SO upstate New York is a Red state now?
As for the autos again they will be junk because no one will be able to afford to fix them.
I care not to remember which is red and which is blue. Upstate NY has always been republican and NYC has always been democrat.
Why is it so hard to believe that Janet is in a state of cognitive dissonance or denial regarding understanding the situation and then behaving in a way that could only seem as irrational? This wouldn’t be the first time in human history that someone behaves in such a fashion.
Wouldn’t you classify the fact that Philip Morris (and other tobacco companies) knew about the link between smoking and cancer in the 1920’s and then suppressed and fought the information for decades (all in the name of profit)?
Haven’t we just seen a similar situation occur with the Exxon testing on Climate Change dating back to 1977 where they found that the crisis we are rapidly finding ourselves in was found to be more than likely. They not only suppressed the information (and the individual humans doing the work did as well as long as their pay checks were important to them) and actually funded groups to promote the complete opposite with their Climate Denial support.
And I’m not pointing fingers at evil, soulless corporations only, but at the humans (us) who actually are the ones making decisions. Group Think anyone. Stanley Millgram for desert.
Here’s an anecdotal story as an example of how we seem to live with what’s occurring around us. I’m doing volunteer work at the Queens County Farm Museum twice a week to keep my hands in the dirt. In the last few weeks a young woman (a college student) started coming.
She’s majoring in environmental science and with a focus on Urban Sustainability (I know, I know it’s a joke and since I play the Shakespearn Fool it’s no longer as difficult for me to keep a straight face). And she is the president of the Environmental Club at this local CUNY school although no one else from her club has come to the farm to work.
Well, she’s already got her husband, whose a native born Israeli of Morocann ancestry, picked out and all the kids she’s going to have. First she’s going to Israel to serve 6 months in the military then she and her husband are going to come back here to live (because they love Israel so much). It doesn’t even dawn on her that my opinion on Israel could be any different (which it is ) from hers.
Well, in her studies not a single one of her professors ever recommends, mentions or refers to any of the following books: Silent Spring, Limits to Growth, or Overshoot. She’s never seen or heard Albert Bartlett or Jeremy Jackson (Ocean Apocalypse). So, when one is “educated” under such a curriculum (a sustainabilty one at that) how can one ever break through the silo walls and into being a critical thinking person. She and her classmates are taught the growth model is the only model and that the future will be even roseier.
To top it off any mention of words such as collapse set her off into a panci/anxiety attack right then and she starts to cry. What she says, and recently I’ve been hearing this from more and more people is that if they knew what was really happening they couldn’t get up in the morning, so they delude themselves to remain in denial to keep BAU going and are willing to know next to nothing about what’s happening (on almost all fronts) and therefore would be unable to understand the changes necessary (if changes were still possible) or actually want to make them.
I’ve seen all the ways from fear to informing to try and bring people up to speed and none from one end of the spectrum to the other seem to work. Sadly the current oil price fluctuation has only confused and confounded most “average” people. As Li’l Abner used to say, “It’s confusing, but amoozing,” in it’s own way wouldn’t you say?
Thanks for your thoughts. The current happenings are very hard for most people to integrate into their thinking.
I do not believe Yellen – or any central bankers — are displaying cognitive dissonance…
When they get in front of the cameras it is their job to soothe the sheeple…. they will never in a million years tell you what is really going on ….
Again — I reference Jean Claude Juncker: http://www.telegraph.co.uk/news/worldnews/europe/eu/10874230/Jean-Claude-Juncker-profile-When-it-becomes-serious-you-have-to-lie.html
Mrs. Yellen ought to read Our Finite World. In fact, I will send her an e-mail with some links to my posts–don’t know if it will go through, but it is worth a try.
I think both Yellen and Bernanke know what is really going on. They are just conflicted on how to publicly explain/address the problem without making it appear that they are loosing control of the situation.
” She thinks, we ar just in a normal cycle…”
I think we are in a normal cycle too. a 3.9% increase in the GDP from the 1st quarter.
I realize probably half the countries are in a recession. I am not sure that is really Yellen’s problem. Her problem is the US was still motoring along in the 2nd quarter, and she is trying to fend off inflation.
Whether or not we will see the rest of the world dragging us down is yet to be seen in the numbers, the advanced estimate doesn’t come out until the end of October.
The S&P 500 if you remove the energy stocks was up like 3%. The energy stocks are what are dragging the market down. So it looks more like a market correction in those stocks.
Other countries can’t repay their dollar denominated debt now. If the interest rates rise, the dollar will rise further. That will make the debt problem worse. Also, manufacturers can’t export their goods with the dollar this high. Raising the interest rates will make the situation worse. Manufacturers are already headed into recession, regardless of what the GDP numbers show, as BC has shown. There are at least two big problems with raising the interest rate.
” Also, manufacturers can’t export their goods with the dollar this high. Raising the interest rates will make the situation worse. ”
I agree there is definitely an issue with trade. OTOH raising rates means imports are cheaper, and the US tends to import far more then they export.
The GDP is the number everyone including yourself was pointing at when the economy sucked. Now that it is doing well, what should we be looking at now?
GDP was low in the first quarter. It was high (relatively) in the second quarter. Current projections are that it will be low in the third quarter. These are a couple of related posts:
http://wolfstreet.com/2015/10/01/oops-atlanta-feds-gdp-forecast-suddenly-plunges/
http://wolfstreet.com/2015/10/02/chart-depicts-new-terrible-trend-in-jobs-mess-fewer-employed/
Also emerging markets are having a real problem. http://www.livemint.com/Money/Hyoq6OFH7jSSk87LA16lOI/Emerging-markets-set-for-first-annual-net-outflow-in-27-year.html
I wouldn’t make any bets on fourth quarter being good, either.
“Current projections are that it will be low in the third quarter. ”
You might be right. I would have to go back and look, but it seems like consumer spending was driving the economy, right before the last crash too.
The trade deficit is also slowly creeping back up.
ya and the largest 500 companies in America have declining revenues and profits…. yet GDP is screaming higher….
Not possible.
US GDP is stagnant or negative.
The thing is…
In the past… oil prices went up … we had a recession … demand dropped… growth restarted… rinse repeat…
That is not happening now — oil prices have been down for many months yet growth is weakening
And that is what is disturbing. But not unexpected — because the BAU runs on cheap to extract oil. There is no more of that….
This time is different.
This time is very different indeed, I’ve been hearing rumors of massive instability within Saudi Arabia and it looks like things will be coming to a head sooner rather than later. The collapse of Saudi Arabia coupled with a drastic reduction of oil exports could very easily bring the whole house of cards down:
http://davidstockmanscontracorner.com/why-the-collapse-of-saudi-arabia-is-inevitable/
What I find interesting is that men like Stockman and Paul Craig Roberts — both of whom were (are?) highly placed insiders…. are so good at identifying the symptoms of the disease — they rail at the Fed and the corrupt politicians endlessly…
But they refuse to acknowledge the disease….
I have had email correspondence directly with PCG and he generally does respond — but not when it comes to questions about what the fundamental problem is….(I no longer follow him because of this….)
One has to wonder if this is all part of an act to distract the sheeple….
Zero Hedge similarly refuses to acknowledge the disease — I submitted a letter (after reading a letter from another reader lambasting the Fed)…
Dear Ben and Janet,
In 1998 oil was 12 bucks a barrel – and within a few years it was over 30 and climbing.
Of course you would be aware that:
HIGH PRICED OIL DESTROYS GROWTH
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
And instead of standing back and allowing the global economy to collapse under the weight of oil that was racing upwards in price because we were approaching the peak of conventional oil production (which happened in 2005), I would like to thank you for dropping interest rates and opening the money spigot that lead to the housing crisis.
Of course the crisis was a bad thing but it was better than the alternative – total collapse of civilization.
Of course 147 oil was the Mother of All Nightmares and something had to be done about that so you created the shale myth and fueled it with easy money. That reversed peak oil by adding nearly 10 million barrels of oil to global supply.
Yes of course this is a Ponzi scheme that would not exist without ZIRP. But that is the point. If it did not exist we have collapsed because oil supply had peaked.
But of course shale was never a long play because the wells deplete dramatically in about 2 years. So we are now approaching peaks in both conventional and non-conventional oil production. We are in the last gasp phase because there is no alternative to oil, particularly cheaply to extract oil.
Ben – when you stepped down you said – and I paraphrase your comments :”I know a lot of people are pissed with me to the point of hatred for what I have done. But when you see the reasons why I did what I did you will thank me.
And I knew EXACTLY what you mean when you made that coded statement.
So I’d like to than Ben and Janet for getting me another 6+ years of being alive and being able to enjoy the comforts of modern society. I’d like to thank them for delaying the descent into ‘The Road’
It has been a wonderful 6+ years because I recognized that we were at the end of our rope in 2008 and I have used these years to travel extensively, to enjoy a little better bottle of wine or cut of meat.
You recognized that the end of civilization (and the likely extinction of the human species) is what is at stake. And you took action to kick the can as far down the road as possible.
