Last Line of Defense …

Triangle of Doom 110114

Figure 1: Continuous WTI futures (TFC Charts, click on for big). Price convergence results in a breakdown as customers are unwilling- or unable to bid prices higher. Absent the high prices there is insufficient cash flow to enable drillers to continue operations. Today’s marginal barrels are extracted from high cost deepwater offshore plays, from tight-oil shale formations and from ‘tar’ sands: without customer credit, drillers are more dependent upon junk bond leverage than ever.

Of course, once on the borrowing treadmill, it is impossible to step off. Borrowers must run faster to stay in place, ever-increasing amounts are needed to keep pace with operating- and service costs as well as to rollover maturing legacy debt. Consumer access to credit must be considered a ‘hard limit’ to petroleum extraction along with geology. Even as drillers are able to borrow they find there are fewer ‘end users’ with available credit … onto whom the drillers can lay off their ballooning exposure.

Conventional analysis insists that fuel constraints result in higher prices due to simply supply and demand. The assumption is that consumers will always find more funds. Instead, fuel constraints reduce customer purchasing power: customers stumble first, the drillers fail afterwards. As customers’ borrowing capacity shrinks the petroleum industry has little choice but to adjust prices to meet the market which forces drillers to reduce output. At some point they fail outright. Fuel supply cuts => diminished consumer borrowing capacity => more fuel supply cuts in a vicious, self-reinforcing cycle.

Saudi Arabia Signals It Will Let Oil Slide Further, FACTS Says

Anthony DiPaola, Robert Tuttle

Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy.

Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years.

“Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar. Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.

Crude could drop to between $60 and $80 a barrel and stay within that range there for about six months until global production aligns with demand, Fesharaki said at the Condensate & Naphtha Forum. Oil in that range is the “right price” to balance the market, Fesharaki said.

Nobody knows what the ‘right price’ is, Saudia cannot push the oil price by reducing output: fuel constraints reduce customer purchasing power: the customers stumble first, the drillers fail afterwards. The oil industry is waking in a new world, where fuel waste is discretionary rather than inelastic; where shortages constrain- or eliminate customer purchasing power altogether rather than diverting an increased share toward the petroleum industry.

Petroleum prices have been high relative to historical norms for decades, with the breakout appearing in dollars in 1974, after the Yom Kippur War and the OPEC oil embargo:


Figure 2: nominal- and adjusted historical crude oil prices by way of BP Statistical Review, (Charts Bin – click on for big). The world’s consumption enterprise has been designed and built assuming sub-$20/barrel petroleum into perpetuity … with energy-guzzling consumer products intermediating every human activity. While the (borrowed) profits from this venture have been collected already, the costs continue to mount. One of the largest is aggregating credit expense. The question now is whether enough (resource) capital can be mustered to re-order our living arrangements or whether the status quo will simply fall apart under its own weight?

After 1974, the establishment chose to hedge against capital-resource shortages rather than meet the problem directly. Strategies included increased financialization and globalization; the shipping of Western industrial jobs offshore to cheap-labor countries, using finance credit to inflate asset prices worldwide as well as by instituting the European currency union: all of these are energy price hedges, all of them have failed completely.

Shipping Western industrial jobs overseas saved manufacturers money but not fuel, which was shipped overseas along with the jobs. Workers in newly industrialized countries used their purchasing power to buy cars and other gas-guzzling gadgets at the same time the Western workers’ purchasing power was chopped. Fuel consumption overseas (supported with direct fuel subsidies) pushed prices higher, this ultimately eroded purchasing power everywhere. Instead of conservation as an outcome of policy there is ‘conservation by other means™’.

Bubbles offer the ‘wealth effect’ that occurs when credit streams into assets … prices rise faster than the price of fuel. At some point credit becomes expensive, there are no more buyers to be had and prices collapse all at once. Those left behind are stripped of their ‘wealth’. Asset price bubbles are Ponzi schemes, the beneficiaries are the bubble promoters and well-positioned shills/insiders who are able to exit asset markets before other speculators.

Globalization allows the free flow of labor and funds, the fuel markets are globalized along with the rest. While more resources-capital is made available to industry so are more risks. Anyone, anywhere is likely be the marginal fuel consumer; that is, the user that sets the price for the everyone else ‘on the margin’. With billions of customers, it is far more likely ‘Marginal Man’ is an inhabitant of a newly impoverished country such as Russia, Brazil, China or Japan; the odds against price support for oil drillers lengthen as more countries become vulnerable due to adverse changes in exchange rates or flight of investment funds out of these countries.

The Europeans created the euro as a hard-currency alternative to the US dollar and UK sterling; to give the little countries of Europe the same purchasing power as the larger nations (and to create a captive market for larger nations’ manufacturers). Ironically, the same administrative structures put in place to support the euro have turned out to make practical fiscal union impossible. Mercantile powerhouse Germany is pitted against the rest: the outcome is failure as the vulnerable countries Greece, Spain and Italy — also Ukraine and Russia — drag everyone down.

Desperation is almost palpable as the Bank of Japan announces an expansion of its bond-buying program in an attempt to keep market forces (reality) from overwhelming the economy in that country and elsewhere. Bank of Japan boss Kuroda is a fireman for the US Federal Reserve Chairperson Janet Yellen. The central bankers are now the last line of defense for a waste-based enterprise that has exhausted both its resource- and intellectual capital. Our economic problem is not a shortage of cheap credit but a shortage of cheap petroleum. At the same time, getting our hands on the petroleum would not solve anything: our conceptual problem is dependence upon a system that only functions when capital is annihilated. Cheap credit lets us pretend a little while that ‘business as usual’ has a future; the bankers’ success undermines that future.

Petroleum is a resource, it is capital; credit and money are simply purchasing power claims against capital. In Japan and elsewhere, purchasing power is wrenched away from citizens toward the stock and bond gamblers as well as toward overseas energy producers: as the gamblers ‘win’ the citizens lose and energy producers falter. As the Bank of Japan lends, the yen is depreciated on world currency markets; as it falls the fuel price in yen increases, it becomes less affordable. Japanese customers are less able to meet higher prices for fuel => marginal demand is reduced => this causes fuel prices everywhere to tumble. The bankers are working against themselves; the more easing, the less Japanese support there is for fuel prices; the more Kuroda, the greater likelihood that the critical marginal petroleum consumer is a bankrupted Japanese.

What goes up must come down.

Monetary easing reduces borrowing costs but only for those who actually borrow. After years of easing, the only remaining borrowers are finance market gamblers. Cheap (finance) credit is used to push share- and bond prices higher in one-way markets:

L < Rs

With apologies to Thomas Piketty: leverage costs less than what the market offers to speculators. Returns Rs are determined by (artificially constrained) supply relative to demand; leverage costs L are manipulated to near-zero by the central banks: all other costs are considered to be externalities.

Credit is not the product of the central banks but of finance. The aim of central bank intervention is to manipulate the interest rate, to force real borrowing costs (interest-less the rate of inflation) as low as possible. Low interest cost renders reduces risks associated with carry trades and stock speculation; low cost + high returns = one-way markets. Theoretically, with sufficient credit, these markets can run forever. In reality, as speculators borrow, the total aggregate debt load increases exponentially while force-fed markets are subject to same diminishing returns as every other speculative endeavor. Over time there is less return for each borrowed dollar, at some point even the most outrageous finance borrowing cannot not move the markets. When borrowing capacity is required to service debts => Minsky Moment.

Manias, panics and crashes are expressions of the ‘Paradox of Thrift’, which states that one-way markets — all buyers or all sellers (or all savers) — cannot exist without severe consequences. A market where all participants are buyers means a market that is ultimately deprived of them. Everyone who is willing to buy has done so: no one remains able to ‘buy from the buyers’. A market where all are thrifty is one where money is ‘saved’ out of circulation so that day-to-day business becomes impossible. A market crash occurs when free-spenders are forced by conditions … to be thrifty all at once!

The need for a new way of economic thinking is more urgent than ever.

Quoted at length from Steve Waldman, (Interfluidity):

“Quantitative Easing” — economics jargon for central banks issuing a fixed quantity of base money to buy some stuff — has been much in the news this week. On Wednesday, US Federal Reserve completed a gradual “taper” of its program to exchange new base money for US government and agency debt. Two days later, the Bank of Japan unexpectedly expanded its QE program, to the dramatic approval of equity markets. I have long been of two minds regarding QE. On the one hand, I think most of the developed world has fallen into a “hard money” trap, in which we are prioritizing protection of existing nominal assets over measures that would boost real economic activity … “

Real economic activity so far has been little other than strip-mining capital and burning it for fun. Asset protection is a bit misleading since worth of assets = their (useless) purchasing power claims against capital: as capital is exhausted so is purchasing power. At the end of the day there are mountains of diluted or redundant claims with nothing to purchase with them. This is the fatal flaw within all redistributionist regimes which either multiply the numbers of claims or shuffle them around.

