A person often reads that low oil prices–for example, $30 per barrel oil prices–will stimulate the economy, and the economy will soon bounce back. What is wrong with this story? A lot of things, as I see it:
1. Oil producers can’t really produce oil for $30 per barrel.
A few countries can get oil out of the ground for $30 per barrel. Figure 1 gives an approximation to technical extraction costs for various countries. Even on this basis, there aren’t many countries extracting oil for under $30 per barrel–only Saudi Arabia, Iran, and Iraq. We wouldn’t have much crude oil if only these countries produced oil.
Figure 1. Global breakeven prices (considering only technical extraction costs) versus production. Source: Alliance Bernstein, October 2014
2. Oil producers really need prices that are higher than the technical extraction costs shown in Figure 1, making the situation even worse.
Oil can only be extracted within a broader system. Companies need to pay taxes. These can be very high. Including these costs has historically brought total costs for many OPEC countries to over $100 per barrel.
Independent oil companies in non-OPEC countries also have costs other than technical extraction costs, including taxes and dividends to stockholders. Also, if companies are to avoid borrowing a huge amount of money, they need to have higher prices than simply the technical extraction costs. If they need to borrow, interest costs need to be considered as well.
3. When oil prices drop very low, producers generally don’t stop producing.
There are built-in delays in the oil production system. It takes several years to put a new oil extraction project in place. If companies have been working on a project, they generally won’t stop just because prices happen to be low. One reason for continuing on a project is the existence of debt that must be repaid with interest, whether or not the project continues.
Also, once an oil well is drilled, it can continue to produce for several years. Ongoing costs after the initial drilling are generally very low. These previously drilled wells will generally be kept operating, regardless of the current selling price for oil. In theory, these wells can be stopped and restarted, but the costs involved tend to deter this action.
Oil exporters will continue to drill new wells because their governments badly need tax revenue from oil sales to fund government programs. These countries tend to have low extraction costs; nearly the entire difference between the market price of oil and the price required to operate the oil company ends up being paid in taxes. Thus, there is an incentive to raise production to help generate additional tax revenue, if prices drop. This is the issue for Saudi Arabia and many other OPEC nations.
Very often, oil companies will purchase derivative contracts that protect themselves from the impact of a drop in market prices for a specified time period (typically a year or two). These companies will tend to ignore price drops for as long as these contracts are in place.
There is also the issue of employee retention. In a sense, a company’s greatest assets are its employees. Once these employees are lost, it will be hard to hire and retrain new employees. So employees are kept on as long as possible.
The US keeps raising its biofuel mandate, regardless of the price of oil. No one stops to realize that in the current over-supplied situation, the mandate adds to low price pressures.
One brake on the system should be the financial pain induced by low oil prices, but this braking effect doesn’t necessarily happen quickly. Oil exporters often have sovereign wealth funds that they can tap to offset low tax revenue. Because of the availability of these funds, some exporters can continue to finance governmental services for two or more years, even with very low oil prices.
Defaults on loans to oil companies should also act as a brake on the system. We know that during the Great Recession, regulators allowed commercial real estate loans to be extended, even when property valuations fell, thus keeping the problem hidden. There is a temptation for regulators to allow similar leniency regarding oil company loans. If this happens, the “braking effect” on the system is reduced, allowing the default problem to grow until it becomes very large and can no longer be hidden.
4. Oil demand doesn’t increase very rapidly after prices drop from a high level.
People often think that going from a low price to a high price is the opposite of going from a high price to a low price, in terms of the effect on the economy. This is not really the case.
4a. When oil prices rise from a low price to a high price, this generally means that production has been inadequate, with only the production that could be obtained at the prior lower price. The price must rise to a higher level in order to encourage additional production.
The reason that the cost of oil production tends to rise is because the cheapest-to-extract oil is removed first. Oil producers must thus keep adding production that is ever-more expensive for one reason or another: harder to reach location, more advanced technology, or needing additional steps that require additional human labor and more physical resources. Growing efficiencies can somewhat offset this trend, but the overall trend in the cost of oil production has been sharply upward since about 1999.
The rising price of oil has an adverse impact on affordability. The usual pattern is that after a rise in the price of oil, economies of oil importing nations go into recession. This happens because workers’ wages do not rise at the same time as oil prices. As a result, workers find that they cannot buy as many discretionary items and must cut back. These cutbacks in purchases create problems for businesses, because businesses generally have high fixed costs including mortgages and other debt payments. If these businesses are to continue to operate, they are forced to cut costs in one way or another. Cost reduction occurs in many ways, including reducing wages for workers, layoffs, automation, and outsourcing of manufacturing to cheaper locations.
For both employers and employees, the impact of these rapid changes often feels like a rug has been pulled out from under foot. It is very unpleasant and disconcerting.
4b. When prices fall, the situation that occurs is not the opposite of 4a. Employers find that thanks to lower oil prices, their costs are a little lower. Very often, they will try to keep some of these savings as higher profits. Governments may choose to raise tax rates on oil products when oil prices fall, because consumers will be less sensitive to such a change than otherwise would be the case. Businesses have no motivation to give up cost-saving techniques they have adopted, such as automation or outsourcing to a cheaper location.
Few businesses will construct new factories with the expectation that low oil prices will be available for a long time, because they realize that low prices are only temporary. They know that if oil prices don’t go back up in a fairly short period of time (months or a few years), the quantity of oil available is likely to drop precipitously. If sufficient oil is to be available in the future, oil prices will need to be high enough to cover the true cost of production. Thus, current low prices are at most a temporary benefit–something like the eye of a hurricane.
Since the impact of low prices is only temporary, businesses will want to adopt only changes that can take place quickly and can be easily reversed. A restaurant or bar might add more waiters and waitresses. A car sales business might add a few more salesmen because car sales might be better. A factory making cars might schedule more shifts of workers, so as to keep the number of cars produced very high. Airlines might add more flights, if they can do so without purchasing additional planes.
Because of these issues, the jobs that are added to the economy are likely to be mostly in the service sector. The shift toward outsourcing to lower-cost countries and automation can be expected to continue. Citizens will get some benefit from the lower oil prices, but not as much as if governments and businesses weren’t first in line to get their share of the savings. The benefit to citizens will be much less than if all of the people who were laid off in the last recession got their jobs back.
5. The sharp drop in oil prices in the last 18 months has little to do with the cost of production.
Instead, recent oil prices represent an attempt by the market to find a balance between supply and demand. Since supply doesn’t come down quickly in response to lower prices, and demand doesn’t rise quickly in response to lower prices, prices can drop very low–far below the cost of production.
As noted in Section 4, high oil prices tend to be recessionary. The primary way of offsetting recessionary forces is by directly or indirectly adding debt at low interest rates. With this increased debt, more homes and factories can be built, and more cars can be purchased. The economy can be forced to act in a more “normal” manner because the low interest rates and the additional debt in some sense counteract the adverse impact of high oil prices.
Figure 2. World oil supply and prices based on EIA data.
Oil prices dropped very low in 2008, as a result of the recessionary influences that take place when oil prices are high. It was only with the benefit of considerable debt-based stimulation that oil prices were gradually pumped back up to the $100+ per barrel level. This stimulation included US deficit spending, Quantitative Easing (QE) starting in December 2008, and a considerable increase in debt by the Chinese.
Commodity prices tend to be very volatile because we use such large quantities of them and because storage is quite limited. Supply and demand have to balance almost exactly, or prices spike higher or lower. We are now back to an “out of balance” situation, similar to where we were in late 2008. Our options for fixing the situation are more limited this time. Interest rates are already very low, and governments generally feel that they have as much debt as they can safely handle.
6. One contributing factor to today’s low oil prices is a drop-off in the stimulus efforts of 2008.
As noted in Section 4, high oil prices tend to be recessionary. As noted in Section 5, this recessionary impact can, at least to some extent, be offset by stimulus in the form of increased debt and lower interest rates. Unfortunately, this stimulus has tended to have adverse consequences. It encouraged overbuilding of both homes and factories in China. It encouraged a speculative rise in asset prices. It encouraged investments in enterprises of questionable profitability, including many investments in oil from US shale formations.
In response to these problems, the amount of stimulus is being reduced. The US discontinued its QE program and cut back its deficit spending. It even began raising interest rates in December 2015. China is also cutting back on the quantity of new debt it is adding.
Unfortunately, without the high level of past stimulus, it is difficult for the world economy to grow rapidly enough to keep the prices of all commodities, including oil, high. This is a major contributing factor to current low prices.
7. The danger with very low oil prices is that we will lose the energy products upon which our economy depends.
There are a number of different ways that oil production can be lost if low oil prices continue for an extended period.
In oil exporting countries, there can be revolutions and political unrest leading to a loss of oil production.
In almost any country, there can be a sharp reduction in production because oil companies cannot obtain debt financing to pay for more services. In some cases, companies may go bankrupt, and the new owners may choose not to extract oil at low prices.
There can also be systemwide financial problems that indirectly lead to much lower oil production. For example, if banks cannot be depended upon for payroll services, or to guarantee payment for international shipments, such problems would affect all oil companies, not just ones in financial difficulty.
Oil is not unique in its problems. Coal and natural gas are also experiencing low prices. They could experience disruptions indirectly because of continued low prices.
8. The economy cannot get along without an adequate supply of oil and other fossil fuel products.
We often read articles in the press that seem to suggest that the economy could get along without fossil fuels. For example, the impression is given that renewables are “just around the corner,” and their existence will eliminate the need for fossil fuels. Unfortunately, at this point in time, we are nowhere near being able to get along without fossil fuels.
Food is grown and transported using oil products. Roads are made and maintained using oil and other energy products. Oil is our single largest energy product.
Experience over a very long period shows a close tie between energy use and GDP growth (Figure 3). Nearly all technology is made using fossil fuel products, so even energy growth ascribed to technology improvements could be considered to be available to a significant extent because of fossil fuels.
Figure 3. World GDP growth compared to world energy consumption growth for selected time periods since 1820. World real GDP trends from 1975 to present are based on USDA real GDP data in 2010$ for 1975 and subsequent. (Estimated by the author for 2015.) GDP estimates for prior to 1975 are based on Maddison project updates as of 2013. Growth in the use of energy products is based on a combination of data from Appendix A data from Vaclav Smil’s Energy Transitions: History, Requirements and Prospects together with BP Statistical Review of World Energy 2015 for 1965 and subsequent.
While renewables are being added, they still represent only a tiny share of the world’s energy consumption.
Figure 4. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.
Thus, we are nowhere near a point where the world economy could continue to function without an adequate supply of oil, coal and natural gas.
9. Many people believe that oil prices will bounce back up again, and everything will be fine. This seems unlikely.
The growing cost of oil extraction that we have been encountering in the last 15 years represents one form of diminishing returns. Once the cost of making energy products becomes high, an economy is permanently handicapped. Prices higher than those maintained in the 2011-2014 period are really needed if extraction is to continue and grow. Unfortunately, such high prices tend to be recessionary. As a result, high prices tend to push demand down. When demand falls too low, prices tend to fall very low.
There are several ways to improve demand for commodities, and thus raise prices again. These include (a) increasing wages of non-elite workers (b) increasing the proportion of the population with jobs, and (c) increasing the amount of debt. None of these are moving in the “right” direction.
Joseph Tainter in The Collapse of Complex Societies points out that once diminishing returns set in, the response is more “complexity” to solve these problems. Government programs become more important, and taxes are often higher. Education of elite workers becomes more important. Businesses become larger. This increased complexity leads to more of the output of the economy being funneled to sectors of the economy other than the wages of non-elite workers. Because there are so many of these non-elite workers, their lack of buying power adversely affects demand for goods that use commodities, such as homes, cars, and motorcycles.1
Another force tending to hold down demand is a smaller proportion of the population in the labor force. There are many factors contributing to this: Young people are in school longer. The bulge of workers born after World War II is now reaching retirement age. Lagging wages make it increasingly difficult for young parents to afford childcare so that both can work.
As noted in Section 5, debt growth is no longer rising as rapidly as in the past. In fact, we are seeing the beginning of interest rate increases.
When we add to these problems the slowdown in growth in the Chinese economy and the new oil that Iran will be adding to the world oil supply, it is hard to see how the oil imbalance will be fixed in any reasonable time period. Instead, the imbalance seems likely to remain at a high level, or even get worse. With limited storage available, prices will tend to continue to fall.
10. The rapid run up in US oil production after 2008 has been a significant contributor to the mismatch between oil supply and demand that has taken place since mid-2014.
Without US production, world oil production (broadly defined, including biofuels and natural gas liquids) is close to flat.
Figure 5. Total liquids oil production for the world as a whole and for the world excluding the US, based on EIA International Petroleum Monthly data.
Viewed separately, US oil production has risen very rapidly. Total production rose by about six million barrels per day between 2008 and 2015.
Figure 6. US Liquids production, based on EIA data (International Petroleum Monthly, through June 2015; supplemented by December Monthly Energy Review for most recent data).
US oil supply was able to rise very rapidly partly because QE led to the availability of debt at very low interest rates. In addition, investors found yields on debt so low that they purchased almost any equity investment that appeared to have a chance of long-term value. The combination of these factors, plus the belief that oil prices would always increase because extraction costs tend to rise over time, funneled large amounts of investment funds into the liquid fuels sector.
As a result, US oil production (broadly defined), increased rapidly, increasing nearly 1.0 million barrels per day in 2012, 1.2 million barrels per day in 2013, 1.7 million barrels per day in 2014. The final numbers are not in, but it looks like US oil production will still increase by another 700,000 barrels a day in 2015. The 700,000 extra barrels of oil added by the US in 2015 is likely greater than the amount added by either Saudi Arabia or Iraq.
World oil consumption does not increase rapidly when oil prices are high. World oil consumption increased by 871,000 barrels a day in 2012, 1,397,000 barrels a day in 2013, and 843,000 barrels a day in 2014, according to BP. Thus, in 2014, the US by itself added approximately twice as much oil production as the increase in world oil demand. This mismatch likely contributed to collapsing oil prices in 2014.
Given the apparent role of the US in creating the mismatch between oil supply and demand, it shouldn’t be too surprising that Saudi Arabia is unwilling to try to fix the problem.
Conclusion
Things aren’t working out the way we had hoped. We can’t seem to get oil supply and demand in balance. If prices are high, oil companies can extract a lot of oil, but consumers can’t afford the products that use it, such as homes and cars; if oil prices are low, oil companies try to continue to extract oil, but soon develop financial problems.
Complicating the problem is the economy’s continued need for stimulus in order to keep the prices of oil and other commodities high enough to encourage production. Stimulus seems to takes the form of ever-rising debt at ever-lower interest rates. Such a program isn’t sustainable, partly because it leads to mal-investment and partly because it leads to a debt bubble that is subject to collapse.
Stimulus seems to be needed because of today’s high extraction cost for oil. If the cost of extraction were still very low, this stimulus wouldn’t be needed because products made using oil would be more affordable.
Decision makers thought that peak oil could be fixed simply by producing more oil and more oil substitutes. It is becoming increasingly clear that the problem is more complicated than this. We need to find a way to make the whole system operate correctly. We need to produce exactly the correct amount of oil that buyers can afford. Prices need to be high enough for oil producers, but not too high for purchasers of goods using oil. The amount of debt should not spiral out of control. There doesn’t seem to be a way to produce the desired outcome, now that oil extraction costs are high.
Rigidities built into the oil price-supply system (as described in Sections 3 and 4) tend to hide problems, letting them grow bigger and bigger. This is why we could suddenly find ourselves with a major financial problem that few have anticipated.
Unfortunately, what we are facing now is a predicament, rather than a problem. There is quite likely no good solution. This is a worry.
Note:
[1] For example, more dividend and interest payments are paid, tending to benefit the financial industry and the elite classes. More of the output of the economy goes to workers in supervisory positions or having advanced education. Other workers–those with more “ordinary” responsibilities–find their wages falling behind the general rise in the cost of living. As a result, they find it increasingly difficult to buy cars, homes, motorcycles, and other goods that use commodities.
Pingback: Why Oil Under $30 Is A Major Problem | ValuBit
Dear Finite Worlders;
This guy … can’t help it, I love this guy. I actually think that he is more interesting than xraymike was. Where is that 20 something poster from a few days back … there may be a place for you with TDoS.
http://prayforcalamity.com/2016/01/20/the-complexity-of-simple/
This latest post reminded me of the first time I tried this. I had No money, just youth and a desire to live “simply”. Things became very unsimple very quickly. 🙂 My wife and I were out gathering wood when she threw down her end of the saw, sat on the log, and cried. That was ’74 and so, all we had to do was move into town, and go back to school. It doesn’t work that way now.
Sincerely,
pintada
Friends are nice! Medium rare.
‘What is often overlooked when people talk about the “simple life,” is just how complex it can be, and just how many tools it can require. Four wheel drive vehicles, chainsaws, power tools, axes, come-alongs, tow straps, water pumps, and all of the hand tools, files, honers, clamps, cleaners and cleansers needed to keep all of it functional. Across the spectrum of internet commentary and niche hipster-farmer magazines that paint rural homestead living as the solution to ecological crisis and collapse, too rarely is it mentioned just how expensive being intentionally poor can be.’
Superb!
Agreed. I live a simple life and it is amazingly cluttered with all the things that need to be fixed.
On the positive side (sort of) — when BAU blows out — there will be no need to fix the vehicles, chainsaws etc… because there will be no petrol to power them….
On the negative side… cutting trees into firewood with an axe is backbreaking work…
Which reminds me… I should probably order another load of firewood….
FE, that is why we injins here in the northeat just drag the whole tree trunk to the house and put it through the front curtain and burn the end and keep advancing it. No splitting foolish white man.
🙂
But for the male of the species, fixing stuff is life itself, is it not?
I’m always happy to have such a list of things to do, less pleased by appointments, deadlines, etc…….
xabier,
hola, old friend! Yes, indeed, having a list of small, achievable tasks and repairs is always a pleasure.
