Our Latest Oil Predicament

It is impossible to tell the whole oil story, but perhaps I can offer a few insights regarding where we are today.

[1] We already seem to be back to the falling oil prices and refilling storage tanks scenario.

US crude oil stocks hit their low point on January 19, 2018 and have started to rise again. The amount of crude oil fill has averaged about 365,000 barrels per day since then. At the same time, prices of both Brent and WTI oil have fallen from their high points.

Figure 1. Average weekly spot Brent oil prices from EIA website, with circle pointing to recent downtick in prices.

Many people believe that the oil problem, when it hits, will be running out of oil. People with such a belief interpret a glut of oil to mean that we are still very far from any limit.

[2] An alternative story to running out of oil is that the economy is a self-organized system, operating under the laws of physics. With this story, too little demand for oil is as likely an outcome as a shortage of oil.

Oil and energy products are used to create everything, even jobs. If all humans have is energy from the sun, plus the energy that all animals have, then humans would be much more like chimpanzees. All humans would be able to do is gather plant food and catch a few easy-to-catch animals (earthworms and crickets, for example). They certainly could not extract oil or find uses for it.

It takes a self-organized economy to support the extraction and sale of energy products. We need a complex web that includes:

  • Equipment to extract the oil
  • Training for engineers and other workers
  • Devices that use oil, such as vehicles, farm equipment, road paving equipment
  • A financial system to enable transactions to purchase oil
  • Buyers with jobs that pay well enough that they can afford to buy goods made with oil

The things that go wrong with this economy can be on the buyers’ end of the economy. Buyers can have jobs, but these jobs may not pay well enough for the buyers to afford the output of the economy. A falling share of the population may be able to afford cars, for example.

[3] It is possible that a recent rapid increase in oil supply is contributing to the current mismatch between supply and demand. 

Data of the US Energy Information Administration indicates that US oil supply has recently begun to surge. It is not just crude oil production that is higher. Natural gas liquid production is higher as well. As a result, Total Liquids production is reported to have been more than 16 million barrels per day in November 2017.

Figure 2. US Liquids Production, based on International Energy Data provided by the US EIA.

Oil production of the rest of the world has been relatively flat, as planned.

Figure 3. World excluding the US oil production by type, based on EIA International Energy data through November 2017.

Total world production, combining the amounts on Figures 2 and 3, set a new record of 99.1 million barrels of oil per day for November 2017, based on EIA data. This level is above the November 2016 level, which was the previous record at 98.9 million barrels per day.

At this high level of production, it is not surprising that the economy cannot absorb the full amount of extra supply.

There are also a number of issues that affect buyers’ demand for oil.

[4] The percentage of US residents who can afford to buy a new automobile or light truck seems to be falling over time. 

If we look at the number of autos and trucks sold in the US, per 1000 population, we see a pattern of falling humps, as a smaller and smaller share of the population can afford a new car or light truck, each year. The big drops occur during the gray recessionary periods marked on the chart.

Figure 4. Figure showing US Passenger Cars and Light Trucks Purchased per Year per 1000 Population. Original graph by FRED (Federal Reserve of St. Louis). Retitled by author, because units were confusing on original chart.

The first peak came in 1978, at 67.3 units. The second, slightly lower peak came in 1986, at 66.7. The third peak came in 2000 at 61.5 units. The fourth peak came in 2015, at 51.6 units. Early 2018 amounts suggest that the trend in units sold per 1000 population will continue its downward trend.

Part of what is happening is that vehicles are becoming longer-lasting, so that there is not as much need to buy new cars frequently. But having a short-lived, cheap car has an advantage, if it makes cars available to a larger percentage of the total population. With a vehicle, a person has a much better ability to participate in the US workforce. US Labor Force Participation Rates peaked in about the year 2000, which is about the time of the third peak in affordability.

Figure 5. US Labor Force Participation Rate. Chart by FRED (Federal Reserve of St. Louis).

[5] There was a steep rise in the cost of auto ownership in the 1995- 2008 period. This has since fallen back, but the cost is still high relative to the wages of many workers.