“My preferred policy instrument is “helicopter drops”, defined as cash transfers from the fisc (government) or central bank to the general public, see e.g. David Beckworth, or me, or many many others. But, as a near-term political matter, helicopter drops have not been on the table.

There are no helicopter drops because the general public has little or nothing to offer as collateral. Central banks are unable to offer unsecured loans. Should they do so they become indistinguishable from insolvent private sector lenders and are insolvent themselves => there is no effective lender of last resort => no guarantor for bank deposits (unsecured loans to banks from the general public). The effective collateral for unsecured loans to depositors would be their own deposits: the outcome => bank runs.

Support for easier money has meant support for QE, as that has been the only choice. So, with an uncomfortable shrug, I guess I’m supportive of QE. I don’t think the Fed ought to have quit now, when wage growth is anemic and inflation subdued and NGDP has not recovered the trend it was violently shaken from six years ago. But my support for QE is very much like the support I typically give US politicians. I pull the lever for the really-pretty-awful to stave off something-much-worse, and hate both myself and the political system for doing so.

‘Something-much-worse’ would be the consequences of capital exhaustion, ‘Something-much-better’ is folly: to somehow gain access to what remains of our capital so that it too might also be annihilated … in a futile attempt to pursue ‘prosperity’ for a vanishingly small period of time.


Figure 3: Declining economic activity precedes fuel price decline, (chart by ZeroHedge): unsurprisingly, expensive crude oil adversely affects economic activity.

“Much better potential economies may be characterized by higher interest rates and lower prices of housing and financial assets. But transitions from the current equilibrium to a better one would be politically difficult. Falling asset prices are not often welcomed by policymakers, and absent additional means of demand stimulus, would likely provoke a real-economy recession that would harm the poor and precariously employed. Austrian-ish claims that we must let a recession “run its course” will be countered, and should be countered, on grounds that a speculative theory of economic rebalancing cannot justify certain misery of indefinite duration for the most vulnerable among us. We will go right back to QE, secular stagnation, and all of that, to the relief of both homeowners, financial asset-holders, and the most precariously employed, while the real economy continues to under-perform.”

Waldman sees outcomes but not clearly enough. Consumption economies cannot be ‘fixed’ or adjusted but replaced with something less destructive … the Austrian economic rebalancing hypothesis is indeed faulty yet misery of indefinite duration for the most vulnerable among us is both certain and underway. It is a consequence not an alternative. We multiply ourselves and our appetites without restraint and devour our increasingly scarce capital without any thought other than to do so before someone else beats us to it. A better economy would reward those who husband our capital, to tend what remains rather than seeking to gain the pawnbroker’s pittance …

The drillers are canaries in the coal mine, even as they are able to borrow they find there are fewer ‘end users’ with available credit … onto whom they can lay off their ballooning exposure. In place of the non-existent customers is the central bank, a conduit by which credit costs are shifted from the bankrupt customers to the same customers’ children. This is the last line of defense … what remains between our fantasies of endless creature comforts and the pit.

114 thoughts on “Last Line of Defense …

  1. Reverse Engineer

    “The drillers are canaries in the coal mine”-SfV

    The $64,000 Question:

    When do we get the first Dead Canary in the Cage of say the Top Ten Drillers, and who will go Feathers Up first?


    1. steve from virginia Post author

      @ The Street sez:

      ” … the industry average cash flow growth rate of -6.46%.”

      Negative cash flow rate for the entire industry … means a heap of trouble.

  2. Reverse Engineer

    I had a chat with David Hughes on Sunday. His estimate is the top 2 companies probably have positive cash flow, everyone else negative. However, that was at $80/barrel.


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  4. Mister Roboto

    Hey everybody. Apologies for veering off-topic, but two years ago, I posted a link to my analysis of the failure of the gubernatorial recall election in Wisconsin, which made that by far and away the most read entry on my very insignificant little indulgence-blog. Here is what I have to say about the recent follow-up regular election to that history-making event of two years ago. Enjoy. Now back to your regularly scheduled Triangle of DOOM-DOOM-DOOM-DOOOOOOOOM!

  5. ellenanderson

    Classic post, Steve. You have really thought this through and distilled the essence of our predicament.

  6. FrY10cK

    Well this sucks.

    I may not understand all the econ lingo since freshman level micro and macro classes were 30 years ago and think I got my first ever “C” in one of them. I’m going to order this graphic-novel-format, “Economix” before Amazon’s business model tanks:

    I understand the shale driller triangle of doom, and the waste, population, and resource consumption problems just fine.

    Probably everyone here has seen the Marathon Oil fracking video but just in case, here it is:

    1. steve from virginia Post author

      “In December 2012, North Dakota produced roughly 25 billion cubic feet of natural gas. That month, 71% of North Dakota’s natural gas was captured and sold to consumers, while 29% of the natural gas was flared due to a lack of pipelines or space on existing pipelines.”

      That is 7+ billion cubic feet of natural gas flared per month b/c the pipeline companies were unable/unwilling to make connections to wells that both drillers and natural gas transport companies knew were planned/underway in Bakken area. A problem is rapid decline rate of oil wells, natural gas sales cannot pay for the oil drilling/fracking/take-away infrastructure.

      Another problem is chemical composition of associated gas; processing is more expensive.

      Complexities in gas business have their own costs.

  7. Jb

    ” ‘Something-much-worse’ would be the consequences of capital exhaustion, ‘Something-much-better’ is folly..”

    It’s a dark road ahead but if consumers go broke before drillers, then we can assume ‘folly’ will fail before ‘exhaustion.’

    “The question now is whether enough (resource) capital can be mustered to re-order our living arrangements or whether the status quo will simply fall apart under its own weight?”

    When ‘folly’ fails, the powers that be will re-order via triage and save what is of interest to them. To do otherwise is a weakness that leads back to exhaustion.

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  9. ellenanderson

    When folly fails who will be the powers that be? Maybe we need less analysis and more soothsaying?

    Failure could come from any direction – that is, from any of the horsemen of the apocalypse. When and how it comes will determine who reorders and how. If this goes on long enough there won’t be enough left to reorder. At this point I think that Mother Earth will take control.

    In the end, only radical conservation has a chance of success for some of us. So, as the Archdruid (and others) say “Collapse now and avoid the rush.”

    1. Jb

      Radical voluntary conservation is certainly the most sane approach, and may work for small groups of individuals. But let’s face it, the overwhelming majority don’t give a shit. The small minority lured by the promise of technograndiosity are probably in for a nasty surprise. The rest are faced with ‘conservation by other means’ ie: abject poverty.

    2. Eeyores enigma

      “Archdruid… “Collapse now and avoid the rush.”

      Says the guy who just bought a house a couple years back certain that inflation will make paying it off a snap.

      Advising power down now when only .001% will listen is simply telling people to jump off a cliff or more accurately to climb down the economic ladder to speed up your eventual fall off the bottom rung.

      If your goal is to try and survive longer your best move is to do what ever it takes to make as much money as possible and us that money to acquire all the “survival/prepper accouterments” you can. Although this plan too, which many including some 1%ers are doing, fails for this reason.

      Lets say a ferry boat has sunk and you were smart/lucky enough to end up in the only life boat still floating. The other 5000 passengers are bobbing to the surface, gasping for air, then they see you and the boat and start flailing /swimming towards you. How do you think this scenario plays out.

      Either we all acknowledge the converging constraints now before collapse, stop the madness, and power down in an equitable fashion or it gets just plain ugly.

      1. ellenanderson

        It already is ugly for a lot of people. And I don’t disagree about making money. If you can do it without digging yourself into a deeper hole you certainly should. About stockpiling stuff I think you have to be careful. Remember Steve’s laws about the costs of maintaining a surplus exceeding the value of the surplus? Have you ever thought about how much storage space you would need to maintain a supply of toothpaste and toilet paper for your family for the rest of their lives?

