Too Low for Too Long …



The grand euro experiment is grinding toward its ultimate conclusion, this can be seen in the petroleum markets. The chart by Bloomberg:

 

Commodity Futures

Indexes

INDEX NAME VALUE CHANGE
Index_red_code UBS Bloomberg CMCI 1,414.65 -23.91
Index_red_code S&P GSCI 580.99 -15.21
Index_red_code RJ/CRB Commodity 268.31 -4.66
Index_red_code Rogers Intl 3,283.91 -70.08
Commodity Futures Chart

Commodities Futures Indexes

 

Energy

PRICE* CHANGE % CHANGE TIME
BRENT CRUDE FUTR (USD/bbl.)
98.740
-3.130
-3.07%
16:29
GAS OIL FUT (ICE) (USD/MT) 846.250 -20.500 -2.37% 16:29
HEATING OIL FUTR (USd/gal.) 263.990 -6.330 -2.34% 16:29
NATURAL GAS FUTR (USD/MMBtu) 2.323 -0.099 -4.09% 16:28
GASOLINE RBOB FUT (USd/gal.) 266.200 -6.070 -2.23% 16:28
WTI CRUDE FUTURE (USD/bbl.)
83.260
-3.270
-3.78%
16:28

 

Here we see what happens when a belief system dies. The grinding part is caused by the high price of petroleum. It has cost so little for so long the entire machinery world has been built up around it. A low price has been assumed forever. Now fuel is unaffordable by a large and increasing part of the world economy: the part that has been charged with servicing the world’s debt.

The outcome of the high price has been demand destruction with resulting sharp fall in the price: down then up then down again. The public naively believes the decline in price is an unadulterated ‘good thing’ but prices fall today because something important has died … such as a country.

Either the nominal fuel price is too high and other prices cannot be raised, or the low price represents diminishing purchasing power across the entire economy. In either event, the price of petroleum relative to other goods and services is unaffordably high and the consequence is being felt. People blame bankers but the real problem is the assumed/desired perpetual low fuel prices.

The low prices represented an excess of supply on the market, the outcome of the low price was a self-entrenching belief that the excess of supply and the accompanying low prices would last forever. Too low for too long has been a trope of economic pop culture. The big idea is that bankers held interest rates too low: that what bankers do is of vital importance. Umm … not really, JW Mason at Mike Konczal’s Rortybomb consolidates some of the various interest rate arguments here:

 

Far Too Low for Far Too Long

So, what caused the economic and financial crisis of 2007-whenever? It’s an open question. Presumably we’ll continue to argue about it until the next crisis (or until the Moon Men invade.) But right now let’s talk about one possible story, or really family of stories: that the root cause of the crisis is that interest rates were too low for too long.

You can even find this type of argument among Keynes scholars, like the brilliant Axel Leijonhufvud:

Operating an interest targeting regime keying on the consumer price index (CPI), the Fed was lured into keeping interest rates far too low for far too long. The result was inflation of asset prices combined with a general deterioration of credit quality. This, of course, does not make a Keynesian story. Rather, it is a variation on the Austrian overinvestment (or malinvestment) theme.

In the current crisis, he adds, “The General Theory is not particularly helpful.” (Heresy!) Well, it is certainly true that Keynes wasn’t writing about a situation where the market interest rate was in some sense too low. Indeed he believed that an excessively high rate of interest explained not only crises in rich countries but what would we would today call the underdevelopment of poor ones (Keynes): “The history of India at all times has provided an example of a country impoverished by a preference for liquidity amounting to so strong a passion that even an enormous and chronic influx of the precious metals has been insufficient to bring down the rate of interest to a level which was compatible with the growth of real wealth.”

One is loath to argue with Leijonhufvud, a far smarter and deeper thinker about the economy than most of us (me certainly included!) can ever hope to be. And yet I can’t shake a nagging feeling that the “far too low for far too long” story doesn’t quite add up.

 

It doesn’t add up because Mason leaves out petroleum. Fuel prices have increased 10x since 1998 and 3x since 2004. The increase in price has not produced 10x or even 3x as much fuel. Instead, the price rationing dynamic has kicked in leaving players on the sidelines. The players’ choice is to drive cars or pay the interest on trillions in debt … accumulated to drive cars. Drivers can buy fuel with credit or pay the interest, they cannot afford to do both at the same time.

Paying interest leaves nothing for driving and the car industry fails along with everything that accompanies it (as is underway in the EU right this second).

The price declines because users cannot afford fuel, not because technology has brought a new supply of the cheap stuff to the markets. Rationing by price is a blunt instrument, what remains after comic book fantasies about unlimited petroleum energy are substituted for common sense. Comic book never says that any new oil is going to cost a lot of money. It never says the only source of the new money is Wall Street and City of London finance.

$98 per barrel Brent is lower than the price cited by analysts as the break-even amount for many producers of crude. Selling at a loss can only be supported by producers for very short periods and only by their accepting (bad) credit.

After rationing by price/access to credit is physical rationing by way of shortages. These takes place after the price is insufficient to bring expensive replacement crudes to the market. The reduced price is always too high for shortage-crippled customers to afford: as fast as the price declines the ability to meet the price declines faster. Here is fuel-driven deflation, much like the debt variety, where the real worth of the fuel balloons relative to the income- or credit-worthiness of the purchaser.

The ordinary solution of flooding the markets with oil is unavailable when cheap oil cannot be found or the cost of the flooding is ruinous to the producer. The economy freezes and prices fall because inputs are unaffordable.