I am surprised that we have gotten 6+ more years out of this — I thought we might get one or two at best.
But you and your team have been incredibly creative in coming up with new ways to prolong BAU squeezing every ounce out of this dry stone. It must be incredibly difficult to go against every tenet of economics in doing this — this goes beyond thinking out of the box — it’s more along the lines of desperation economics. Anything goes because if you follow the rules of days gone by we all lose.
Thank you Ben, thank you Janet.
And for those who moan and bitch about the past 6+ years:
1. You owe Ben and Janet an apology because without them you would be lucky to be eating dog food warmed over plastic garbage bags under an over pass
2. Instead of bitching about how investing makes no sense, gold is fixed and how you can’t get ahead, why didn’t you just stick your spare cash into a Vanguard S&P and reap double digit returns during this period?
This is a copy and paste from the back and forth I had with “Tyler Durden” (who did not publish this letter)
FE: “Do you think the ultra-wealthy are so stupid/corrupt that they’d run these policies to enrich themselves”
TD: “Yes”
I am not certain as to what is going on here — but something seems not quite right….
FE,
this article (to which I also posted a link in previous thread) is not by David Stockman.
The author is Nafeez Ahmed, who I think has a much better view and understanding on energy topics.
Well worth reading: http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679
“But Saudi Arabia’s spare capacity to pump like crazy can only last so long. A new peer-reviewed study in the Journal of Petroleum Science and Engineering anticipates that Saudi Arabia will experience a peak in its oil production, followed by inexorable decline, in 2028 – that’s just 13 years away.”
I think they may be off on their dates…. but there is no way the official line will ever state that the peak is happening now — it always has to be 10 years out or more….. otherwise the sheeple will panic…. 10+ years give us time to ‘technologize’ our way out of this ….
THE TRUTH BEHIND SAUDI ARABIA’S SPARE CAPACITY
http://www.forbes.com/sites/greatspeculations/2011/03/04/the-truth-behind-saudi-arabias-spare-capacity/
THE DECLINE OF THE WORLD’S MAJOR OIL FIELDS
Aging giant fields produce more than half of global oil supply and are already declining as group, Cobb writes. Research suggests that their annual production decline rates are likely to accelerate. http://www.csmonitor.com/Environment/Energy-Voices/2013/0412/The-decline-of-the-world-s-major-oil-fields
It is looking like KSA may fall not from the poor revolting but from the super rich revolting. I did not get my billion dollar cut this year the dictator has to go. hahahahahaha Death to Tyrants.
I see this as partially true. The low cost producers will not stop pumping just because they are not getting top dollar anymore. Countries that have domestic supplies will subsidize extraction cost to keep their economies functioning. Life will get hard but some part of BAU will continue for many years.
I am not sure that countries will see this as an issue. If the world seems to be greatly oversupplied with oil, as it does now, how many people in the United States will say, “Let’s raise the debt limit so that we can subsidize all of these failing oil companies.” More likely, they will think that they don’t really need the oil, and that a few solar panels will somehow save them. Also, I expect that the situation will look like a failure of financial institutions more than oil and coal and natural gas companies (as well as steel mills, and many other commodity related businesses). I am not sure that governments will be able to bail everyone else at once, even if they wanted to.
Hi Gail,
Thanks for an excellent article.
Greetings Sören _________________________________ Sören Andersson
Phone: +46 70 592 50 75 Mail: soren-andersson@live.se Twitter: @sorenande LinkedIn: http://se.linkedin.com/pub/sören-andersson/24/110/88a/ Blogg: http://www.sorenandersson.com > 29 sep 2015 kl. 16:19 skrev Our Finite World : > >
Part of the problem from low interest rates is that it encourages hoarding as the expectation of both higher prices and low ongoing costs encourages the building of vast storage. That slows the fall in prices, but adds to the instability of the system. prices stay lower for longer, productive capacity declies as storage is drawn down, and when prives eventually rise, they deliver a shock to the system. Then the cycle reapeats for as long as interest rates are below economic cost.
No, the building of storage is not caused by the low prices, but by the lack of the demand when the prices are too high. Nowadays, the DIY retailer Baumax is ending its activities in Eastern Europe:
http://www.regiodata.at/en/news/249-eastern-europe-diy-in-trouble
http://www.friedlnews.com/article/baumax-diy-retailer-czech-slovak-stores-to-be-sold-to-obi
The prices of this DIY retailer were too high. Now, when the total sale is going on, all the shelves can be emptied…
And why the DIY retailers are not profiting? “DIY” is less and less profitable for the people due to the rising automation and their stagnating or lowering income…
nobody builds storage if they think prices will fall, so I disagree that it is lack of expected demand.
The storage on the side of the producers and sellers is something else as the storage on the side of the consumers. The goods go into the hands of the consumers when their price is acceptable. Otherwise the storage of the producers and sellers is rising.
The problem is that some products are becoming simply obsolete and finally no one owns them anymore as their ownership is not economical.
Therefore the retailer goes bankrupt due to its too high prices. Or also due to the fact that the ownership of the DIY products it sells is no longer economical with the too high prices.
But the key is this: Maybe the customers, too, do not realize the fact that the products they are buying in a “total sale” will bring them less beneft than it was in the past. And do not see the falling value of the products they buy that will finally end the production of these products.
Unfortunately/fortunately as the case might be, information is now virtually free and instantaneous, so consumers have the benefit of demand information pretty much instantaneously. All of which says pretty much nothing about anything, if what they’re demanding is just so much electronic “hocus pocus” in the first place. The modern “economy” is just so much similar bullshit built on a foundation of cheap energy in the first place. Bullshit in, bullshit out.
The phenomenon you describe changes the zigzag nature somewhat. There is a longer period between price shocks.
Great article BTW, it pulls a lot of things together.
I should have pointed out that below economic cost interest rates are a subsidy to oil storage, and similarly for uneconomic materials prices. I do not have the figures to support a claim that this excess storage supports speculation in oil prices but I would be unsurprised to have that confirmed.
The punchline of all this is that investment planning for time horizons of longer than a few years no longer works. What works is speculation and ponzi schemes.
The situation now with the oil is like the “total sale” of some oil producers when the prices are below the cost of production.
It can also mean that some of the low-income consumers, that take the mortgages with the low interests offered today in expectation that the interest rates will rise (which means for them they will not be able to buy a house in the future even on mortgage), do it in a way like “hoarding”. But they mostly do not realize, that the more important thing is whether there will be cheap oil for repaying their debt and the operation of their houses (i.e. whether they will have jobs to cover the expenses required by going into debt and owning a house).
Another great post.
I like the way you present demographic data.
Thanks!
With respect to ratios of elderly to working age populations (as per Fig.10), I’d like to add that not ony the numbers (of people) should be taken into account.
If the workers had high wages and high productivity, and both increasing along with the decrease of their numbers-share in the population, then supporting the unproductive wouldn’t be so big a problem.
Unfortunately, we know that both wages and productivity per worker (as well as unemployment levels) depend on availability of cheap energy and material resources, both in short supply now. That pushes us in the opposite direction.
In an aside, it’s as if businesses considered wages as a discretionary spending (similar to the “everything else” part in Fig.2), thus prone to cuts and layoffs when other costs are rising (mainly energy, but also taxes, add. fees linked to environmental regulations, etc…). I don’t know if businesses had any choice to proceed differently at their micro-level (note however that you never hear about cuts in dividends…), but it seems to me that there’s something deeply flawed in this setup. We’re seeing the result now, and it’s too late for any correction.
In summary, coming along on top of the increasing ratio unproductive/productive, we have the wages that tend to decrease, and the labor force participation rate that is decreasing rapidly. This vicious circle must break at some point.
I keep searching for a “big picture” point of view. I have found several. With the following, it depends whether you are in 1922 and 1982 or in 1929 and 2010. Harry Dent in his books: “The Great Boom Ahead” and “The Great Depression Ahead”, both have a main graph in which he plots the relative number of people in the 40 to 50 year age group. His premise is that this group is at the height of their spending years and it does have a high “r” factor. In other words his premise and the graph are “in agreement”. His graph goes positive around the beginning of the “Great Bull Market”.in 1982 and flattens out at the “Dot Com Bust”. It then turns over around 2010 but does not recover until around 2020 when the sons and daughters of us Boomers reach the 40 to 50 year age group. Same premise but spread out more. He is not a “Peak Oiler”.
Facing us is ” Climate Change”, an economic meltdown, and a precarious energy situation. So much for “bright spots”.
With regard to “Climate Change”. The climate goes in cycles with the main driver being CO2 (methane and water vapor, etc.). With an economic meltdown, CO2 emissions are likely to decrease. Second, there are secondary drivers of climate change such as the Atlantic and Pacific Decadal Oscillators and the Atlantic Multidecadal Oscillator (AMO) has turned recently. That oscillation tends to suppress global temperature rise and will do so over the next several decades. Here’s a graph of the above: https://bobtisdale.files.wordpress.com/2015/05/figure-25.png?w=640&h=420
If the image does not pop up, here is the URL:
https://bobtisdale.files.wordpress.com/2015/05/figure-25.png?w=640&h=420
(Tisdale is “controversal” in some circles but before you lambast him, **prove** his data is incorrect – please.) NOAA also says that the AMO has a tendency to suppress temperature: http://www.aoml.noaa.gov/phod/amo_faq.php There are indications that the phase has recently changed and will start to “suppress” temperature change rates.