      2. Ed

        One minor disaster to hit “doomer” discussions was the whole concept of “prepping”. The idea was the invention of American Nazis, and what you were preparing for was the race war, and also nuclear war to the extent. This is why prepping always seems to take place in remote parts of the countryside, well away from racial minorities and likely targets of nuclear war, and tends to involve stockpiling supplies. This website, from the real deal, pretty much displays the mindset:

        Its nonsensical applied to an ecological crisis caused mainly by overpopulation, which is manifesting itself in peak oil and climate change. These are permanent, ongoing processes that will last something like forever, or at least through the lifespans of everyone alive today, so the idea that stockpiling anything will help is nonsensical. And moving to rural areas means increasing your dependence on the internal combustion engine, which is bad in terms of making the ecological problems worse and also a serious ongoing expense, that will only get worse in the future as gas either increases in price or is rationed. But then I always thought that you wanted to be in the center of large cities if a nuclear war ever did break out, so you would die early and quickly, I can’t understand why people would want to live in a post-nuclear war world.

        Basically everyone gets poorer, lives more miserably, dies earlier than otherwise, and the only people “beating” this are stealing from everyone else, and bullies taking advantage of the situation. In this situation you want to avoid the thieves and bullies (which basically means staying mobile) and having lots of children is a bad idea. I really have no idea how you prepare for a descent into poverty. Nor do I see the sense of deliberately becoming poor before you are forced to do so anyway.

  10. Mister Roboto

    I think the Republican electoral rout is probably a symptom of the effects this lamentable process has on consumer-citizens. As the situation grows more desperate, the party that panders to the ugliest aspects of the instincts of the consumer-citizen will carry the day. The Democrats merely lucked out in 2008 when the devastating financial earthquake of that year happened mere weeks prior to the election while the Republicans held total power at the moment in the Federal Government. But the Democrats once again demonstrated themselves to be the Shrug-Whatever Party, and in a time of great need and crisis, that is not going to appeal to people, hence the Republican wave-election of 2010. The Dems got another reprieve in the stagnant, uncomfortable calm that settled in after the first two years of The Great Recession and the fact that Mitt Romney simply wasn’t a very likable fellow at all. But now the pot is boiling again, and looked who “kicked ass” at the ballot box again.

    It sure doesn’t help that the working class feels more burdened than blessed by Obamacare’s attempt to provide near-universal healthcare while preserving the “for-profit” nature of healthcare in this country. Those two goals are simply not compatible with each other, and collapsing the healthcare bubble by instituting single-payer national healthcare isn’t going to be an option on the table.

    However, I know it’s all just sandbox politics and both parties represent different factions of the same interests. This is not to say that Democratic politicians and policies are “exactly the same” or “every bit as bad as” those of Republicans. It’s just that the Democrats are never going to make any real difference because they have a different role to play in keeping the sagging system propped up. And that role mostly involves being a codependent enabler at some times and the pasty-sucker who gets to be the “fall-guy” at others. Democratic Party rank-and-file supporters are codependently addicted to the malign influence of the Politics Industry and will merely double down and mainline the Kool-Aid with a syringe and tourniquet upon being confronted with evidence that they are being played for suckers. I am convinced that quite a few of them would literally take their own lives were they ever somehow forced to realize what a pointless game into which they continually buy.

    1. steve from virginia Post author

      Republicans can out-pander the rest b/c conventional economic theory gives them leverage. A significant percentage of Americans consider themselves ‘libertarians’ without understanding the ramifications. To the GOP this means ‘rule by corporations’ which is also what the ‘others’ including Democrats support.

      Libertarians want free-market solutions and that is exactly what the country is going to get.

      1. ellenanderson

        @Mr. Roboto. I was actually replying to your longer comment which is a great account of what happened in the recent elections.

  11. dolph

    Yes, but, what is actually going to happen?

    Does anybody know? I am asking everybody here…how can we live in a networked world of 7 billion human minds connected to each other, and not one (or maybe a few, and some old limits to growth people from the 70s) have anything meaningful to say regarding what we face?

    If this is true, it’s an incredibly dark thought. In theory this should be the absolute best time in history to be alive, and every year things should be getting exponentially better.

    1. James

      Exponentially better. A metastasized cancer finally reaches the limits of glucose it can tap from the bloodstream to fuel its growth. It was great to be inside the cancer for the many doublings in size that occurred over centuries. Complexity flowered as energy was redirected into the growing tumors. But eventually no more could be taken, the body grew sick and no longer had an appetite. Homeostasis began to fail but the cancer doubled-down yet again to sustain itself, still growing, invading new tissue even as death approached. And then, unable to sustain themselves, the tumors began to disintegrate releasing a flood of toxic metabolites into the bloodstream. There was no realization of what was occurring as their minds had been captured by the cancerous cellular metabolism. The humans functioned, but rarely thought beyond the narrow scope of their specialties. Most died within the cells where they lived and worked, desperately trying to continue their metabolic activity that no longer provided for them.

      Exponentially faster, exponentially more, ……………………………cancer…………………….death.

  12. Ken Barrows

    Aren’t real borrowing costs interest MINUS the cost of inflation? Higher inflation makes debt less painful and deflation more so?

    1. steve from virginia Post author

      When inflation is negative …


      Then again, negative real interest rates don’t necessarily mean negative real borrowing costs. It’s like the terms ‘value’ and ‘capital’ … what do these terms really mean?

      1. ellenanderson

        Value and capital must be understood in relation to utility. But borrowing has no cost at all to the government/person with no intention of ever paying it back. Our social arrangements now entail borrowing by creatures who have no intention of repaying their debts but expect thereby to buy useful things (things which have value, such as capital.) This arrangement is totally corrupt of course. Moreover, unless they actually take possession of the things they have borrowed to acquire (ie the warehouses full of toilet paper and toothpaste which they can’t afford to store forever) they will be shocked to find everything will be fully distributed to others very quickly and then everything will disappear until we can figure out how to make more real stuff.
        Then usury will be a crime punishable by death.
        There – how’s that? 🙂

    2. steve from virginia Post author

      I had to change it. it didn’t make sense, even w/ the excuses …

      (Bangs head against wall.)

  13. Reverse Engineer

    Neither Toilet Paper or Toothpaste are really necessary items. They are conveniences.

    The Surplus you have to concern yourself with mainly is FOOD. So what are the costs involved in storing food, and what are the limits to it?

    In the absence of refrigeration/freezing, the 7 year Biblical idea is probably about the limit, but for most items probably 2 years is more reasonable expectation. To be able to store that much though, you have to be sedentary, no H-G could pack that much food around all the time while following the game. For an H-G, maybe 1 month is about the best you can carry with you.

    We have an expectation of security through the monetary system, that each year the money you earned last year if you save some will buy food next year. This works only as long as the food production system works in similar fashion every year, which obviously it is not going to do here, so it is foolish to believe money of any sort will buy food next year if production is thin relative to population size, even Gold.

    Essentially, the monetary system collapses when there is not enough Surplus food for the entire population. Once you drop below this level, no monetary system can possibly function, only rationing systems.

    We are not there yet in the 1st world countries, but already past this in the 3rd world and borderline economies like Greece and Spain sit on the Cusp of the problem.

    Engineering Food Security is all about being in a low population zone where food production can exceed the needs of the local population. Money of any sort cannot resolve this problem.


    1. ellenanderson

      “Neither Toilet Paper or Toothpaste are really necessary items. They are conveniences.” No, really?
      There are too many men among the doomer bloggers. Most men think toilet paper and toothpaste appear as if by magic. Next time I tell a man in my family to “go lay in a supply of oak leaves since toilet paper is merely a convenience and we are collapsing, dear” I will report the reaction to you.

      1. Eeyores enigma

        Ellen – go to the garden supply store and buy a smallish pump sprayer with hose and wand, heat up the shaft of the wand and bend it a little past 90 degrees, set it by the toilet/outhouse and you have a refreshing and inexpensive bidet.

  14. ellenanderson

    Thanks for the bidet idea. It’s a clever thought. I brought up toilet paper and toothpaste only because they are pretty high up on those lists of non-perishable things that everyone runs out of in an emergency and will pay a lot of money to acquire. Liquor and matches are there as well, I think. I just mentioned them because they take a lot of space to store and I was making a silly attempt to show on a very small scale how impossible it is to “prep” by borrowing to buy stuff and then paying to store it. (I did wonder how long it would take someone to tell me how we don’t really need these things and it didn’t take long. I really do understand that food is more important than toothpaste.) I was just sort of riffing on the idea that the cost of borrowing to secure real stuff in the future is only equivalent to the cost of storing/securing it if you don’t plan to pay back your loan. But borrowing causes chaos among human societies that ultimately must live within their ecological means. So borrowing should not be allowed in the future if there is a future.