Looking behind the curtain, it is possible to see the outline of this dynamic underway within the euro-area. Countries have borrowed staggering sums to afford fuel along with the means to burn it. Neither the means nor the fuel provide any return so additional debt is taken on to retire the first round of loans and purchase more fuel and more means. More debt is taken on to the point where the entire capacity of the borrower is utilized to service and retire debts.

Lenders question whether debts can be repaid, they make repayment demands which cannot be met. The revealed worthlessness of one group of loans calls illuminates the worthlessness of the rest. The edifice of loans is useful only in the sense that the cost to restructure is now greater than what the edifice itself is worth.

Europe cannot borrow any more, no one will lend. If Europe cannot borrow she is bankrupt, if she lends she is also bankrupt as she lends against worthless collateral. There are no other choices besides lending and not lending.

The stock markets reflect uncertainty, is this the ‘Big One’?

 

 

Figure 1: World stocks from a March 2009 baseline by Doug Short (click on chart for big).

Markets swoon and authorities swoop in with newly-recycled credit and promises of recovery to come. The markets rise on the euphoria until the next round of borrowing difficulties and the swoon begins again. Monetary policy has proven to be the least effect means of promoting recovery as tens- of trillions of dollars, euros, yen and yuan have been recycled to produce the effects seen in the chart.

The political establishments have no credibility at all: please refer to the last post. Politics matter, good politics would be a tonic compared to the current nonsense in high places. Nobody knows what to do, nothing worthwhile is on the negotiating table. Political nerves amplify market tension as finance is stretched to the breaking point.

There is no credible enterprise which is able to make a good loan. Here is the widening gap between reality and what market participants want to hear.

The time for a fiscal union or European federation has passed. The point of such a union would be to create a credible Pan-European entity that could make a good loan: a source of new capital, in other words.

– Won’t work now because all loans are demonstrably bad loans.

– Loan quality AND quantity is a problem not the euro itself.

– Resource/energy waste is the REAL problem as what is done with the resources cannot pay for the resources themselves. This is the ‘why’ of the euro in the first place: to waste today and (not) pay sometime in the future.

– The euro was to allow individual European countries to afford fuel imports without having to buy dollars or sterling in the forex markets first.

– The euro gave the EZ mercantile countries a captive market, denominated in euros.

– The euro made all EZ loans uniform, it gave all euro-denominated sovereign loans the appearance of being risk-free: too low for too long!

– At the same time there was the implied interest rate differential that could only emerge after it was exploited by insiders. Far from being a real currency union, the EZ is a collection of different states all using different currencies all pegged together called ‘the euro’. All the nations — including Germany — are thence dependent upon external financing.

The euro is a form of sub-prime instrument, where the promised benefits cannot exist. However, this fact cannot be determined until the euro-customer is committed to it and discovers its defects the hard way.

There is no credibility within the EZ because there are no good loans, there never have been any good loans. Lending for consumption requires external repayment agents (bankers from Mars). Europe can lend to itself only when everyone understands that Europe has resources-in-kind to repay the loans. Now what? False promises of ‘prosperity’ can only be met with more false promises from incompetents who don’t understand the nature of their own claims.

Any non-European entity attempting to ‘bail out’ any euro-zone or EU country faces the same credibility issue: that includes the Fed and the IMF. When it makes a loan in order to retire bad loans, it is making a bod loan itself.

The fault lies with the original loans which never should have been made in the first place.

The entire world has been had, the car dealers and developers made some ‘money’ … whatever that is. There is nothing useful to show for the enterprise except some useless junk. A fine mess we’ve made for ourselves …

47 thoughts on “Too Low for Too Long …

  1. enicar333

    Scott Walker won the recall. A Phyrric Victory – but significant because it means that many of my fellow Wisconsin Citizens are tired of being LOOTED by the State to pay bloated salaries, lavish benefits, and early retirements to a group of whiny Socialist malcontents.

    KOCH! you say – SOROS I reply! OK? KOCH! SOROS! KOCH! SOROS!

    You’ll reflect upon these days, in the not too distant future, as the “good old days”, when, unless something changes, gasoline is scarce and rationed, food supplies tight, air conditioning and heating become LUXURIES once again, and resource constraints disqualify the non-productive from a seat on the Bus. Good health will be *PRICELESS*.

    THEN, we shall begin to live again.

    1. Mr. Roboto

      The coming of the sort of plutocratic-fundamentalist dictatorship that Walker’s victory represents tends to make collapse worse and not better, but given human nature in these situations, it is to be expected. Liberals who think it does any good to unconditionally support a Democratic Party that just keeps throwing always more liberal values and priorities overboard, are just codependent doormats who can’t bring themselves to accept reality. Everyone with a real voice in the political process seems committed to the insane idea of continuing the paradigm of infininte growth on a finite planet, so I guess there really wasn’t any way any of this could end well, was there?

    1. enicar333

      With the Walker victory – perhaps he wants to meet me for the “Trial by Ordeal” a little early! (LOL)

      Do be OK RE!

  2. Jb

    “There is nothing useful to show for the enterprise except some useless junk.”

    Ok, so it’s 1865 and you’re having an ale at the Old Ebbitt Grill when the fella next to you starts talking about the oil coming out of Pennsylvania. The refineries are under construction near Titusville but the market is brand new; what do we do with the stuff?

    My purpose here is not to re-imagine that last century. Rather, I’d like to know what ‘less than useless’ stuff we’ve made that would have made sense to someone standing there over a hundred years ago debating this question. Farm tractors and chain saws would have been nice. What about water filters, radios, and photovoltaics? Thoughts anyone?

    1. steve from virginia Post author

      That is an excellent question.