Several posts ago, Gail was doubtful of whether solar and batteries could make a difference. The point of contention was Musk’s Powerwall battery system. This is a 10 kwhr system costing $3500. Gail pointed out that works out to be $350 / kwhr. But a person has to realize that with a cycle life of 2000 cycles, that reduces the cost to $0.175/kwhr. The Leaf replace park costs $6000 for a 24 kwhr pack or $250 / kwhr. Recent advances in battery technology are doubling the amount of energy per kg by tweeking the battery chemistry. This should almost half the price of a future pack to $125 /kwhr. One battery expert is thinking that battery pack costs will be in the $100/kwhr range by 2020. This would put a Powerwall like devises producing electricity in the $0.05/kwhr range. This is all “back of the envelope” calculations but it kind of points to where we could be going. Development is heading that way.
Tom Murphy author of the blog, “Do The Math” says that he can get by using about 3 kwhr of electricity a day for refrigeration, his laptop, and some lighting. The normal range for a family is roughly in the 6 kwhr a day range without using electricity for heating or air conditioning. PV and solar hot water can handle most of his non heating and AC needs.
My PV can produce, on average over a year’s time, 22 kwhr/day. The main problems are heating in winter and cooling in summer. I can keep up with my cooling needs if I keep the thermostat high enough, shade windows, and don’t run high energy consumptive devices such as an EV. 22 kwhrs/day is about 66 miles of range in an EV (10kwhr for about 30 miles of range). Which means I walk and bike a bit more. This will also have an effect on long term carbon emissions.
Calculations say I can heat my home using solar thermal but I will have to don a sweater in deep winter but it should keep the pipes from freezing. I’m in North Carolina.
Is it a panacea or BAU? No, but it is a “big picture” of where we **might** be heading if the wheels don’t come off of our civilization. It would slow the uptake of FF and save such resources such as Natural Gas for making solar panels of various types. Coal for making steel, etc.
The question, along with all the other problems that Gail has pointed out, is how do we get there?
No, but it is a “big picture” of where we **might** be heading if the wheels don’t come off of our civilization.
I respect your optimism and point of view. Joe sixpack cant do what you describe. Joe sixpack needs cheap petrol to get to work, Joe sixpack needs cheap food. When these end the average individual place in society and productivity ends. The wheels come off. What you describe is not only not a panacea or BAU but also not a solution to the fact that every single one of our lives is dependent on the continued availability of cheap petrol. Walking and biking are great activities but they dont feed 7 billion people.
I have to ask the question, what happens when your tires wear out? Are you going to ride on the rims? Pick old tires out of the garbage heap? Or when your SV parts wear out, go to the local Home Depot? When we get to the point of supply chains suddenly halting, historically they never come back. Right now I can’t get art supplies; 100% rag paper, my favorite ink, and soon sable brushes. They went away with computers and I can only get them IF I make them myself. You assume that people will still work for nothing to provide you your replacement parts. Study the collapse of former civilizations please, we are following that same path and when the supply chains go, so goes the civilization.
When demand falls below a certain point, we can lose a needed type of product completely. For now, the problem is art supplies, but it could easily spread elsewhere. Coal?
” For now, the problem is art supplies,”
I think he was hypothesizing with the art supplies. Amazon lists them all and staples seems to have some of them as well.
So I’m a big part of the “problem,” buying zero of those expensive art supplies! I draw on junk mail and cardboard boxes. I use children’s paints now and then, etc. I use dirt and ashes, and include charcoal from a wood stove. Maybe art stores can find cheap replacements for many of their products, with redistributed adjustments of income along the supply chain. But new jobs can perhaps be created. Creativity and innovation are important.
At an exhibition over the past two weekends, I was surprised at how accepting of the rough cardboard artworks several visitors were.
I don’t think our current economics leadership understands how the economy really works–that productivity comes from adding increasing amounts of cheap energy. Expensive energy doesn’t substitute. They don’t understand that we have moved from a virtuous cycle to a vicious (unproductive) cycle. The outcome of such a shift cannot be good.
I think you are right about businesses treating wages as a variable expense. This is why they are very willing to offshore jobs, when oil costs rise. In fact, pollution control expenses are variable as well. They have been able to send production to China, where pollution control has been more lax, so they can cut this back as well. There is also the option of automating processes, getting rid of wages all together.
I wonder if our **governmental** leaders do understand that we are moving/moved from a virtuous to vicious (unproductive) cycle (or maybe it is just to placate the “green crowd” for votes). It was understood by the script writers to “Three Days of the Condor” back in 1975. My case in point would be the tax credits for solar energy installation and energy saving retrofits, etc. By using solar where it can be substituted for Fossil Fuel (FF) usage, that FF usage will be “saved”. If solar can be used to offset imports of oil, then our country is less dependent on foreign sources. In a way, it is an investment with a low rate of return unless it is matched by the cost of the FF it replaces which supports your contention.
Note: When I look at rates of returns, I do **not** include the “tax benefits”. I figure I will be paying this off through my State and Federal taxes. I view the tax benefits as a means of social engineering the populace to do the right thing.
The irony of it all is that with gasoline nearing $2.00 a gallon, many will say that the investment is not worth it. They will compare the cost of going 30 miles between electricity and gasoline costs (e.g., $1.00 for electricity and $2.00 for gasoline) and conclude that the difference will not pay for the replacement cost of the battery pack. In reality, they should be comparing it to the actual replacement cost of a barrel of oil that was used to produce that gasoline. For instance, the cost of Bakken oil is said to be in the $60 to $100 a barrel range. This translates into gasoline costing $3 to $5 a gallon.
As our resources become scarce and/or expensive, we need to find substitutes or do without. In some ways, we have it over the Romans in that they relied on gold, slaves, and wood while we have a number of available alternatives that we can tap and/or further develop that might help us keep our food cold and help provide drinking water going forward. We may not have great solutions, but we have alternatives.
Blues for the Greenies: Now matter how many greenbacks the government throws at “green” energy, everyone ends up feeling blue. Yesterday the Wall Street Journal updated the story we’ve been covering for a long time now about the dismal performance of the Brightsource solar energy array in the California desert: $2.2 Billion California Project Generates 40% of Expected Electricity http://www.powerlineblog.com/archives/2015/06/more-blues-for-the-greens.php
The German Solar Disaster: 21 Billion Euros Burned
http://www.thegwpf.com/german-solar-disaster-21-billion-euros-burned/
Spain’s disastrous attempt to replace fossil fuels with Solar Photovoltaics
http://www.democraticunderground.com/112761540
PeterEV is another shill. Their objective is to calm the herd with BS. He is a rabid AGW denier. They contend that a business can be made out of saving the world. Like building electric cars, solar panels, windmills and batteries. Apart from these tech devices not in any way being able to support the necessicities of life, they simply tend to enrich the upper classes at the expense of the lower and middle. There is also a consistent theme of denying present and future economic disasters. AGW must be denied to allow the continuing BAU that is destroying life on Earth.
Peter has come to the wrong place with his message….
There are quite a few readers who come to the site with similar questions to those of PeterEV and madflower69. If we didn’t have them, we would have no reason to explain why they don’t understand the situation as it really is. So strange as it may seem, we actually need a certain percentage of disbelievers in the group of posters.
I agree that it can get to be “too much” if we have never-ending comments from this group. I have tried to see that this is not the case. The ones who are fairly knowledgable and ask disbelieving questions, I let stay (although perhaps not with as many comments as they would like). The ones I don’t keep around for long are ones who are disbelievers, and unknowledgeable as well. We can at times learn from things the knowledgeable ones. I have discovered that I can often learn from people I don’t necessarily agree with.
I don’t like anyone calling anyone else a “shill.”
I cannot say I am a great AGW enthusiast myself. I might be more enthusiastic if their models used half-way reasonable amounts of carbon.
Try to just stick with the facts at hand. You may be an AGW enthusiast, but I know quite a few well educated people who have looked into the matter who have other “issues” with the models, besides “just” their use of absurdly high carbon assumptions in forecasting future years. I think that the AGW “facts” are less well settled than people assume (except, of course, that the climate now seems to be changing–but it has been, all along).
“I don’t like anyone calling anyone else a “shill.””
I agree. A greenie, a sheeple or other term used in a derogatory fashion is also uncalled for.
Eddy, All I see is someone who points to failed projects and assumes that they will fail for everyone who attempts **any** solar project. I’ve pointed this out to you before. I know enough about solar that I would not have those projects other than as experiments. If the numbers work, do it. If the numbers don’t work, don’t do it. The numbers are working for me.