Good post you linked to. Also, too many in the sustainability group think that “using less” but still using chain saws and all the rest will save us. They will only work as long as the system works.
We take a lot for granted…. that is for sure.
It would be interesting to see an organic farmer do a trial run on a post BAU world….
– no electricity
– no water pumps
– only eat what you produce or can forage
– heat only from wood
– cook only from wood
– no petrol powered devices in the garden
– chop wood only with an axe
And so on….
I was looking out over our 200sqm of veg garden this morning and thinking …. there is no way in hell 4 of us can live off of that year round….. even with a mild climate that allows us to grow some food in winter months and a large greenhouse …. this would be a monumental struggle to get enough calories out of this…
We have 20 chickens — they will pretty much stop laying when the protein enriched food stops…
We have guns and ammos so can shoot deer and pigs — but it’s not as if they are at our doorstep …. and we won’t exactly have a lot of time to chase after them in the bush…
If we did not have a large store room of dried and canned goods — and BAU fell apart on Monday … we would most definitely starve within weeks…
Even if our garden were roaring with food right now — how long would we last if we had to rely on that?
Now keep in mind — I am aware of what is coming — so I have prepared as best possible — and that is not enough
99.9% of people haven’t the slightest clue — so they are making no preparations — they will want people like me to feed them…
And I can’t see how I can feed the 4 of us…..
Oh did I mention — the solar water pump is already offline (less than 2 months after we sparked it up) — it went down while I was away – the electrician looked at it and could find no fault — need to get the irrigation experts back in to have a look next week…
Anyone who is getting ready for post BAU — if you really are honest with yourself —- will realize the futility of this ….
“Anyone who is getting ready for post BAU — if you really are honest with yourself —- will realize the futility of this ….”
Yup, after a basic input-output analysis, a realization comes, the work done its mostly to keep busy and take the thoughts of the bright lights that are fast approaching from the end of the tunnel.
Completely agree — it feels better than doing nothing … and it keeps the wife’s spirits up ….
“I was looking out over our 200sqm of veg garden this morning and thinking …. there is no way in hell 4 of us can live off of that year round….”
Yeah, I think you have about enough for one person. Need to quadruple it for 4 people, at least. Maybe eight times to make up for if there is a bad year and crop losses.
Yes, I too have often looked out over my very large tilled acreage and wonder how in hell I am supposed to get enough food for a year out of it. Kind of depressing. Lately I’ve switched to really basic things like potatoes and carrots. I can now grow enough of those to feed 4 for one year with just enough taters left over to reseed for the next year. Other prolific growers are zuchs and beets and turnips. They grow like crazy and are easy to store long term. Of course, I also have 50lb bag after 50lb bag of wheat and rice stored in the pantry as a hedge!
It’s all so…. precarious….
My neighbours – who all grow food — all think that our garden is massive … they wonder if I will be able to manage it….
Best to live life to the very fullest now … because soon we starve….
I started a little garden a few years ago and came to a similar conclusion.
(originally posted in the last blog topic last night – reposting here today)
‘Seeking Alpha’ predicts this: “…that (oil) market bottom will be in the vicinity of $15.”
From: http://seekingalpha.com/article/3817506-oil-price-crash-low-will-oil-price-go
OTOH: Warren Buffett’s Berkshire Hathaway is quickly adding to its holdings of one oil company, Phillips 66. Berkshire spent more than $450 million on the company, adding another 5.1 million shares to its portfolio, according to filings with the Securities and Exchange Commission. After seven straight days of trading, Buffett now owns 13% of outstanding Phillips 66 shares, valued at nearly $5.3 billion.
From: http://www.thestreet.com/story/13426823/1/is-warren-buffett-predicting-a-bottom-for-oil.html
Something’s Gotta Give. (Jack Nicholson)
Maybe Phillips 66 is the company that will be bailed out when SHTF.
Gail,
Thank you for a very well written report. The Breakeven Cost and Daily Production graph you created is a very good collection of data and makes it clear why $30 per barrel oil is impossible to sustain. Nearly all of the sources of oil in the world are producing at 100% capacity, therefore as NOC’s and IOCs are are forced to reduce capital spending we go back to a boom.
My question to you is WHEN:
Will production decline enough to consume excess capacity?
Who will be left standing?
It seems like there are several things that will happen over the next few months that will start cutting off flow.
One thing that is already starting to happen is bankrupt oil companies not finding buyers for its assets. In fact, this is happening already. http://www.bloomberg.com/news/articles/2016-01-20/some-bankrupt-oil-and-gas-drillers-can-t-give-their-assets-away
It would seem like oil production from these fields would decline pretty quickly. Presumably no one would be around to monitor existing wells to see that everything was working as it should. I could even imagine having to cut off oil from these wells completely, because the existing owner could not make the system run profitably, and no new owner wants to take over.
Another thing is political instability in oil exporters–Venezuela, for example. Or fighting in the Middle East. This kind of thing could directly affect production.
The big thing likely to bring down production is problems within the financial system. I would expect these to start happening within the next few months. For example, if Glencore goes bankrupt, that could be a problem. There will no likely be derivatives involved, and they may be a problem as well. There is a great deal of internationally owned debt, owed in US dollars outstanding. If it starts defaulting, that could be a problem.
I would expect oil production to be clearly headed downward by the end of 2016. If nothing else, the general trajectory of oil price is still very much downward, and the government’s ability to fix the situation with enough stimulus is questionable. The low price will eventually lead to production cutoffs, perhaps through bankruptcies and overthrown governments.
Quelle surprise…. we are drowning in oil because lo and behold it’s peak oil time …. and soon there will be no oil…
I smell QE4 on final approach as predicted many moons ago. All eyes on the Fed after the calls come flying in from terrified bankers and CEOs from around the world. Yellen will have spoken to Benny Shalom Bernanke and already the presses will be digitizing up. By the way, all eyes on Glencore, their CDS spreads look scary as f?ck. https://twitter.com/AgritechMedia/status/689878216627113984
Glencore is the proverbial mother of Lehmans 2.0. If they go up in smoke then we’re facing an armageddonic cataclysm of biblical magnitude. We’re fucked anyway, but now it’s only a question of how quickly things fall apart. Judging by how thick and fast the bad news is starting to flow around the world as we start 2016, I’d say you all need to start thinking about this kind of thing here….(I spoke with the founder and he’s got plans to roll out micro-bunkers for the U/HNW and upper middle classes given the entropic logical conclusion of collapse is likely to result in WW3.
http://www.dailymail.co.uk/news/article-3312548/Inside-word-s-biggest-luxury-private-bunker.html
Either that or we’ll see calls for a global debt jubilee, but that will also probably trigger WW3.
All eyes on Glencore.
I’m also hearing Regional Feds, namely the Dallas Fed ‘quietly’ suspended Energy Mark-to-Market on default contagion fears. Now anyone remember where else that happened before, think 2008 and sub-prime.
Game over exactly as predicted 2015-2020 crash would commence
I’m also hearing Regional Feds, namely the Dallas Fed ‘quietly’ suspended Energy Mark-to-Market on default contagion fears.
Well that would be news- source? Thank you for a interesting post. Ill hold off shapening my zombie killing swod for a bit however.
http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale
http://www.zerohedge.com/news/2016-01-18/fed-responds-zero-hedge-here-are-some-follow-questions
smoke =
http://www.weetect.com/wp-content/uploads/2015/08/Fire.jpg
I do agree with you that all paths lead to WW3. As it falls apart there has to be a reason, They cant tell the truth so there has to be a enemy. Unfortunatly I dont think Russia will play with a nice limited exchange.
Im suprised they can get anyone to run for president. Must be for the bunker benefits.
Glencore market cap 10B
BHP market cap 51B
BHP slump outpacing Glencore, nearing Anglo American
BHP Billiton, the world’s biggest mining company, is suffering the same investor angst that’s beset rivals such as Glencore and Anglo American in recent months.
A measure of volatility over 10 days on BHP’s London stock jumped to the highest since September 10 on Wednesday. The stock tumbled 7.4 per cent in London trading to its lowest in 11 years, extending its decline this year to 24 per cent amid mounting speculation it will cut its dividend next month. The swoon in mining stocks has pushed the FTSE 100 into a bear market.
BHP’s drop this year has outpaced declines by Glencore and Rio Tinto Group in London. Anglo American and Glencore were the two worst performers on the UK’s FTSE 100 Index last year, tumbling 75 per cent and 70 per cent respectively. BHP dropped 41 per cent.
The Bloomberg Commodity Index, a measure of returns for 22 raw materials, is at the lowest since at least 1991. The Bloomberg World Mining Index of 80 stocks slumped to the weakest since 2003 as fears of slower economic growth in China and a slump in oil prices fuelled a fresh bout of selling.
Read more: http://www.afr.com/business/mining/bhp-slump-outpacing-glencore-nearing-anglo-american-20160120-gmafdv#ixzz3xrSIchZy
I agree that a collapse of Glencore could be very bad. It would probably mean a collapse of other big resource companies as well.
Dear Gail and Finite Worlders
There has been a lot of discussion here about the coming crisis, or crises, and what, if anything, to do about it. Some people think in terms of ‘we the people’ doing something, some think in terms of ‘we the community’, and some in terms of ‘we the family or clan’, and some in terms of ‘me, myself, and I’.
WARNING: I’m no expert. But I don’t know any experts who speak on this subject. So take or reject what I have to offer as you see fit.
Let’s start with a few observations:
*Plants can be killed by touching them several times a day…including the very tough cockleburr.
*All feeling is mediated by a chain of electrochemical signals in the body connecting the touch receptors to the brain.
*Any break in the chain blocks feeling.
*All cells have identical DNA (more or less), but the active DNA in each cell is a small fraction of the total DNA.
*When the plants are touched, their active DNA changes.
*We know that the DNA which is characteristically active can be changed in a process involving epigenetics. That is, the genes are marked and turn on and off in new ways. The genes have ‘learned’ to behave differently.
*Our bodies are able to preserve DNA stability (slow evolution plus DNA repair) and also to change DNA expression rapidly (the stress response, or the immune response, or epigenetics). There isn’t much we can do about the DNA we inherited, but we have a lot of influence on repair (through diet) and on the rapid changes in expression.
*The brain receives and interprets the incoming signals and assigns meaning to them by activating hormones. The hormones can make us feel revulsion or elation, fear or anticipation, love or hate. We can learn to activate different hormones.
Let’s suppose that nobody reading this can actually ride up on their white horse and take command of the world. That leaves us pretty much powerless to change the broad sweep of developments which lie in our future. However, we may very well be able to intervene in the chain of events from the initial perception to the final interpretation in terms of hormones.
For example, suppose someone you love gives you a massage every day. Will this kill you, as it might the cocklebur, or rejuvenate you and fill your life with joy?
Suppose you practice mindfulness and learn to experience pain, but to not suffer from the pain? Suppose you practice Yoga, and keep your body supple…does this change your mental attitude? Suppose you begin to garden and grow your own food…does this change your sense of helplessness as employers implode?
Suppose you read in the scientific literature that gene expression can be changed rapidly in response to a marked change in behavior…such as a change in diet or sleep habits…does that change your sense of fatalism?
Suppose, some enchanted evening, you meet the love of your life…does that suffuse everything in your brain with a renewed sense of possibility?
A decade ago I was in a meeting with a Diet Doctor. I asked a question about gene expression, and the Eminent Doctor belittled me by accusing me of being a follower of Deepak Chopra. I had no idea who Deepak Chopra was….but if he was talking about physical changes as a result of mental changes, he was on the right track. The point is that how we experience things is at the end of a long chain of events, and some of those events we can influence.
Don Stewart
PS David Holmgren is writing a book whose message will be that we are entering a long period where change will be the norm. Except that the changes will involve learning to live with less energy…not more energy.
A little elaboration just came into my in-box:
http://www.ncbi.nlm.nih.gov/pubmed/26751630
Suffering and Compassion: The Links Among Adverse Life Experiences, Empathy, Compassion, and Prosocial Behavior.
The authors speak of ‘heterogeneity’, which I think will mean that some people behave one way, some the other. This is related to Kelly McGonigle’s book The Upside of Stress. Those who deal successfully with the stress are actually strengthened. Apparently, they are also kindlier to others.
Intervening in the chain from raw event to hormonal interpretation may pay very big dividends.
Don Stewart
Ever tried Ho’oponopono? John
I liked the video interview with Holgren that you shared awhile back, and found little to disagree with him about. So here we’re back to what might just be a problem in semantics.
Here’s a famous French Proverb:
Plus ça change, plus c’est la même chose.
(The more things change, the more they stay the same.)
I( would like to turn this upside down:
The more things remain the same, the more they (can) change.
A related Proverb:
If you don’t know where you’ve been, you can’t know where you’re going.
While I can’t cite references, it’s been widely said that modern times have been a period of public amnesia, especially in America, which continually throws away the past. So if a society doesn’t know where it has been, it is rootless and easily manipulated. That is not a formula for change., but one for destruction.
I propose that for there to be change, we must,collectively, go back over the past that we can still see around us, and re-evaluate and re-interpret it. This process can only be successful if we discontinuing throwing our heritage away. We would do better by preserving everything.
Some random, scattered thoughts on the subject:
– A change so monumental as that away from fossil fuel dependency could psychologically catastrophic.
– That might necessitate preserving the outer resemblance of the oil age infrastructure while substantially and continually changing the means of subsistence behind the industrial facade.
– The painter Cezanne advocated “doing Poussin over again from nature.” To some extent, we need to do over industrial society without fossil fuels and only through the recycling of places and materials and ideas.
– All demolition must end.
The embedded ff energy in the existing infrastructure must be used to launch the new. The more the existing is preserved, the more energy to launch the new.
– Animism, or the religion of existing things (something to be considered).
Dear Artleads
Just a few thoughts…these could all be quite wrong-headed, so I don’t really want to argue vociferously.
‘A change so monumental as that away from fossil fuel dependency could be psychologically catastrophic.’
Yet we know that when young people go to summer camps which ban electronic devices, they rather quickly become unaddicted to their toys. You can read lots of stories about them in Sherry Turkle’s book.
One of my major points is that plants and animals and humans have complex systems which allow them to both adapt quickly and also to conserve the basics. A plant, for example, has deeply embedded ‘set seed at the right time and go to sleep or die’ mechanisms, but also adjusts almost instantly to water shortages (by wilting). Humans have DNA conservation and repair mechanism which cause us to reliably grow our opposable thumbs, but also very quick adaptation mechanisms such as new memes, epigenetics, and rapid changes in gut bacteria in response to changes in diet. The combination of rapid and slow makes for a complex adaptive system.
You may remember that Thoreau said ‘I have traveled widely in Concord’. I think what he meant was that he searched out people who had a wide variety of approaches to life. I think this may be a good use of our remaining fossil fuels. For example, the last time I visited my grandchildren, having flown 2000 miles to the hyper-modern city they live in, I took them to visit a 50ish lady homesteader out in the country. Here is a link to her web page and you can look at a few pictures.
http://www.debtolman.com
When they saw all her raised bed gardens in a rocky landscape, the elaborate rain catchment system with the stationary bicycle powered pump, the oat bin made into a home, the rattlesnakes, they knew they weren’t in Dallas anymore. They thoroughly enjoyed the visit, and got a glimpse of how life could be lived well…but differently.
I also took them to see the house and neighborhood where I was born (at home, no birth certificate issued):
https://www.google.com/maps/@33.1338992,-96.1054904,3a,75y,90h,90t/data=!3m7!1e1!3m5!1sRLBW_DvJURIdGfci3ElUzQ!2e0!6s%2F%2Fgeo3.ggpht.com%2Fcbk%3Fpanoid%3DRLBW_DvJURIdGfci3ElUzQ%26output%3Dthumbnail%26cb_client%3Dmaps_sv.tactile.gps%26thumb%3D2%26w%3D203%26h%3D100%26yaw%3D0%26pitch%3D0!7i13312!8i6656
We walked around the neighborhood to the place where my father and grandfather worked, and also to the now deserted downtown area where I used to walk to buy things for my mother when I was about 6 years old. We did not have a car. I showed them the clay bank where we neighborhood kids dug clay and made objects out of it. It was harder for them to visualize the world of my childhood than to imagine what Deb Tolman’s life is like. Children aged 6 being allowed to walk downtown carrying money? No car? People walking to work? Unpaved streets?
It’s not my job to preach or try to make them paranoid, but I did take the opportunity to show them something that is not at all North Dallas:
https://www.google.com/maps/@33.1958761,-96.6733759,3a,75y,90t/data=!3m7!1e1!3m5!1sg2-dIjOfZOQmo4HTLGjwfQ!2e0!6s%2F%2Fgeo2.ggpht.com%2Fcbk%3Fpanoid%3Dg2-dIjOfZOQmo4HTLGjwfQ%26output%3Dthumbnail%26cb_client%3Dmaps_sv.tactile.gps%26thumb%3D2%26w%3D203%26h%3D100%26yaw%3D0%26pitch%3D0!7i13312!8i6656
When city kids go backpacking, they take a lot of city stuff with them, but they also get a glimpse of a very different life, particularly if they stay out in the woods for longer periods of time. The same probably holds true of social differences. John Michael Greer has a perceptive essay up currently on the Donald Trump phenomenon. His thesis is that, over the last half century, the moneyed class, the managerial class, and the welfare class have either increased or maintained their status. The losers have been the wage earning class. Politicians, both Democrats and Republicans, have consistently supported policies which penalize the wage-earners to benefit the other classes. Trump appeals to the wage-earners. It is possible, but not easy, for us to cross these economic lines on excursions. I think that churches are one way to do it…but many churches are pretty rigidly segregated.
I will just throw out one example for a city official such as yourself. Suppose you made a children’s playground out of recycled materials? I once tried to include a bottle tree for the neighborhood kids in a community garden design and scared the piss out of the money people….we want the kids to leave that trash behind, etc. If you took on the ‘recycled’ meme for the playground, you can get some blue collar craftsmen involved in doing things like turning salvage into toys. Of course, you have the issue that the salvage won’t meet modern ideas of completely fool proof ‘no risk’ playgrounds.