      What it frames is the utility of resources. Can we compare resource regimes? To some degree, yes. US we know, let’s look at the Soviets.

      Their idea of ‘maximum economic utility’ was heavy industry and armaments. The communists inherited the Tsar’s modest industrialization efforts and directed them toward amplifying strategic and military advantages for the Soviet government. They built railroads, trucks, tractors, power stations/dynamos, dams, mines, refineries and sprawling factory farms … and tanks, airplanes, warships and other weapons. There was no consumer sector to the Soviet economy until Brezhnev and the semi-relaxation of communist economic control. Of course, the Chinese followed the Soviet/Stalin doctrine until Deng took over from Mao & Co.

      The flood of Chinese-made consumer goods into the USSR from the east — after the Chinese liberalization — had as much to do as anything else with the unraveling of the USSR. Russians and Eastern Europeans could buy cheap TVs and see what it was they ‘needed’. Then, they could swap for these things in street-corner black marketplaces. These curb versions grew up around then cannibalized the official ‘market’ that doled out goods to party members.

      I recall the ‘informal’ trade was vodka for blue-jeans. Few wanted Soviet tractors or dynamos at that point, economically they weren’t particularly productive compared to the western goods.

      We don’t know what to do with the resources now, we have them but we aren’t smart enough to hold them back until someone comes up with better ideas for their (remunerative) use. This is an easy concept to put forth, probably politically/administratively difficult. The argument for ‘non-management leading to resource collapse’ emerges from this reality.

      I think the human tragedy is that we discovered the goodies — resources and ideas for easy use — long before we found wisdom.

      1. Jb

        “I think the human tragedy is that we discovered the goodies — resources and ideas for easy use — long before we found wisdom.”

        Indeed. Yet, you’re mention of dams is intriguing. We could have developed urban centers from coast to coast based on the assumption that the oil was eventually going to run out.

        Ebenezer Howard put forth his ‘Garden City’ in 1898. By the early ’20s, Le Corbusier was busy trying to get rid of the Parisian slums with his ‘Villa Contemporaine.’ And by the late ’30s, the great American architect, Frank Lloyd Wright developed his vision of ‘Broadacre City.’

        All for naught. Looking at the world population chart, perhaps we never stood a chance.

        http://en.wikipedia.org/wiki/Human_population#Antiquity_and_Middle_Ages

        The Industrial Revolution took a bad situation and made it much worse. Perhaps there never was a good, productive use for the stuff anyway. Depending on the year and the country, the value we placed on the utility of this particular resource has changed to support every vain attempt to move us further from our collective past.

      2. Ellen Anderson

        Would the human species have been better off without the revolutions (agricultural and then industrial) that allowed it to overshoot its resource base? I have no idea how to answer that even though I think about it a lot. I do know that I wouldn’t be sitting here writing to you otherwise. What we don’t know is whether the people who are left after collapse will understand what went happened, learn from it and allow the species to continue at a much lower level. Who decides what that level should be? That would take a lot of wisdom.
        About chain saws: if you aren’t trying to cut down a whole forest then a crosscut and an axe are fine. You can make a small house, a small fire. Of course, it depends upon how many people want to do the same thing. Europe was running out of wood when they sailed off to America, I think.
        Marx expected that the industrial revolution would allow people to live lives of leisure without working all day. That, IMHO, was a big mistake. He didn’t get demographics or psychology at all.

      3. Jb

        “Europe was running out of wood when they sailed off to America, I think.”

        That is correct. A nice little book, if you can find it, is ‘Water – A Natural History’ by Alice Outwater. From p.5:

        “Beavers once lived throughout the European wilderness and the British Isles. As people pushed back the forests, and as furriers paid good money for beaver hides, the beavers began to disappear. Scotland’s beaver trade dried up by 1350, by which time a beaver pelt could cost up to a hundred and twenty times as much as a lambskin.”

        By 1350! Anyway, the book goes on to talk about how the beaver trade was a major factor in exploration (exploitation) of North America.

      4. steve from virginia Post author

        Perhaps, the discovery of the resources and their loss is part of the greater process. So much of the foolishness is ‘wired in’ we needed both the new narrative and an example. The narrative hasn’t emerged yet but the example is being made of us.

        Theoretically, we could have taken the material wealth of the pre-industrial Earth and colonized the Solar System (for instance). We could have (needed to) to “X” elsewhere to allow this to take place. We would have had to understand that trade-off then put it into a philosophical context — that could be sold — at a time when science was in its infancy and science fiction didn’t exist.

        So, the process was: material discovery => waste => science => science fiction/pop culture => ‘goals’ => depletion => revised goals (including long-term stability because we’ve learned our lessons about waste and also have no waste-able resources).

        It can also go: material discovery => waste => science => science fiction/pop culture => culture-driven exhaustion and depletion => extinction.

        It never would have gone: => discovery => philosophy => science => more philosophy => more science => thousands of years of restraint w/ people considering science and philosophy.

        Right now, the idea is to work with the idea of depletion (which we deny) and the development of more reasonable goals. There is no need for 7 or 9 billion humans, no need (or possibility) for unbounded consumption. All of our goals now are commercial goals, the men of commerce decide what is best for them then convince us that our goals should become the same as theirs. This is the dynamic that is out of kilter. It’s time to take the controls of the world out of the hands of merchants and bookkeepers. Let’s try another group of folks.