    1. Ed

      In this world without toothpaste and toilet paper, is baking soda still available? Its easy to come with an ersatz toothpaste if you have baking soda, but remove the baking soda too and it gets tricky. Pre-industrial revolution and for awhile past it, people just had their teeth fall out as they aged, died of all sorts of weird dental problems, etc. For toilet paper, I suppose you can use cloth and bidets, or at worst one hand and never use that hand for anything else, but toilet paper is one of the chief glories of industrial civilization and we should fight hard to hang on to it as long as we can.

      This stuff is still cheap. What is going up in price, I’ve noticed, is mainly food, and secondly what might be called “institutional fees” both voluntary and involuntary, police fines, museum admissions, tuition, cost to use hospital services, tickets to entertainment events, etc. The latter you can just cut out of your budget completely at some point and my wife and I are doing that, unless the government starts legally mandating you spend money on this.

      Greer’s essay was quite good this week. Greer I think knows too much about the late Roman Empire and too little about other collapsing/ declining societies. But a common theme is that as economies contract money and just about any abstract stores of wealth become useless, and the “intermediaries” essentially die or find things to do that are actually somewhat useful -many bureaucrats in the late Roman Empire became priests. Both of these are luxuries, they at best add convenience and if the economy is expanding allow it to expand faster.

    2. Reverse Engineer

      Pampers and Tampons also are highly sought after items in collapsing Industrial Economies. All stuff worthwhile to lay in for Barter items if you got where to store them. Can Homo Sapiens do without these items? Well, we did for 99.99999% of the history of the species, so likelihood is we can survive without them in the future as well. Nobody in industrial culture will like this very much of course, and for as long as you can get them somewhere somehow, they will likely hold value, even compared to food.

      What will actually remain available, for how long and with what you will “purchase” it with are questions you really cannot answer. Nor can you answer the question of precisely when the credit creation mechanisms will fail on the global level, even with Oil dropping down to say $30/barrel.

      As is obvious, the incestuous relationship between the Finance industry and the Energy Extraction industry keeps sending credit towards the extractors, long after it has become obvious this credit will never be repaid. The economy is already broken though, because the credit is NOT being issued out anymore to consumers of the energy, or the items produced by that economy.

      Henry Ford made the observation that he could not sell Carz to his employees if they were not paid well enough to afford those carz. So in the early stages of this economy the credit went out to the consumers as well as the energy extractors. As Steve points out all the time though, it is not remunerative, it doesn’t pay for itself, never has. It’s just a construct which regulates the burning of the surplus. No surplus, no economy.


      1. Ed

        Storing five hundred rolls of toilet paper in a closet makes sense if you anticipate a situation where it will be impossible to procure toilet paper for a year, and then the supply chain is restored. Then you can use half during the year and sell or barter the other half, assuming the other half doesn’t go to your family or are stolen which is more likely.

        This doesn’t do any good at all if toilet paper goes away forever. You get an additional year maybe of comfort, at the cost of all the effort made to store the stuff in the first place. You are really better off just getting used quickly to doing without toilet paper. “Collapse of industrial civilization” means this type of stuff going away for ever. Storing it is useless at best.

        I’ve been thinking about the Henry Ford quote. What if he made just a few cars for himself and his family, and didn’t try to mass produce them and sell them? Was this even possible, or was the situation that he could get the capital to buy the machinery and labor for mass production, but not just for himself or his family. If only one person owns a car, he needs to provide his own fuel source and can’t drive too far away from that. The money you get from mass producing and selling cars, even after paying off the labor force, can be used for other things (though the other things are mainly accumulating power). It is also needed to pay off the creditors.

        Everyone who worked a certain number of hours at a Ford plant could have been entitled to drive a car off the assembly line and home with them, and then paid wages for any additional hours of work. With mass production, there still would have been additional cars to sell. You would only work for Ford if you were really into cars, or had some capacity to sell the one you were “paid”, which I think would have been a good thing for the company. Its actually interesting the extent to which the industrial economy relied on money, even when there would have been advantages to other payment arrangements, with economists urging more and more monetization of transactions.

      2. Reverse Engineer

        As long as toilet paper has utility as a Barter item, it’s worth storing if you have the room for it, even if it disappears forever. For as long as you can use your store of it to trade for food, it helps you to survive. Obviously, once you run out or there isn’t food to trade for, it no longer does you any good and you will need to find other means of survival.

        Far as Henry Ford just building a car for himself, in the early days of the automobile this is exactly how it worked, and they were basically Novelty items.

        Cars didn’t have utility until the road system was built to support them, and an infrastructure which distributes gasoline to every nook and cranny of the country also built up. The few carz on the road in 1900 could not support the building of a road system for them, carz had to be mass produced so everyone would need the roads, not just a few uber rich hobbyists.

        The large number of roads was necessary to be able to move the new mechanized military hardware around, Steve and I had a nice chat about that a while back. 🙂


      3. Reverse Engineer

        Once you get the mechanized hardware to the Train station, how do you move it from there to the site of the battle without a road system? Most areas are not as flat as North Africa you know.


      4. steve from virginia Post author

        Military vehicle running gear isn’t designed for long-distance travel. Vehicles are very heavy and fuel consumption is extremely high (particularly with US vehicles.)

        Trucks break down and tracked vehicles wear out the tracks requiring expensive, difficult to obtain replacements. What is used to move these vehicles to- and within combat zones is transporters:

        US did not build roads for the military despite the ‘Defense Highway’ designation (which was a sales pitch). US wars since 1941 have been fought in undeveloped foreign countries.

        Even ISIS uses transporters … any old road will do, (no functioning railroads).

      5. Reverse Engineer

        Steve, you need seriously large roads with wide turning radii to yank around those Transporters. I drove a Big Rig for 7 years. You can’t drag 53′ trailers on European style streets and alleys. Trust me, I pulled a few loads into Chinatown in NYC, and it’s a nightmare. You need roads built on the specs of the Eisenhower Interstate.

        This was a military decision which came about following Eisenhower’s frustrating attempt to move a military column across the old Lincoln Highway in 1919:

        The 1919 Transcontinental Motor Convoy

        In the summer of 1919, a young Lieutenant Colonel named Dwight D. Eisenhower participated in the first Army transcontinental motor convoy. The expedition consisted of eighty-one motorized Army vehicles that crossed the United States from Washington, D.C. to San Francisco, a venture covering a distance of 3,251 miles in 62 days. The expedition was manned by 24 officers and 258 enlisted men. The convoy was to test the mobility of the military during wartime conditions. As an observer for the War Department, Lt. Col. Eisenhower learned first-hand of the difficulties faced in travelling great distances on roads that were impassable, and that resulted in frequent breakdowns of the military vehicles. These early experiences influenced his later decisions concerning the building of the interstate highway system during his presidential administration.


      6. steve from virginia Post author

        Parts are missing from this clip, (Wikipedia):

        The United States’ Good Roads Movement of the late 19th century began as increased use of bicycles required better surfaces over the existing wagon and carriage roads. The development of the automobile and their increased use resulted in the formation of the United States Good Roads Association and various individual cross-country trips by individual vehicles, followed by the first transcontinental trip by a convoy of vehicles.

        1915 transcontinental film convoy

        The 1915 transcontinental film convoy was a 4-month motor convoy beginning August 25 and ending at the Panama–Pacific International Exposition in San Francisco. The film crew completed the “Three-Mile Picture Show” (named for the length of film). The film was directed by Henry Ostermann, Consul at Large for the Lincoln Highway Association, who traveled in a Stutz touring car.

        1919 Motor Transport Corps convoy

        The 1919 Motor Transport Corps convoy was a “Truck Train” of the US Army Motor Transport Corps that drove over 3,000 mi. from Washington, D.C. to Oakland, California, and ferried to San Francisco. In addition to 230 road incidents (stops for adjustments, extrications, breakdowns & accidents) resulting in 9 vehicles retiring, the convoy of “24 expeditionary officers, 15 War Department staff observation officers, and 258 enlisted men” (e.g., Bvt Lt Col Dwight D. Eisenhower of the Tank Corps) had 21 injured en route who did not complete the trip. Although some “were really competent drivers” by the end, the majority of soldiers were “raw recruits with little or no military training”; and except for the Motor Supply Company E commander 1st Lt Daniel H. Martin, troop officers had “meager knowledge” of “handling men in the field”.