All of these are definitely not hard-core survivalist ideas. There are no mornings devoted to target practice and military drills with afternoons devoted to foraging and hunting. It’s just stretching ourselves beyond the usual boundaries.
For what it is worth….Don Stewart
http://www.bloomberg.com/energy
If oil under 30 dollars a barrel is a problem, how about 26.30 for WTI (-2.16)
& 27.17 for Brent (-1.59) today.
https://www.google.com/?gws_rd=ssl#q=dow
How about the Dow today at -458 points so far- we’ll see where it closes.
It’s probably about time to fill up a couple of more barrels with sacks of dry food stuff…
Most of my relatives are cheering and vilifying oil producers for being so greedy over the last 10 years and ruining the economy with high oil prices. Now they are also saying that oil prices are back where the “should” be. One of my cousins (who hauls oil by truck) disagrees and thinks oil prices need to be higher because he is loosing work. He also is on the chopping block if prices don’t recover. Interesting times.
Interesting times for sure, Greg. Oil price definitely needs to be higher to secure future supply, but also not over a 100 because it squeezes the consumer. Maybe 60? Wherever price ends up it’s fascinating to watch.
$60 isn’t high enough for producers, and it is already too high for consumers. Doesn’t work.
That seems to be a fairly common sentiment ….
I have posted detailed info about break even costs of oil being over $100 — and the vitriol pours in ….
The MSM has promoted the idea that most producers need 30 or 40 bucks to break even…. which is a complete lie…. because of course they fail to include all costs associated with operating an energy business….
And under no circumstances should the MSM be questioned.
** Challenge to Paul **
I’m sure everyone is pretty sick & tired of the constant back and forth between the slow & fast collapse groups. However, now that events on many fronts are beginning to reach critical inflection points, perhaps we can agree on certain concessions depending on near term outcomes taking place in China. Specifically:
– I will concede that you are correct if we see CP leadership start to abandon their domestic government/finance/business positions and begin to search for safe harbors in Australia, NZ, Canada, S Africa, etc. These actions will most likely coincide with the PLA beginning to take initiatives in order to maintain civilian control as the entire edifice of the debt pyramid comes crashing down, reducing everyone, princes & serfs, to paupers.
– Alternatively, I would expect you to concede that I am correct if the CP begins a process of devaluations, while rolling out civil defense programs aimed at ensuring domestic accord in the major cities. This would occur in conjunction with policies aimed at wage/price controls & rationing while public order initiatives are introduced to to manage the effects of induced (hyper) inflation.
Deal?
It seems to me that “collapse” is not the right word to use. If there are parameters that define collapse then collapse is instantaneous. Once the thresholds of collapse have been breached then that moment in time is the point of collapse In these terms it seems impossilble to have a slow or fast collapse; it is simply – collapse. Will collapse be in one to two years or 5 to 10 years would be a more fitting question to ask. Also, defining the parameters of collapse would be even more prudent.
To me collapse means more than 1/2 of the US population is unemployed. I think the “real” numbers are about 22.9% right now. When will the numbers hit 50%? I would wager that is very likely to occur in the next 1 to 2 years. However, I also predict the official figure will never reach 50% and likely will never reach 25%. So, my method is rather flawed and somewhat unverifiable.
So, anyone care to define collapse and how it could be verified? I think that would be better than debating fast vs slow collapse.
*Repost*
Limits on a finite planet manifest in many ways. Before the fat lady sings we will seek growth any way possible, so, this http://www.usdebtclock.org/world-debt-clock.html shows we still have a miniscule little push to make, still.
But, our global financial system and that includes every monetary transaction wihin every country in the world, depends on profits. And profits seems to be tanking, now. The Baltic Dry Index measures how our rawmaterials, commodities, stuff, is being transported and it is in all time lows http://www.bloomberg.com/quote/BDIY:IND Without products to ship around the world, no profits. No profits, no jobs. No jobs, no banks, no governments, no stock markets, well, you get the picture, SHTF.
The problem with our global world is that we have invented financial tools called derivatives. We have a quadrillion of over the counter and under the counter derivatives. So, more then a decade of world GDP in liabilities to blow up the banks when the underlaying factors start to move too rapidly. When SHTF its SHTF because we will be having tons of deals blowing up the banks, much like this: http://www.bloombergview.com/articles/2014-07-18/portuguese-railroad-company-was-really-into-snowballs
And without a currency, no long distance trade, no global trade, no JIT economy, no jobs, no payrolls, no food in the groceries, and eventually, no grid.
Its happening now, but even if January goes by without a major crash, Q1 needs a miracle to avoid massive U.S. shale defaults. Q2 2016 needs a miracle to avoid emerging markets defaults. Q3 2016 needs a miracle to avoid Portugal, Ireland, Spain, Greece, Italy bond markets failures. You get the picture, miracles needed, almost every day now, luck will one day run out. So, any day now we can drive of the cliff with a panic selling of stocks, that panic would then rapidly expand to every part of the world economy ripping it apart, everywhere. And once it starts, nothing can stop it and nothing can bring back the world we have right now, ever.
Thats a short version of the story, follow Gail and the comments to get the big picture.
“Q3 2016 needs a miracle to avoid Portugal, Ireland, Spain, Greece, Italy bond markets failures. ”
No miracle needed. The money is created the bonds go on the books. Was it a miracle when China and Russia dumped US bonds and Belgium bought them all? Actually everything is holding together quite nicely. The oil companies can be triaged with credit as long as money works. I see no sign of money not working actually the opposite. The rigs will be manned, the spice must flow.
Where we are heading is plenty of energy but no $ to buy it. Oil at $10, no $ to buy it.
Where Gails analysis and yours above has always failed is in thinking that insolvency is real a physical limit. Ive never understood that. A lending institution is completely smoke and mirrors. They can issue credit forever. If credit was issued to the likes of the too big to fails do you think it wont be issued to keep the rigs pumping? What they cant do is let credit into the hands of the masses. That would cook moneys goose quite quick. They dont want that goose cooked and it wont get cooked. They are proceeding exactly as is best for them. The masses will start to starve not from lack of availability but lack of credit. They will be upset. Food stamps will help. Luckily the people in control are quite well prepared for a little discontentment. Plenty of hired guns available, as long as money works. Without $ you me or anyone is dead. Now some gardener says oh really I canned tomatoes last year. Get real. They can get anyone to do anything for $ if the alternative is death. As long as money works.
I will write a post shortly explaining the thermodynamic limits we are up against. I do not claim to be an expert on this myself, but physicist Francois Roddier has sent me an explanation of how this works, and I can add a little to it.
There are many kinds of self-organized systems that grow over time. They reach limits. For example, ecosystems such as forests grow and become more dense. Eventually, the density of the forest chokes many of the shorter plants because they do not receive enough light (and the energy it provides). This happens because the leaves of the many tall trees block out too much sunlight. These plants die and accumulate on the floor of the forest, along with fallen material from the tall trees. Eventually, the forest becomes susceptible to forest fires. Forest fires burn down trees over a significant area, leaving with it ash that fertilizes the area. Eventually a new forest is able to grow, again with a mixture of short and tall trees, starting the cycle over again.
This thermodynamic process is known as “self-organized criticality.” The peak of the system is called its climax. The condition causing the fall of the system (here a forest fire) can occur over a much shorter period than the rise of the system. Eventually new self-organized systems (here, forests) can rise from whatever remains exist.
The economy is also a self-organized system that grows. Humans are able to supplement their physical energy with energy from various other sources. In early days, this energy came from burning biomass. Not too much later, it came from using the labor of animals to supplements human energy (dogs, oxen, horses, etc.) and wind energy to power sail boats. Especially in the last 200 years, fossil fuel energy has been added to the mix. The supplemental energy allows technology to be added to the economy, and thus allow the economy to grow.
For a while, return on human labor (with supplements of various sorts) rises. In other words, inflation-adjusted wages of even the least-skilled workers tends to rise. Then, at some point, resources become harder to tap. There are too many people per square kilometer of arable land, so new techniques such as irrigation or fertilization must be used to raise output. Desalination is needed to provide more fresh water. Oil becomes more expensive to extract. Businesses and governments become larger, leading to a need for more managers, and more use of debt with interest payments and more issuance of stock with dividend payments. All of this is equivalent to the system requiring more “complexity,” as I mention in the post. This complexity siphons off an increasingly large share of the output of the system, leaving less for the non-elite workers–that is, the workers who are not supervisors, and haven’t received a lot of advanced training. They are simply selling their labor as labor. When this happens, the buying power of the non-elite workers falls. They cannot afford very much of the output of the system. It becomes impossible for governments to raise enough tax money. The economy tends to fall, in a manner somewhat like a forest succumbs to a forest fire.
I need to save some of this for the post I am planning to write.
Very good!
I’m looking forward to reading this next post.
If our civilization is analogous to an old forest, maybe it could be managed in some similar ways to prevent a catastrophic fire? Do some controlled burns (redistribution) so the non-elite workers get their share of resources. The method is well established:
https://en.wikipedia.org/wiki/Controlled_burn
Elvind Berge
My experience with old growth forests is that there is very little dangerous firewood on the ground in humid forests. They are like walking in a cathedral, with everything high above your head. The pioneers in the US could ride horses through a forest.
The worst fires were after a forest was logged, and the loggers left ‘slash’ behind. These fires burned for a decade or so until the fuel was gone.
The great long leaf pine forests which stretched from Virginia to Texas were fire adapted. Many plant seeds were dormant until they experienced fire, when they sprouted because they were more likely to find a canopy opening giving enough light to let them grow. Military bases with large tracts of land have been used for several decades now to try to restore these forests to their former magnificence.
Controlled burns are used in these forests both to increase biodiversity beyond what Nature alone would provide, and also to burn up ground litter so any fires that start don’t get too hot. An example of good human husbandry.
Don Stewart
Gail
While it may be useful to consider a forest with no human intervention, it is probably more interesting and relevant to consider a forest with humans living in it. Two examples:
https://en.wikipedia.org/wiki/Iroquois
‘The Iroquois are a mix of horticulturalists, farmers, fishers, gatherers and hunters, though their main diet traditionally has come from farming. The main crops they cultivated are corn, beans and squash, which were called the three sisters and are considered special gifts from the Creator. These crops are grown strategically. The cornstalks grow, the bean plants climb the stalks, and the squash grow beneath, inhibiting weeds and keeping the soil moist under the shade of their broad leaves. In this combination, the soil remained fertile for several decades. The food was stored during the winter, and it lasted for two to three years. When the soil in one area eventually lost its fertility, the Haudenosaunee moved their village.
Gathering is the traditional job of the women and children. Wild roots, greens, berries and nuts were gathered in the summer. During spring, sap is tapped from the maple trees and boiled into maple syrup, and herbs are gathered for medicine.
The Iroquois hunt mostly deer but also other game such as wild turkey and migratory birds. Muskrat and beaver are hunted during the winter. Fishing has also been a significant source of food because the Iroquois are located near the St. Lawrence River. They fished salmon, trout, bass, perch and whitefish until the St. Lawrence became too polluted by industry. In the spring the Iroquois netted, and in the winter fishing holes were made in the ice.[89]’
and
https://en.wikipedia.org/wiki/Milpa
‘The milpa, in the estimation of H. Garrison Wilkes, a maize researcher at the University of Massachusetts in Boston, “is one of the most successful human inventions ever created.’
The Milpa system produced more biological activity than an unattended forest, and definitely more biological activity useful to humans. The most ecologically productive zones are wetlands and forest edges. The Milpa system makes use of forest edges.
When you consider the statement that ‘milpas is one of the most successful human inventions ever created’, you can understand Toby Hemenway’s enthusiasm when he learns that the very intensive agricultural production at Singing Frogs Farm in California is not only producing lots of food, it is also sequestering carbon and increasing biodiversity. Toby views it as confirmation of his suspicions that humans can INCREASE biological activity with timely intervention at leverage points.
Don Stewart
I am honored by your response. I will read your new article quite thoroughly but I read all your articles. Unfortunately I dont see the the relationship to the specific issue I raise to the points you have mentioned. I know I am not as smart as you and perhaps I have a fundamental lack of understanding in this matter. Yes ultimately our “economy” is doomed as you and Francois term it but the question is how long can BAU be triaged.
The elite that makes decisions are looking after their interests. They have virtual currency and it has all the power of the fossil fuels that are extracted. to retain that power they must do three things.
1. Support the financial structure that is necessary for the virtual currency
2. Continue to extract oil.
3.Not allow unlimited amounts of the currency to reach consumers
This exactly describes what we are witnessing. Nor do I see any impediment to it continuing for a long time described in the points you mention.
Money is in its essence a representation of fossil fuels. As less fossil fuels enter the economy it would make sense to me that they become more valued and scarce and that their representation would also become more valued and scarce. Arguments for “printing” to me seem based on a supposition that the elite care about the the serfs economy. Why would they destroy everything that allows their power? The serfs will be placated with bread and circuses. Unruly serfs will be met with gas and lead. Exactly what we see in the preparations being made. Serfs with skills that they desire will get a ever rare item- money- and be glad to share in the wealth and avoid stale bread. There is no change in monetary policy coming. They are more resigned to our fate than anyone on this board. Why wouldnt they be they are not stupid and have many decades to understand and plan for this.. Their triage and plan is being executed meticulously.
‘Nor do I see any impediment to it continuing for a long time’
Click http://www.zerohedge.com/
There you will see page after page after page explaining how these policies are beginning to fail.
The mother of the mother of the mother of all financial hurricanes is brewing…. this will be 2008 on steroids, heroine, crack and speed…. the scale of this is truly epic…
The Elders were of course aware that this was going to end badly — they knew the moment they hit the first Enter key on the terminal releasing the first tranche of QE….
But they had no choice. Die in 2008 — or die in 2016(?)
Looking forward to this!
That is akin to a perpetual economic motion machine….
Let’s say oil drops to $5 — on every barrel an oil pumped a producer loses say $95 — so the central banks just keep loaning $95 on every barrel pumped so the producer can continue to produce…
What cannot continue will eventually stop.
The problem is that there is not enough energy to support our economy, even if we try to add endless debt to extract this energy. We end up with a lot of workers who are too poor, the way the system works.
A major problem is that the extraction of the oil and other energy products is not profitable for the companies trying to do it. Furthermore, it cannot be, given all of the inputs necessary for extraction. If the prices rise high enough so that the companies can make a profit doing extraction, then the workers can’t afford the products made with it.
http://www.zerohedge.com/news/2016-01-19/what-if-imploding-baltic-dry-index-does-reflect-global-trade-after-all
Stock market can be at an all time high …. but if nothing is being shipped… as will eventually happen — what does the stock market matter?
I agree that derivatives are likely to be a problem. The article about the specific derivative situation that you link to is interesting. I think that there has been some effort toward standardization, so perhaps some of the things talked about in the article don’t happen, but I am not close enough to the situation to know specifics.
Collapse – no more electricity in your home, stores closed.
We are already collapsing. It began when we stopped growing, about 1971. It’s neither slow nor fast It starts slow and gets faster as more and more links break.
Collapse is by definition fast.
So anyone arguing that collapse is slow — and using the word collapse — has already lost the debate.
Perhaps what they mean to say is that there is a period where things degrade slowly – as they have been for some years now….
Eventually they system just completely fails and BAU collapses — as in over a few days …
I would agree with that playbook.
I think you are probably right.
Webster Dictionary definition of “collapse:”
col·lapse
kəˈlaps/Submit
verb
1.
(of a structure) fall down or in; give way.
“the roof collapsed on top of me”
synonyms: cave in, fall in, subside, fall down, give (way), crumple, buckle, sag, slump
“the roof collapsed”
2.
(of a person) fall down and become unconscious, typically through illness or injury.
“he collapsed from loss of blood”
synonyms: faint, pass out, black out, lose consciousness, keel over, swoon; informalconk out
“he collapsed last night”
noun
1.
an instance of a structure falling down or in.
“the collapse of a railroad bridge”
synonyms: cave-in, subsidence
“the collapse of the roof”
ALL of these imply some kind of rapid deterioration of the state of being. It was standing and then it was not…By this definition, we do not and probably will not have a “collapse” but rather death by a thousand cuts.
The death part at the end of the thousand cuts part is the collapse …
We have endured about 976 cuts so far…..
Paulson reveals US concerns of breakdown in law and order
“In a world where information can flow, money can move with the speed of light electronically, I looked at the ripple effect, and looked at when a financial system fails, a whole country’s economic system can fail,” Mr Paulson said.
“I believe we could have gone back to the sorts of situations we saw in the Depression. I try not to use hyperbole. It’s impossible to prove now since it didn’t happen.”
http://www.independent.co.uk/news/business/news/paulson-reveals-us-concerns-of-breakdown-in-law-and-order-1750076.html
‘Will collapse be in one to two years or 5 to 10 years would be a more fitting question to ask.’
My definition of collapse is ‘the moment the electricity goes off – permanently’
I think the fast collapse groups believe in governments, elites etc. trying to hold on to any form of control, including price controls & rationing etc. etc. untill its utterly impossible, because no more currencies, no more global trade, no more JIT economy, no more.. well you know the story. I´m not sure what you will interpret as indicators supporting your theory. But I will concede to your point of view, simply if global trade can be organized without a currency, worker payrolls, banks, a stock market and a bond market.
“I’m sure everyone is pretty sick & tired of the constant back and forth between the slow & fast collapse groups”
Au contraire we dont care.
Would you care to elaborate on that. e.g. you don’t care because you believe some form of collapse is inevitable and imminent and therefore no amount of debating the subject changes the outcome, so why bother.