        As far as the resources themselves: there aren’t enough to support a consumer paradise, but this was a silly idea when it first emerged, not that long ago (after world war one). We could come up with a better plan such as: reduce population (increasing wealth at the same time), reconfigure our living spaces in the world (including ‘giving back’), we can husband our resource capital (and borrow to allow this to take place), escape from the tyranny of money and money-wealth. There is certainly enough resources/solar energy budget to allow this for a very long period. I feel now the human duty is to demonstrate over a longer period to our own critical satisfaction that we have our shit together, that we can indeed manage our affairs in a non-destructive or impulsive way, that we are part of rather than the thing apart from where and how we live. First step there is to end the rationalizing about ‘progress’ innovation, irony, obsolescence, idealism, etc.

        Then, a thousand years from now, once we know what we are about we can choose to go into the rest of the universe if we want to. Within this process the depletion/collapse phase is very important, it’s an education feature! We humans will learn a lot about ourselves, including a lot of things we don’t want to know.

      5. slackjawedyokel

        The organised proto-European armed violence ( over the last 3000 years or so ) has a reflection on some Australian rock walls in WA with a culture that probably ate the meglofauna then had severe constraints over time – variously reckoned as up to 100,000 years of continous human habitation ( some believe in the Australian Eden theory ) however any discussion without the use of power and also force directed against the environment and also the people who people it is inadequate when considering the utility and cost of resources – the question of the killing of opponents and prey to maintain the status quo would require an politco/econo/calculus opus akin to T Kahn “On Themonuclear War” – with the same justification ; looked at clearly, the answers are mad. Hence, look elsewhere.

  3. The Dork of Cork

    Not a fan of Singapore ……. in one sense its like the Irish economy , hugely open to trade & capital flows both from imports and exports although the Irish multinationals are essentially walled off from the rump domestic economy while Singapore’s multinational operations perhaps form a closer fabric to the country.

    Both of these former British colonies cannot function as a national unit in the event of a deglobalisation singularity as they have no real domestic Hinterland to call on.

    This is why the French rail strategy is so badly skewed towards high speed which is centered on Paris (Radial network)…. Paris like London farms the monetary ether which resides outside its more local national bounderies – high speed assumes Paris will always be the bread winner.(or more accuretly taker)
    Hence the local economies productive capacity shrink while Paris keeps spitting out global money until it cannot.
    Better to rebuild the small local stuff while they still can.
    fr.wikipedia.org/wiki/Ligne_du_Havre-Graville_à_Tourville-les-Ifs

    Towns such as
    fr.wikipedia.org/wiki/Goderville
    need to become part of the economic hinterland of Paris again…..this can only be acheived by reducing their inputs , pushing them into a surplus via agriculture etc (food is energy)
    As cities are always in energy defecit , tradionally to their local agricultural hinterlands but now to the stuff below the sands of Arabia.

    Anyway – Its best to dump the bus if you have a ancient railway outside your door.

  4. The Dork of Cork

    One of the most beautifully designed and integrated light rail transport systems occurs in the region of Alsace which is neither fully French or German culturally.
    It starts with a small Diesel car single track.
    fr.wikipedia.org/wiki/Ligne_de_Lutterbach_à_Krut

    Example village :fr.wikipedia.org/wiki/Saint-Amarin
    Stopping at these villages.
    Kruth – Pop : 1,016
    Oderen – Pop :1,321
    Fellering – Pop :1,712
    Husseren-Wesserling – pop :1,001
    Ranspach – pop : 848
    Saint-Amarin – pop: 2,421
    Moosch – pop :1,789
    Willer-sur-Thur – Pop : 1,923
    Bitschwiller-lès-Thann – Pop 2,119

    The X73500 diesel rail cars interlink with the new Tram trains at this station (Gare de Thann) since Dec 2010
    fr.wikipedia.org/wiki/Gare_de_Thann-Saint-Jacques…

    fr.wikipedia.org/wiki/Tram-train_Mulhouse-Vallée_de_la_Thur

    (the first true tram train in France) … they are extremely difficult to execute.

    Thann has a pop of 7,985
    next population centre – Vieux-Thann :Pop 2,858
    Cernay :Pop 11,288
    Dornach :Pop 5,684 (suburb of Mulhouse)
    Mulhouse :Pop 111,156

    A beautiful system using the valley population settlement distribution to the max.
    http://www.youtube.com/watch?v=FSUTtcL8JMg

    http://www.youtube.com/watch?v=mt4YrydOIj8

    Worth looking via Google earth to see how it all fits together.

    Elegant is the word.

  5. slackjawedyokel

    Thanks, Steve.
    Homo instrumentalis probably won’t go away. Science in stone tools ; Food ecosystems in all continents ; Widespread literacy and meme conscienceness / Social shared knowledge about knowledge ; Not reverse engineering but resource based engineering with the stewardship/ “When you’ve burned things up, they remain burned up.” core burning bright / scar knowledge eg alcohol burning motorcycles/generators ; orchards/forests ; clean air and water ; non-violent sharing. The megadeath looms large which can be a motivator unknown in history ; or “humans, their prey and parasites remaining ” ( D Metcalf ).

  6. The Dork of Cork

    Another rather less sexy rail project when compared to all that high speed stuff.

    “This operation aims to modernize these two railway lines , with the objectives to reduce journey times and increase the capacity of the line .

    The first phase of work, completed in January 2011, included the modernization of the way between Nantes and Saint Pazanne and the signage on the set of two lines .
    The cost of the first phase of the operation was 51 million euros , financed by the state (8 million), the Region Pays de la Loire (16.4 million), the Departments of the Vendee (8.3 million) and Loire-Atlantique (8.3 million) and RFF (10 million).
    The second phase of work provides for the renewal of track beyond St. Pazanne to Saint-Gilles-Croix-de-Vie and Pornic, allowing an increase in speed. The preliminary design studies of this second stage of modernization of the line were launched in 2011 .”