Bandit, >>He is a rabid AGW denier. <<
All I see is a name caller. The graph from Tisdale is supported by similar graphs from NOAA and other organizations. The world temperature curve:
from 1880 to 1910 has been downward
from 1910 to 1940 has been upward,
from 1940 to 1975 has been slightly downward, and
from 1975 to about 2000 has been strongly upward,.
The overall trend since 1910 has been upward. Where is the denial in that????
The physics at know, but the inputs are changing. For instance, China has reportedly laid off 10,000 coal miners. That's a lot of coal that will not be burned in the near term and a definite decline in the rate CO2 will be going into the atmosphere. How much less and for how long is unknown especially with Gail's scenario above. Combined with the AMO, this could produce a hiatus in world temperature rise but will it? and if so when?
This is what planners are concerned with – timing and the ability to muster resources to meet a challenge. By the time the AMO swings the other way in another 30 years or so, the world is likely to be a very different place.
There will be no relief from CO2. If ALL human caused CO2 emissions ceased today, CO2 would continue to rise for the foreseeable future. Methane is being belched from oceans and melting permafrost, methane converts to CO2. Higher temperatures are melting ice caps and glaciers, fires are burning forests everywhere. We are now experiencing CO2 emissions from the 1970’s. There is no bright side that household batteries, electric cars and windmills can make good on. You are simply proffering a business upside to disaster. Naomi Klein wrote a book about it. There are 7.3 billion humans all burning to some extent to stay alive. That cannot cease, maybe you plan on delivering electric cars, solar panels and batteries to the slums of Bangalore and Sao Paulo.
“That cannot cease, maybe you plan on delivering electric cars, solar panels and batteries to the slums of Bangalore and Sao Paulo.”
Brazil, India and the US are trying to get to 20% non hydro renewable energy by 2030. India if they get their 175gw (wind/solar/biomass) installed by 2022, will be close to 20%.
But this is your misunderstanding, we are trying to reduce our FF use, not completely eliminate it at this point.
Without government subsidies solar panels would not exist.
I understand that the contracts that people are now taking to buy solar panels (through agencies that actually purchase them) depends on ongoing subsidies, now into the future. It will be interesting to see what happens when the subsidies stop.
“I understand that the contracts that people are now taking to buy solar panels (through agencies that actually purchase them) depends on ongoing subsidies, now into the future. ”
I would agree to keep the volume in sales and manufacturing, the subsidies are needed. However, I read from the EISA site I think that 25% of the solar installed in the US doesn’t use a subsidy. I am trying to find that again, it doesn’t make complete sense, and maybe they just meant the ITC or the loan program.
I would expect that solar installed on residences in Hawaii doesn’t need a subsidy. Hawaii is of course part of the US.
I am not aware of any subsidies in NZ…. I live in one of the sunniest parts of NZ…. and almost nobody has solar panels…
Go figure…..
Bandit: Before the advent of modern forest fire fighting technologies, the forests in the western part of the US would burn over in a matter of decades. Think about that for a bit.
Gail, a few blogs ago questioned whether Musk’s Powerwall would be able to make economic sense; a $3500 unit storing 10kwhr of electricity. I think she or another responder came up with a figure of $350/kwhr. I pointed out that if it lasts 2000 recharge/discharge cycles, that works out to about $0.175/kwhr. That’s great for a cabin in the woods. Now I am told that such packs could be in the $100/kwhr range in a few years. That works out to be about $0.05/kwhr, close to what Gail was saying was needed at the wholesale level. The goals are to decrease the cost of the batteries, up their cycle life, and increase the durability and efficiency of both the batteries and the electronics.
The utilities are working on their own “Powerwall” versions. They see what is coming. They want to understand the technologies and how to utilitze them so they can remain in business. The possibility exists that electricity generation could become so distributed, that the centralized power plants could become obsolete except for massive industrial purposes. Personally, I think the general populace would glady let the utilities manage “their Powerwalls” in centralized locations.
There are a lot of good people out there working on the problems and I would not dismiss their efforts by just focusing on the **current or past** doom and gloom of others. The numbers have been growing toward a solar based future and we may find that we did not leave FFs because we ran out of them, we left for something better. While this sounds cornucopia-ish, this does not mean that everyone on the Titanic was saved.
And we’ve been trying to turn lead into gold for thousands of years… we’ve also been trying to work out the immortality thing for quite some time as well….
There are an infinite number of things that we cannot do — replacing oil with solar energy is just one of so many things that are impossible.
Anyway — time is running very short — perhaps it is time for global prayer for a solution — that has about as much chance of saving the day as solar…..
Or maybe Joan Baez could do a We are the World type concert… gather all the big names in one place and sing Koombaya… all proceeds from the sale of the song to go to Chris Martenson… 🙂
“Several posts ago, Gail was doubtful of whether solar and batteries could make a difference.”
http://blog.renewableenergyworld.com/ugc/blogs/2015/09/distributed_resilien.html
Here is better proof. This gives 3 models, utilities are trying to incorporate storage into the distribution network which they seemingly can demonstrate an overall cost savings. So my question to Gail is what is the better of the 3 models presented?
We need very cheap electricity–wholesale electricity in the 4 cents per kWh range, preferably less. It is not possible to get the cost that low with solar + batteries.
“It is not possible to get the cost that low with solar + batteries.”
Reread the link. You will find their storage method and the costs savings have nothing to do with solar. Remove solar from the equation, and you still get the millions in cost savings. Storage is source agnostic but results in real world savings.
I think we are at about 20 cents per KWHr for solar plus batteries at the point of use no distribution (short distance) no transmission (long distance).
“I think we are at about 20 cents per KWHr for solar plus batteries at the point of use no distribution (short distance) no transmission (long distance).”
I think it is a bit lower. but even at 20c/kwh, it is less then Cali, NY and Hawaii retail rates.
Someone sent me an analysis of electricity rates by state. In 2013, for rates charged to industry, the only state that is in the 20% range is Hawaii, with 29.81 cents per kWh. (Virtually no industry in Hawaii for this reason!) The other states range from 4.22 (Washington) to 15.66 (Alaska). California is at 11.28; New York is at 6.29.
If you go to residential rates, then Hawaii is highest in 2013 at 36.99. New York is at 18.84 and California is at 16.39. Commercial is in between residential and residential.
Of course, the catch is that electric companies have to maintain pretty much the full electrical grid, even if some people opt out and have their own solar with back up batteries. If the off grid (or mostly off grid) folks do not pay the full charge for transmission, then the other customers have to pay more. Total electricity use is flat for the United States (and down for Europe and Japan). Transmission costs don’t go even with more LED light bulbs, better insulation, and more folks off grid. The result of some folks going off grid (presumably residential in California, mostly) is to raise the electricity transmission costs for the rest, unless the off grid folks continue to pay their share.
“Someone sent me an analysis of electricity rates by state. ”
I heard it was more from consumers. I am not saying either is wrong. Sometime the per kwh has a cost, then they add other things like a delivery charge per kwh, taxes, nuclear decomissioning, etc. And a monthly delivery fee and line charge. I have noticed usually the delivery charges don’t get added to the avg retail price because the delivery charge isn’t the price of the electric which could be the discrepancy.
“Of course, the catch is that electric companies have to maintain pretty much the full electrical grid, even if some people opt out and have their own solar with back up batteries. If the off grid (or mostly off grid) folks do not pay the full charge for transmission, then the other customers have to pay more. ”
Right. However, for delivery utilities it isn’t necessary about the line charges. It is the ability to contract out to meet demand. So I might think my delivery utility will need 100MW of extra capacity the next day at peak time. I contract that out a day in advance. But it is a really sunny cloudless day, and my uses picked up 70MW of that demand. Then I am stuck with a bill for 100MW, and I only sold 30MW. Then I have to cost average the “mistake” in. It is a real problem.
There are several approaches to make it more fair. Most of them require better grid technology then we have in most places. Part of it is the technology is newer, and more costly. Part of it is state, local governments. Part of it is the utilities themselves. And the last part is, it takes forever to deploy things to the grid. The telecom industry has a similar situation with respects to the switchboard gear. There are probably places that still have analogue switching. It just takes that long to deploy.
California is a big importer of electricity. So in a way, it can reduce its imported electricity by the use of more residential solar. Other areas that have their own generation face different issues.
It depends on how large a unit a person is looking at. If a person looks at the United States in total, mostly what we are doing is replacing old generation, not adding new. The same with electric transmission, except that the intermittent renewables have requirements over and above what the previous generation had. California now needs to replace the nuclear generation it lost, as I understand the situation.
“California is a big importer of electricity. So in a way, it can reduce its imported electricity by the use of more residential solar. Other areas that have their own generation face different issues.”
Here is the data for the other post. It is slightly over 20% imports as near as I can tell.
http://www.eia.gov/electricity/state/
It is actually more than 20% of its electricity that California imports, because only about 91% of net generation actually gets sold as electricity (looking at the totals for all states). New York is also a net importer of electricity.