Or you don’t care for some other reason…
I say “you” and not “we” because I certainly DO care about the finer points that are discussed here. Even if one holds the position of absolute certainty that civilisation as we know it is going bye byes, closer analysis of the situation may reveal data that allows one to move the goalposts somewhat. This could result in a reprieve and an extension of BAU, let’s say, for that trip of a lifetime, or a quickening of events that would spur you to get your house in order and prepare for the worst.
Either way, I see further insight into the timing issue as invaluable. Ironically, it may be the one thing that is imposible to predict and that’s what leads to the various camps promoting and defending the particular way they see things unfolding.
More important, I think, would be to know how younger readers with this knowledge should interpret it and what steps they can take to maximise the usefulness of that knowledge.
1. You would have to be fairly certain that the knowledge is correct to begin with. No life changing decisions based on the writings of one author or blog. How much time can you allocate to research?
2. What level of certainty would you require to, for example, quit your current employment, cancel your pension plans, go on that holiday, and stock up on prepper goods? Knowing how much time BAU has left would be invaluable.
3. What if you’re wrong? What if one of Van Kent’s “miracles” shows up and saves the day? It’s a long shot and can’t really be planned for but has consistently happened throughout history leading to previously unimagined levels of progress and sustained growth – although on the way up everything always looks peachy.
If the limits to growth were indeed reached in the 70’s and we’ve been on a downward trend ever since, was the last 50 years a total disaster or did at least some of the human race enjoy their innings?
For me, there’s a world of difference between a BAU swansong of a year or two and a controlled, step down, last one out turns off the lights reprieve.
I know what either camp “believes” based on the available data, but can any of you bring something more to the table that would hammer the definitve nail in the coffin, so to speak.
Or is it that everyone here is 100% convinced of let’s call it… demise of civilisation and therefore point no.3 is not even on the table, as far as you’re concerned?
Bk9 writes the same tired argument over and over. He seems to have a need to convince the world. Not that I would have him stop doing it far from it he is a established member of the community here. There are also other established members of the community here that write stuff i dont read when I see their screen name and the length of their post. I bear them no ill will. FE for some reason feels the need to debate BK9s tired argument. Perhaps they enjoy it- I dont care and its none of my business. I dont waste my time reading their debates. In my statement I made a assumption that others share my habits perhaps that was arrogant. I dont believe i was incorrect in that assumption but I dont know so I will change my statement for the record.
I dont care.
No, not arrogant at all. I just wasn’t reading the comment through the lens that you just described.
Still, I enjoy the back and forth – other voices – on this board because I’m never 100% sure about anything…
I do not believe in number 3. I agree with a fast financial collapse but followed by a slow, 50 years, grind down as non finance means are used to motivate and control. With the system becoming disjoint pieces increasingly local and small over time. Subsistence farmers the world over will still be farming in 50 years. May be difference people, will be poorer, less densely populated but still scratching out a life. Unless FE is right about the spent nuclear fuel. A point I have doubts about.
If I’m to be prefectly honest, I lose interest at the point where I can’t buy or sell a book via Amazon. Beyond that, on a diminishing scale, food and security rapidly rise to the top of the list and whatever the situation demands on a local level as the great unravelling ensues.
I’m glad you mentioned the fuel ponds because I keep telling myself to dig a bit deeper into that subject to really get a handle on it, so thanks for the reminder. Obviously, this matter alone would greatly affect the way of life to come for some time so it would be of utmost importance to know what can be done if one plans on hanging around for while longer.
‘If I’m to be prefectly honest, I lose interest at the point where I can’t buy or sell a book via Amazon.’
Exactly.
Most people seem to think post collapse will be a wonderful world of organic food and blue skies and hey bob how’s the crop doing…..
They really haven’t a clue.
They read these permaculture books and think oh – ya — it will be just like that.
And nothing you can say will change their minds… and I guarantee you not a single one of them will pick up an axe as I suggested and take down 5 trees ….
Don’t want to go there… don’t want the bubble to burst…. just want to keep spouting Scott Nearing and Toby Hemmingways name over and over….
Anyway…
The ponds… I have spent a lot of time on this topic…. will drop a few links in series …
Containing radiation equivalent to 14,000 times the amount released in the atomic bomb attack on Hiroshima 68 years ago, more than 1,300 used fuel rod assemblies packed tightly together need to be removed from a building that is vulnerable to collapse, should another large earthquake hit the area. http://www.reuters.com/article/2013/08/14/us-japan-fukushima-insight-idUSBRE97D00M20130814
The problem is if the spent fuel gets too close, they will produce a fission reaction and explode with a force much larger than any fission bomb given the total amount of fuel on the site. All the fuel in all the reactors and all the storage pools at this site (1760 tons of Uranium per slide #4) would be consumed in such a mega-explosion.
In comparison, Fat Man and Little Boy weapons dropped on Hiroshima and Nagasaki contained less than a hundred pounds each of fissile material – See more at: http://www.dcbureau.org/20110314781/natural-resources-news-service/fission-criticality-in-cooling-ponds-threaten-explosion-at-fukushima.html
A typical 1 GWe PWR core contains about 80 t fuels. Each year about one third of the core fuel is discharged into the pool. A pool with 15 year storage capacity will hold about 400 t spent fuel.
To estimate the Cs-137 inventory in the pool, for example, we assume the Cs137 inventory at shutdown is about 0.1 MCi/tU with a burn-up of 50,000 MWt-day/tU, thus the pool with 400 t of ten year old SNF would hold about 33 MCi Cs-137. [7]
Assuming a 50-100% Cs137 release during a spent fuel fire, [8] the consequence of the Cs-137 exceed those of the Chernobyl accident 8-17 times (2MCi release from Chernobyl). Based on the wedge model, the contaminated land areas can be estimated. [9] For example, for a scenario of a 50% Cs-137 release from a 400 t SNF pool, about 95,000 km² (as far as 1,350 km) would be contaminated above 15 Ci/km² (as compared to 10,000 km² contaminated area above 15 Ci/km² at Chernobyl).
http://belfercenter.hks.harvard.edu/publication/364/radiological_terrorism.html
Once the fuel is uncovered, it could become hot enough to cause the metal cladding encasing the uranium fuel to rupture and catch fire, which in turn could further heat up the fuel until it suffers damage. Such an event could release large amounts of radioactive substances, such as cesium-137, into the environment. This would start in more recently discharged spent fuel, which is hotter than fuel that has been in the pool for a longer time. A typical spent fuel pool in the United States holds several hundred tons of fuel, so if a fire were to propagate from the hotter to the colder fuel a radioactive release could be very large.
http://www.ucsusa.org/nuclear_power/making-nuclear-power-safer/handling-nuclear-waste/safer-storage-of-spent-fuel.html#.VUp3n5Om2J8
According to Dr. Kevin Crowley of the Nuclear and Radiation Studies Board, “successful terrorist attacks on spent fuel pools, though difficult, are possible. If an attack leads to a propagating zirconium cladding fire, it could result in the release of large amounts of radioactive material.”[12] The Nuclear Regulatory Commission after the September 11, 2001 attacks required American nuclear plants “to protect with high assurance” against specific threats involving certain numbers and capabilities of assailants. Plants were also required to “enhance the number of security officers” and to improve “access controls to the facilities”.
The committee judges that successful terrorist attacks on spent fuel pools, though difficult, are possible. If an attack leads to a propagating zirconium cladding fire, it could result in the release of large amounts of radioactive material. The committee concluded that attacks by knowledgeable terrorists with access to appropriate technical means are possible. The committee identified several terrorist attack scenarios that it believed could partially or completely drain a spent fuel pool and lead to zirconium cladding fires. Details are provided in the committee’s classified report. I cannot discuss the details here.
http://www.cfr.org/weapons-of-mass-destruction/nuclear-spent-fuel-pools-secure/p8967
If any of the spent fuel rods in the pools do indeed catch fire, nuclear experts say, the high heat would loft the radiation in clouds that would spread the radioactivity.
“It’s worse than a meltdown,” said David A. Lochbaum, a nuclear engineer at the Union of Concerned Scientists who worked as an instructor on the kinds of General Electric reactors used in Japan. “The reactor is inside thick walls, and the spent fuel of Reactors 1 and 3 is out in the open.”
http://www.nytimes.com/2011/03/16/world/asia/16fuel.html
If you don’t cool the spent fuel, the temperature will rise and there may be a swift chain reaction that leads to spontaneous combustion–an explosion and fire of the spent fuel assemblies. Such a scenario would emit radioactive particles into the atmosphere.
Pick your poison. Fresh fuel is hotter and more radioactive, but is only one fuel assembly. A pool of spent fuel will have dozens of assemblies. One report from Sankei News said that there are over 700 fuel assemblies stored in one pool at Fukushima. If they all caught fire, radioactive particles—including those lasting for as long as a decade—would be released into the air and eventually contaminate the land or, worse, be inhaled by people. “To me, the spent fuel is scarier. All those spent fuel assemblies are still extremely radioactive,” Dalnoki-Veress says.
It has been known for more than two decades that, in case of a loss of water in the pool, convective air cooling would be relatively ineffective in such a “dense-packed” pool. Spent fuel recently discharged from a reactor could heat up relatively rapidly to temperatures at which the zircaloy fuel cladding could catch fire and the fuel’s volatile fission product, including 30-year half-life Cs, would be released. The fire could well spread to older spent fuel. The long-term land-contamination consequences of such an event could be significantly worse than those from Chernobyl.
http://science.time.com/2011/03/15/a-new-threat-in-japan-radioactive-spent-fuel/
Today there are 103 active nuclear power reactors in the U.S. They generate 2,000 metric tons of spent nuclear waste per year and to date have accumulated 71,862 tons of spent fuel, according to industry data.[vi] Of that total, 54,696 tons are stored in cooling pools and only 17,166 tons in the relatively safer dry cask storage.
http://www.psr.org/environment-and-health/environmental-health-policy-institute/responses/the-growing-problem-of-spent-nuclear-fuel.html
The Harvard link is the best of the lot ….. it goes into great detail regarding what happens if a pond is sabotaged and the cooling system knocked out…
When BAU goes down the very complex cooling systems on these ponds are almost certainly not going to be maintained ….
And they need to be maintained for nearly a decade…. because they cannot be dry casked unless they sit in these facilities for that long
When the financial system collapses trade stops. Oil stops.
Growing food requires petroleum based fertilizers….
Therefore no food.
I will need to be convinced that we can continue to grow food if I am to come around to your position.
B9,
Although I admire your challenge to Paul and appreciate the effort to end the stalemate, how could events currently transpiring lead one to any other conclusion than slow collapse. Indeed, we have been slow-collapsing since 1973 when conventional oil production in the US peaked.. Those of us on this site long enough have been arguing about collapse for such a long time that the word itself has lost its original meaning. If, by “collapse,” you mean Paul’s apocalyptic lights-out, grid down, food riots, murder and mayhem version, I just don’t see that coming to fruition in developed countries in a rapid enough fashion to be a collapse. Rather, it will be more likely be a Soylent Green slow motion death by a thousand cuts. My two cents (probably worth less than that due to the high zinc content in newly minted pennies).
“Rather, it will be more likely be a Soylent Green slow motion death by a thousand cuts.”
Been a slow collapse since 73 is right. I agree InAlaska, we are living the slow collapse. The only chance in my opinion for a fast collapse is if everybody gives up on slowly being chipped away at and elects someone likely to start a nuke war. But people tend to accept their reality much like we accept a sleeping dream’s reality as it changes. We know this now, even though it changes later to greater challenges. We get a nice return on our savings or CD’s, then later when they are gone we accept it and move on the best we can. Cable is 30 dollars a month, then later it’s 100.
We were on a PG&E program that reduces rates in the winter but was more in the summer. That was fine with us, but now they have taken that away claiming, “We are contacting you to let you know your current electric rate plan is scheduled to expire, with the goal of more closely aligning electricity prices with the true cost of providing service.” They’re doing this I think because we changed our heat pump system to a quad mini split and are now spending much less in the Summer. So our current plan of lower rates in winter and higher in the summer is no longer to their advantage. We spent a lot to reduce our summer costs only to be foiled by the utility. That’s life in the long drawn out suffering collapse.
Expanding on my earlier comments…. keep in mind …. death by a thousand cuts…. at some point results in —- death…..
Its like the frog in the pot of water that is slowly getting boiled. JHK calls it the Long Emergency.
Indeed – it’s been simmering for decades… it’s starting to boil…. and the frog is about to die
Fast Eddy and others.
Regarding fast collapse v slow collapse. “Indeed – it’s been simmering for decades… it’s starting to boil…. and the frog is about to die”
That’s the point. By the time the collapse actually occurs, things have degraded to the point that it doesn’t feel like collapse. If you aren’t standing very tall, then you don’t have far to fall. This is the gradualism of stair step decline. You never really ever get a resounding collapse. The power is ON…a few food riots, the power is OFF for a few hours,… more food riots, relief aid arrives from the central government. Oops, the power OFF for a day or two, or a week… food riots…resourceful people start growing their own others go hungry and end up at camps. Power OFF but now there is more local generating of electricity or individual generators. Gas is hard to come by but you can trade eggs for fuel…Oops a little starvation here during a bad winter, oh but not there where the climate has gotten milder. Oh crap! a Gasoline shortage, food riots, no power for a week. Yikes, the Plague breaks out and kills hundreds of millions of people world wide, but mostly in Africa, Asia and South America. Elsewhere it is contained and quarantined. Social unrest. Power comes back on for 4 months straight. Food on the shelves again for the masses only its mostly bags of wheat and rice. Quarantine relaxed. There is a period of general prosperity due to loss of population. Jobs are to be had in agriculture and local mineral and oil extraction. DAMN the Plague comes back and kills 3 billion. Economy partially collapses, but by then people are making do with home grown food, lots of chickens, lots of people are dead and buried in backyard gardens providing good soil, summers are much warmer and a longer growing season helps. For now we are told the Power will be on for Sundays and holidays such as Trump Day and Superbowls (now played on the radio for all to enjoy). A generation goes by. Nobody really remembers the electric grid being reliable. Occasional news comes out over the radio that a few nuclear power plants have gone critical but the radiation is localized. Another decade passes. You can trade a good horse for a year at the local college where they teach agronomics and astronomy. Power is off for good. Population is about 2 billion and mostly in the Western Hemisphere. Collapse? What collapse!.
What you suggest is impossible.
What you suggest is kinda like stagnation — or perhaps recession.
There can be no BAU lite.
We grow – or we die. Nothing else.
Consider past recessions — jobs are shed — uncertainty is pervasive — there is real fear.
Recessions do not typically last very long — because they cannot last very long — because they eventually turn into death spirals — layoffs = less spending = more layoffs etc.. the financial system collapses. (this has been discussed here before)
So governments ALWAYS step in with stimulus – they take on debt and launch job creation programmes — they reduce rates — they sometimes go to war….
Grow or die… they know that
Look at BHP and BP and a whole slew of other companies that are starting to lay off people…
If demand for their products continues to drop they will lay off more people…. which means less demand ….
This will not magically stop…. these companies will fight for their lives — they will slash and burn — but that will only hasten their demise…
At some point they will collapse — they will be vapourized… and millions upon millions will lose their jobs…
And they will buy nothing …
Remember Lehman? One company just about took down the world. We are now talking thousands of Lehmans…
Not only will they go bankrupt — they will not repay the massive loans they owe — that will take down the financial system
What can the central banks do this time around?
Drop interest rates? They are already at 0.
Print trillions and bail the system out by building ghost cities in China? Been there done that …
There absolutely be no slow collapse. Slow collapse is impossible.
When BAU fails to grow — which what appears to be happening now — it implodes
InAlaska, very enlightening!
FE,
I guess we’ll simply have to disagree on this point.
Your fast
I’m slow
but we’ll never know
until we go.
🙂
Going by the dictionary definition of collapse that you provided, slow collapse would be an oxymoron.
A system can’t collapse “slowly”.
It either collapses or it doesn’t.
A better word for what we are experiencing may be “demise”, but I suspect it just doesn’t have the same marketing potential as collapse…
The Economic… Demise. Hmm… somewhat lacking in the fear rankings.
Collapse should definitely be reserved for events such as controlled demolitions and other events that maintain those characteristics. A building that gradually deteriorates over time until the squatters have to finally move out before the roof caves in does not fit the bill.
That said, the final caving in of the roof after many years could be classified as a collapse – as FE indicates.
Anyone actually paying attention to the condition of the building would make the prediction that the roof will eventually collapse under its own weight. But there would be no certainty as to when. You would probably assume that there would be a continuing “demise” in the state of the building until the final moment that collapse occurs.
Any “miraculous” attempts to prop up the roof at the last minute to prevent collapse would likely be deemed a waste of time and resources – in the case of a single building. When talking of the global economy, or even a national one, I’m not sure if the analogy fits. Maybe there are ways to prop up a diminishing economy to stave off the final collapse moment, but maybe those methods have already been used up…
No deal.
My version of collapse means the electricity goes off and the food stops arriving at the grocery stores.
I’m going to nitpick.
I take it that you are not claiming that at a given time in the future all the lights on the planet will be extinguished simultaneously.
I’m assuming that you imagine a scenario when the lights go out in one locality because the local utility company can no longer operate and begins a process of triage e.g. cutting service to rural communities as it prepares for bankruptcy.
Let’s say that this process continues over time until the last utilty company in the world hits the off switch, how long do you realistically think this process will take?
And I would repeat the same question for other services such as telecoms and internet and banking while fully accepting that any one of these is indeed not much use without the other.
In other words, once the first domino gets tipped, how long until the final one falls in your opinion?
Probably the first sign is unrestrained blame. Politicians, religious leaders or farmer blaming a neighbour for using too much water. There will be plenty of blame to go around with nobody, group, sect, race, country or status being safe. You could have a job or no job, own a business, be a boss, own a car, house, be fat, Asian, Caucasian, Black or a stranger. If it or you are perceived to be a cause of someone’s else’s deprivation you are it. It might be a shop assistant that has run out of cigarettes. You will find yourself doing the blaming and you will always assume your righteousness to be true.