One estimate of the cost of auto ownership is the reimbursement rate that the US government allows businesses to pay workers who use their own cars for company business.

Figure 6. Auto reimbursement rates as compiled on this list. Amounts shown on “As Stated” basis, and also at the 2017 cost level, based on CPI Urban.

These costs peaked about 2008 and were reflected in high reimbursement rates for 2009 as well. More recently, buyers of cars have been helped by longer term loans and ultra-low interest rates. If interest rates rise at all, the share of people buying or leasing new vehicles can be expected to fall further from the level shown on Figure 4.

[6] Building homes also requires oil. There has been a sharp drop in US home building, both on an absolute basis, and on a per capita basis, since 2008.

Figure 7. US Housing Units Completed, related to US population. Population from Census Bureau; population from UN 2017 population summary.

Building homes is part of oil demand. It takes oil to transport all of the materials used (lumber, siding, wiring, pipes, appliances) to the place where the house will be built. Furthermore, many of the materials used in building a home are produced using petroleum products.

The number of homes built depends on the number of new households that can afford a separate place to live. The low level of building makes it look as if the economy is still seeing a pattern of young adults living with their parents much longer than in the past. If buildings are to be replaced every 75 years, my calculation suggests that about 6 housing units per 1000 residents need to be built each year. About 2.5 units per thousand are needed, just to keep up with rising population, if upgrading and remodeling can be done almost indefinitely.

The fact that there is little home building reduces the number of jobs available in the building industry. The lack of jobs in this industry helps hold down the demand for oil, because these workers would use their wages to buy goods for themselves, such as food and vehicles. Food is grown and transported using vehicles powered by oil.

The lack of home building also contributes to the nation’s homelessness problem. If there were plenty of inexpensive apartments, there would be fewer homeless people.

[7] There is no longer an oil price at which both oil exporters and oil importers are satisfied. Oil prices today are too low for oil exporters.

I started writing about oil producers complaining that oil prices were too low in early 2014. At that time, oil companies were looking back at prices of over $100 per barrel in 2013. They were saying that $100+ prices were too low to provide adequate funds for reinvestment in new fields. Now prices are in the $65 range, which is even farther below the desired level.

Oil exporters are especially unhappy about today’s low prices, because they need high prices in order to collect needed tax revenue. This is why OPEC members and Russia have been holding back production. The plan is to deplete the glut of oil in storage, and thus get prices up.

It is not at all clear, however, that consumers in oil importing countries can really withstand higher prices. The fact that Brent oil prices could only stay above $70 per barrel for one week on Figure 2 (in the red circle), suggests that consumers in major oil importing countries cannot really withstand oil prices at this high level. I have observed previously that a sustainable price, without adding a huge amount of debt each year, is only about $20 per barrel.

[8] If we analyze vehicle purchases by country, we can see that low oil prices since 2014 seem to be helping major oil importers but are hurting Tier 2 countries that are commodity-dependent.

Figure 8. New vehicles (private passenger and commercial combined) purchased per capita for selected groupings of countries. Amounts shown are from OICA estimates by country.

In this chart, the grouping of Advanced Economies includes:

  • USA
  • Europe
  • Japan
  • Canada
  • Australia

For this grouping, growth in auto sales is again rising, but has not regained its prior level. This is somewhat similar to the indications in Figure 4, for the US only, looking at cars and light trucks. The main difference is in the last two years. Changes in currency relativities may be helping recent vehicle sales for the other countries in the grouping.

On this chart, the Tier 2 grouping includes:

  • Brazil
  • Russia
  • South Africa
  • South Korea
  • Malaysia
  • Mexico

This group includes several oil and other resource dependent countries. South Korea is perhaps more like the industrial countries in the first grouping. This grouping shows a downturn in the purchasing of vehicles in the last three years, when commodity prices have been depressed. If oil prices were higher, this group would probably be buying more vehicles.