    Notice the small fraction of the RFF funds that go towards regional rail – most of the money comes from local goverment and some from the state directly…..this puts their expected 3.4 Billion Y2012 expenditure into some perspective.

    fr.wikipedia.org/wiki/Ligne_de_Nantes_à_Saint-Gilles-Croix-de-Vie

    No1. terminus :en.wikipedia.org/wiki/Saint-Gilles-Croix-de-Vie (pop 7,495)
    No2. terminus :fr.wikipedia.org/wiki/Pornic (pop 14,052)

    The French are preparing for a possible return of the Franc me thinks – The people from Nantes can spend all their Francs in the local seasde resort without sucking much Diesel.

    http://www.youtube.com/watch?v=R0R1FHwnaQw

    1. Jb

      DofC: Thank you – I enjoyed watching the story of the Graf yesterday as it was completely unknown to me.

      1. The Dork of Cork

        @JB
        Yeah it is really strange for most of us – but watch out for the Hearst bullshit…..
        If you like the above – you will perhaps find this Interesting……10 years later……..
        The modern battle between the tradional industrialists and the Financial sector began with Citizen Kane.

        http://www.youtube.com/watch?v=M6QPzbzmYgE

  7. Reverse Engineer

    Too Low for Too Long? For sure, but why so low for so long?

    Those who took control over the Oil resource early on in the game, aka John D. Rockefeller and Pals had to make it Affordable for people to buy, elsewise why control the resource at all, eh?

    Who issues the Credit to buy this resource from John? John issues it of course, and places an interest charge on his loan. John keeps the interest low as long as he has plenty of Oil flowing cheaply out of the ground around Jed Clampett’s farm, but when he starts running Short on Oil to sell, the prices rise and the credit cost in interest to buy it rises also. John is still doing fine of course despite the shrinking supply and falling demand, and will continue to do fine right up until it completely runs dry here. He’ll just keep downsizing and selling to Boutique Economies until the system shrinks so much as to no longer being able to support even one Oil field and One Tanker Ship and One Refinery and One distribution network for the finished product.

    Along the way, John ALSO invested in and built many structures all dependent on the Oil he controlled and sold. He invested in Henry Ford’s Carz of course, and Edison’s Lightbulb. Lovely inventions all these things were also, and EVERYBODY wanted one, to be part of the great Future they all promised. Just look at the photos from the Chicago World’s Fair of 1893 to see the Gleaming Future promoted, and really every World’s Fair thereafter also right up to the one I attended in 1964 in Flushing Meadows park in NYC.

    It was all of course a Dream, a Bubble created which sieved great wealth into the hands of the people who controlled this once seemingly inexhaustible resource, while at the same time “improving” the lives of everyone suckered into the game here. The Bubble is Burting now, fittingly first going down the tubes in the place where accessing thermodynamic energy from fossil fuels all began, in Eurotrashland where the Stem Engine was first used to pump the water from Coal Mines.

    Nobody can issue credit to buy stuff that just is not there to buy anymore, not at prices which make a Profit on the extraction anyhow. Not even John D. Rockefeller or his heirs can Make Something from Nothing of course.

    So one by one here the Dominoes topple, the weakest like Greece going first down the Toilet hear, Spain soon to follow. The Powerful are Ringfencing and using the Big Ass Military they control to keep their own systems running a bit longer here than everybody else. How long that can last is anybody’s guess, but I suspect not all that long.

    Nothing wil stop this cascade failure, no monetary fix can work, no Fiscal Union of Europe and no amount of QE by Helicopter Ben and his CB Cronies either. The PARTY is OVER. The Keg has run dry here. Now we will REVERSE ENGINEER our way back to a low per capita energy footprint on Mother Earth, or we wll go the way of the Dinosaur. Over/Under on this is about 50-50 at the moment, getting worse all the time though.

    RE
    http://www.doomsteaddiner.com

    1. RobG

      Some questions.
      How does nationalization of oil companies affect the storyline?

      And does .gov becomes the bank (setting up the ‘First Federal bank of blah blah’ and/or nationalizing bank) to take the place of banks that won’t lend? Does that extend the timeline by much?

      And if this occurs, is that why it is being said that Treasuries will be the next bubble? If you look at the Japan storyline, it would seem debt-to-GDP can go pretty high before reaching escape velocity. So is there a upper limit or is it really just a matter of when confidence in the Ponzi scheme occurs?

      1. steve from virginia Post author

        The analysts’ storyline is that private companies are more ‘innovative’ than the nationals. However, the facts under the ground speak differently. First of all, the nationals can hire the best technology: discovery and extraction industries are competitive. Second, none of this tech stuff is a secret. Once one company uses 3D seismic, everyone starts using it: ditto w/ self-positioning drill-ships, nitrogen injection, directional drilling, etc. The real problem is there are no more big fields being discovered. You cannot drill/lift what you can’t find. The discovery peak took place @ 1965, it’s been downhill ever since.

        Everyone who can has been looking, too.

        The usual technique to bring more quantity onto the market has been more rigs … or more rock trucks hauling tar sands or more farms growing biofuels. There are limits to this: current rates in Bakken wells @ $6mil/well is about 100 barrels per day per well. Deepwater wells deplete very fast: adding more wells is expensive in both cases. Adding biofuels at some point has people going hungry so SUVs get fed … not for long.

        The prob w/ banks isn’t so much the ‘whether lend’ part, it’s ‘return on investment’ part. The banks have lent for nothing, the bills are due one way or another. More on this later.