        The convoy broke and repaired 88 wooden bridges (14 in Wyoming), and “practically” all roadways were unpaved from Illinois through Nevada. The convoy logged 3,250 miles in 573.5 hours (5.67mph avg.) and 6 rest days without convoy travel were used. Convoy delays required extra encampments and, at Oakland, California, the convoy was 7 days behind schedule (ferrying the next morning on the last travel day).

        This was simply pro-driver, pro-automobile propaganda. There was no real need to travel by ‘road’ across the US when sending the same group by train from New York to San Francisco would have only taken a few days.

        The US had no problem using trucks to move supplies from rail heads to its fronts behind Pershing’s advance in France in 1918. The use of trucks was a reason for Allied success, whereas the Germans relied on non-existent horses … ultimately, human porters. Lack of truck transport was a reason for the German collapse, why their ‘Operation Michael’ offensives in 1918 failed. It is also why Germany struggled after the war: the country was short both farmers and horses. It took years for the Germans to accumulate sufficient tractors to till its agricultural land … this was followed by the social struggle arising from industrialization/consolidation of agriculture within Northern Europe generally.

        Beginning in the 19th century, the US military used trains to move military gear overland in this country and uses trains, today. Military columns don’t use the roads except for the occasional National Guard training exercise. Use of roads by vehicles in combat theaters is a reason for US military failures since 1942: adversaries take note of US dependence upon roads and mine them:

        Soldiers move by way of chartered jet aircraft however this is not a rationalization for building more airport terminals.

      7. Reverse Engineer

        ” The use of trucks was a reason for Allied success, whereas the Germans relied on non-existent horses … ultimately, human porters. Lack of truck transport was a reason for the German collapse, why their ‘Operation Michael’ offensives in 1918 failed.”-SfV

        You are arguing against yourself Steve. You’ve just shown how the mechanized military depends on the automobile and cannot simply use the rail lines to move around their equipment.

        “Soldiers move by way of chartered jet aircraft however this is not a rationalization for building more airport terminals.”

        No, it’s a rationalization for building more military airbases.

        For great maps go to

        United States Army
        Main article: List of United States Army installations


        Main article: Bulgarian-American Joint Military Facilities

        Aitos Logistics Center
        Novo Selo Range

        Germany – 56 facilities

        Main article: List of United States Army installations in Germany


        The Dimona Radar Facility is an American-operated radar base in the Negev, staffed by 120 US military personnel.[1]

        Italy – 113 facilities

        Main article: List of United States Army installations in Italy

        Aviano Air Base
        Caserma Ederle, Vicenza
        Camp Darby, Pisa-Livorno

        Japan – 84 facilities

        Main article: United States Forces Japan

        Camp Zama, Tokyo
        Fort Buckner, Okinawa
        Torii Station, Okinawa


        Main article: List of United States Army installations in Kosovo


        Main article: List of United States Army installations in Kuwait

        South Korea

        Main articles: List of United States Army installations in South Korea and United States Forces Korea
        United States Marine Corps
        Main article: List of United States Marine Corps installations
        United States Marine Corps (18)
        Arizona MCAS Yuma Hawaii MCB Hawaii
        California MCAGCC 29 Palms North Carolina MCAS Cherry Point
        MCLB Barstow MCAS New River
        MCB Camp Pendleton MCB Camp Lejeune
        MCAS Miramar South Carolina MCAS Beaufort
        MCRD San Diego MCRD Parris Island
        Mountain Warfare Training Center Virginia Henderson Hall
        Florida MCSF Blount Island MCB Quantico
        Georgia MCLB Albany Washington, D.C. Marine Barracks, Washington, D.C.


        Camp Eggers
        Camp Dwyer
        Camp Leatherneck
        Camp Rhino
        FOB Delhi
        FOB Delaram
        FOB Geronimo
        Firebase Fiddler’s Green
        PB Jaker


        Robertson Barracks


        Camp Panzer Kaserne, Böblingen


        Marine Corps Base Camp Smedley D. Butler, Okinawa. Note: these camps are dispersed throughout Okinawa, but still under the administration of the MCB complex.
        Camp Courtney
        Camp Fuji, Shizuoka Prefecture
        Camp Foster
        Camp Gonsalves (Jungle Warfare Training Center)
        Camp Hansen
        Camp Kinser
        Camp Lester
        Camp McTureous
        Camp Schwab
        Marine Corps Air Station Futenma, Okinawa
        Marine Corps Air Station Iwakuni, Yamaguchi Prefecture

        United States Navy
        Main article: List of United States Navy installations
        United States Navy (60)
        California NAWS China Lake Mississippi NCBC Gulfport
        NB Coronado NAS Meridian
        NAS Lemoore NS Pascagoula
        NPS Monterey Nevada NAS Fallon
        NAS North Island New Jersey NWS Earle
        NB Point Loma NAES Lakehurst
        NB Ventura County-NAS Point Mugu New York NSA Saratoga Springs
        NB Ventura County-NCBC Port Hueneme Pennsylvania NAS Willow Grove
        Naval Base San Diego Rhode Island NS Newport
        Connecticut NSB New London South Carolina NSA Charleston
        Washington, D.C. Washington NY Tennessee NSA Mid-South
        United States Naval Research Laboratory Texas NAS Corpus Christi
        Florida Corry Station NTTC NAS JRB Fort Worth
        NAS Jacksonville NS Ingleside
        NAS Key West NAS Kingsville
        NS Mayport Virginia Chesapeake NSGA
        NSA Orlando NSASP
        NSA Panama City Training Support Center Hampton Roads
        NAS Pensacola NAB Little Creek
        NAS Whiting Field NS Norfolk
        Georgia General Lucius D. Clay National Guard Center NAS Oceana
        NSB Kings Bay Wallops Island ASCS
        Dobbins ARB NWS Yorktown
        Hawaii NS Barking Sands Washington NBK Bangor
        Joint Base Pearl Harbor Hickam NBK Bremerton
        Illinois NS Great Lakes NAS Whidbey Island
        Indiana NSWC Crane Division NS Everett
        Louisiana NASJRB New Orleans West Virginia NIOC Sugar Grove
        Maine Portsmouth NS
        Maryland Fort Meade NSGA
        NAS Patuxent River
        United States Naval Academy


        Naval Support Activity Bahrain

        British Indian Ocean Territory

        Diego Garcia


        São Paulo, Naval Support Detachment


        Guantanamo Bay Naval Base


        Camp Lemonnier


        Naval Support Activity Souda Bay, Souda Bay, Crete


        Naval Base Guam


        The Port of Haifa maintains facilities for the United States Sixth Fleet.


        Naval Air Station Sigonella
        Naval Support Activity Gaeta
        Naval Support Activity Naples
        NCTS Naples


        Naval Air Facility Atsugi
        Naval Forces Japan, Okinawa
        United States Fleet Activities Yokosuka
        United States Fleet Activities Sasebo


        Kuwait Naval Base

        South Korea

        Commander Fleet Activities Chinhae


        Rota Naval Station

        United Arab Emirates

        Fujairah Naval Base
        Port of Jebel Ali

        United States Air Force
        Main article: List of United States Air Force installations
        United States Air Force (71)
        Alabama Maxwell Air Force Base Mississippi Columbus Air Force Base
        Alaska Clear Air Force Station Keesler Air Force Base
        Eielson Air Force Base Missouri Whiteman Air Force Base
        Joint Base Elmendorf Richardson Montana Malmstrom Air Force Base
        Arizona Davis–Monthan Air Force Base Nebraska Offutt Air Force Base
        Luke Air Force Base Nevada Nellis Air Force Base
        Arkansas Little Rock Air Force Base New Jersey Joint Base McGuire-Dix-Lakehurst
        California Beale Air Force Base New Mexico Cannon Air Force Base
        Edwards Air Force Base Holloman Air Force Base
        Los Angeles Air Force Base Kirtland Air Force Base
        March Joint Air Reserve Base North Carolina Pope Air Force Base
        McClellan Air Force Base Seymour Johnson Air Force Base
        Travis Air Force Base North Dakota Grand Forks Air Force Base
        Vandenberg Air Force Base Minot Air Force Base
        Colorado Buckley Air Force Base Ohio Wright-Patterson Air Force Base
        Peterson Air Force Base Oklahoma Altus Air Force Base
        Schriever Air Force Base Tinker Air Force Base
        United States Air Force Academy Vance Air Force Base
        Delaware Dover Air Force Base South Carolina Charleston Air Force Base
        Washington, D.C. Bolling Air Force Base Shaw Air Force Base
        Florida Eglin Air Force Base South Dakota Ellsworth Air Force Base
        Hurlburt Field Tennessee Arnold Air Force Base
        MacDill Air Force Base Texas Brooks City-Base
        Patrick Air Force Base Dyess Air Force Base
        Tyndall Air Force Base Goodfellow Air Force Base
        Georgia Moody Air Force Base Lackland Air Force Base
        Robins Air Force Base Laughlin Air Force Base
        Hawaii Joint Base Pearl Harbor Hickam Randolph Air Force Base
        Idaho Mountain Home Air Force Base Sheppard Air Force Base
        Illinois Scott Air Force Base Utah Hill Air Force Base
        Indiana Grissom Joint Air Reserve Base Virginia Langley Air Force Base
        Kansas McConnell Air Force Base Washington Fairchild Air Force Base
        Louisiana Barksdale Air Force Base JBLM McChord Field, Joint Base Lewis-McChord
        New Orleans Joint Reserve Base Wyoming Francis E. Warren Air Force Base
        Maryland Joint Base Andrews Naval Air Facility
        Massachusetts Hanscom Air Force Base
        Westover Joint Air Reserve Base