Collapse is not an explosion and dominoes falling, do not create the proper visualisation. The extremities go first, those at the end of the supply lines, where law and order is too costly to maintain. Where maintenance is too costly. The rot will work its way to the core like an apple. It can be a relatively slow process, like what happened to Rome or quite fast like Libya, Yemen, Syria, Easter Island, Somalia, Anasazi or Maya.
Collapse could mean different things to different people. Out of work permanently, The failure of life saving drugs to arrive, continual brown outs and blackouts, the failure of rubbish collection, the rise of lawlessness, McDonalds closing, no cigarettes or liquor, schools closing, roads closing, communication failures….
As employment increases I should expect people will begin to move, they will move towards the centre where there is the perception of employment and a better life but of course, shanty towns and increasing population only add to speed of the collapse.
I should imagine scapegoat hunting will be a major pastime, it could be political, religious, racial, sectarian, patriotic or just plain meanness. Fast, slow or medium take your pick, when your time comes, most likely you will see it as being fast, no matter the actual reality.
Bandits, thanks for your insights.
I’m still not sure about positioning for such scenarios. Many in the prepper community swear blind that they’re better off in the deep countryside where resilience trumps dependency.
I’m not so sure that the emerging landscape is so clear cut. Cities may be the place to be for some time yet, until disorder becomes unmanageable by the authorities.
It’s possible that the rot could spread from the inside, from the core, like an infected apple until the whole thing is inedible… riots and looting, rationing, curfews, martial law making the cities unbearable. Some will wish to leave. Others will do anything to stay. It all depends on personal circumstances I guess.
The thing that doomsday preppers do not realize….. is that when collapse hits …. it is not as if things are going to magically improve over time …. months… a few years…
They seem to think that if you can just hold out long enough there will be some sort of reset…
Unfortunately that is not going to happen — we will never return to anything even remotely resembling the 21st century — nor the 15th century…
The low hanging fruit is all gone —so there is no way to reset things… even to a basic level.
You won’t be able to buy a toothbrush — or a proper steel shovel —- ever again.
We will most definitely cut down all the accessible forests trying to recreate BAU…..
Obviously when that happens it removes the last source of concentrated energy on the planet …
And then what?
What will happen is the financial system will collapse — and trade will stop – forever.
The fuels that are used to generate electricity will not be delivered.
The millions of various spare parts needed to maintain the grid and the generating plants will not be delivered
The lights won’t go off all at once — but within a short period of time — likely a few weeks — the power will be off – everywhere.
Our system is very complex — and therefore very fragile.
We marvel at the incredible infrastructure that powers our immense cities and think it would take a lot to knock that out …. but not really …
If a single part among the millions of parts involved busts (and they do bust – constant maintenance is required to keep the electricity flowing….) — and there is no replacement available (there will not be) — then that entire magnificent machine dies….
All because one single simple little part — broke.
Fast Eddy is right, think about the 2008 financial crisis, suddenly it was everywhere. Hank Paulson was sweating to prevent “apocalypse”. We are headed in that “suddenly everywhere” territory again, but this time its not a financial crisis, it will be collapse.
To look at a construction worker building a house, gives an impression that, no problem, what ever happens that guy will be building that house tomorrow, and the day after that. But we who have a financial background see the money transactions involved, credit, debt, banking. Domestic and international financial markets at work. The JIT economy that provided the tools, petrol for the transports and raw materials, the complex interconnected web, that we all recognize as our industrial civilization today.
I´m looking forward to Gails next post, hoping she could formulate, put in words, what we who have a financial background know to be true.
Well I haven’t mentioned how fast a collapse will evolve, if you disagree then you have to quantify the duration of the collapse, when it will begin and what it will look like.
I have always envisioned the collapse as an elastic band snapping but I’ve been envisioning that since 2008. I’m wise enough to know that I don’t know everything or much at all for that matter. The more enlightened I am on the subject the more I understand that surprises to my understanding are just a day away.
Thanks for painting that picture. It’s a dark one, but I think you’re depicting objective reality as much as is possible without being able to know all the variables.
I was going to take issue with the system complexity argument but quickly realised it was a dead end. Our own bodies are incredibly complex systems and are able to withstand all manner of abuse. But take away water or food or oxygen and these incredibly complex systems collapse very rapidly.
On a community level, we prop up those that are not able to support themselves. This is only possible because the inputs continue to be fed into the system as a whole. When people argue that complex systems will automatically right themselves they are forgetting to include the fundamental inputs in that equation as well as the strains and stresses on the system that lead to critical tipping points.
As an example, what good is the development of autonomic computing… if there’s no power?
From wkipedia…
“Autonomic computing refers to the self-managing characteristics of distributed computing resources, adapting to unpredictable changes while hiding intrinsic complexity to operators and users.”
Tradeoff is the essential document to read on this subject…
http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/
the price of oil is as controlled as everything else in our lives! look up Lindsey Williams, “The Non-Energy Crisis.”
Lindsey Williams is long on talk and short on data, he has nothing but vague claims and accusations. I found his blather extremely unconvincing.
“the price of oil is as controlled as everything else in our lives!”
Another illusion argument that our species is in control. Finite resource denier, or perhaps beginner not understanding that the price in $ is arbitrary but the price in energy to extract is not.
This is a pre-1980 book that is now out of print. The most helpful customer review on Amazon is titled, “There is as much oil in Alaska as in Saudi Arabia.”
Sounds pretty strange. Probably written back when we were in the process of ramping up oil production in Alaska, Mexico and the North Sea to offset the US 48 states drop in oil production.
I’m pretty sure there is not that much oil in Alaska. There might be a super field off shore and north toward the Pole but we won’t be able to tap that until we have a completely ice-free Arctic Ocean. Coming sooner than later perhaps.
Pingback: With apples so cheap… | More Crows than Eagles
Pingback: How will falling Oil Prices impact the Economy? - Emerging EventsEmerging Events
Pingback: Why oil under $30 per barrel is a major problem | Jeff Pelline's Sierra Foothills Report
Very convincing, thanks!
It seems to me that a future economy should bring energetic costs more into consideration. E.g. furniture from a global supplier neednt be set up in China to be shipped to the US, it would be reasonable to produce for the US market within the region using the same design. Why should we transport electric energy from a solar power plant in Morocco to Germany to produce aluminium and not produce where the sun is strong? Why not use wind energy where the wind blows and oil where it does not? It seems to me that there were a lot of ideas to cut back the dependency. We should stop to see the philosopher’s stone in the black gold. Perhaps the growing volatility helps to find more stable solutions.
“Why should we transport electric energy from a solar power plant in Morocco to Germany to produce aluminium and not produce where the sun is strong?”
Why ship the aluminum to Morocco if it is going to be used in Germany? Seems to me electricity is lighter than ore.
Solar PV is so expensive that you can’t possibly run an economy on it. You can’t even keep roads repaired, pipelines repaired, and vehicles repaired with it. You can’t possibly manufacture new goods with it, whether the sun is strong or not.
Solar PV is mostly a temporary tool for off grid homeowners who happen to own them, and have figured out ways that they can do a few things with them, like run a water pump (until the pump breaks). It doesn’t keep the electric grid going any longer than it would be otherwise. It provides very few solutions.
“Solar PV is so expensive that you can’t possibly run an economy on it. You can’t even keep roads repaired, pipelines repaired, and vehicles repaired with it. You can’t possibly manufacture new goods with it, whether the sun is strong or not.”
This sounds reasonable to me at least. Do you know if there is any serious research supporting this view that civilization impossibly can run on PV cells? The general view among the ordinary people you meet on the streets is that PV is the future.
Gail, not saying you’re wrong or anything, because everything breaks eventually, but how many water pumps have you ever had break? I’ve owned 3 houses in 30 years and been living in houses for 50 years and I can honestly say not a one has broken. The sit at the bottom of your well for 30-40 years quietly doing the job. Not sure its really relateable back to solar PV or not. BTW, I’ve had one of those going for 25 years too and its still going strong. I just wonder if that “spare parts” argument is a bit overdone?
I had two Grundig water pumps go in Bali…. within a couple of years of purchasing them…
I’ve got a $15,000+ piece of shit state of the art solar rig sitting idle in the creek waiting for the Maytag man …. that ran for less than a month before stopping…
5KW of PV on the roof working fine for 12 years. Of course it took the installing company about 8 years and four visits to fix the leaks they put in the roof. Never mount PV on the roof. Also it makes sweeping snow off impossible unless you are willing to climb on an icy roof to do it.
I looked at a reference online:
It depends – on pump type, duty cycle, usage, water chemistry, even voltage levels.
Another site says:
So I would not assume a water pump can last indefinitely.
We have a sump pump in our house. I know we had ours replaced about ten years after we put it in.
My well pump is on year 27 without any issues.
Pingback: Effetto risorse and collaterals 3 | Pearltrees
Pingback: Why oil under $30 per barrel is a major problem – Enjeux énergies et environnement
Pingback: Wednesday Morning Links | timiacono.com
@Gail – Thanks Again – we see the world differently, though. I would have focussed more on the effects of low interest rates providing continuing support for oil storage and uneconomic oil production. I’d also look toward the limits on ME oil production as I expect shocks from there in 5-10 years time, and this is driving instability in the region.
Following up an earlier link to China’s strategic oil storage:
http://www.reuters.com/article/us-oil-prices-storage-idUSKCN0UX2BL
“The International Energy Agency said on Tuesday some 230 million barrels of new storage will be completed over the coming year – nearly half of it in strategic reserve sites in China. A senior trading source identified 40 million barrels-worth of new commercial storage in China alone set to become operational over the coming year. Most is in Shandong province, a hub for so-called teapot refineries, many of which will be allowed to import oil for the first time this year. There is also at least 100 million barrels of space left in U.S. tanks, alongside existing capacity in Asia and Europe, the IEA said. The space still left in Europe tends to be in harder-to-reach sites away from the Amsterdam-Rotterdam-Antwerp (ARA) hub, facilities further inland or those such as salt caverns, which are rock-cut caverns in Scandinavia that draw little attention during normal times. [ID:nL5N11T4KR]”
“While analysts say storage capacity has kept prices from bottoming, it is also preventing the contango, or the gap between current and future prices, from deepening to the point that traders pile oil into more difficult-to-reach locations, or more expensive “floating” storage on crude oil tankers.”
“At the moment, you do it by necessity because you have no home for your oil rather than as a trading position,” the trader said, adding that “people won’t do it willingly” until contango deepens and freight costs ease.
We will have to wait and see how the storage space works out. Of course, putting all that oil in storage has the downside that oil prices will remain low longer, putting more oil companies out of business and making it harder to ever hit a high enough price level, for long enough, to get production moving again.
Well we knew this moment would eventually arrive once the taps to QE, ZIRP were reversed. Question is, how low can the price go, sub $10p/b? Let’s do the samba people as we’ve reached “Peak Civilization” the end of growth as we always knew it.
Low prices indicate civilization is collapsing and I find it rather amusing the Fed is caught in the mother of traps, Obama is unable to disarm the population, Trump is advancing, Russia and China have finally stood up to US hegemon, Europe has virtually collapsed or in process of, China is prob at 3% growth and slowing rather than their stated 7% which is pure BS.
Politicians are despised the world over as trust evaporates and Islamic State, extremism in general is on the rise. Plus we’ve reached the END OF THE ARAB OIL ERA which means no more funding muslim extremism as the Sunnis, Shia turn on each other. Note Al Jazeera pulled out of the US recently and the Saudis are IPOing out of desperation as they square up to Iran.
The era of innovation, creativity and brain power dawns as we watch civilization slowly disintegrate. Should make Israel more valuable given they’re #1 for R&D and innovation on important fronts.
Peak debt, peak civilization….
High probability of WW3 and AI advancements as the scientists are now warning. Everyone from Gates, Musk to Stephen Hawking.
Also predict Obama will never make it to the end of this term before some massive cataclysm ensues that really forces him to play his hand, or not.
2015-2020 the crash was predicted, many times over.
You are right–something big could happen before the end of Obama’s term.
Happy talk at Davos
A collapse could be the black swan that glides Trump into the White House.
http://www.telegraph.co.uk/finance/financetopics/davos/12108569/World-faces-wave-of-epic-debt-defaults-fears-central-bank-veteran.html
“A collapse could be the black swan that glides Trump into the White House”
Seeing as fossil fuel use is a ‘must’ if we are to stand any chance of maintaining society approximately as it is and that their use is the complete opposite of what we need if we are going to fight society destroying climate change, it seems to be the time for the human species to grow up and face the awful fact that we simply cannot continue as we are.
One solution, perhaps, is to let Trump win the White House. We were lucky to get through the last Cold War without a nuclear conflict; I cannot see us being so lucky next time if he is anywhere near the nuclear ‘button’. It will be messy, but mercifully short and at the end of it the population bomb will simply be a piece of spent ordinance. I cannot see that feeding what remains of our species being much of a problem in the aftermath.
Perhaps ‘Cometh the hour, cometh the man’ has never been more apt.
Seriously? Doom and gloom about a man that pisses off people like you but based on his business acumen is less likely to push buttons than someone that believes it might be better than the alternative (you for example). Maybe you should take the day off and sweat off the anxiety with a work out or time with the kids.
Actually that would be Doom And Boom. Get your head on straight man!
Hillary will launch.
Trump will launch,
Putin will ;launch.
Uh the mercifully short is somewhat uninformed unless your at ground zero. Having your skin fried off or radiation sickness does not fall into the mercifully short category in my book. I would actually prefer a longer but devoid of excruciating pain death but thats just me.
In not even sure what the targets will be, Neither Russia Or the USA is going to destroy the others nuclear capability. So do you spend your nukes trying to maybe take out another nuke or hit population centers just for the hell of it.
The unknown is new technology. The bomb may prove to me hopelessly outdated. Look how far other technologies have come. What everyone has is unknown. If one side has figured out how to have the others stuff drop out of the sky it could be a rather one sided exchange. Or both sides have the stuff drop out of the sky using different technologies. Then what? What if transport to have a conventional war is no longer possible?
My wife was saying she thinks Sanders will win over Hillary, then it will be a Trump vs. Sanders presidential election, because the same factors driving repub voters to Trump are driving Dem voters to Sanders. Those factors being an extremely strong desire to change the way things are being done in DC, to shake things up permanently. Most of those voters probably do not understand peak oil factors affecting the economy and think they are just the right person away from fixing the situation. No matter who they vote for s will h the f.
“My wife was saying she thinks Sanders will win over Hillary”
Well every poll shows she is incorrect so what does she base this on? If she is like some of my other women friends whom I love dearly she is basing it on the belief of a fair and just universe. NOT. Actually the physical laws of the universe are fair and just. Humans will not like justice,
kjuf,
On many fronts you appear to be the most uninformed person on this site.
1.) all this blather about nuclear war targets, and choosing which sites to hit and nukes taking out nukes and new technology….the US has hundreds of silent and anonymous nuclear armed submarines quietly lurking on the bottom of every ocean on the planet. The deterrent of MAD (mutual assured destruction) was the safety net that ironically kept the world safe through 50 years of Cold War and is still a coherent strategy that both sides maintain to this day.
2, Every poll shows she is incorrect…” Wrong again: Bernie Sanders is now ahead of Hillary Clinton in both Iowa and New Hampshire.
3. “The physical laws of the universe are fair and just.” What? The physical laws of the universe simply “are’ neither just nor fair.
Your wife might be right.
It would be fun to have two home town boys running for the WH. Bernie and Donald are both native New York City boys.
When collapse hits.. The Donald gets to eat boiled rat meat along with everyone else… 🙂
I saw that article. Sort of worrying, but White does have a point. I agree that it could lead to Trump for president.
Trump in the White House, eh? We get who we deserve, no? Or more correctly, we get who we vote for! Nevertheless, I think we are safe from Trump or, really, any Republican president for the foreseeable future. US demographics simply don’t add up for conservative electoral victories. Blacks, women, hispanics are voter blocks that have run wholesale away from Republicans. They only place they can achieve voter turnout is in massively gerrymandered congressional districts.
Not to worry — it is highly unlikely we make to the next US election
pffffahahaha! nothing like a little levity ala FE!
Paul,
“Not to worry — it is highly unlikely we make to the next US election”
Next year can I quote you on that?
I would be most pleased if you would… because that would mean that BAU is still with us…
I’d be so very happy if my 2016 prediction for collapse happens — my dreams would come true
I didn’t read your post yet, but I see you didn’t answer me on my comment on your last one: http://ourfiniteworld.com/2016/01/07/2016-oil-limits-and-the-end-of-the-debt-supercycle/comment-page-3/#comment-78088
“You seem to understand human behavioral biology well. I think you should have a lot to talk with Terje Bongard about. I just learned that he will now translate his book “The biological Human Being – individuals and societies in light of evolution” himself, as he failed in finding an English publisher.
Please don’t forget to invite Terje Bongard to the “Finite World – Conference” in Beijing of 2016. Here’s his contact info: http://www.nina.no/Kontakt/Ansatte/Ansattinformasjon/AnsattID/16117
Telefon: +47 – 986 44 786
E-post: terje.bongard@nina.no
”
I very much hope you can invite Bongard to become one of the 20 foreign delegates!
Kind regards,
Øyvind Holmstad,
Norway
I am sorry I didn’t get a chance to respond to all of the comments on the last post.
There won’t be an International Finite World Conference in China this year. In fact, I am not planning to go over there to teach this year, either. The world situation is too unsettled.
Terge Bongard’s book sounds interesting.
I agree – I don’t think it’s is a great time to be on the road…
It’s a good time to be stocking up on snacks and drinks for the end of the world party.
Thanks! Then Bongard can work in peace and quiet to translate his book into English. Please let me know if there will be a conference another year.