        The limit on lending is hard to figure. At some point what is borrowed is applied entirely toward servicing or rolling-over existing debts. There is no productivity to the debt, only its increase.

        Another point is the ‘big number’ point when the size of the debts are much larger than what ordinary citizens can comprehend. The managers are then considered to be insane (as they are now in the US and elsewhere). It doesn’t matter then if the debts can be expanded or not, they won’t be without great difficulty.

      2. Reverse Engineer

        USTs are the next (last?) bubble because all the rest of the Bubbles are bursting as rapidly as they get set up here. Just look at Facepalm to see that one in action.

        All the purchasable debt is Bad Debt, but FSofA Debt is the least bad because of the Big Ass Military. While you can be pretty sure Facepalm will go under in short order or the Sovereign equivalents of Facepalm like Spain and Italy will also, NOBODY at the moment figures the FSofA as a Corporate Entity is going to go Belly Up in BK court. Talk about Too Big to Fail here, right?

        So as all other Asset values collapse, desperate “Investors” run to USTs as a last “safe haven” for the debt they own. If anybody will pay off on the debt, it would be the FSofA, who through application of the Big Ass Military can hopefully STEAL enough to pay off here.

        In reality theft will not work here, because the cost of maintaining the BAM and doing all the necessary theft is negative EROEI. However, the length of TIME which is involved in this cascade is Known Unknown. It’s clear it exists, but it is not clear how long it takes for the dynamic to play itself out.

        In each of the Eurotrash Countries, if/when the Euro goes the way fot he Dinosaur, they will be Nationalixzing just about EVERYTHING inside their contiguous borders, but that does not mean those Assets become worth any more than they are right now. What is the Greek Electrical power Grid and Power Generation plants worth if they have no functioning FOREX to buy Oil to make them work? Honestly, I cannot even see why if offerred up for Sale into the “private sector” anybody would buy Greek power plants or the grid. “Assets” on the books worth BILLIONS, but in reality completely WORTHLESS Dogshit.

        Nationalize the Banks? ALSO wortheless Dogshit. Nationalize all the McMansons? ALSO worthless dogshit!

        Regardless of the Dogshit problem though, all the perceived “wealth” here of massive debt and malinvestment from the Age of Oil has to go SOMEWHERE, and mostly right now that somewhere is into USTs, because they are probably the last to fail here since they are backed by the BAM.

        it will really get interesting when one of the other Major Currencies Fails first here, Euro leading the Pack of course. However, the Yen also probably implodes in tandem with the Euro, and China is as usual TOAST in this scenario. Onve they lose the Eurotrash Export market, Renminby are not worth Jack Shit.

        RE

  8. dolph

    Nice to see you in fine form once again, Steve, after your brief lapse into “let’s save America” wishful thinking.

      1. steve from virginia Post author

        It’s humbling to know I’m just cheap entertainment, “Dance monkey, dance.”

  9. The Dork of Cork

    Yes , but they are putting too much resourses into High Speed….. the only advantage is that it is putting Ryanair under a bit of pressure which used wage defaltion to disguise how uncompetive its business model was over the years.

    The small railways of France are only getting a tiny budget and in some cases real hand me downs from High speed.
    Consider this railway (I thinks its the only commercial 1 metre gauge / school run / tourist railway remaining) (400,000 passengers)
    en.wikipedia.org/wiki/Chemin_de_Fer_du_Blanc-Argent

    The RFF website states (google trans)
    Nature of works
    This project, carried out on an innovative way, is to modernize the structure and
    components of the track (rail, ties, ballast) 56 km between the stations of Salbris
    and Valençay:
    - Replacement of certain rail (UIC 60 kg ) by others (UIC 46 kg) more suited to curves of radius less than 400 m;
    - Injection of 31 000 tons of ballast and sleepers renewal of 17,000.
    - Setting up of nearly 38 km of relay rail from the LGV Atlantique. RFF has bought these rails in advance to ensure their adequate supply. The delivery was conducted from September 29 to November 14, 2011 by abnormal loads. A total of 2270 tons of rail and are stored on 5 sites in La Ferte Imbault, Villeherviers, i, and Chabris Valençay.
    Relay rail TGV station in Villeherviers.
    aFinancing and project stakeholders
    This, of $ 13.6 million, is
    financed by the
    Central region (8.85 M €), accompanied by the Community of Communes and Romorantinais Monestois amounting to € 250,000, and Réseau Ferré de France (€ 4.5m). Réseau Ferré de France, Limousin Regional Directorate Cendtre, provides project management work.

    So they got some surplus high Quality contiously welded rail from the LGV Atlantic project and used it.

    1. Robert

      Just wanted you to know that I enjoy your posts on trains. We have precious few of them in the states. Trains are a very civilized way to travel. You are supposed to enjoy the trip, not just get there fast.

      1. The Dork of Cork

        Thanks, Robert – I am perhaps crowding out Steves narrative but I post similar observations on the Irish economy blog especially when a economist known as Colm McCarthy does a article (the man was deeply involved in Irish transport policey (roads) since the 70s) with now catastrophic results but to be fair given the inappropriate monetary system we were in since at least 1979 roads would appear a success story until they were not.
        Trains do not have to be that slow either although I think very high speed stuff is a poor investment other then between major cities at suitable distances.
        The above Pau -Oloron route is no longer as slow as the above video suggests thanks in part to a rail active socialist minister of south west France known as fr.wikipedia.org/wiki/Alain_Rousset.

        ” Since January 2011, Pau-line Oloron was returned to service following completion of upgrades.
        This operation involved the complete renewal of the constituents of the track (rails, sleepers, ballast) for $ 35 million, funded by the Aquitaine Regional Council, the State and RFF, to ensure the sustainability of the line.”