Figure 8 shows that China’s auto sales have been growing rapidly. In fact, China has surpassed the Tier 2 average in per capita sales. In the past year, China’s growth in auto sales has flattened. But with China’s huge population, the absolute number of vehicles sold is still very high: 29.1 million vehicles, compared to 17.6 million for the United States, and compared to 20.9 million for Europe.

India and the Rest of the World account for surprisingly few vehicles sold. On Figure 8, their lines overlap at the bottom of the chart.

[9] The push toward raising interest rates and selling QE securities will tend to reduce oil prices and add to the oil glut.

I wrote about some of the issues involved in Raising Interest Rates Is Like Starting a Fission Chain Reaction. When interest rates are higher, economies are pushed in the direction of recession. All kinds of discretionary spending are reduced. Use of oil will almost certainly be reduced. This could lower oil prices significantly, as it did in 2008 (Figure 1).

[10] To a significant extent, China has been helping hold up world oil consumption, with its rapidly growing economy. It is hitting headwinds now, however.

The International Monetary Fund recently showed an exhibit indicating how China’s debt is growing very rapidly, but its growth in output is slowing. The combination could very easily lead to a credit crisis.

Figure 9. Exhibit from IMF Working Paper called Credit Booms: Is China Different?

Now, the rest of the world depends on China for many imported goods. If China should have problems, it would indirectly affect oil demand elsewhere as well.

Even China’s recent ban on importing certain types of materials for recycling can be expected to have an adverse impact on oil demand. Very often, if a container is sent from China to the US or to Europe, there will be no exported goods to send back to China, except for material for recycling. If China refuses to take recycling, containers will need to be returned empty.

Recycling generally needs to be subsidized. Part of what this subsidy is used for is to pay the cost of shipping material to be recycled to China. If China does not take the recycling, this payment for shipping materials in the otherwise-empty containers will not be made. The shipping company will need to charge exporters more for the one-way trip, if the shipping company is to be profitable. This higher cost, by itself, is a deterrent to trade. In many ways, the higher shipping cost is like a tariff.

[11] Conclusion.

My expectation is that the general direction of oil prices is likely downward, especially if interest rates rise. A major financial disruption of any kind would have a similar effect. Gluts of oil can be expected with lower prices.

Many groups, including the IEA, have been warning about oil shortages because of inadequate investment in new production. Oil shortages, and energy shortages in general, have a multitude of adverse impacts on economies. One of them is loss of jobs, because jobs require the use of energy, for example, to deliver goods in a truck. If many more people are unemployed, there is less demand for oil.

Thus, it is not at all clear that a shortage of oil leads to high prices; it may very well lead to lower prices. Many people are confused about this issue, because the word demand gives a misleading impression of the mechanism involved. Lack of demand comes from part of the population not being able to afford cars and homes. It also comes from cutbacks in government spending and from failing businesses. In an interconnected system, even failing banks tend to reduce oil demand.

Another adverse impact of oil and energy shortages tends to be fighting and wars. The fact that the US seems to be raising its energy production, in apparent disregard for countries that have been trying to cut back, is likely to make some oil exporting countries quite angry. It could sow the seeds for another war.

Economists do not seem to understand that GDP growth rates don’t tell very much about the well-being of individual citizens in an economy. A major issue is wage disparity. If there are many very low wage people, there is likely to be downward pressure on the sale of automobiles, and on the purchase of petroleum products. Economists are likely to think everything is fine, up until a major crisis occurs.

About Gail Tverberg

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

  1. Davidin100millionbilliontrillionzillionyears says:

    Orlov thinks the Salisbury spy murder was a British false flag operation:


    “… the British secret services, in close coordination with the British government and the press, poisoned Skripal and his daughter using a nerve agent obtained from Britain’s military research base at Porton Down in order to obtain an excuse to compromise the World Cup games in Russia this summer and also to create a scandal immediately before the Russian presidential election.”

    • Fast Eddy says:

      ‘ British FM Boris Johnson was quick to volunteer that Britain should not send its team to the World Cup in Russia this summer’

      This is all about having an excuse to not attend… and be humiliated by flopping yet again ….