Different states have different problems. Hawaii burns a lot of oil, keeping its rates high. Alaska has relatively high costs, I would expect because of the large amount of transmission lines required and the dispersion of its population. Louisiana seems to have the lowest average rates in the country, presumably because of its large amount of industry and the cheapness of natural gas used for its generation. Washington state and Idaho are also very low, thanks to cheap hydroelectric.
“Alaska has relatively high costs, I would expect because of the large amount of transmission lines required and the dispersion of its population. ”
They actually use a lot of diesel generators. They essentially have microgrids for their remote villages. They aren’t connected because the cost of running power lines was far more expensive then shipping diesel in. I don’t think they have battery backup either, but some villages might.
That makes sense. Keeping long-distance lines in repair is prohibitively expensive if population is sparse.
That works in Hawaii and some other island nations with no manufacturing, since oil is often the only real alternative, and electricity uses are pretty limited to begin with. It even works for a few lights, for a country in Africa. But once a person gets to manufacturing, it becomes too expensive.
It is indeed possible, on virtual credit and for a limited time.
That’s why it is still being pushed around in the major trial balloon tech places (Calif, Germany..) of TPTB.
ps it is not problem to have such a device fixed diywise but on way smaller scale, namely to run just few lights and tiny fridge etc., great at least for first wave of future blackouts
Let me elaborate on my 20 cents per KWHr statement. That is for a place that is sunny everyday. Today here in NY state cloudy indirect sun. So first lets triple up to deal with the lack of sun in NY we are at 60 cents per KWHr. Now if we want to deal with the month of November with two weeks straight heavy cloud cover well that gets expensive. By the way my family of three consume about 1KW constant (on average). That was before the electric heat pump. It gets to 5 degrees F and stays there for weeks in the winter. But if one does not need significant winter heat or summer cool and one is willing to go for weeks without power then 60 cents per KWHr is currently doable. oh and if one has the land area.
“Let me elaborate on my 20 cents per KWHr statement.”
Usually when you are figuring out costs, you use the avg sunny time for your area.
Like the insolation data will show 4.2 hours per day, and that can vary between 2.4 hours in the winter to 6.5 hours in the summer.
There is a problem with that system. But if you can produce electric cheaper with it then you have to pay for it. It can become a financially viable proposition.
You should probably read this article:
http://www.renewableenergyworld.com/articles/2015/09/who-s-leading-the-charge-in-stationary-energy-storage.html
From the article, you see different countries and different areas are focusing and different styles of storage because of the local policies. Japan is gangbusters over residential solar + storage, because they pay like 30c/kwh, and they are getting locked out of net metering by their utilities.
In the US it is more focused on utility, and industrial (behind and in front of the meter), rather then anything to do with solar, as businesses and utilities can save money from line capacity charges. IE business rates are the cost per kwh PLUS a line charge for max instantaneous draw for the month. In california, the line charge can be half the bill. So peak shaving that max draw is important to lowering your bill. There are several companies with software to help do it automatically.
And just for the record Tesla already has utility storage offerings, they announced that the same time they announced the powerwall. Amazon already has them installed in their datacenters.
A big problem with renewables (even hydro) is that amount available varies greatly by the time of year. Batteries can “time-shift” within the same 24 hour period, but they are very poor at saving electricity from summer to winter. There has to be something else providing more reliable energy, and somehow this more reliable energy needs to get some sort of charge just for “being there” as back up. Otherwise, the fossil fuel plants don’t get an adequate return.
Ed> 1kW constant (/hour) e-consumption even before installed heat pump?!?
That’s living large! For heat/hot water did you consider some quality coal burner or is it prohibited in NY state or just not available these days?
” For heat/hot water did you consider some quality coal burner or is it prohibited in NY state or just not available these days?”
It is cheaper to use solar, far cheaper if you do a homemade system. And it is also far easier to automate heat/temp pump controls for the loops with the arduino’s/ raspberrypi types of controllers which are far cheaper then they have ever been. But I think he said he was using convection which doesn’t require pumps. I was always looking at heat exchangers so you can use a fluid that doesn’t freeze.
Coal in banned in almost all townships in our state for residential use. I assume NY is similar.
Gail, on your point California imports electric which could be displaced by in state PV. Much of that electric comes from coal mines, electrical generators, long distance transmission lines that California owns! As you consistently point out you still have to pay the full cost of overhead even when it is not in use if it is to be available when you do need it.
“Gail, on your point California imports electric which could be displaced by in state PV. …”
When I was trying to verify my claim or Gails claim on rates for a previous post, I ran across data that has California importing roughly 20% of its electric from the EIA site. California, if they get anywhere close to their goal of renewable energy goal, will not need to import electric for much longer.
However, the lines you are talking about are most likely still being used, not as backup, but they are leveraging them for extending the grid. They are trying to expand CAISO to make the grid larger and more robust, with the added benefit of a “real time” (every 15 minutes) contract periods. They are in parts of almost all the western states. Which notably also has a lot more geothermal capacity then the eastern half of the US.
“I don’t think our current economics leadership understands how the economy really works–that productivity comes from adding increasing amounts of cheap energy”
I find that hard to believe….
The first part of the paper below provides – in great detail — an explanation of the policies (such as QE and ZIRP) that have been deployed to address the problem of the impact of high oil prices on growth
This was put in front of investment and commercial banks — and published in the FT.
Surely the PTB are aware of this — in fact I think it is absurd to think they do not understand what the disease…
The PTB do not get their intelligence from the FT…. they would have PHDs in Think Tanks helping them understand the problem — and more importantly — providing strategies to address the problem (i.e. can kicking policies).
The fact that they have been able to keep BAU going for so long is evidence of a well thought out plan specifically aimed at offsetting the impact of expensive to extract oil.
Throw in the fact that the PTB have been invading countries for decades for the sole purpose of obtaining a reliable supply of cheap oil (why didn’t they just frack instead….) is evidence that they know that cheap to extract oil is everything.
Again — there are parallel universes here — what the PTB say (via their messenger boys…) is completely different from what they know.
THE PERFECT STORM
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
I agree with FE that the PTB know that the root of the financial problem is that energy is no longer cheap. I am sure the brightest minds in the world with the most advanced computers and numerical models have been directing policy making decisions for years now. The biggest problem the PTB face is how do you put lipstick on a pig? How do you explain the problem in a way that doesn’t scare people out of the markets? The solution is to explain everything in terms of finance. Another solution is to create diversions to keep attention away from the real problem.
Simply, follow the great teacher and instructor.
Japan is madly pulling levers at the Frankenstein lipstick factory (QE) for almost third decade and still going “strong” – me worry? Reading ELM related comments at PObarrel and Euan’s site, there is aprox. 8yrs to go for Mexico and 15yrs for Saudi before the lights go out in terms of exports, with oil price on the ice the Saudi now burns $100B of financial reserves yearly, so it is apparently less than 15yrs (<10yrs) to meltdown. However, at this juncture it is not very likely they will be able to gorilla tape it till the proverbial very last second as usual, so in the spirit of Gail's thesis economy will crash first, so lets make it 2-5yrs earlier before exports peter out. That's aprox 3-6yrs for Mexico and 10-13yrs for Saudi (and the world). Hm, so we are to square one back again, we are still aprox. 5-10 yrs early into any critical event, relax!
But my personal view is as we approach these harder limits, TPTB will just kick the table and roll out rationing nightmare for the unwashed 95% percenters, so the elite can enjoy the spoils for 2-3decades more.
The leadership don’t read “The Perfect Storm.” I haven’t gone back to look at The Perfect Storm recently, but my recollection is that it is mostly EROEI based. If this is the case, I don’t think it makes the point at all that we should expect low prices, not high. (EROEI analysis is basically an offshoot of Peak Oil. If EROEI ratios are used, a person can theoretically optimally allocate the limited oil supply that is available, before it “runs out.” The implicit assumption is that the system will stay together forever, and prices will rise to allocate the oil remaining.) The story isn’t really complete, although parts of it are mostly right. It misses the problem with debt completely, for example.
Actually — they probably do not read that — they would have far more detailed information and analysis of the situation
For instance they would know EXACTLY how much oil Saudi Arabia and every other country on the planet has in its reserves.
They would know EXACTLY what high priced oil does to growth:
According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf
I was in Yemen a few years ago and I met with a Canadian diplomat responsible for the trade section in the region (based out of Saudi Arabia)
He told me exactly what was going to happen in Yemen stating that they were going to run low on oil within the next 2-3 years and that the country was ‘fucked’ — his word not mine.
To think that these people are not aware of the nature of the problem we are facing is absurd.
You don’t get to run the world if you are prone to sticking your head in the sand or putting your fingers in your ears and screaming I can’t hear you when a situation crops up that you do not like.
The PTB are doing exactly as one would expect — they fully understand that extraction costs of oil are in the $100 range — they know that the economy cannot grow with oil priced this high — they would of course know that high-priced oil correlates with other recessions over the years …
And they are waging a multi-front war against this — they are making fracking possible — they are throwing QE and ZIRP at this — they are bailing everything and anything out — they are propping up stock markets — make not mistake — they are at war against the impact of expensive oil….