  10. The Dork of Cork

    So for the cost of the Euro Atlantic (7.8 Billion) they could have brought back on line 120 Chartres to Voves like railways or 3000KMs of line !!!!

    Remember there is Tens of thousands KMs of these defunct but intact lines(more or less) withen France….. that the RAF & USAF found impossible to cut.

    Heres a classic cross border train that I traveled on some years ago…….the cross border section was closed at the time (its closed in 1970ish)
    They are beginning to open more of the line beyond Oloron but not as far as the Spannish side unfortunetly , not yet anyhow.
    http://www.rff.fr/IMG/Lettre%20d‘info%20OB%20BD(1).pdf

    fr.wikipedia.org/wiki/Ligne_de_Pau_à_Canfranc_(frontière)

    The story I was told was that after the Train crash in 1970ish the French closed the cross border line because the French state was losing too much money / tax revenue to cheap drink & Fags… not too sure how true that was but….

    Here is the remaining Pau to Oloron section…
    http://www.youtube.com/watch?v=veFJY0TxNjw

    They are building high speed lines around the coast but why not use the existing line and take it easy and watch the views of the Pyrennes ?

    The Canfranc station on the other side is a huge border hulk of a thing – its looks completely out of place now.
    en.wikipedia.org/wiki/Canfranc_International_railway_station

    Perhaps a sign of the future Europe ?

    1. steve from virginia Post author

      European transport ministers fell under the spell of the private car, car dealers, suburbs and the promised manufacturing jobs. The assumption was always the cheap fuel.

      In the ongoing high-cost fuel environment, trains are competitive again.

  11. enicar333

    “The global economy’s foundations are weakening, one by one.

    Already hobbled by Europe’s debt crisis, the world now risks being hurt by slowdowns in its economic powerhouses.

    The U.S. economy, the world’s largest, had a third straight month of feeble job growth in May. High-flying economies in China, India and Brazil are slowing, too.

    Fears of a global economic downturn have sent investors rushing toward the safest possible investments: U.S. and German government bonds. As a result, the interest rate on the 10-year U.S. Treasury note has hit a record-low 1.46 percent. The rate on the German 10-year bond is even lower: 1.17 percent.”

    http://www.msnbc.msn.com/id/47666718

    Meanwhile over at Mish’s we see that Stockton’s City Hall has been repossessed by the Banksters, and Las Vegas MIGHT have to DISSOLVE it’s Corporate Self to survive…..

    Things I sometimes think about… all the people and interactions that HAVE to occur to keep the coal-fired power plants up here running – and if that gets interrupted, it goes dark – for at least a while, possibly forever.

    A winter without power would cleanse the Nation….

    1. The Cream of Sun Yun Guy

      What’s it like being so misanthropic? Do you hate yourself this much, too?

      1. enicar333

        Is it the duty of the old to pass along knowledge, understanding and wisdom, or the duty of the young to sacrifice to keep the old warehoused in facilities where modern medicines and technology keep a brain functioning, to be amused by trivial entertainment on Television, all day?

        Should the young continue to allow the transfer of their wealth and hard work into an unfair pyramid scheme, that is destined to collapse, and allows the old to enjoy the benefits of life without work?

        The GAME in America is to get out of work with as much as you can and live a life of luxury at the expense of others –

        Does not hating what I’ve seen what people have done to the Earth, our Planet, imply I love my home?

        What is Justice, what is Mercy, who is selfish? When the lifeboat is overloaded who is selfish? The one who demands a place that will cause the boat to sink and destroy all, or the one who refuses entrance into the lifeboat?

        There are those who will be ready for the future when the choice will be to leave grandpa and grandma on the ice floe so all others can survive – independent of what grandma and grandpa want – that day is coming – I assure you. Survivors will rebuild this world.

      2. christiangustafson

        Not in the least.

        Those who would preserve this world are the nihilists.

        My children were not born to live as slaves to the 20th century. Bring on the reset!

  12. The Dork of Cork

    Something is happening in France Steve.
    What is Euro Austerity ?
    It is simply a method to save a stock of debt , it does not necessarily save real resourses.
    However France is stepping up its rail programme – where is it getting the money ?
    Its drawing on our accounts , just as Germany is although I would argue at least France is trying to increase its wealth base much more then Germany which is on a Mercantile bad trip once again.(although it spends much resourses on new rail – on a per capital basis relative to France it does not)
    Within the eurozone when we (Ireland) consume less real resourses it drives down core yields while peserving the hypothetical value of each euro……its a sort of reverse transfer union.
    This stuff going on may not be a stimulus euro wide but it is transferring real energy to the core none the less.
    For example France is rebuilding a old railway line between Chartres (pop :39,122) and the small town of Voves (population 2,910) (with nothing in between but fields !)
    This will serve as a mixed freight / passenger railcar line mainly used for Grain transport but with 3 passenger services a day probally using single railcars such as these.
    http://www.youtube.com/watch?v=hNnnouJkzso
    (Cost of project :65million for 25KM of continuously welded steel.)