    • Fast Eddy says:

      My neighbour dropped by — I was giving away some of my prepping sh it to him….

      We had coffee… he mentioned that Putin had poisoned someone …

      When I heard that I knew this was obviously a false flag…. he is a fantastic barometer for these things

      • JesseJames says:

        Here is the really scary part. Nikki Haley is now saying that Russia is going to hit New York City with a chemical attack. Expect a false flag there. Expect a war after that.
        The US is now stating that North Korea is building an underground base in Syria to build chemical weapons. A perfect excuse for an attack.
        I see this as an all out offensive against Russia.
        Putin will not back down. Our crazy Neocons probably will not either.

    • JH Wyoming says:

      So the conspiracy theories are already being trotted out to counter the initial information. How predictable. There’s a theory that black holes exist in an opposite sub-verse, and analogous to that, I’m beginning to think the US political landscape has opposite sub-verses as well.

      • NikoB says:

        Let us just face the fact that none of us know and none of us should give the slightest f&*k. Who cares what happened to a spy. If this is a superpower then it is pi$$ poor.
        Lets move on.

        • Dan says:

          I say every man, woman, and child should be issued enough nerve poison to eradicate at least 2 people at their discretion. That way it’s an even playing field, folks would likely be a little nicer to each other, and it would scare the ever living bejeezus out of TPTB.

          • Fast Eddy says:

            Madame Fast is suggesting a Russian agent covertly captured one of my farts… distilled and desiccated it… creating a deadly powder…. and that this was used in that black op….

            Of course the Russian agent was really a British agent with a fake Russian accent carrying out a false flag.

            All of this was carried out without my knowledge… all I did was squeak out a powerful silencer…. how was I to know that guy with the bottle was collecting it????

      • Fast Eddy says:

        WMD Iraq.

  2. Reblogged this on Por mis finanzas and commented:
    “Según mis expectativas, la dirección de los precios del petróleo seguirá siendo a la baja, especialmente si las tasas de interés siguen subiendo”- Gail Tverberg

  3. adonis says:

    Thank you for the new article

    • Davidin100millionbilliontrillionzillionyears says:

      excellent new article…

      we get these excellent articles every 20 days or so…

      let’s see… 79 days until the dreaded Doomsday on June 1st?

      is there time for 4 more?

      we hope so.

      • adonis says:

        As I have been wrong on a 100 % basis on my past predictions i would say that there are fantastic odds that we will see more than four

    • Davidin100millionbilliontrillionzillionyears says:

      “[11] Conclusion.
      My expectation is that the general direction of oil prices is likely downward, especially if interest rates rise. A major financial disruption of any kind would have a similar effect. Gluts of oil can be expected with lower prices.”

      I doubted this for a long time…

      but prices are trending towards the $50s again…

      it’s an important clue to the future direction of the economy…

      TPTB may be running out of bullets.

  4. John Doyle says:

    One complication that hasn’t been mentioned in this blog is the wholesale destruction of our way of life by Neo-liberalism and the rancid policies enacted in its name. The main distinguishing feature of neo liberal thought is that the economy itself is the important factor and we humans have if necessary to suffer for it. By that I mean the loss of jobs and cuts to welfare and much more are not intended to be fixed. All sorts of comments belittle genuine needs. It’s all completely toxic and unnecessary but our politicians are sold on it.
    Fortunately the internet allows people to avoid the spin and find genuine information. Our politicians show today they cannot make wise decisions as they are not prepared enough, and simply fall back on dogma and erroneous policies.
    Immediately in the post war period governments enacted full employment policies. the major parties all supported it. Up until the end of the 1970’s jobs were available if you wanted to work.
    I don’t know at this time just how the resources boom we had then affected the economy’s changes that came after 1970. Neo- liberalism took off after 1970-80 with Reagan and Thatcher leading the charge. A lot of the issues Gail writes about are post 1970’s problems.
    However I see that we can still have full employment at living wages again. The government is 100% capable of achieving that. After all no government = no unemployment. Monetary sovereign governments spend money into existence [regardless of taxes] and can pay for all the neo liberal cuts. Our society is becoming incredibly dysfunctional, the US leading the way.
    Of course we are self destructing but in the meantime we should try to get our house in order.