And they know they will lose this war…
Look back at Bernanke’s speeches — he looks like a zombie who knows he’s lying through his teeth — he had the weight of the world on his shoulders — he knew something
Look at Yellen in that last speech — she almost collapsed under the pressure — I don’t buy the BS that she wasn’t feeling well because she continued with her day after that speech.
The PTB know what the disease is – they know what the symptoms are – and they are experimenting with different medicines to keep the patient alive for as long as possible.
Is this the next step down we are seeing in the global economy?
http://www.abc.net.au/news/2015-09-30/global-markets-follow-australian-plunge-hit-multi-year-lows/6814870
https://app.box.com/s/xt8fhcxp62igds328g7q6mzorpytq9pw
Yes.
This is the comment I gave previously, when you asked the question yesterday at the end of the comments on my previous article.
We certainly seem to be headed in a downward direction.
You may have seen the predictions associated with Sunday’s lunar eclipse. According to the Guardian http://www.theguardian.com/world/2015/sep/27/blood-moon-apocalypse-nasa-lunar-eclipse-supermoon
Sunday will be the fourth appearance of a blood moon over the last two years, in what is known as a tetrad series. The last time was in 1982; the next will be in 2033.
If some religious leaders are to be believed, none of us will live to enjoy that next blood moon. Most such leaders are of groups on the fringes of organized belief, although this week leaders of the Church of Jesus Christ of Latter-day Saints felt moved to reassure those among its followers who are worried.
One Bible reading underlying this belief is
“Joel 2:30-31 states: ‘And I will show wonders in the heavens and in the earth, blood, and fire, and pillars of smoke. The sun shall be turned into darkness, and the moon into blood, before the great and the terrible day of the LORD come.’”
Mark Blitz of El Shaddai Minisitries is quoted as saying,
“My interpretation is that we have at least another 1,000 years. But I do believe these signs portend major changes, including a possible major war involving Israel and an economic collapse.”
Hold tight on the pagan rituals…. we’ve not yet been knocked back to primitive times 🙂
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Zo4
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Zr0
Tejas is already in recession.
https://app.box.com/s/et6lp7tn4jl4jyc7eq19nvfvxwnoek85
https://app.box.com/s/b3ocl3dzohvkiatcffmy6u2gfqkr937e
https://app.box.com/s/c8j4stsqoqlwv6uyjl00a9ndvleys9cm
https://app.box.com/s/cik3teki4u11tj7erkxqh1t1lw0eayvj
https://app.box.com/s/ztgvh9e0u9skbdctnnrm29h2xpuq3854
https://app.box.com/s/rvlhbckx959xahjysa30zwyallimx0qb
Financial risk is increasing, spreads are widening, and a global equity bear market has likely begun.
The Fed is not going to raise rates and will likely resume QEternity to fund the increasing deficit/GDP to prevent nominal GDP from contracting with CPI decelerating.
Time to put our risk-off on. 🙂
Nice finds.
QE seems to be pushing on a string … Japan is hitting the wall in spite of monumental prints…
Helicopter money coming soon?
When you hear that announced then that is the time to head down to Wally’s World with a tandem trailer and every credit card and bit of cash you have…. and buy food…. the end will come before the use by date…
Thanks! I especially like the first graph you showed, with the US Industrial Production Manufacturing and the Federal Funds rate.
I agree that QEternity (or perhaps a new version, with money mailed to everyone) is the way to go–certainly not a rate hike.
Pretty low employment rate for a recession.
Unemployment rate rather.
It’s getting to the point where when I wake up and flip on Zero Hedge…. and see that BAU is still spinning… I am relieved…
Time is short.
That is, “Texas” is already in recession.
I have been reading and listening to Karl Denninger for several years. I find that this crumudgeon has a lot of insight into the workings of the economy; a lot of detail that I could never hope to memorize or learn in a lifetime. His basic theme is that we have leveraged up too much debt. The economy has gone nowhere since 2008 because of it. He is expecting a “grind down” in the stock markets as opposed to a collapse. A summary of his thoughts start at 30:00 minutes into the 34:44 minute long interview at:
https://www.youtube.com/watch?v=Fbkr7TGUJsI
One of his proposed solutions would be the ending to deficit spending which would bring home our off-shored industries. To do that we would need to “breakup of the medical monopolies” where every medical facility in our area has the work “Duke”, “Rex”, or “UNC” in front of it. I also know that the one of the medical systems has bought doctor practices as far away as 40 miles from here. The money is coming from somewhere and I see the source in the mirror each morning.
How do you break up monopolies/oligopolies that basically have your life in their hands? MRI and CT machines and skilled hands do not come cheap and a lot of money goes into developing drugs whether it is by the pharmaceutical industry or by the US Government, etc.
What would it take to get rid of deficit spending?
“What would it take to get rid of deficit spending?”
Solvency is not a issue. Modern economics dictate that. The idea of ending deficit spending disregard the entire fabric of what we have become. money primarily enters the economy through government spending and debt. Ending deficit spending would end are society. So to answer you question– a large meteorite would do it
Thank you, Gail.
I’m curious when your conclusions show up in MSM. We’ve seen it so many times. I guess 6 months delay is quite usual based on your previous articles.
The things that I am saying now are so scary that I doubt that they will show up in the main stream press anytime soon.
I was trying in this article to pull together several major points I have made in the past, so it would be easier for new readers to have the whole story. I could send a link to this story to my contact at the Atlanta Journal Constitution. He has quoted me a few times in the past, generally in relationship to high oil prices.
If other have contacts to reporters, sending a link to this article wouldn’t hurt.
Gail
Sent following to Kristin Vala Ragnarsdottir…Don Stewart
Here is an article which might interest you. It is related to the work that BW Hill has done..but the two people are not very friendly toward each other.
http://ourfiniteworld.com/2015/09/29/low-oil-prices-why-worry/#more-40187
Gail Tverberg is a retired actuary. She is very good at finding numbers and displaying them. She does not make elegant equation based models.
Both Hill’s work and Tverberg’s work raise fundamental questions about how an economy grows and how prices and supply react when things start going badly.
Thanks!
Gail if I was to look through your posts of many years ago I’m sure I will find many references to what is contained in this post. You were posting on this subject before BW Hill was out of primary school. It was very bad form for him to make his outrageous accusations.
I guess I am not aware of BW Hill’s outrageous accusations. I don’t think I know him personally either. He was kind enough to send me a copy of his documentation, without my paying for it.
I have tried to go out of my way to not say that his model is wrong–just that I am not willing to endorse it.
The MSM is a waste of time. Even if you do manage to get published in say the NYT or the WSJ, it’s going to be overrun by more “feel good” articles promoting more growth, with Nobel Prize winners like Paul Krugman pitching the meme.
Basically, they won’t “get it” until they REALLY GET IT.
RE
Not sure the purpose of this getting wider coverage… the more people who ‘get it’ means people begin to panic and the collapse happens sooner…
The MSM is doing its usually fantastic job of publishing disinformation… that is why it exists.
Let the masses read about the latest results from Dancing with Stars… the NFL scores… and more on the CIA creation ISIL…
We don’t want them realizing that the world is about to end — and that they are going to die
I sort of agree with you. I know Nate Hagens pretty much said the same thing about Peak Oil at The Oil Drum. Don’t scare the masses too much.
I have been a little hesitant about writing articles saying, “Get your money out of the bank today.” People don’t want to be frightened, and there is not too much to be gained by starting a “run on the bank”.
No one, not a single one, of my intimates and close friends, colleagues, former colleagues, and clients wants to hear another word about Peak Oil, LTG, etc. The topics are considered bad form, tiresome, and perhaps even the product of a maladjusted personality type. I suspect that this situation is not uncommon throughout the US, Canada, UK, Oz, and parts of northern Europe.
Denial is a powerful personal and collective coping approach.
+1
I know of only one person that understands what is happening — and he prefers not to discuss it because it creates huge stress.
BC, this has certainly been my experience. “The human brain is a complex organ with the wonderful power of enabling man to find reasons for continuing to believe whatever it is that he wants to believe.” ~ Voltaire
I agree. For example, while actuarial groups have wanted me to speak at quite a few of the past meetings, they did not want me to talk about the subject at all in November, 2015. There has been a real shift in willingness to talk about the subject.
They are beginning to smell death in the air….
BC
I have found only one other person who can discuss these subjects rationally, a highly intelligent botanical illustrator who has spent much time with the plant and soil scientists at Kew Gardens, and the Royal Horticultural Society, the British research organisations (the former now being cut to the bone with funding cuts).
All these people are pessimists and think our environmental goose (water depletion and poisoning, warming and weirding, spread of plant diseases, over-population and soil degradation) is well and truly cooked, although they differ on time-frames – next 20 years, next 40, 80, (but no longer) etc……..
This is quite independent of financial considerations which are not their area of expertise.