        Bagram Airfield
        Herat International Airport
        Jalalabad Airport
        Kabul International Airport
        Kandahar International Airport
        Mazar-i-Sharif Airport
        Shindand Air Base


        Bahrain International Airport
        Sheikh Isa Air Base


        Main article: Bulgarian-American Joint Military Facilities

        Bezmer Air Base
        Graf Ignatievo Air Base


        NATO Air Base Geilenkirchen, Geilenkirchen
        Ramstein Air Base
        Spangdahlem Air Base


        Thule Air Base


        Andersen Air Force Base


        Soto Cano Air Base


        Aviano Air Base
        Camp Darby (Pisa-Livorno)
        Sigonella Naval Air Station


        Kadena Air Base, Okinawa Prefecture
        Misawa Air Base, Misawa, Aomori
        Yokota Air Base, Tokyo


        Ahmed Al Jaber Air Base
        Ali Al Salem Air Base


        Joint Force Command Brunssum


        Masirah Air Base
        Thumrait Air Base


        PAF Base Nur Khan
        PAF Base Shahbaz
        PAF Base Samungli


        Lajes Field, Azores


        Al Udeid Air Base

        Saudi Arabia

        Eskan Village


        Paya Lebar Air Base

        South Korea

        Kunsan Air Base
        Osan Air Base


        Morón Air Base, Andalucia


        Incirlik Air Base

        United Arab Emirates

        Al Dhafra Air Base

        United Kingdom

        RAF Alconbury, Cambridgeshire
        RAF Croughton, Northamptonshire
        RAF Lakenheath, Brandon, Suffolk [2]
        RAF Menwith Hill, Yorkshire Dales
        RAF Mildenhall, Mildenhall [3]

      8. steve from virginia Post author

        Okay … plenty of airfields not in US as part of airport building regime (as with Interstate Highways).

        Indeed the military gets its way but there would be freeways in the US without the military being involved. Your convoy was a PR stunt and nothing more: no military necessity. In France in 1918, trucks were a necessity as rail building could not keep up with army’s advance and the US did not have enough horses. Nobody was going to build freeways in France under fire, either.

        US military moves by rail not highways. Soldiers move by airplanes not highways. On the battlefield it is a different story but the US is not a battlefield and hasn’t been since 1865.


      9. Reverse Engineer

        “Indeed the military gets its way but there would be freeways in the US without the military being involved. Your convoy was a PR stunt and nothing more: no military necessity.”-SfV

        A PR stunt to what purpose? To convince people they needed better roads! Better roads for Bicycles wasn’t cutting it, without the Military pushing it the Interstate never would have been built.

        “US military moves by rail not highways. Soldiers move by airplanes not highways. On the battlefield it is a different story but the US is not a battlefield and hasn’t been since 1865. “-SfV

        Maybe back in 1920 the military moved by rail, but I can tell you from my years of trucking the number of military convoys you see out on the road now is quite impressive, particularly after 911.

        Road systems were obviously necessary to move the hardware around Europe as well, you can tell that from the one spot that did not get rolled over by Nazi tanks, Switzerland. The road system and terrain were not suited to moving heavy artillery and tanks around. Of course the fact the financiers running WWII ran the show from Switzerland didn’t hurt either.

        Far as the FSoA not being a battlefield, give it some time here. The local Gestapo is being equipped with plenty of Military hardware for maintaining the status quo.


      10. steve from virginia Post author

        Wikipedia is inaccurate, better to use material that does not have romantic ideas.

        Germans used railroads extensively to move their combat units … except upon the battlefields. Allies made use of ships to support its armies. Trains and ships are efficient, fuel and material savings for large armies is significant.

        Military convoys on the highway today are National Guard units ‘training’. When the military needs to move its heavy equipment it puts it on trains.

        The purpose of the Army’s PR stunt was to convince government officials that better roads were needed! Keep in mind the US government and state governments were a lot smaller and far more resistant to borrowing and spending for infrastructure projects than they are today. In the 1920s, states, even cities were building roads, tunnels, bridges and other bits of infrastructure to serve the public demand for more space for cars; and many of these bits required tolls. Keep in mind that prior to automobiles the railroads had an effective monopoly on transport services within the US. If a person or a good wanted to get somewhere he or she (or it) took the train. Air travel in 1920s was in its infancy and travel in rural areas by car was difficult due to the bad roads. The public hated to be dependent upon the railroad companies, they despised the poor service (outside of big cities) and high prices. Private sector transport investment since the 1850s = trains. The public sector had to be ‘convinced’ to take on the rail cartels and support the nascent auto industry. One part of the government (Army) played a part to convince the Congress just like the Department of Homeland Security plays up ‘security issues’ today.

        The idea that freeway building needed military support is nonsense. Did the military support freeway building in the US? Of course, but was it critical? Post WWII the Americans were in love with cars and wanted to be able to drive everywhere including from the living room to the bathroom. Planning for networks of freeways began in the 1920s propelled by General Motors and engineering firms looking to benefit from the project.

        Freeways in Europe were built largely after the war with impetus/support from auto interests. Without freeways there is no point to cars.

  15. Usman

    “We are officially seeing the slowdown in oil drilling,” James Williams, president of energy consulting company WTRG Economics, said by telephone from London, Arkansas, yesterday. “There’s no doubt about it now. We’re already down 49 rigs since the peak in October. It’ll have fallen by more than 100 rigs by the end of year.”

    Looks like the rig count is beginning to decline.
    “The oil rig count will drop to 1,325 by the middle of next year amid lower prices.” .. from a high of 1609 on Oct. 10.

    The actual number will probably depend on how low prices go. The question is how or if the feedback between declining production and consumption plays out, and how prolonged it will be before something else breaks.

  16. Reverse Engineer

    New Vidcast Up on the Diner with Steve, Ugo Bardi, Gail Tverberg and Me & Monsta.

    Slight Technical problem got the camera stuck on Gail for the last half of the Vidcast, but everyone else still visible in icons.

    Subject is collapsing Oil Prices and Collapsing Currencies.

    Vid is up on Diner TV on the Homepage.


      1. ellenanderson

        I looked all over and didn’t find it. Can you provide a link that takes us there, RE? I don’t have enough bandwidth to peruse your site properly.

      2. Reverse Engineer

        It’s right smack on the Homepage in the Feature Video spot. You don’t have to navigate to it. It’s the video with Gail in the thumbnail, not the one with the onions and peppers. lol.


  17. Jb

    @ Ed:

    “…nonsensical applied to an ecological crisis…”

    Given the drought in California right now, I would be working on getting out of the southwest entirely. Is staying out of debt and having some savings for moving your family to a more stable area ‘prepping for an ecological crisis?’ Works in a financial collapse (re-structuring?) as well.

    “…moving to rural areas means increasing your dependence on the internal combustion engine..”

    Sure, if you need a tractor to feed yourself, or have to drive to town constantly for work or medical reasons. But our ancestors lived off the land farming and hunting, and I suspect many of our grandchildren will too – perhaps the lucky ones.

    “Nor do I see the sense of deliberately becoming poor before you are forced to do so anyway.”

    What does ‘poor’ mean? Adaptation takes time. Some of us are getting started by putting aside money as savings instead of spending it on non-remunerative luxuries, staying out of debt, learning how to grow food, traveling less, etc. Let’s call it ‘voluntary simplicity.’ ‘Poor’ is a state of mind, a fashion statement. I used to live on an Indian reservation out west. The television made them feel poor, not the wide open prairie on a clear night with the Milky Way so bright you didn’t need a flashlight.