Kind regards,
Øyvind Holmstad
http://ourfiniteworld.com/2016/01/07/2016-oil-limits-and-the-end-of-the-debt-supercycle/comment-page-7/#comment-78266
Van Kent,
thanks for the above previously relinked response of yours incl. links about “common reed” harvesting practice in Finland. I’ve found the magic search keywords are “Doroklippen/Dorocutters/Truxor/Edivert” as these cutter vendors show more details of the jobs at hand.
You said your are using dry method of digesting for your I assuming commercial grade biogas plant, whereas the wet method is more applicable for diy-small-midsized farmer operation, there is another disadvantage you can’t feed it all in one step in the wet method biogas system, it must be continuous slow feeding process, another disadvantage or possible fail for the smaller scale operation.
Now looking at these .pdfs and videos, the effort to harvest the (green) reed (winter brown harvest is for burning only) is hardly energy positive, when including the cost of investment and operation. The boat/barge cutters need two engines (cutter and propeller – could be perhaps batteries or nat/biogas powered), then it had to be collected by nets and bit by bit hauled out of water (heavy stuff), then transported from river banks to the biogas plant and perhaps even further precut there before dropping into digestor. The .pdf talks about hectars needed to harvest enough energy for heating one family sized home throughout the year. I guess in regions with wast wetlands, you have to do what you have around, but was surprised how tough job is this reed operation.
some thematic videos:
https://www.youtube.com/watch?v=9siPSiiGFEE
It’s interesting you opted according to .pdf perhaps for the biggest bank for the buck, by using small boats with addon tiny 1-2m cutters plus corralled netting techniques for bringing reed to the shore (and liekely a winch to drag it out from the ramp-shore?), this workflow can’t be much improved upon, perhaps with the exception going for more efficient catamaran setup. The hauling/winching/transportation of the reed could be eventually replaced by draft animal power, but that hydraulic powered non corrosive cutter blade addon, that’s clearly a one time wonder for collapse times.. I’ve seen some archive bw pics of reed harvest manually cutting, but that’s a drudgery, you better spend the energy on fishing or something else..
Obviously there are integrated big “aquatic harvester machines” for this purpose, one brand Rsplanering made in Finland seems world’s best, but that’s an overkill for smaller regions, and there are various sizes less efficient machines globally available as well..
https://www.youtube.com/channel/UCnqPwOKzNCcKGbhsmZbWd3A
Hanuman, RS is a small business, they´ll make anything if a buyer comes along.
I looked around and it seems the most refined/best efficiency aquatic harvesting machine out there compared to other non European brands. The common reed species is quite invasive, so perhaps not good idea at all to introduce it where it’s currently not present already, I might have access to some so that was inspiring..
Anyway, in terms of dry fermentation biogas, there are no small scale-affiordable/diy installations so far (well in my no budget lolz), not counting few failed items (its complicated because of the pressurized container/doors and sprinklers), on credit and with EU-wide “renewable” subsidy it’s certainly fine to purchase the commercial grade ones, it’s big business apparently, thousands installed already.. On the other hand the wet digester method is cheap and easy, replicated globally and scalable, but not “batch process suitable”. Also the genset/chp systems are expensive and maintenance is crazy, biogas without subsidy is great for sanitation, cooking and various low hour gas engines duties, but not for electricity 24/365 generation, that’s just the very temporary result of cheap money. There is a good intro into digesters here, interestingly enough they tangentially knocked into FE issues as well, dry fermentation mentioned around 38min:
Hanuman, its usually a big digger on a barge, that is currently provided for us, because of the historically valuable landscape that we must maintain. With the big scoop comes fish, waterbirds manure etc. etc. which is a good thing for the compost.
Pingback: Why oil under $30 per barrel is a major problem...
I actually think after this recent plunge, the price of oil in dollar terms could easily go to 100 to 200 dollars. Beyond that it’s difficult to see, obviously the price of everything needed in this world cannot go to zero nor to infinity.
But that’s not the main point, people! Stop thinking about everything in dollar terms. The dollar is just a currency. Yes, it happens to be the currency of the dominant empire, but it’s still a currency nonetheless. Dollars are not really an accurate measure of anything.
Currencies come and go all the time. Concentrate on the big geopolitical picture and how this is going to play out region by region.
So we stop “thinking of anything in dollar terms” right now. What do we think of everything in now?
Gold, yuan, euros. Take your pick. Or ignore the currency fluctuations altogether and simply think of how the physical economy will evolve.
lol you are crazy
Is he?
How is the value of gold, yuan or euros measured. How will the “physical” economy evolve?
I will trade my house for your boat….
gold works, the yuan and the euro? never put my money there in a million years.
The dollars is “just currency” – except it has to come from somewhere. Either someone has to earn it, or someone has to sell some other securities, or more debt has to be issued.
The point is, this problem exists independent of whatever currency is being used. It is really a physics problem. I can attempt to write about that another time. Printing more money doesn’t make the physics problem go away.
Your comment indicates to me that you don’t understand what is going on.
genius george carlin: “we’re going away”
[youtube https://www.youtube.com/watch?v=7W33HRc1A6c&w=420&h=315%5D
“Viewed separately, US oil production has risen very rapidly. Total production rose by about six million barrels per day between 2008 and 2015.”
Rather ironic isn’t it that after increasing oil production about 6 mbd, many in the US just expected the Saudi’s to ease back on their production and even went so far as to claim OPEC was a dead cartel. Some may say, “But we are using all of that added 6 mbd”, however it reduces the amount we are importing, so there’s 6 mbd more oil on world markets. No wonder there is a glut.
It’s an oil market share war on a scale never before seen, and why? Because fracking was juiced by trillions of dollars of QE. And the statement that the US stopped QE isn’t completely correct. They are reissuing much of that QE when the bonds expire, instead of putting them to bed. So it’s now a rollover QE program. Nobody talks about it, presuming it’s now a dead program, but it’s not. I don’t know for sure, but this may be contributing to the continuance of the risky business of fracking.
Now Iran plans to add .5 mbd and later another .5 mbd, while Iraq continues to increase production. Then there’s the Saudi’s new offshore rigs, Manifa which has added another 700k a day. This is sizing up to be a really big mess.
I agree with you. Demand was rising way too slowly at the high prices to absorb all of the oil, so there is a war over market share. Adding Iran makes it worse. Back in the late 1960s, world oil consumption was increasing by 7% or 8% a year (but oil was at less than $20 per barrel in today’s prices). Absorbing high-priced oil is a whole lot different from absorbing low-priced oil.
This is a link to a post about QE rolling over.
One point is that it is not possible to get rid of all of the securities on the Fed Balance sheet without greatly raising interest rates–it can’t be done.
Reblogged this on Stephen Hinton Consulting and commented:
Important analysis in this article of why oil prices are out of step with the economy they are part of driving.
Thanks!
The big reveal: Gail, you’re a Democrat!
“There are several ways to improve demand for commodities, and thus raise prices again. These include (a) increasing wages of non-elite workers (b) increasing the proportion of the population with jobs, and (c) increasing the amount of debt. None of these are moving in the “right” direction.”
Please don’t drag politics into this … because that is totally irrelevant.
In order for the price of oil and other commodities to rise demand MUST increase.
Very obviously that will NOT happen unless people have more money to buy stuff.
That means creating jobs that pay solid salaries.
That is not happening – it is not going to happen – it does not matter which party is in power in the US.
http://insidefinance.org/wp-content/uploads/2014/05/Civilian-Labor-Force-Participation-FRED.png
I don’t see how you get “democrat” out of Gail’s proposed solution. That is straight up socialism.
!
Or capitalists need customers and workers and it is in their self interest to have both.
Well GAWD all this time who would of guessed. Im not listening to Her ANY MORE. Thank you so much for your BIG REVEAL.
If a person wants to raise oil prices, the list I give will do it.
So we seem to need Democratic policies to raise oil prices.
To lower oil prices, in theory we need to implement “Drill Baby Drill.” This would imply Republican policies.
Right now, we need the policies of Democrats–perhaps Bernie Sanders on steroids, implementing his policies with only debt.
Long term, of course neither polices of Democrats or Republicans works.
A false flag terrorist attack a Saudi oil field would boost prices…
But what good would that do — would it not just drive another nail into the consumer who is unable to afford enough ‘stuff’ to keep the hamster running even with oil at under $30…
The local dollar’s slide is igniting concerns that capital outflows are accelerating as funds are selling equities en masse,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “Overall sentiment is very bad in Hong Kong.”
http://www.bloomberg.com/news/articles/2016-01-20/china-stocks-fall-as-commodity-shares-slump-on-economic-concerns
The so-called H-shares gauge has slumped 16 percent this year, joining China’s Shanghai Composite Index as the world’s worst-performing major global benchmark measure out of the 93 tracked by Bloomberg
PetroChina Co. plunged to a seven-year low as oil extended its decline and Cnooc Ltd., China’s largest offshore oil company, said it will cut output for the first time in more than a decade. Hong Kong’s dollar traded near its weakest level since 2007 as concern about China’s slowing economy curbs demand for the city’s assets. The Shanghai Compsite Index fell 0.8 percent
Defaults on loans to oil companies should also act as a brake on the system. We know that during the Great Recession, regulators allowed commercial real estate loans to be extended, even when property valuations fell, thus keeping the problem hidden. There is a temptation for regulators to allow similar leniency regarding oil company loans. If this happens, the “braking effect” on the system is reduced, allowing the default problem to grow until it becomes very large and can no longer be hidden.
happening now: http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale
FE, I think you’re right. There are a few rabbits yet to pull out of the hat and among them will be extensions on loans, major hedges on defaults, price supports and subsidies for those companies who are systemically important. Financial chicanery. This will go on as long as necessary or possible in order to support BAU.
I added a link to the article to the post. I had seen discussion about the issue on Facebook, but I am not sure I had seen the article.
Thanks for the new post!
Reblogged this on River of Compassion.
Thanks!
It is very clear. If lower prices lead to lower production levels, then the “glut” of stored oil will be consumed and when that is done then higher prices will loom over the horizon which in turn will provide the incentive for investing in the sector which will increase production to the point that supply exceeds demand and… The cycle repeats itself.
There is nothing new and no mistery to it. We saw oil at 10 in 1998 and the world did not end.
This is the time to bet that oil prices will rise…
Jorge, yes, I think you are correct. The end game is not yet here. We are still only a little way down the “undulating plateau” of peak cheap oil. A good bet would be to buy oil stocks in the low 20s and wait for the rebound. You will make a handsome sum of money to set up your doomstead for the big one when it really happens. But that is still some years down the line.
Just because the stock market will be propped up to the bitter end… does not mean collapse gets pushed out…
Corporate profits are falling — the entire commodity complex is effectively bankrupt — they are hanging from a cliff by their fingernails…
It is not possible to bail them out one by one — the only way to bail them out would be a massive macro policy similar to QE ZIRP… i.e. the same thing that was used to bail out the entire world in 2008….
Because a massive macro policy like that floats all boats….
QE and ZIRP have run their course — they are no longer floating boats …
Unless the central banks can conjure up something new and improved…. this ship goes down before the end of the year….
There are only 2 choices:
1) debt jubilee (i.e. helicopter money if you like)
2) war
A debt jubilee has a couple of good chances……none and buckley’s. So that leaves your second prediction.
A debt jubilee is an extremely likely scenario. Like a neutron bomb it wipes out the debts and leaves the buildings standing, such as the banks. Do you understand what a debt jubilee can do? It doesn’t seem so.
What a debt jubilee can do is make it impossible for employers to pay their employees, because the employers bank account has been wiped out. It can make it impossible for companies to be able to buy necessary products in order to continue to operate their companies. This it is likely to greatly reduce employment.
A debt jubilee will also wipe out insurance companies and banks. People who think that the have investments in bonds will find that the principle as well as the interest is gone. Pretty much all of the companies that become unable to pay employees and and suppliers will quickly discover that the price of their stock is headed for zero. Thus, pretty much all stock market investments will be wiped out. No company will be able to raise new capital in the stock market.
In theory, bank accounts under government insurance limits and pension amounts covered by government insurance programs will be covered. In practice, these insurance programs have practically no money in them. As soon as defaults become very large, it will become necessary to take money out of the accounts of individual bank depositors and those with pension programs that seem to have insurance. In fact, I understand that pensions that are having shortfalls in funding are already running into some of this kind of treatment.
So in practice, wiping out debt will bring down the economy, just not so immediately as closing all the banks on a given day.
It doesn’t have to blanket the whole economy. It in my scenario just wipes out the fiat created debts.
Since the banks got these for “free” the wiping out of them would not affect the actual bank assets like depositors money, since loans do not use bank capital [since the demise of fractional reserve lending in today’s banking industry] but are pure credit creation. The banks would lose revenue from interest on these loans. The customers with mortgages would then own their property unencumbered. The banks would survive. The Jubilee would wipe out the shadow, off balance sheet, derivatives market. This financial economy would become far less important than the real economy.
Your scenario is non-sense. The debts that are defaulting will create great havoc, eventually bringing down the system. There is no way of segregating debt into “good and bad.” They are all two sided loans–good for those who receive the proceeds, but bad for those who have to pay them.
Maybe — but all roads ultimately lead to The Road.
Debt jubilee doesn’t work well. What happens to pension companies, insurance companies, and banks.
Fast Eddy,
“Just because the stock market will be propped up to the bitter end… does not mean collapse gets pushed out…”
You may be right. I guess we’ll see soon enough. If we’re talking about this here online next year, you’ll have some ‘splainin” to do.
If we are still hear in 2017 having the same discussion — I will be just fine with that…. 🙂
Just arrived back on the farm….
It is a win win. If the system fails we are right. If the system continues we get clean water, hot showers, warm food, comfy clothing, etc…
We can cross our fingers that it stays somewhat afloat a little longer.
You could be quite wrong on this. The downslope is going to be quite quick. The people who talk about the 50% of the oil being extracted post-peak are pretty close to 100% wrong in my opinion. Hubbert was talking about a very special situation–one where another very cheap fuel takes over very early, so there is no gap in energy availability. That is not the situation we have now.
The difference in 1998 was that oil could still be produced at $30 or $40, and we had a long ways to go in terms of reducing interest rates and ramping up debt. Both of these techniques tend to compensate for oil price being too high for the consumer.
We have hidden, or worked around, the problem of high oil prices since about 1973-1974. We have tried different things–for example, caps on cost increases in the 1970s. Then we went to more debt, and decreased interest rates, since 1981. In 2008, we added Quantitative Easing, to get interest rates down even lower, and allow debt to rise even higher. We have run out of tools to fight the problem.
Gail,
I agree the debt jubilee scenerio is an unlikely and bad choice, but ultimately infinity debt has to reach a breaking point and reset to 0.
The tried and true tool when faced with over capacity and populations (world wide) that are poor is war. Bigger the better.
Who here honestly believes the US is going to allow Iran to dump an extra 3 mb/d on the market? Who here believes Russia is not going to freeze western Europe with gas cutoffs until they agree to pay higher prices. The Russian ruble is collapsing as we speak. Europe can’t sustain the higher prices and who here believes the US will allow Russia to do that? There is talk of China trying to set petro prices and transactions in the yaun, who here thinks the US is going to allow the USD to lose its petro reserve status? Who here thinks the US is going to allow China to jeopardize its shipping lanes and waters that are international for oil exploration?
Who here thinks Syria is about anyone caring about Syria? It is about oil and money period and a convenient pathway to bigger war if necessary.
I’m betting on option 2 – War it will be. Works like a charm every time.
“The real competition between Russia and the West is the competition between the Russian/Chinese multipolar model and the Anglo-Zionist unipolar imperial model. When the characteristics of these two models are compared point by point, it is obvious that most countries are going to chose to align with the multipolar model. In other words, the stakes are high, because the West’s days are numbered.” http://www.paulcraigroberts.org/2016/01/20/a-grand-book-from-the-saker-paul-craig-roberts/
The only real question is, can the neocons start a nuclear war before they are jailed. Hope the sane faction wins in the Pentagons ongoing civil war..
It’s a battle against the Elders for control of the world…. I actually prefer rule by the Elders … it’s work out reasonably well for me…. the devil you know…..
It appears the marked fluctuations in oil supply versus demand has been fueled by our debt based monetary system. A monetary system consisting of sound money would have been more apt to keep the appropriate negative feedback loops in place such that less & less energy would be consumed from ever increasing energy prices as we pass peak cheap oil. Instead, debt has been the main driver of the perverse feedback loops which have led to instability throughout all markets around the world.
Simple math tells us we have gone past the point of no return in regards to the broken monetary system which has become disconnected from the real world. The only way things are going to get realigned is a complete reset of the current financial system and instituting a replacement.
“The only way things are going to get realigned is a complete reset of the current financial system and instituting a replacement.”
Might be just a few-teeny weenie- less humans associated with the realignment but I digress.
GOOOOOOOOOOOOOOOOO sound money.
See the movie ‘The Road’ — the new system will resemble that — only worse.
Even the surviving factions in The Walking Dead have things too easy. Gotta keep the series going for six seasons plus… in entertainment land.
The characters keep finding uncontaminated water, unlimited food supplies, ammo, fuel, bigger better guns, “cooler” clothes and hairdos, bigger better places to shack up, all the while surviving attacks from rival factions, the undead, and cannibals.
Ok, it’s not all rainbows and unicorns, but in the real world, the spoiled brats that live in our walled garden, secure compounds will not last longer than a few “episodes” without all mod cons… they’ll be begging for a way out.
It is easy to come to the conclusion you have come to–it is a bad monetary system that is at fault–if you don’t understand what is happening.
Adding cheap energy to the economy make it grow. The economy produces more goods and services, but always in the future, compared to when the oil or coal or other cheap energy is produced. It is necessary to actually increase the supply of money (or debt of longer term) to reflect this future value. This is done by using debt, and allowing its existence to add to the money supply. If we tried to tie the value of money to gold or silver, it wouldn’t work. We wouldn’t add enough value.