    • Unfortunately, I think that there is a physics reason for neo-liberalizm. This is one chart of US historical wages, divided between the top 10% and the bottom 90%.

      inflation adjusted wages with bottom 90% compared to top 10%

      These wages are inflation adjusted, so in the earliest period, up until 1968 or 1970, wages of everyone were growing very quickly. This is when oil was selling for less than $20 per barrel, and consumption was rapidly growing. It was possible to think that we could help all of the poor people of the earth.

      Then there is a period up until 1980 when wages of everyone grew as fast as inflation. Oil consumption was still growing very rapidly in this period, despite spikes of high cost. Workers were being given big wage increases, so that they could afford the growing cost of fuel.

      Since about 1980, wage disparity has become an increasing problem.

      The physics of the situation says that when there isn’t enough to go around, the economy tries to “freeze out” those at the bottom. The top layer rises like steam, to a very high level. Observe the absurdly high salaries of company leaders.

      With ecosystems, nature tries to make certain that some will survive in bad conditions. This is the same thing that tends to happen in economies as well. If we divided up income evenly, resources would be depleted even more quickly than they actually are, and pollution would be an even worse problem than it really is. I don’t think that the problem is really fixable.

      • John Doyle says:

        Thanks, Gail. I knew you would have something useful to say. It’s a two headed monster – Resources and Consumption. Resources are finite, consumption is unrecognised as a device which will crash our civilization in the not too distant future. But in the meantime if economics was understood as it really happens and we work the mechanics, we will give ourselves some more time. We might come up with a plan!
        I have seen you do not recognise MMT as a valid theory of macroeconomics, however it is not a theory that needs proving. The laws are simple;1] The federal government is NOT a household. In its own money it can never go bankrupt. It creates currency by spending, deficit spending.
        2] there are are no unfunded liabilities we leave to our children. It’s PAYG forever.
        3] Federal taxes do not contribute 1cent towards government revenue. So the government can ignore what taxes bring in. Already pensions are excluded from the federal deficit spending statistics. Much military spending, including military pensions, are off budget. Same goes for disaster relief. Spending this way does hardly burden the government’s debts and they are paid off instantly, out of “thin air”. So the real deficit spending is already much greater than the official figures show. But it accelerates consumption of resources without much effect on taxation. Mainstream theory fails to recognise any of these points.

        • You need to look at history and physics.

          1. The federal government is NOT a household, but it is a dissipative structure, like a household. It depends on adequate flows of energy products. These are normally provided through tax revenue. History shows that governments collapse, when flows of energy are too low. This often happens when there is too much wage disparity. The government cannot tax wages sufficiently. Corporations convince the government that it must cut their taxes.

          2. There are no unfunded liabilities that we leave our children. I agree. The system collapses instead.

          3. Federal taxes do not contribute 1 cent toward government revenue. Printing money can only influence transactions within the country. How the dollar floats relative to other currencies determines what, if any, value other countries assign to it. Think of Venezuela.

          Governments collapse from lack of energy products to fulfill promises that it has made. At a minimum, it has promised to pay its employees. It also has implied promises to provide certain kinds of payments (which can be exchanged for food, clothing, and housing) for elderly and disabled citizens. I am afraid that the US government will go the way of the government of the USSR in 1991. It will disband, leaving the states and municipalities to pick up the pieces.

          • louploup2 says:

            “If we divided up income evenly, resources would be depleted even more quickly than they actually are, and pollution would be an even worse problem than it really is.”
            Do you mean “than they already are”? Are you saying that the dissipative force (increase in entropy) of all households is greater than that of the government? I.e., that the call on actual resources (money or debt) is greater from all the households than from the government? How are they not equivalent; where does inequity fit in this calculus?