    1. ellenanderson

      Thanks, JB. We have given up central heating this year so no oil deliveries. Driving same old car but much much less. Poor but not feeling poor… yet. Right now feeling blessed but that may an accident of temperament or decent nutrition rather than a reflection of reality.

      1. Jb

        Good for you, Ellen. I’m impressed. We minimize our central heating with the wood stove, plastic sheeting over the windows, warm clothes and wool blankets. The attic is well insulated. Over the summer we installed a pet door so we can keep the back door closed this winter; that should help.

        I think a big part of this transition to a lower energy base is about choices. Over $20
        Billion in remittance is sent home to Mexico from workers here in the US every year. Those workers choose to live frugally and send the surplus home. Which is to say that the rest of us probably live rather embarrassingly lavish, wasteful lifestyles.

    2. Ed

      “Given the drought in California right now, I would be working on getting out of the southwest entirely.”

      This is exactly what I was complaining about. How am I supposed to take the rest of the post seriously if you start off with this. You have to leave the Southwest because there is a drought. This is stupid stuff.

      Why does the drought in California mean getting out of the southwest? There will be some damage to the California GDP, which will result in a slightly higher chance of a Californian losing/ not getting a job, higher taxes, or lower home values, or maybe not. These sort of economic fluctuations happen all the time.

      I think the implication is that a drought in California will translate into food shortages there, which is not true, since the food will be brought in from the rest of the world, as it is right now! What is grown in California is for export. If Californians were dependent on what could just be grown in California, there would never be over thirty million of them.

      Food is grown in highly productive areas, and then moved by truck, plane, and rail to where people actually live, so famines basically happen in the twentieth century when and where the governments want them to happen. If things didn’t work this way, the world population would never have gotten above two billion at the most, let alone get to seven plus billion. The whole point of the doomer sphere is that peak fossil fuels will make it more and more difficult to do this! This is basically the entire world system, and people on Indian reservations are tied to it just like everyone else.

      1. Jb


        Why is it stupid to want to leave a drought stricken area? And an expensive one at that. The lack of rain is certainly changing the economics of farming, halting building permits, increasing the potential for forest fires, new laws for water management, etc. If it doesn’t snow/rain this winter, will some municipalities be forced to ration water? I don’t know but if you had the choice and could take a job in another state, why not consider it?

        Shipping food all over the world is part of the problem, not the solution, right?

        The world’s population is what it is because of fossil fuels, right?

        Sorry, but I find your retort confusing.

  18. Pingback: Euro, Yen & Oil Collapse Doom Double Feature | Doomstead Diner

  19. ellenanderson

    @RE & Steve re: transportation: Steve is correct that the push for the interstate highway system was commercial. The national security stuff was just so they could pay for it with taxes on gas. They always tell us that these things are being done to keep us safe. Anyone who is worried about safety should consider the carnage that results every year from the refusal of the automobile interests to lower the speed limits of carz. Is it 50,000 deaths per year, many of them innocent children? If the Admen were to double down on that information instead of making us terrified of “the other” there would be plenty of support for much lower speed limits. This is the time of year when our public ways are littered with dead bodies – from squirrels to moose so I always think about how lowering speed limits would be such a no-brainer. But it would interfere with commerce.
    Most people think that carz have the right of way on all public ways (not just limited access highways.) They are furious when they encounter people, animals, bikes etc. that require them to slow down or move over. That is a result of public highway departments colluding with car companies and auto unions since at least the 1920s. The highways support intense commercial activities that would not be possible on railroads or on the very efficient inter-urban trolleys that were ubiquitous in the US until GM bought them up and destroyed them. Moreover, when they designed the interstate highway system they went through pristine farms and forests and wetlands to save the cost of going through already developed areas. The gas pipeline grifters are engaged in the same sort of thing right now.
    I just laugh when I hear people lamenting about how our wonderful “infrastructure” is decaying. Of course it is – along with the commercial interests that supported it. You don’t hear the military complaining about that, do you? Nope. And even though everyone hates taxes they all agree that every snowflake must immediately be removed from every road so people can get to “work” and FedEx can bring consumer goodies right to everyone’s doorstep. Waste waste waste!

  20. FrY10cK


    “We minimize our central heating with the wood stove, plastic sheeting over the windows, ….”

    How do you seal the plastic? Is it reusable from year to year? Also, I’m getting really lonely up here in the Northeast. I’ve got no one to talk to about these issues so I went to NYC to hear Chris Hedges and other speak. I’m summarizing all of the speakers except Chris Hedges. I’ll post his complete speech on my blog (click my username) when I’m done transcribing.

    1. Jb

      Hi FrY10cK,

      The plastic I buy from the local home improvement store, is made by M-D Building Products, Inc. and is called ‘Shrink and Seal Indoor Window Kit.’ It’s not reusable unless you are really careful pulling it off.

      I have applied it directly over the divided lites in the lower sash and leave this on year round. In the winter, I put a second layer over the entire double hung window unit using their double sided tape and then tear it off each spring so we can open the windows.

      It’s a cheap, temporary solution. Eventually, we’ll get new windows – maybe after our son goes off to college or when our cash has more purchasing power…

      P.S. I’m a big fan of the Cowboy Junkies version of ‘Sweet Jane.’ Cheers –

  21. Jb

    The bottom trend line of the ToD is broken. I’m assuming a new line or pattern will form in the months ahead. Even if the marginal customer / barrel gets left in the ground, there will still be some ‘affordable’ oil left for customers with purchasing power. So I’m struggling with the idea that the entire debt based currency system is going to collapse and disappear shark fin style, given the amount of fraud and corruption currently keeping it in place. The momentum of civilization, physically and psychologically, is bound to carry this forward for decades in a ‘slow collapse.’ Any thoughts?

  22. ellenanderson

    @jb – I don’t actually understand what you are saying but I don’t know what ‘ToD’ is so maybe that is why. What makes you think something is coming quickly?
    If the currency system collapses quickly I would think there would be a huge disruption in credit relationships that would lead to difficulty distributing whatever stores of fuel remain. That means that food distribution would be disrupted as well. Whether that results in immediate Mad Max scenarios probably depends upon where you are located and how long you can hold out without truck deliveries.
    The concept of “affordable oil” surely only makes sense in a debt based currency system. But governments will have access to fuel longer than their citizens. They say that the US federal government has a large supply of oil and gas in reserve. Whether that would be used to feed people and help them plant crops I have no idea. One would hope so but they may choose instead to continue their endless wars. My guess is that the states will have to scramble to get supplies to people in a real currency/credit crisis. If that happens the federal government will be greatly weakened and it will be the beginning of a long process of de-centralization.
    If civilization means orderly society then I suppose you might have an orderly society in a very low-energy system. But you won’t have big cities with cafes, subways and opera houses.

    1. steve from virginia Post author

      ToD = Triangle of Doom …

      Because what is underway is a fuel shortage in drag, soon enough there will be some kind of rationing. Maybe citizens will be issued cards that are swiped before the credit card (or cash payment) … or perhaps some other kind of allocation regime: odd-even days, 10-gallon maximum, 55mph highway speeds. People will hate that … but they’ll hate that 3-gallon-per-week maximum fuel allowance even worse.

      Think of fuel supply as a fishery that is being exhausted … after the fishery crashes there is a fishing moratorium; that is a form that fish-rationing takes. Right now access to credit is the way fuel is allocated. When credit stops working the economy will punt and the government will allocate the old fashioned way, with police power/coercion.

      A fishery is a good analogy to what is going on in petroleum right now: as with fisheries, there is a peak- frenzy of ‘production’ that depresses prices. After the prices crash fishing becomes uneconomical. At the same time, so many fish have been caught there aren’t enough left to reproduce. Fishing moratorium is a form of closing the barn door after the cows escape: there are too few fish to support the fishing enterprise whether there is a moratorium or not.

      Increasing fuel taxes would work in that they would crush demand; the effect would be the same as the drillers borrowing more. The fuel ‘tax’ would be collected a bit quicker than the borrowing ‘tax’.

      1. Usman


        Why is it necessary to ration by mandate when rationing via constrained credit does the job? Any mandate would negatively impact public/consumer sentiment, which might have an overall worse effect.