The thing that goes wrong is the fact that debt is added many places in the system, not just when energy is extracted. For example, debt is added when you buy a house or car, and when a business puts in place a factory, or a government wants to wage a war (or wants to pay its Medicare recipients before it has collected enough taxes). Except for the new factory, these don’t really add very much future value.
Back when energy products were very cheap, the addition of energy products added a lot of value to the economy. This value could cover a lot of things including interest payments and debt that didn’t really add value to the economy. Now that energy is expensive, and needs more debt itself, we find the amount of debt rising much faster than GDP. This happens because energy is expensive, and because development of energy products (such as a nuclear power plant, a deep water oil well, or a solar panel) requires resource use many years in advance of the time the energy is actually produced. Thus, the energy product itself needs a lot of debt. This is my view of what debt to GDP ratios are spiraling out of control–the situation is inevitable, if the cost of energy production is not very low. It also helps not to have huge time lags involved.
I see the oil problem as more of a drop in demand rather than an oil “glut”. Too many people have had their jobs replaced by machines, robots & foreign slave labor. Poor working people cannot support consumption growth, they are maxed out, they can’t afford the products produced in slave wage countries or robots who also cannot buy the products they produce. Just who is their intended “consumer” now?
If the oil extractors can’t get what they need to pay for their extraction & manufacturers can’t sell their products, they will have to cut back, laying off more workers cutting demand even further leading to even more layoffs, something that has been happening in the commodities market as well as in Chinese exports.
Shipping is way down & I suspect unemployment is much higher that what the government is claiming, they don’t count those who’s unemployment has run out, the homeless, those working several part time jobs to survive are considered “employed” even if they are still homeless.
If too many resource extractors go out of business, what will happen when demand finally exceeds supply?
If we are to have the minimal supply of OIL & natural gas we need, prices will have to rise again otherwise, we will collapse as OIL is essential to our economy & our very existence, without affordable OIL, most of use will perish in a very ugly, painful way.
I think those many people who believe that “green renewables” will save the day are in for a rude awakening!
Sheilach2
“If too many resource extractors go out of business, what will happen when demand finally exceeds supply?”
I wonder if that would really happen, though. In 2008, the President didn’t allow GM to go out of business. It didn’t let AGI go out of business. The thing is, if you’re big enough and important enough you get bailed out, subsidized and supported. I would add that the oil extractors are far more important than an automaker and an insurance company. Price controls will be instituted and public moneys will be funneled into keeping the big Oil boys afloat.
The U.S. is big but not big enough to stop the train. Is Russia going to honor the price controls? What about Iran? What about Saudi Arabia? These are oil exporting countries and they have to sell to the demand globally not just the U.S.
The math is on both sides of the ledger and it is global. There will be no catching this falling knife.
Sheilach
Good to see yah. Wher ya been? Building a bunker? All work and no play makes Jill a dull girl.
I think that to a significant extent, the oil glut has been caused by a drop in “demand.” This drop in “demand” is related to low wages for the reasons you talk about–automation and robots, and very low wages in many countries where manufacturing is done today. Back when oil prices were low, world oil consumption rose by as much as 7% of 8% in a single year. We are dealing with a situation where world oil consumption rose by less than 1% in 2014–a year when the world supposedly was not in recession. Lack of growth in oil consumption is definitely part of the problem.
“Demand” is what you can afford–what you can pay for. If we are all out of jobs, by definition, demand will go to zero. I don’t think economists have considered this problem.
I agree that prices have to rise again, otherwise we will collapse. My concern is that the economy will collapse.
I am not sure how this will all end. There have been many miraculous parts of the story, all the away along. For example, human’s influence on climate helped prevent us going back into an ice-age, back before our current problem with high temperatures. Maybe there are parts of the story we don’t understand in the future as well.
Surprise is my religion!
and my retirement plan – as are all religions…
“Surprise is my retirement plan” me too.
So the money saved by consumers and businesses that didn’t go to the oil cartels will not be available to pay high cost producers when the glut clears? Is the money spent to support the populations of low cost Middle East producers more important then the financial breather Western consumers are getting?
The money spent to support the low-cost Middle East producers is important because it keeps their government from being overthrown. It allows enough peace to be kept in these countries for the oil to be extracted. We could end up with a lot of Libyas.
Gail, The cost of production your graph has does not correlate with the numbers that most experts have. For instance in Venezuela it is about 20 dollars per barrel at present FX levels and it drops to less than 10 dollars if you were to use more realistic levels than the overvalued government-induced bolivar fuerte. Rgds, Jorge
What experts are they Jorge and what is the source of their calculations.
Those are the actual costs to get the oil out of the ground.
Analogy time:
Let’s say it costs Apple $20 to produce an iphone
Do you think they could actually sell that iphone for $21 and make a profit?
Of course not — there are all sorts of other costs involved — R&D, taxes, dividend payments etc etc etc….
What does an iphone sell for – say $700? A lot of that is profit but most definitely not $680 of it….
Same with oil….
When you read stuff about costs being 20 or 30 or 40… that is just bullshit…. it is completely misleading….
Funny that you should use this analogy as the number one and number two largest companies in the world in terms of market capitalization are Apple and Exxon.
There are many ways of calculating the costs for the various countries. It is possible to get quite a wide range of numbers.
I chose the chart for the nice clear graphics, not because I thought the numbers were any better than those of anyone else. If I had chosen another graph, I probably would have had a few more countries producing oil with technical costs less than $30 per barrel.
The more I learn about economics, the more I am lead to believe that fundamentals (e.g. supply and demand) are impacting price discovery less and less. And, it seems the more the-powers-that-be tinker with the exceedingly complex system that is economics, the more likely we are to see emergent phenomenon that surprise.
Short of the economic growth singularity opn which this blog turns, human economic behavior is choice based. While not always the choice we would have wanted, there is always choice. Thus we cannot suppose that economic laws exist independent of human behavioral effects. Resource laws pertaining to physical properties and behaviors as well as system properties and behaviors, however, do exist. These resource laws can be defined in energetic and biological terms. These terms influence and inform the human resource dimension as well as other organism population dynamics.
It is useful to distinguish the “human resource dimension” from “human population dynamics” since humans, unlike all other organisms, are able to alter their population dynamics through birth control, energy and environmental manipulations.
The term “dimension” is applied to human resource utilization because the uniquely human ability to utilize resources results in very large scale alterations to the environment. Included in this human dimension is the artifact of economics. It is a defining property of artifice is that its expression implies an author and therefore a choice according to esthetic or empirical reasoning.
Thus it should be apparent that economic argument and theory arise from the choice of human resource utilization opportunities that are only indirectly related to physical laws. Consider that for most animals, and not just those at a higher level of biological organization, choice of resource utilization is not an option. The buffalo has no opposable thumb, the fish cannot swim out of water, the deer does not prey upon and eat smaller animals. Humans sometimes confuse esthetic choices with resource utilization choices. For example, we have long fancied that free markets are self-regulating. Of course – the existence of markets does depend upon resource conditions that hew to physical and biological laws. But this dependence is indirect. And do not mistake supply and demand for resource law. Supply and demand is merely a metaphor for understanding enormously complex status and trends in resource availability. Markets are incapable of hewing to immutable economic laws. Besides being inanimate, they are operationally defined, the variables are convenient proxies for enormously complex periodic resource functions that work for subjectively derived proprietary distribution control functions.
Some may protest or ask “How can the dependence of markets upon resources be indirect? There is either a supply of food or there is not, correct?” Well, supply is important to markets. But markets are utterly unimportant to all animals including human beings with the exception of the recent rise of what we could call “industrial humans”. The word “Industrial” applies to our species in the broadest sense as the human incarnation that has removed itself from the rank of ordinary animal directly competing with all other animals for resources and become a manager of primary production and consolidator of mineral resources , by virtue of the human quality of industriousness. Markets are a product of human industriousness.
Without humans, there are no markets, no immutable market laws, no self-regulation, not even supply and demand. Supply and demand is an outmoded idea that should have lost all relevance with the rise of ecology and systematics. Trophic models of population have evolved from the linear “food chain” to the cyclical relationships of the “food web”. This is not to say that supply and demand are not important resource considerations. Rather they are proxies for absolute productivity which depends upon solar energy, hydrologic and nutrient cycles which propagate through primary producers (plants) and through the status and trend of predator and prey cycles. With respect to minerals supply and demand is subject to property controls (anthropogenic) and energy (solar, plant and tectonic). While supply and demand is a useful model for understanding scarcity and abundance, it really has no practical value except as artifice or distraction. As someone may have noted before “there is either a supply of food or not, correct?”. The real question, the situation for which economics was created, is “there is only one loaf of bread in the box and one fish in the lake. Who gets them?”
I would agree with you that “supply and demand,” and the supposed rules that go with supply and demand, have been overused. We assume things are true about it that are not really true.
And you make a good point about the food chain really being a food went.
The issue as you say is, “there is only one loaf of bread in the box and one fish in the lake. Who gets them?” This is the same problem animals encounter, only they do not have markets in the middle.
Yes. And I acknowledge, up to a point, that markets, interposed as they are between the rock of nature and the hard place of periodic scarcity, have a role in insulating humanity from the vicissitudes of the food web. Well regulated markets are needed to shield humanity from the vicissitudes of human nature.
Exactly! Derivatives are set up as a way to circumvent supply and demand. Debt tends to circumvent supply and demand. Very low interest rates circumvent supply and demand.
And it is the banks that have a problem, if there are a lot of failing loans. Someone will try to cover that up as long as possible. Sharing the loans (and thus losses) among banks means that no one is hurt very much for a long time. Then everyone is hurt at the same time.
All of the “insurance” type products act counter to making the system work as it should!
I would say the insurance market is under regulated and selling insurance at premiums that are too low to actually make good if the insurance is called on. It is a get rich quick scheme for the insurance sellers. Take premiums and if nothing happen you have made a pile of money. If the world shifts and the insurance is called on declare bankruptcy and hide in a non extrication country.
Thank you for you latest, Gail, and others are taking note also.
Big banks brace for oil loans to implode
Tracy Sabo/CNN
NEW YORK (CNNMoney) –
Big banks are cringing as crude oil is crumbling.
Firms on Wall Street helped bankroll America’s energy boom, financing very expensive drilling projects that ended up flooding the world with oil.
Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven’t are feeling enough financial stress to slash spending and cut tens of thousands of jobs.
The oil crash has already caused 42 North American oil companies to file for bankruptcy since the beginning of 2015, according to a list compiled by Houston law firm Haynes and Boone. It’s only likely to get worse. Standard & Poor’s estimates that 50 percent of energy junk bonds are “distressed,” meaning they are at risk of default…..
“There is a lot of distress in the industry. There will be a lot of pain but they’ll get through it,” said Buddy Clark, a 33-year veteran of the energy finance space and a partner at Haynes and Boone.
The financial pain has gotten so great that now there’s murmurs of a bail out for the U.S. oil industry, though it’s clear any assistance would run into political opposition.
Another Bailout!?
We’ll get a little bit of pretending before we get bail outs…
Dallas Fed Quietly Suspends Energy Mark-To-Market On Default Contagion Fears
http://www.zerohedge.com/news/2016-01-16/exclusive-dallas-fed-quietly-suspends-energy-mark-market-tells-banks-not-force-shale
Vince the Prince,
More likely, a Bail-IN. The big banks never will suffer and they almost never have. They are smarter than us and all of their risk is now HEDGED. The people who will pay for the defaults and bankruptcies will always be the little guy. Sorry.
Prepare to have your haircut, or move your money to under the mattress.
Just a thought – this seems like common sense, and if it works raises questions over the Fed and the Banks :
http://www.maxkeiser.com/2016/01/the-citadel-is-breached-congress-taps-the-fed-for-infrastructure-funding/
“Both houses and both political parties agree that something must be done, but they have been unable to agree on where to find the funds. Republicans aren’t willing to raise taxes on the rich, and Democrats aren’t willing to cut social services for the poor. In December 2015, however, a compromise was finally reached. On December 4, the last day the Department of Transportation was authorized to cut checks for highway and transit projects, President Obama signed a 1,300-page $305-billion transportation infrastructure bill that renewed existing highway and transit programs. According to America’s civil engineers, the sum was not nearly enough for all the work that needs to be done. But the bill was nevertheless considered a landmark achievement, because Congress has not been able to agree on how to fund a long-term highway and transit bill since 2005. That was one of its landmark achievements. Less publicized was where Congress would get the money: largely from the Federal Reserve and Wall Street megabanks. The deal was summarized in a December 1st Bloomberg article titled “Highway Bill Compromise Would Take Money from US Banks”:”
Strange!
A bail out for the oil industry would add to the world oil glut problem, I expect. It is hard to find a solution that would work. A higher tax on the US oil industry would reduce our production. I expect that would be very unpopular–about as unpopular as the suggestion that Saudi Arabia cut back production, to solve the rest of the world’s problem.
Another complicating factor is the Export Land Model. I don’t have detailed information about it, but since most countries only export their surplus production, the risk to importing countries is magnified by the reduction in supply and long before the wells go dry they will be stranded.
Say a country produces 2 Mbd but this declines at 5% P/A. After 10 years it exports 1.25Mbd. Lets assume local needs are 1Mbd increasing 2.5% P/A, future exports will fall to Zero in 10 years.
The export land model is trying to explain why we might have too little oil, sooner than a decline rate model might suggest.
Our problem is the reverse–we have more oil than citizens can afford (directly or indirectly) to purchase.
As far as I can see, oil exporters are cutting back on their demand as well. Their cutbacks in demand are adding to the surplus oil we have.
Yes. It’s not a problem right now with the glut. But it might complicate things when supplies go low, for whatever reason. That time may come sooner than we think.
Meanwhile here in Birmingham UK, there are constant celebrations that the number of flights from the airport is breaking record after record. And the city council is investing heavily in grand transport nonsense which no-one actually voted for, and other major hi-tech developments, loads of new hotels and offices for the impoverished people to have imaginary jobs and enjoy holidays in. Even major bank HSBC is building its grand new global hq here!
Because they’re too thick to understand that crashing oil prices means peak civilization, then that’s probably why they’re building to welcome Islamic State to their new home, given the projected tens of millions of angry muslims on the march post Sunni Shia apocalypse.
All this building is great stimulus for the economy, financed by lots of debt, I am sure.
The world seems to be dividing more and more into a wealthy class and a poor (and sometimes jobless) class, with not much middle class in between. Some places where there are a lot of folks in the wealthy class, there seems to be a lot of investing in big projects. And even otherwise–I expect China is still investing some in more rapid trains, even though few can afford them.
I see some of the same kinds of things in Atlanta. There is a new Atlanta Braves Baseball Stadium being constructed–even though the old one was (in my view) perfectly fine. There are lots of new toll lanes being constructed as add-ons to highways, with the idea that at some point in the future, there will be enough traffic and enough wealthy people to pay them that those people will get to commute quickly, while the others will be stuck in traffic.
Gail, the toll lanes are part of the divide into wealthy class and poor class. This seems to be the historical norm. History has the poor class being winnowed by higher death rates than the wealthy class. I believe that already exists in India, China, Indonesia, all of the third world. I expect it will reach the first world in my life time (how is Greece doing?).
I agree that the toll lanes tend to divide the world into a wealthy class and a poor class. They make the poor class less happy.
The world needs 90 mbpd at $40. What the world has is 22 mbpd at $40.
No amount of financial gaming will change that. We will have to decide how much of the missing oil is “needed” and will need to be subsidized by cutting back on some other part of society and how much can be lived without and how much that will cost the government in welfare payments.
I wonder what percent of oil is used by the worlds militaries, by the worlds farms, by the worlds ocean shipping, by the worlds goods distribution trucks/trains?
The single largest consumer of petroleum products in the world is the U.S. military. Check it for yourself.
Ed, the problem with your solution is that your solution will crash the economy, local, national and global. Sorry.
I am not sure it is that simple. I am afraid the indirect effects of the problem pull down the financial system. Without it, we end up doing without a lot more than on your list. For example, the government may not make it through our current predicament.
Pingback: Billig Brent bekymmersam | Förändringens tid
Other things that would be helpful (to USA):
Import tax on oil
Extend timeline of rising CAFE standards for automobiles and trucks
Allow for a variable rate of ethanol blending between 0% and 10%
Leach out more salt dome storage for oil ie increase the SPR.
Reduce corporate income tax
Reduce time required to obtain drilling permit on federally controlled land and water
Develop ANWAR and connect to trans Alaska pipe line to push decreasing north slope oil.
Approve Keystone XL pipeline.
Modify Jones Act to allow more flexibility to use oil infrastructure.
Currently we see only the beginning of the problem, the back side will be terrible if we don’t get after it.
Dear David Gower;
Your points are well taken. I think though that some of the sentences in your comment have diction and other issues that I correct below:
These things would really help the US.
Import tax on oil
Reduce timeline of and increase the rising rate of CAFE standards for automobiles and trucks
Make it illegal to use ethanol for fuel.
Leach out more salt dome storage for oil ie increase the SPR.
Increase corporate income tax and close loopholes
Make it illegal to do drilling or mining on federally controlled land and water
Finally change ANWAR to a national park and close the trans Alaska pipeline.
Ban all shipment of crude oil by rail and retire many existing pipelines.
Modify Jones Act to mandate more wind powered ships.
Thats better.
Sincerely,
Pintada
Dear Pintada,
A+
Sincerely,
Lee
Agree Pintada, Gower thinks like a politician, probably a rabid Republican😀. It’s the consumer that needs to be supported not the useless corporations. Corporations already pay too little tax, they would gladly pay more if the consumer would buy more of their crap.
Pintada,
“Finally change ANWR to a national park and close the trans Alaska pipeline…Modify the Jones Act to mandate more wind powered ships” HERE ! HERE! You’ve got my vote!
There are as many ideas regarding what would help as there are commenter, I suspect.
Thanks guys.
The whole economy is interconnected. It is hard to make fixes that will really fix the whole system.