To raise these matters in most circles, even when the conversation seems to be leading that way. is to invite suspicions of mental imbalance and obsession, and is just not worth it.
Some kind of censorship would be imposed before broadcasting. Dumping the whole argument would cause negation by the common folk. Also a bit optimism ( sadly lies) would help
You are ignoring completely the huge impact of steadily rising inequality tied to drastically lowered tax rates on the wealthiest. In 1955, top marginal tax rates were well north of 90%. Today, the nominal 35% is pure fiction. A friend who is an excellent tax accountant did a return for a hedge fund manager who paid approximately $6,000 in taxes on a bit over $10 million in domestic income. This is, in Reich’s words, advantaging the rich. (Reich’s analysis includes more than what I just mentioned. A good sample is here. http://robertreich.org/post/129996780230 )
QE is pushing a rope because loans are demand driven. Large government spending domestically sets up a positive cycle by creating a core of qualified borrowers. Private loans are how most money is created in the modern world, but that should not be confused with doing away with the necessity to have that core of pre-qualified major borrowers. Bank loans are promises to pay in the future for money created today by borrowers who are highly likely to be able to follow through on their promise. Without that major core of government-qualified borrowers, QE gets absorbed by the finance class. That is exactly what we have seen. Over half of all financial transactions have been pure finance, flim-flam if you will, designed to further advantage the finance class of workers.
All of that is taking place on a world stage in which most nations are seeing the effects of similar situations, with a few exceptions, Germany being a notable one, having maintained high demand for workers, albeit somewhat at the expense of the EU periphery, by controlling the EU’s central bank policy.
I don’t think Gail’s article was intended to cover everything, just the topic it did cover.
Sorry I missed your comment earlier.
In a sense, your question is similar to the question that was asked about whether it would be possible to raise demand by allocating wages more evenly, through the tax structure. In a sense, this is like raising demand (and thus prices) by issuing more debt. I suppose it is possible to raise demand somewhat this way, since high-wage people tend not to really spend their income on commodity-related goods. It stays in bank accounts and paper investments.
I am not sure how helpful this would be. There are some downsides to severe redistribution of wages. For example, people are less willing to go out of their way to do well, unless they will actually be rewarded for taking the effort. (Why come in early and stay late, if others who do barely put in the minimum hours receive the same after-tax income?) So there is a downside to the redistributing wealth through the tax structure. You start getting the drawbacks of communism.
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Gail. Great post, one of your very best. I think Yellin knows we are in a slowdown and sees it, but cannot SAY it lest she be bombarded with calls to do things she neither wishes to do on can do at this point. As a follower of Limits to Growth since the early 70s it is remarkable to see it happening pretty much on schedule, in spite of the storm of ridicule directed at it over the years…
I expect that even the early “Limits to Growth” modelers never even considered the idea that limits could come from low prices, rather than high. They didn’t include a financial system in their modeling, and certainly didn’t consider the impact of debt.
The idea of limits leading to high oil prices wasn’t really just that of the peak oilers; the economists then and even now believe that shortages will bring about high prices. Of course, there aren’t shortages if people can’t afford the products.
“Of course, there aren’t shortages if people can’t afford the products.”
Thus, the glut. That is until enough supply goes offline and price rises, but only to the level of consumer affordability. That will get tested when the time comes, but it should be declining as net energy declines.
She will (obviously) have access to the data points that we can never dream of seeing….
That said — it is public knowledge that both revenues and profits of the largest companies in America are contracting year on year….
So it does not require a degree in rocket science — nor does one need to be a minion of the owners of the Fed — to recognize —- the end is very near….
Great article, Gail, and clearly expressed. Your analysis ties in with this:
http://www.thehillsgroup.org/depletion2_022.htm
We come to a similar conclusion, but not the same way.
I have seen their analysis. I am not sufficiently convinced of its correctness to endorse it.
I don’t know if the Hill’s Group is the correct analysis either, however, you wrote Gail, “The economy can no longer support energy prices as high as they have been, and they have gradually retreated.”
It’s the face of peak oil, that with diminishing returns over time the price of an energy source that is depleting must come down, because the work it does to produce profits reduces, thus price must come down as we’ve seen lately. The problem as you pointed out in your summary, Gail, is “Thus low prices, with no way to get them back up, and no hope of making a profit on extraction, are likely the way we reach limits in a finite world.” And those limits are now seen in an oil industry in which too low a price means many marginal sources and expensive new exploration begin to get shelved.
The end result is we are quickly burning through the major sources of existing oil supply that were discovered years ago to try and keep the world economy going, at the expense of future supply. It’s mirrored by using debt to buy things today at the expense of not being able to pay those debts in the future. The face of reaching limits is using what we have (existing oil) and can generate (debt) at the expense of not having that oil or capability to generate debt in the future. It’s like being out of work but still spending money on the things that were regularly paid for while still employed which is unsustainable.
This dynamic of oil price dropping too low is what Coppits has been warning about for a few years now. At first many people were incredulous to his assertions but the dynamic has just gotten much worse as oil prices has dropped and stays low compared to what is necessary to secure future supply.
As far as I know, Kopits is of the view that oil prices will rise again, and things will be fine. He is not quite telling the same story I am telling.
I don’t think he has really figured out that prices can’t really go up, because there are affordability limits.
What Kopits does talk about is the rising cost of developing new production, an integral part of the dynamic in which rising production costs are passing the night so to speak in the wrong direction with consumer affordability. You of course have a much wider breadth of information being applied, but we can see different peak oil perspectives with similar outcomes, i.e. Kopits, The Hill Group and yourself. A conundrum of new oil sources costing more than consumers can afford. And so you are right, it is the low price oil is being forced to that risks hitting a peak then descending. There has to be some tipping point in which the peak is reached and can never be reached again, et al descent from that point on. People keep predicting a point in time, like Ron Patterson with 2015, when exactly is yet to be determined.
https://app.box.com/s/xt8fhcxp62igds328g7q6mzorpytq9pw
Steven thinks that the global economy is growing or even that oil demand is accelerating, but I suspect he is much too credulous to the CCP’s dramatically overstating China’s growth when the economy is more likely in the process of a hard landing, which has already spread to emerging markets and the commodities sector.
He also thinks that China devaluing their currency will right their economy, but the currency is not convertible and China’s production and export sector (dominated by US and Japanese subsidiaries and their contract producers) is much more dependent upon US and Japanese FDI, which is contracting and thus the high reverse multiplier effect is crushing production and exports. Devaluing the Yuan will result in little more than a balance of payments reconciliation rather than boost exports.
Besides, China’s imports of energy and food as a share of GDP are increasing, and a crash in the production and exports sectors (55% of GDP) will exacerbate the decline in real GDP. A lower Yuan will only make imports more costly and further drag on real GDP.
You bring up very good points about China’s dependence on Foreign Direct Investment and about the fact that lowering the Yuan will adversely affect prices of growing food and energy imports.
I read an article about Ecuador today that sounded like China was not advancing it the funds it had previously promised. I suppose that there could be some fault on Ecuador’s part, but it could also be a sign that they are at the stage of putting off paying some of their former promises. This is a quote:
Recently, we read about China not reimbursing manufacturers of wind turbines and solar panels for the agreed-upon subsidies, either, saying that they hadn’t collected enough from electricity customers to cover the costs. http://www.bloomberg.com/news/articles/2015-08-20/china-s-wind-and-solar-developers-hit-by-subsidies-short-of-plan
Now isn’t this interesting….
The issue relates to the support China pays power suppliers as enticement to develop clean energy projects. Surcharges slapped onto electricity bills to fund the subsidies are too low, leaving a gap between what was promised and what’s being paid out, said Meng Xiangan, vice chairman of the China Renewable Energy Society, an industry group.
http://assets.bwbx.io/images/ira88WPiEL5g/v2/-1x-1.png
Like I was saying… without subsidies… the ‘renewable’ energy industry would not exist.
If the dynamic is as you say (per Gail) that falling oil prices which never rise again due to affordability issues signal the peak of cheap (affordable) oil production/supply, then Ron Patterson was correct to call 2015 the year. He has been focusing upon the fracked US oil production peak, as the harbinger of debt-driven expensive oil production, now in decline. Without it, global oil production has been flat to declining for some years now. See his latest post and commentary. http://www.peakoilbarrel.com
RE affordability limits – Methods of calculating inflation are under continuous review. Famously, the MSM will point to the cost of TV and electronic services as evidence that prices are falling. Potentially, the problem is that food, shelter, and to some extent energy costs, will form a greater proportion of household budget costs – with the result that transportation (basically oil) gets squeezed.
Unfortunately, food and energy costs (including transportation) are a minefield, and I expect that any attempt to discuss these in a detached way will probably fail.
We would be in great shape, if we could eat pixels!
Freud says there are three things people do not talk about money, sex, and death. Well, food, shelter, and energy form the basis of money, sex, and death, so, yes, you and Freud are correct.
But that is the beauty of OFW it is a civil discussion. Just not going to happen in mass society.