    But the line is not unlike the old Irish Foynes line closed 1998 to freight …. indeed Foynes is far more suitable – but we have no money you see…….its flowing to the core.
    A deep sea port with no rail access….. Ballycummin estate West Limerick (pop 17,490) with no rail access……with Patrickswell village , the tourist town of Adare , the nice villages of Askeaton and Foynes port village
    …….Hmmmm something not quite right me thinks.
    http://www.youtube.com/watch?v=FehvgB4b1p0

    Its quite clear there is a recent reversal in French regional hub transport policey of the 70s when old lines were closed to pay for high speed with Bus replacement.
    They are preparing for something me thinks – although still spending far too much money on high speed stuff.
    http://www.eib.org/attachments/press/lgv-sud-europe-atlantique-en.pdf

    I mean the EIB contributed 1.2 Billion to one project…..!!!

    go to
    http://www.rff.fr/
    1.Select region
    2.Limousin
    3.Tous le Projets
    4. Réouverture au trafic voyageurs de la ligne Chartres-Voves-Orléans
    Télécharger la fiche d’information (press statement for most recent budget projections)

    RFF alone(just one part of the system) will spend 3.4 real Billion euros this year as they did last year. … thats not claims on fictitious wealth turned into money as normally happens in Ireland.

    When you consider that RFF does not cover rolling stock ,companies such as Systra, much of the Paris transport system , all of the massive Tram investment in now dozens of French cities / 100s of tram lines & Corsica and Nice – Digne (both of which I have travelled in the past) the fixed capital investment is perhaps approching the French Nuclear investment of the 70s and 80s.

    Even the Notoriously unreliable private tourist / commuter line of Nice – Digne have got new vehicles recently.(it was the only French train that ever broke down in my experience)
    http://www.youtube.com/watch?v=FlfspAK8F0M

    The money is flowing to the core……. the Euro was the biggest con job of all time and yet even after we realise this we continue to vote for it!!!!!(fiscal treaty…..serfdom treaty)

    What must they think of us Irish ?
    Retarded I guess.

    1. Ellen Anderson

      George Soros says there are three months left before – D Day for the Euro – whatever that means. (I read his remarks at Zero Hedge.) I see him as the pathetic last gasp of the continental political philosophers who don’t understand ecology and resources. But at least he knows that economics isn’t a science and can explain why not. He says that, given enough time, the eurozone could break up peacefully. Of course that would still leave the real problems unsolved as you point out. The ZH comments are scary.

      1. steve from virginia Post author

        ZeroHedge comments by haters. ZH #1 target is Keynes.

        Every once in awhile, Soros takes the time and comes up w/ a substantial analysis.

        I’m reading Keynes, “General Theory of Employment, Interest and Money”

        Unemployment along side Fisher’s debt deflation. Funny thing about Keynes is the references to economists that nobody ever heard of that were important at the time like Pigou.

        :)

      2. steve from virginia Post author

        People have pretty much figured out the austerity is more robbery.

        We haven’t gotten granular about it, we don’t want to. Doing so puts the finger on ourselves. After all, the current approach to doing business would never have gained any traction without us enthusiastically supporting it.

        Austerity has two forms or sides: one is the administrative version. The other is the natural consequence of living large for decades and more. Us Westerners have lived in that bubble for so long that we cannot imagine the reality outside of it.

        When you’ve burned things up, they remain burned up.

        A lot of the incongruities will be ironed out over time, one way or the other. The Irish need to grow a pair: doing so will be the end of the dream of the free euro-lunch. Ditto, the Greeks, Italians, Spanish and the rest. Nobody can imagine right now what living within means is. Just living within means, not repaying trillions of legacy debts on top of that.

        It’s a hard school …

      3. Ellen Anderson

        I have never read Keynes. I have read many of the other Bloomsbury writers – especially the divine Rupert Brooke. Let me know how it goes. Maybe I should…
        He was surely in the 1% of his time. He and his comrades ran barefoot through the grass while the Queen Victoria’s grandchildren were getting ready to burn up their world. I think the venomous men at ZH probably still hate the culture he represents even though they are only dimly aware of what it is. They, too, represent the people who are willing to burn up their world in order to eradicate all traces of the Enlightenment.
        Perhaps we (and I mean western intellectuals who are part of the 1% worldwide) are doing the functional equivalent of canoeing down a pleasant river while the forces of destruction are gathering.
        The last time this happened the “winners,” if we can use that word, were the societies that had the best balance between population and resources. The odious debts will be repudiated eventually, one way or the other, don’t you think?

      4. steve from virginia Post author

        Best place to start w/ Keynes is something like The Economic Consequences of Peace there is a bit of a narrative to work with besides economics. Of course, Keynes is a cardboard cutout now. Keynes = effeminate = weak = ‘humanitarian’ (in outline) as opposed to the popular social Darwinism = harsh = cruel and inhuman, the celebration of the abstract over the real, sanctification of money and wealth-as-a-number, of the ‘machine-man’ or cyborg over the natural man.

        I personally suspect all of the trillions of debts will be obliterated/repudiated/forgiven, odious and otherwise. Like everything else, if done correctly there will be an end to attempts to repeat the pasts’ follies. Credit will then be available for longer-term efforts. The issue is with duration, the desire for short-term rewards from longer-term obligations (that can conveniently be ignored or papered over later).

        If the debts and associated systems simply collapse, there will be endless attempts to use the fragmentary remains as levers by one misguided group to gain ascendancy over others as well as further attempts to revive the faulty structure of using debts for short-term gain. There will be attempts to support industrialization in general, blaming and persecuting others rather than accepting the defects as native to industrialization.

        Too bad Keynes isn’t around today to offer a rational look at the ‘war-type’ economy and its consequences. Right now I feel that todays so-called Keynesians are on the same sort of road that leads to the same sort of end as the laissez-fair advocates: a facile restructuring of bankrupt industrialization. I certainly can see Keynes dismissing the arid and suffocating conceits that have taken up residence within his conceptual edifice … too bad, that’s what happens after yr dead.

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