For example, I am not sure that the farmers would be very happy about a variable rate of blending ethanol. They have to know what to plant when. There is a huge amount of corn that goes into the current supply–something like 40% of the corn crop. Farmers can’t turn their corn for ethanol production on and off, any more than oil producers can turn their production on and off. Farmers buy machinery. They have workers to pay and loans that need to be repaid, often including a loan related to the cost of the land. They need income themselves.
You seem to be suggesting working toward a solution focused on US resources, plus oil imported from Canada, as I look at your list. You don’t have a way of fixing our current oversupply problem, except perhaps “Extend timeline of rising CAFE standards for automobiles and trucks” and “Allow for a variable rate of ethanol blending between 0% and 10%.” These would be terribly slow to have any effect, assuming that anyone would agree to change them at all.
Please Gail, consider analysis of the cuts in purchases of inputs, goods and services (machinery and equipment, steel, transport, ships, trucks and trains companies, and so on) that the oil industry will stop making because of that, and show how this will have a chain effect on the general global economy: production, employment, in all the sectors affected by this cheap oil, and the level of life and so on.
Roger,
I would tend to prioritize the transportation industry, because it’s the backbone of the economy. Any disruption in transports is likely to have big impact on commerce and delivery of vital commodities.
http://energyskeptic.com/2016/when-trucks-stop-running-so-does-civilization/
I wonder how resilient this industry really is, and if a black swan couldn’t very well arise from it.
Roger – that’s called Input – Output analysis – see my last post on the previous thread. Input – Output analysis gets done by governments at infrequent intervals, and my expectation is that the incoming global changes will nullify most of that work.
Thanks for the idea. It is pretty clear that it is not just the oil industry. It is much wider, just because so many commodities are affected. Once a person considers all of the investments that would have been made, that makes the situation wider yet. In a networked economy, pretty much everything is affected.
Pingback: Why oil under $30 per barrel is a major problem – Enjeux énergies et environnement
Great article. Thank you, Gail.
This price drop would have corrected itself if zombie companies had been allowed to go bankrupt last year. But they’re still floating on the sea of liquidity created by low interst rates. Becuase such energy companies have been levitated for so long on cheap debt, I suspect that such failures now represent a systemic risk. What this all means is that the US taxpayer will need to throw them a financial life line when the deleveraging vortex begins. The only question left is, are they able to pull them out, or are they going to get sucked down the vortex with them.
Most oil producers need $100+ oil to remain in business.
So essentially the entire oil industry is insolvent with oil at sub $30…. and a hell of a lot of it even if oil is say $70.
So let’s be generous and say 1/3 of all producers would have been allowed to go bankrupt.
That means oil supply drops by 1/3 — because their production was not profitable so nobody else is going to step in and buy the assets.
The problem is this:
The amount of oil that can be produced cheaply is contracting. That started in 2005 and it worsens every year.
So we have been forced to go after oil that is expensive to extract — we have no choice — and the central banks have been trying to offset the pernicious impacts of this expensive oil with policies that keep the economy growing…
These policies have toxic side effects and there are limits to what central banks can do with gimmicks like QE ZIRP etc…
These policies are no longer working — as evidenced by the collapse in commodity prices.
There never was a way out — the central banks have done exactly what needed to be done otherwise I would not be typing this comment.
In conclusion — enjoy the final months of BAU.
The fat lady is no longer warming up ….
https://accountingprofessor.files.wordpress.com/2013/01/fatlady.jpg
Oh Yeah! It´s a wild ride while the fat lady is singing. http://www.bloomberg.com/markets/stocks/futures
You are right. If shale companies had been gone bankrupt and their production actually eliminated, that would have helped. It is not clear, even if a company goes bankrupt, whether the production will go to zero, though. A new owner will probably want to at least keep up old production.
The debt will tend to affect banks. Our government seems to be taking the position that taxpayers won’t do the bailout this time. This time it will be the owners of the bank that suffer first. Then it will be the depositors. A person can think of a lot of bad scenarios: Employers finding their bank deposits missing, so that they cannot carry on trade and pay their employees. Our own deposits being taken–perhaps not at first, but once losses get bad, and FDIC insurance amounts are used up on other accounts. Hopefully this decision will be rethought.
Dear Gail
There has been an extensive discussion about the ‘glut’ of oil at Peak Oil. I found this comment by shortonoil to be informative and thought provoking:
“Just looking at charts of daily production and price, I’d estimate the oversupply is about 1-2 million bbl/day.”
Between 02/21/14 and 12/25/15, 673 days, US crude stocks less SPR increased by 276,626 Mb (277 mb), or 404,091 b/day. Considering that almost all of the additional production of the world has come from North America over the last seven years it is reasonable to assume that excess production is less than half a million barrels per day. Additional finished product export by the US added 968 b/d on average between 01/07/14 to 01/01/16 or 725 days.
http://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_w.htm
http://www.eia.gov/dnav/pet/pet_move_wkly_dc_NUS-Z00_mbblpd_w.htm
The null hypothesis that excess production is 1 mb/d or more is shown to be wrong within any reasonable margin of error (6 standard deviation units). Excess production is likely to be less than 1/2 a million barrels per day.
Back to me. If the supposed glut is 1/2 a million barrels a day, or around half a percent of the total, and the price is down 70 percent, then I don’t think supply and demand, as usually understood, can be invoked as an explanation.
Don Stewart
Yeah Don, I was listening to an “economist” being interviewed on the radio and he maintained it was a supply issue, (I wish I could have phoned and asked him a couple of questions). Straight after that a government finance representative started explaining that the market right now is having a slight correction because of the Chinese slowdown but there is nothing to worry about because it will begin to grow very soon as China was still growing at 6.9%, blah, blah, blah, blah………It’s so frustrating to listen to those idiots, I was screaming at the radio.
It takes only a small out of balance to bring prices way down. You may not believe it, but that is the way it works.
There isn’t a whole lot of storage available, relative to the amount of oil. Quite a bit of the storage available is “products” storage, for a specific product. A company doesn’t want to make too much winter gasoline, if what they will need next is summer gasoline.
Supply and demand for commodities is a whole lot different from supply and demand for, say, shoes or potato chips or air conditioners. No one is going to cut prices dramatically, if there is an oversupply. They will tell the factory to make less. It is whole lot easier to start and stop the factory than it to start and stop oil production.
Dear Gail
If the oversupply is half a percent, and we observe that electric vehicles took about 1.5 percent of the total market in 2015 in China, and if a half a percent oversupply can bring the petroleum industry to its knees, and if China is restricting oil driven vehicle licenses to counter air pollution…
Then oil has a big problem.
Don Stewart
Excuse me for being a simpleton (born that way) but if a bank is faced with going bankrupt or rolling over an oil producer’s toxic debt, won’t the bank always choose to continue rolling over the debt to stave off insolvency? Isn’t this particularly true in an easy money environment where money is being printed and handed out willy nilly and you have too many dollars are chasing too few havens of opportunity?
At least consider the possibility that the price of oil is being gamed by the powers that be to put the squeeze on Russia. A detailed analysis of how the market works to determine if it is susceptible to being gamed (which I don’t pretend to have done or be capable of) might be instructive.
Exactly. Gail posts up rigorous factual analyses, and then some of the group descends into apocalyptic projections.
What seems to be ignored are the very real geo-political implications, including with the willingness of major players to use all available means (financial, military, media, etc) in order to secure an advantageous end-game position.
Anyone with a clue knows BAU (ie our collective perception of “reality”) is over, dead. It had a nice 300 year run, but in hindsight, it was nothing more than a short-term blip on the historical timeline.
So, here we are with every deep state member well aware of what it really means to be on the downslope of peak oil. For one, it means the end of nominal debt backing the world-wide financial monetary system. NIRP will finally put that canard to bed, as China, Canada and who knows who else begin their respective devaluation programs.
All options are on the table, and the Russian/Iranian nexus is target #1. Just focus on the big picture:
– Fossil fuel driven BAU (financial/industrial economy) is dead
– Fossil fuel driven population levels are subject to “correction”
What does this mean? It means one must secure all available resources while one is able; hence, endless war & conflict. It means the migration of people and defensive attempts to fence ring nation states. It means destroying the debt overhang while preserving institutions that serve the state. IOW, forget deflation and the BK of major banks and CBs. Not.Gonna. Happen.
Lastly, filter all current events through the prism of the downslope of peak oil. Frivolous entertainment? Check – keep people amused. GMO food stuffs? Check – keep people fed.
Don’t get upset about the world situation. Understand what is occurring, why it’s occurring, and why leadership groups are putting survival strategies into action as we speak.
History is unfolding as we watch.
Nicely put.
And then I came out of the morning meetings to make my first appearance of the day — and the high fiving party was ruined ….
”IOW, forget deflation and the BK of major banks and CBs. Not.Gonna. Happen” when are you going to learn. You bleat about this after EVERY ONE of Gail’s posts. Look around you, it has both already HAPPENED and is HAPPENING. Major banks and financial institutions are dead men walking, they are like the people in the movie The Sixth Sense.
History has failed, says Terrence McKenna.
And why does everyone persist in treating it as real? In history, the world was seen as simultaneously fractured into national and other bits AND as the purview of some solitary viewer. We must invade nations and take their stuff. We need to do this or that to fit in with the big global picture…when all you need is to make your local community and environs work. There might soon be no means (or desire) to travel outside that small arena.
B9, you forgot to add the part in the end of your paragraph like you always do where you talk about positioning yourself to win the endgame through an esoteric understanding of the hidden rules of the game.
Whenever Chris Martenson posts he finishes with a ‘for the full analysis and how you can prepare and also make money off of the end of the world click here and sign up (and pay)’
Graham Summers who contributes to Zero Hedge always finishes with similar….
The Zombie Apocalypse is the marketing opportunity of of all time. Stock up. Prep up. Ammo up. Air. Water. Food. Shelter. Thats all we have to have. But…..
“The MaxVax Commeth”.
Zombie Apocalypse Mitigation algorithms will be huge.
Sorry – here’s the strategy:
1. Go long as you possibly can. Align yourself with the state and their favored institutions ie the Fed & major city center banks. Each one is in far more debt than any individual/corporation could ever find themselves. They are never going to repay their debt (so you never will as well), nor are they going to default – that destroys them (so you will never BK as well). Rather, they are going to devalue, devalue, and devalue some more.
2. Become involved in local food banks/civil defense/disaster relief operations. These are the organizations that will work in conjunction with homeland security, FEMA, dept of Ag, etc to ensure adequate foodstuffs/necessities are dispensed when rationing begins after price controls are introduced. Once you are part of the machinery, you will have the contacts and be able to recognize and position yourself for contracts and other profiteering opportunities.
I know many posters think about what is occurring in mostly abstract terms, which is typical of a lot of advanced thinkers. But, you need to remind yourself that this is actually occurring – it’s not an intellectual exercise.
PS Bandits, Paul, et al – when Canada, China, and other major players begin to devalue, will you guys please refrain from the deflationary tale? Yes Bandits, I’m well aware we’re in a deflationary state – so what do you think the PTB will do? Sit around as their entire world comes crashing down around them, therefore fulfilling your apocalyptic dreams? Or, will they begin to introduce measures that will help ameliorate the (hyper) inflationary effects of devaluation, such as wage/price controls, rationing, etc?
My guess is the misanthropes will continue to mumble and complain as the united Empire begins to strike back.
The scenario form 3000 BC will manifest as the push for global government. The reaction (logical?) to global economic hegemon is global policy of a scope and reach that can power essential institutions and the inverse (empower the interests behind the institutions).
Never mind about compliance of the masses. Hunger is a powerful force for social and cultural “self-assembly”.
Never mind about the free- rider problem. That was always just a means to dictate who gets the last slice of pizza. We are on the last slice. We are all free riders now.
All the manipulables in this system of equations we call history, as Artleads points out, are mere props, artifice. That is not to say that their deployment is of no consequence. Art is culture, and culture is the evolutionary strategy that has, if briefly, set us apart from our DNA in terms of our “fitness” and evolution.
In the long run, the doomsters are correct. But timing is everything if your aim is the nobel prize for prognostication.
B9K9, seems no one here understands you except me. But I believe in the importance of resisting the kind of opportunism you exhort. Funny, huh?
B9,
Thanks, I knew I was missing something. What about marrying the local Kommissar’s daughter, too?
Screw Dat! I am the zombie abocalypse ruler of my own destiny. I would die from choking on my own vomit if I had to align myself with the partys you mention.
PS The deflationary tale. Crude at 27 and you speak of deflationary tale. There are some telling tales here for sure…
Your faith in the Elders is unshakable.
So there is no point in trying to shake it….
We can hope that central banks and governments will begin to fight back. They are somewhat short of tools this time, though. Even when QE is over, the US is still buying huge amounts of debt, just so that the run-off of what they bought doesn’t raise interest rates. Some countries will be in better shape to fight back than others. Argentina and Venezuela are in pretty bad shape right now, for example.
True Dat!
Different people are coming with different backgrounds.
You may think (and in fact “know”) that BAU is over, dead, but a person cannot assume all readers will come with that point of view.
Please be more tolerant of commenters coming from different perspectives.
So let’s say the US is trying to crush Putin with low oil prices.
Even if that works it does not alter the fact that producers need $100+ per barrel to remain solvent.
And $100+ destroys growth.
So it is not as if they can crush Putin then push oil back above $100 and all’s well.
Also surely you have noticed that it is not only the price of oil that has collapsed — pretty much all commodity prices have collapsed.
How do you explain that?
Does the US also have issues with the leaders of Canada, Brazil, Australia, Indonesia, and other major commodity producers? Is the US trying to bankrupt them as well?
The problem is obvious.
Demand is not there — take a look around the world – can you name a single major market that is not in trouble?
See: http://www.zerohedge.com/news/2016-01-19/what-if-imploding-baltic-dry-index-does-reflect-global-trade-after-all
The demand mismatch is causing a glut of commodities.
Producers are forced to produce more to generate cashflow or they go down now (they will eventually go down – because they are losing money on every unit they produce – and there is no end in sight)
The more they produce — the more prices go down.
I have difficulty with trying to argue from your side of the fence — because there is nothing that really supports that theory — and there is a deluge of evidence that supports Gail’s position.
Yes, FE, I agree with you. As I understand it, we need Russia to not be crushed, but rather to continue producing all out for as long as possible in order for the BAU to continue as long as possible. Every nation is interdependent on every other nation in order for this house of cards to be maintained. That is pretty much what you get with a “globalized” economy.
Before we argue the wisdom of finagling the price of oil let’s figure out if it is even possible to do so. If so, then we can argue about whether it’s a likely, productive, wise, etc. move.
The difficulty of predicting future outcomes is that without prior historical examples, it’s almost impossible to recognize certain events as they occur for what they truly are. Only afterward do seemingly ‘black swam’ events appear to be perfectly logical and consistent within their respective context.
For example, who could imagine that during a famine 5,000 years ago, there was a glut of production (or release of stores), not to serve the people, but to destroy any remaining opposition in order to expand empire? And yet, it makes perfect sense as the perfect moment in which to strike, using core resources as a strategic weapon to drive the enemy down.
The irony of the downslope of peak oil is who could have imagined a glut would occur in order to defeat & procure the last great region in possession of critical reserves? Only in hindsight does it appear to be perfectly logical.
I know that when famines have hit in the recent past, there were often people who could had been fed, but lacked the buying-power to purchase needed grain. And we know that historically, the problem that brought down civilizations was falling earning power of workers, because of rising population relative to resources (Think: smaller farms for each farmer). Many citizens of the economy could not afford to buy the output of the economy, then as now.
It is hard to see how the market might be being gamed. The problem with commodities is that supply and demand need to be balanced. There is clearly way too much supply for demand right now. That is why the amount of oil in storage keeps growing, and price keeps dropping.
More people need to be able to afford new homes and cars. Too much wage competition with China and India is part of the problem. So is the growing number who are retired and in advanced education. There are not enough goods and services being purchased that use oil.
“It is hard to see how the market might be being gamed” without further elucidation as to how you arrived at that conclusion sounds like a cop out from having to figure out exactly how the market might be gamed. What I’m getting at is how the market actually works – not theoretically or in terms of supply and demand, but contracts vs. spot purchases, short-term vs long-term, etc. For instance, how much of the oil traded globally is tied up in long-term contracts at set prices or under barter arrangements or intra-company transactions, i.e., not affected by the daily, weekly, monthly variations in the “market” price; or, to put it another way how much oil is actually traded according to WTI/Brent prices.
I don’t personally have access to the data that would give detail on a world-wide basis or the kind you are looking for.
The closest I am aware of related to prices actually paid is the “Refiner Acquisition Cost of Crude Oil” report. http://www.eia.gov/dnav/pet/pet_pri_rac2_dcu_nus_m.htm This report relates to the actual cost to US refineries of oil, divided between US produced (domestic) and imported. Prices for domestic are falling less rapidly than prices for imported, suggesting that there may be some long-term contracts for domestically produced oil. Or there may be some other lags built into the system–maybe a month or so.
Average prices for imported oil are consistently below world oil prices, probably because the US imports a lot of heavy oil from Canada and elsewhere. The average price of imported oil started dropping in July 2014, which is the same time spot prices started dropping. In fact, the average acquisition cost for domestically produced oil started dropping the same time that spot prices dropped as well.
The one allegation with respect to manipulation that I have heard, that has some chance of being true, is that Saudi Arabia was manipulating prices to keep them up in the 2011 to 2014 period. Allegedly, this was done in the derivatives market and also perhaps trading some physical barrels of benchmark oil. Supposedly, the perpetrators were able to borrow cheap QE money to keep the system going. Once US QE stopped, it was not possible to borrow as much very cheap money for this purpose. (At least that is the way I remember the story.) If this is true, this may have slowed the fall of oil prices–otherwise the fall in prices may have begun earlier.
THANK you again Gail for the most coherent analysis I can find on our current economic condition.
Glad you liked it. There is so much nonsense written. I felt like I needed to write something to counter it.
Thanks Gail. Awesome!