            • If we divide up resources evenly, everyone will be able to have a nice home and a car, even the people who are now homeless and the ones who live in their parents’ basement. Their homes will need to be heated and cooled; their cars will need fuel.

              The government doesn’t spend nearly as much. It does, admittedly pay a lot of workers, and soldiers (one kind of workers), and retired people. So it is already doing a partial dividing up of the resources we have.

              But including everyone, steps up the allocation even further, and helps bring the system down more quickly.

          • John Doyle says:

            Tax is never revenue for a monetary sovereign government, Gail. Think about it! To pay tax you first have to get the money. Creating the currency has to come before the tax can be imposed and how much tax you are liable for depends on how much money you have earned etc. It’s a simple fallacy to say national governments can provision themselves with taxes. Mind you this is ONLY for national monetary sovereign governments with their own currency. Everybody else uses currency.
            That’s why it’s not like a household. Nothing to do with a dissipative structure which just about everything we do is one.

            Don’t fall for the shorthand idea that governments “print” money. Apart from banknotes governments spend money into existence. No debt to pay? then there is no money. We wouldn’t have any money if the government didn’t first spend. Banks use government money as well to activate their loans.

            The value of the dollar is the value of the “full faith and credit” of the national government. Venezuela is a complicated situation beyond the scope of this blog. But foreign governments can influence what value is assigned to it.
            Governments will indeed collapse if they cannot provision themselves. That will be the end game.
            It’s never just a question of money, because it can pay it’s way at every turn. It can never go broke except by act of Congress. Real resources are the problem, that’s for sure. If they are not there no amount of money can buy them.

            • Money and other debt are essentially promises that resources (particularly energy resources) will be available in the future. Of course, at some point they will not be. That is a major problem.

              A government can only spend money into existence if others will accept it. Venezuela is having real problems spending money into existence. Their spending only leads to inflation.

            • John Doyle says:

              You are changing focus away from my contention. let me reinforce the idea that mainstream economics, which you still support, is a dangerous ideology. Venezuela would not be suffering today if had adopted MMT, although it’s too far gone now considering their government’s total incompetence.

              View story at Medium.com

            • Where did you get the idea that I support mainstream economics?

              Venezuela is suffering because the price of oil is too low for it to extract its vast oil resources. According to BP, it has the highest oil reserves in the world. Venezuela would be in the same positions it is in now, or worse, if it had adopted MMT.

              The central government of the USSR collapsed when the price of oil fell too low. Oil exporters have that problem. They also have a problem if the quantity of the oil they extract starts falling.

              Oil importers have the reverse problem. They tend to run into problems, or even collapse, when the price of oil rises too high. The reason why the US, Europe, and Japan are doing fairly well is because the price of oil is too low for oil exporters.

            • John Doyle says:

              You clearly have little understanding of MMT. You are constantly at me for bringing it up. When I show it for what it is, its like pinning a drop of mercury to a spot. You sidestep. It’s completely fallacious to say Venezuela would be worse off under MMT. That is very ignorant. Why it’s so badly off today is that there is the dreadful dysfunctional mainstream to blame. You support mainstream economics every day. All one has to do is read your blogs. Simple. Add an incompetent government and Voila, Chaos.
              Oil becomes a problem when it is not available enough to keep the machinery of the economy running. If the problem is cost, the government will subsidise it, either way. The money will be found as explained by MMT. It won’t even show up on the accounts, like so much expenditure today.
              Where do you think the money to pay for disaster relief comes from? It’s not in any budget. The military black ops is likewise funded under the counter. MMT explains why this is so and what the consequences are.

            • Money is a promises for future energy (and the goods that this future energy supply can buy). Debt is promises for future energy supply. A government can keep issuing these promises, but if they are clearly false, they will not be of benefit. This is what Venezuela has been doing recently.

              Venezuela has been an oil exporter for a long time. That is a primary source of its revenue stream. If oil prices are very high, it does well. If oil prices are low, it does badly. There are two different benefits of high oil prices:

              1. More of the oil resources become profitable to extract, so the amount extracted each day/month/year can rise.
              2. The amount of tax that the government can collect on the resources can rise.