Dear Gail,
If the problem we face lies in low wages leading to low demand for oil and thus low prices, isn’t that a problem that can be addressed? What would the impact be of the kind of redistributive policies proposed by Trump and Sanders, where wealth of the small elite is taxed and the poor and vanishing middle class are given tax cuts and subsidies? It seems to me that this would increase oil demand and thus raise prices to a level more in tune with the needs of producers.
In theory, it seems like redistribution should work like more or less like added debt. In fact, I expect it would also need a lot of debt to make it work, because there would not be enough income taxes from the wealthy to fill in the large amount that those who are not working, or are working for low wages, and even the middle class, need.
There is also the problem of the adverse impacts that too much wealth redistribution seems to lead to. When I visited Cuba (where there is a huge amount of wealth distribution), a common saying was, “We pretend to work, and they pretend to pay us.” If there was no financial incentive to do a person’s best, the amount of absenteeism, lateness, and other work problems rises. I was surprised to learn that the system tended to lead to marriages that broke very easily. As long as the state would provide for everyone, wives would kick out husbands who were unacceptable in some way; men would wander off looking for new for new girl friends/spouses.
Europe has tried a lot of redistribution. They end up with very high unemployment rates, especially among the young. I am doubtful that they can really make good on the pensions that they have promised without a huge number of young people added to the mix.
Gail
I am not sure how much we can read into comparisons with ‘Europe’. There have been large migrations within Europe in recent decades, not least since the expansion of the EU, as well as continuing immigration from outside the EU including migration into prosperous northern Europe. Until recently large numbers arrived also in southern EU for example in Portugal (from previous colonies) and in Greece (from for example Albania).
Overall these migrations were and still are encouraged for ‘business reasons’. http://ec.europa.eu/social/BlobServlet?docId=12628&langId=en
However, continuing very high unemployment rates for young people in southern EU states since 2008 sits uncomfortably with previous very large inward migrant flows to those countries. http://www.lse.ac.uk/IDEAS/publications/reports/pdf/SR017/Triandafyllidou.pdf
best
Phil
Thanks for the migrations PDFs!
Yes, you are right. There have been and are a lot of migrations. I presumed the UN had taken these migrations into account in their historical numbers. The Former Soviet Union has shown downward population trends, because of this migration. The reason the US doesn’t show a downtrend in working age population has a lot to do with all of our migration. Also, the immigrants tend to give birth to more babies, at least in the US.
Actuaries, when putting together pension programs for countries, look at the number of working age people relative to old people. They tend to assume that the working age population will continue to grow. If not, tax rates to pay for pension programs and healthcare for the elderly need to rise to high levels.
Dear Gail
2 observations if you don;t mind
1. Shouldn’t oil demmand (in the long run) remain more or less constant despite lower or higher prices? I think price only acts as small up and downs therefore afecting relatively demmand making look like a country is using less in the interval of years but from the begining oil consumption has been increasing and since it is the main energy input that keep economy running demmand is there for granted.
2. indeed a salary fosters a common worker to perform his/her Job better or. The idea of a “basic income” has had that trouble for years which makes people lazy and conformist and hinders productivity which is what gives value to the money they get.
I believe when societies don’t have values end up wasting that money. For instance those young unemployed Europeans may be throwing their money on drugs.
However there have been experiments on small towns where the basic income has the opposite effect, especially among those who have suffer unemployment, scarcity and have families to feed. Some immigrants tend to have that attitude when they first get to a country with better job opportunities and living conditions than those where they come from. America has have those cases since its foundation. Although it seems that facing hardships is a temporary teacher.
I order to work a redistribution the gap between poor and rich should be narrowed using the present system of productivity not by simply giving away money. Secondly better targets should be set as hardships appear to be a temporary teacher for a generation just to lead the next one on excess created by the savings and sacrifice of the previous generation.
Resonse to Observation 1. Oil demand depends on (a) price, (b) availability of alternative cheaper fuels, and (c) how well the economy is holding together. As I keep mentioning, if the price of oil rises, wages don’t rise at the same time. Somehow the amount of oil purchased has to fall to stay in line with the lack of wages to purchase it. There are various ways that this can happen: (a) Recession–make a smaller batch (b) shift to cheaper fuels through globalization, (c) shift of automation, and cut out the worker–saves costs, but cuts out the worker’s ability to buy oil products in the future, (d) economy collapses. So, the short answer to 1. is “No, demand has to fall as prices rise. Wages don’t rise. There are too many things that rise with oil prices (food prices, for example). Ultimately, higher cost of oil production brings collapse of the economy. It doesn’t bring higher demand.
Response to Observation 2. We live in a globalized world. If we simply raise the wages of lower paid workers, anything they make will no longer be competitive in the world market place, so we will lose jobs in total. So whatever is done seems to need to be done after the fact, through a system of taxes/ subsidies. Even, with this approach, there seems to be a limit, because there needs to be a reward for hard work. So we end up with a system with people earning different amounts, probably not varying as much as now.
I think I missunderstood the last part of your point number 1 in regards to demmand.
What i meant to say is that we need oil although we cannot pay the best price to keep the oil industry runing smoothly, therefore prices drop to affordable levels, but it seems to me that oil demmand or oil need never goes away really.
But now considering debt, it does not makes sense to me to add more debt to extract unconventional oil that would cause an overflow of supply and off course keeping the oil prices low, but if we consider the diverse effects on oil importing and exporting countries then adding debt to increase supply and keep low prices must serve another purpose.
Moreover I believe the media will say that we should expect petrol “gasoline” prices to drop therefore helping consumers a little to pay back their debts.
Also thanks to your research I am begining to understand better the role of energy in the economy, if it were to simple to see we could have avoided to put ourselves in this situation long before.still I wonder how economist are blind to this?
I would say that when the state taxes the small elite and redistributes this revenue, there is not much per capita increase. The wealth of the middle class shrinks, but the rise of the wealth of the upper class does not rise proportionally. It is because much of this wealth increase is based on the increasing use of the automation: e.g. one robot replaces 100 persons, but the energy it needs is lower than the energy consumed by these 100 persons. The robot can produce cheaply with the higher price of the energy, but these 100 persons have no income. And no one needs the energy of these 100 persons anymore, they can not sell it, it is too costly. But the robot can sell its products. Although at a lower price, due to the lowering purchasing power of the people.
The robot does not need the energy of the usually lower-qualified workers that it replaces, but the energy of the higher-qualified workers who can do the necessary maintenance. These 100 human workers need the energy of the high-qualified workers and also low-qualified workers and of the robot, too, but they can not afford it, as they have no revenue after they have been replaced by the robot. Finally, the robot can buy the human energy for its existence, but the human worker can not buy the energy of the robot for his/her existence and dies.
Or the human worker becomes a farmer and grows the food himself/herself to get the necessary energy.
Or, these humans workers can also opt to: If we don’t have the right to feed our families, you don’t have the right to rule us.
That’s the rapidly approaching dynamic. And THEN the fun begins!
Inequality was the stage-3 of the Holocaust.
Deprivation metastasizing into famine = stage-4.
Overpopulation, on the bottom, and capitalism, on the top, are the tinder.
Lack of enough energy for both? It will trigger stage-4……. at both.
That is why we are more likely to find robot aliens than whatever resembles humans in the cosmos… anyway that is off topic I guess
If we could just work in Zombies my day would be complete.
A microcosm of what would happen… http://www.zerohedge.com/news/2015-08-02/ceo-hikes-minimum-wage-70k-capitalist-tragicomedy-ensues
This is just silly. Employees quit because they felt is unfair. Well they could have quit if he had done nothing. If they had better offers why did they stay? If they do not have better offers why did they leave? The argument “because you are not maximally exploiting worker x at our company I am quitting” is the stupidest thing I have heard. If they had said because I can make more money elsewhere I am quitting is fine and expected of all at will employees. It is none of their business how the owner chooses to use his property.
What is plain silly is suggesting that we can just take money from the wealthy and redistribute it and that will keep BAU going a little longer…
Obviously no thought has gone into that comment….
The implications of trying to do that are profound and extensive…
Here’s one — most wealthy people do not just sit on massive amounts of money — they leverage their cash so that they can increase their wealth —- if a billionaire purchases an asset such as a railway — he does not pay cash — he finances it — because he can and because he can get the lowest rates available…
He has to service that debt..
So suddenly James Taggart shows up and says – we are taking half your wealth and distributing it…
How does Dagny Taggart make payments on the railway? What about all the other businesses she owns which are financed – what happens to them?
Remember what happened in Atlas Shrugged when the government actually tried to do what is being suggested….
The business drivers said screw you …. go right ahead and take from us…. let’s see what happens when you try to run the show — because we will not help you…
You want to collapse BAU — start nationalizing assets of the ultra wealthy….
Or demand that they pay all their workers 100k per year minimum wage….
Yes, the problem with robbing the rich is there just are not very many rich.
“Yes, the problem with robbing the rich is there just are not very many rich.”
Maybe we should try it and see how it works out? 😉