              The government of Venezuela has been overspending what it really could afford for a long time, thanks to the country’s/state oil company’s ability to borrow money, based on the value of the oil resources, when oil prices were higher. China was a primary source of these loans.

              Now that oil prices are lower, the country is in the same bad situation that the Soviet Union was in, when oil prices fell in the 1980s. It Took several years for the collapse of the government of the Soviet Union to take place. I expect that that is where the government of Venezuela is also headed.

              What possibly do you think that MMT could have done to prevent these problems? Issue yet more debt, to be funded when it came due by ever more debt? This could only (in theory) work within the country. There is no way to get outsiders to accept this debt. The future promises don’t even really work within the country; they just produce inflation.

            • John Doyle says:

              Oil wasn’t Venezuela’s problem initially, but it’s part of it now. Venezuela’s problem began with NAFTA. Through NAFTA the US could sell its [subsidised] corn at a price which undercut the home crop. I can’t recall which US state but it’s entire production is for Venezuela. A similar thing happened to Mexico, but at least the farmers driven off their land could cross the border into the USA to seek work there. 8 million did that. Venezuela doesn’t have that option. What it did was assume their oil could buy the imported corn so they stopped growing their own. Which meant to feed themselves they needed lots of dollars. So when the oil price went down food became a problem. It’s their biggest problem even now. This was a silly incompetent government assuming oil would be around for generations and not watching out for trouble.

              Oil revenue is an external input for an economy but it’s gone very badly now. Regarding MMT, with understanding they could have used their own money – which they can do without fear of bankruptcy- to fund all the local needs regarding the national welfare etc. Remember taxes don’t provide revenue, the money comes from buying services etc and paying wages. The lack of oil revenue has little relevance to that. Venezuela, unlike other failing states has a ready supply of hard currency. Even if it is down today, it allows it to import at a reasonable price what it cannot supply itself. Paying for full employment produces goods and services without incurring excess inflation.

              It never needs to buy dollars outside so it cannot be hung up on a hyperinflation which is always a political not a monetary event. I can easily recognise all this at a distance. It’s not difficult to forecast that the incompetence of the government trying to follow mainstream precepts is self flagellating vigorously. MMT understanding would have shown a way out but now its deteriorated so far a complete collapse looks very likely. It takes a while to get farms producing food again, but the government could pay for all the unemployed to work on farms etc and resolve the food situation. The dollars saved could be employed elsewhere. Etc Etc.

            • Oil and other fossil fuels are absolutely fundamental to economies. If MMT does not recognize this, its theory is wrong.

              The United States was able to grow huge amounts food–far more than US citizens can (or should) eat themselves by using oil (and other fossil fuel products) to leverage human labor. Oil was used to make and power tractors. Petroleum products were used to make herbicides and pesticides. Natural gas was used to make nitrogen based fertilizer. Also, oil was for trucks to haul the food, and to refrigerate the more perishable types of produce during shipping.

              It was the leveraging impact of oil and other fossil fuels that made food very cheap to produce, and got rid of many farm jobs. The US exported these effect to Venezuela, and to many other countries. Africa was particularly harmed by US exports of food, which undercut the incomes of local farmers. They had few other products to sell.

              When Venezuela and other countries (such as those in Africa) need is something to trade for US food, because it can be produced so cheaply, it undercuts the efforts of local farmers. But they don’t have much of anything to trade, except if they pull resources of some type out of the ground, and sell them to get the ability to buy goods in US currency. Trying issue more of their own currency does no go. They cannot buy internationally with it. It just sinks in value relative to the US dollar.

              It is energy product that have caused all of the disruption. Now low energy prices are causing a different kind of disruption.

            • John Doyle says:

              Apart from your remark that MMT may not recognise oil impacts you are just adding to what I said.
              MMT is an explanation of macroeconomics. As I have said it is not an hypothesis. Your getting hit by a truck doesn’t negate the theory of gravity. Oil problems don’t negate MMT. The mainstream doesn’t even include money in its theories! In Venezuela oil is both the answer and the problem. It’s the incompetence in government that has done it so much damage, but it’s also been shafted by outside “help”
              The USA is behind a lot of this trouble, as I think you understand. A dealer, John Perkins wrote a book called “Confessions of an Economic Hit Man” showing how certain persons in the US administration encourage that sort of behaviour in cahoots with the World Bank and the IMF. Treaties like NAFTA , the TPP etc are all written to screw member states. What’s amazing is how the pollies can’t see it. One more sign of their incompetence and inability to govern in todays world.

            • Fast Eddy says:

              MMT … MMA … both barbaric … stuuuupid … ideas…

              You do understand that the problem is :

              – the cost of producing oil

              – is higher than the price it can be sold at

              – that there is no solution to that problem

              – therefore we are going to collapse into a state famine, disease, violence and spent fuel pond radiation

              – leading to — extinction

            • John Doyle says:

              We are on our way to extinction, or a restart in a world that no longer will suit us. That is a certainty. Economics theories don’t address this because of optimism bias we all have. No politician is going to say to his constituents that the jig is up. He would not get elected, probably even lose his deposit.

              You are just a broken record, endlessly repeating yourself. How about seeing what CAN be done? Or are you just rolling over and waiting for death?

            • we are facing energy depletion, climate chanfge and overpopulation

              when youve figured out just one of those problems come back and let us know

            • Fast Eddy says:

              John – think of it this way .. you are in that room where they put people who are dying … it’s a very nice room… very calm… the patient is resting peacefully pumped with epic amounts of morphine…

              The patients name is BAU.

              The people in the room are watching BAU closely … because they know that when BAU dies… we all die too…

              So f789 off and leave us alone here… the only hope we have is that BAU is alive tomorrow morning .. and the day after that

            • Fast Eddy says:

              Time to learn John:

              THIS is why Venezuela is F789ed….. (and KSA… and Mexico .. and just about every oil producer)

              OIL PRODUCERS NEED $100+ OIL

              Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. “The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120,” he said


              Shove your MMT up your a sss….. sideways….

        • theblondbeast says:

          Gail and others here may not be MMT supporters, but neither are they primarily debt hawks. Monetary Sovereignty is not the end of the story for MMT – and the practical differences of trying to control inflation with taxes ignores a great deal of reality. While Monetary Sovereign nations like the U.S. can create their own currency denominations, they cannot control its value.

          Debt is only half the story of money. Entitlement is the other half. The debt function is fundamentally social and is a way to represent entitlements and obligations. Debtor/creditor. Taxation as primary monetary incentivization merely makes the federal government a form of creditor rather than a “private” banker.

          The fact that we can print money is well and good. But when we print more money to buy goods and services requiring oil, the demand for oil rises faster than supplies can be brought online and the prices of goods and services rise, causing inflation which cannot be dealt with by proximate taxation.

          MMT is a clever thought experiement but it cannot escape resource limits which an expanding money supply inevitably slams into – unless other system effects such as asset inflation forestall the effect.

      • Name says:

        I would like to see such chart for other countries. I suspect, that it is a result of falling % of nonhispanic whites in the US.

  5. Fast Eddy says:

    Sounds GRRRRRREAT!

  6. Fast Eddy says:

    So many ways for the CBs to kill this

    Mimiccing its biggest rival for ad dollars – Facebook – Google will ban online advertisements promoting cryptocurrencies and initial coin offerings, and “other speculative financial instruments” starting in June.

    Some aggressive businesses found a loophole: purposely misspelling words like “bitcoin” in their ads. A Google spokeswoman said the company’s policies will try to anticipate workarounds like this.

    The reaction was immediate across the crypto space but for now is somewhat subdued…


    • “A Google spokeswoman said the company’s policies will try to anticipate workarounds like this.”

      I need some tips on this as well. There seems to be infinite creativity on misspellings.

  7. Fast Eddy says:


    Oh come on … he’s been dead for a decade… Weekend at Stephens….

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