      2. steve from virginia Post author

        Usman, I don’t see any resolution other than deflation => deleveraging until credit breaks. Looking @ Japan and the EU it seems as if the process is already underway. If credit (plus props) was going to succeed at allocating resources it would be doing so in Japan; instead, it is allocating but not as intended by managers.

        Indeed, the markets do work …

        Right now the governments are frozen on the spot, too frightened to do anything other than submit to selfish demands of finance. Once credit breaks there will be massive public demand for government to ‘do something’ but the range of options is very limited. Already drillers are borrowing as much as possible w/ assist by central banks. The ‘second best effort’ will not be as successful as the first effort already underway. The customers will still be bankrupt and the drillers will not do better if their lenders know they cannot be repaid. As always, the big problem is non-remunerative use of our fuel supplies. Any subsidy is overwhelmed by its own costs … that leaves a supply crash at least in the short term.

        Of course, the governments could indeed solve the deleveraging problem … this upcoming in an article or two …


      3. Jb

        So rationing = last gasp of the credit based system. After that, we have permanent shortages and an economy that struggles to find some footing – perhaps for years.

        What’s left is decades worth of debt. Banks and governments will fight over collecting it. The remaining FRNs will disappear from circulation quickly. The old economy becomes a black hole that sucks everything in and obliterates it because it won’t be worth anything on the other side. The middle class has nothing left to call ‘assets.’ Even a house you own outright has little value because who is going to buy it on credit?

        But before rationing, we have turbulence and time to do….something.

  23. Reverse Engineer

    I’m not sure how soon we will see rationing, because Demand Destruction appears to be outpacing Supply Shut in.

    For argument’s sake, say the FSoA experiences a 30% drop in demand and China a 50% drop. Then you probably don’t need the tight oil for this level of demand, at least for a while.

    Of course the economy will be totally in the tank and few people will have jobz, but there would be oil around for a while.

    Probably the big issue comes when Refineries start shutting down because they can’t make a profit. Then Da Goobermint might try Nationalizing them along with a rationing program.

    An interesting question is how long some form of BAU can continue down to what level of consumption? Maintaining the farming and food distribution system as priority, car pooling and school buses used to move people around to work and school, bike trips for groceries etc.

    The big problem is all the jobs lost once all the willy nilly driving around and purchase of dumb consumer items grinds to a halt. Even if you can do the basics of the current system on 50% of the current fuel usage, the lack of jobs and money flowing around the real economy is the killer.


    1. steve from virginia Post author

      Managing any condition is simple if you understand the parameters or outline of the condition. Sadly, we Americans and other Westerners ignore anything that does not immediately please us, we are semi-conscious addicts who have appetites and little else. We have chosen … to ignore the outlines of our problems, pretending that incantations and other magic tricks can provide alternatives to capital, in this case fossil fuels.

      If someone would make a plan or two, there would be less disruption when the (long) emergency begins for real. Sadly, there are no plans, folks will be ‘caught out’ and nobody will have any idea what to do next.

      For me the issue has always been the divide between taking action even if unpleasant and allowing events to run their course. Taking action = stringent conservation and a revised system that provides incentives to husband capital. Not taking action = conservation by other means which includes wars, disease, malnutrition, society breakdowns … what is seen across the Middle East and Eastern Europe … also Latin America and soon to be seen in Eastern Asia and probably Russia. We have our own destiny in our hands … it just doesn’t include flying cars or wearable computers. It doesn’t include consumer products or cars. Basically, the ‘car people’ are going to have to figure out something else to do with themselves besides drive in circles. Car people here includes economists …

      Believe me there are a billion things that need doing but we obsess about increasing industrial jobs including those in retail and so-called ‘service’ industries.

  24. Jb

    We’ve been here before: the 1973 and 1979 energy crises. Rationing was used then and was used recently after Hurricane Sandy. Interesting too was the drop in gas prices in the 80’s following the 1973 and 1979 energy shocks.

    “The glut began in the early 1980s as a result of slowed economic activity in industrial countries (due to the 1973 and 1979 energy crises) and the energy conservation spurred by high fuel prices.”

    So we’re in the ‘glut’ phase now. Last time it was the USSR that cracked under pressure.

  25. ellenanderson

    There is no forum where a discussion of alternatives can take place except for here and there on the outer fringes of the internet. And even here we tend to focus on our own personal visions of how awful things are going to be rather than thinking about the range of possible outcomes in a somewhat dispassionate fashion.

    Both the left and the right assume that people need jobs meaning they need to leave their homes each day and travel to some central location where they will work at “good jobs” for wages. Most people hate their work and what they mean by a “good job” is one where they get a enough money so that they can stop doing it as quickly as possible.

    Yet all of the candidates of all of the offices in the land prattle on about how our main social goal should be good jobs. Until recently I assumed they were all kidding and knew better underneath it all. But now I think they all really believe it and I am amazed. We should be laughing at them and pointing out the obvious truth that there never were and never will be anything like good jobs. Jobs stink.

    1. Reverse Engineer

      “Good Job” is code for Jobz that pay a living wage, have some bennies and security etc, not any reflection on whether the people doing those jobz enjoy doing them.

      One of the most puke inducing comments I read constantly on the typical Free Market Capitalist blog is how the Amerikan Economy was evicerated by offshoring all the “good jobz in manufacturing”, and what we need to do is bring all those great factory jobz BACK to the FSoA!

      Anybody who pitches this line clearly never worked on a GM Factory Line, even back in the day when Union Auto Workers got the equivalent of $50/hr in current Dollars. Mind-Numbing Boring work, often pretty dangerous but because it paid pretty well, a whole generation of people did it and got nice little suburbabn tract houses out of it.

      The deal here is, even if you did bring factories back here, they will never pay the equivalent of $50/hr to the employees. You also will never have customers again with access to credit to buy the stuff that comes off these factory lines. The only reason such relatively high wages could be paid back then was because rapid credit expansion was flowing outwar BOTH to the extractor/producers AND to the consumers. Of course, this just got the massive debt overhang going here, which is what we have today.

      Normalcy Bias and Conventional Thinking prevents anyone in any position of policy making from thinking in any other way than to “rebuild what once was” for a “return to the good old days”. Call it Nostalgia Economics.

      In this respect I agree with Steve, there IS NO PLAN. BAU will march onward until it can march no more, and then when TSHTF, the Crisis Management Phase will set in.

      What remains unclear is how long it will take for the system to break, and precisely what set of “emergency measures” will be dropped down here. You can be quite certain these measures will be mostly ineffective of course.


      1. ellenanderson

        Have you been listening to the promos for a book called “The Colder War?” This will be the narrative of the political establishment going forward – America has lost the war for oil to Putin and must fight Russians and build pipelines. This will be ineffective for sure but very dangerous.

  26. Usman

    If the credit system reaches a point where it breaks, wouldn’t oil still be, de facto, rationed by credit? In order for rationing by mandate (i.e., rationing the demand) to make sense, credit availability to customers (customer demand) would have to exceed the supply of fuel. This is the definition of a shortage — when the supply of the good is inadequate to meet demand. It only makes sense to invoke a mandate if there is a tangible shortage — a mismatch between what customers demand and what is available.

    The question is, given present and likely future circumstances, is it ever possible for there to be a scenario where customer demand (credit available to customers) exceeds supply of oil, when that demand is a function of the supply? If consumers falter first, and producers after, which further impacts customer borrowing capacity, how or why would this dynamic suddenly reverse, where consumers have relatively greater access to credit? I’m not convinced that it would. The price of the moment, even after supply shut-in, will always be too high for consumers, such that they can never bid for more fuel than is available.

    It makes more sense to me if, on the run-up to peak production, supply is a function of customer borrowing capacity; and that this dynamic reverses of the downslope, where customer borrowing capacity is a function of supply. The reason I don’t think the entire industry will shut down all at once is because I imagine the most marginal fields will be shut in first, in addition to restructuring and consolidation. The only way this dynamic reverses during the downslope is if the banks and the govt let these companies fail outright, which I somehow doubt they will do.

      1. Usman

        It is interesting that the Maximum Consumer Price curve in the charts aligns almost exactly with the current pace of price decline. The top chart suggests a price of $78/bl in 2015, declining to $65/bl by 2016. The EIA forecast for 2015 is also $78/bl.

        Wonder how long until something important breaks…

      2. Reverse Engineer

        I know ShortonOil from my years on

        I’ll see if I can contact him for a copy of the report. His email is somewhere in my files.

        If I can’t contact him, I will cough up for the report.


      3. steve from virginia Post author

        I think I’ve mentioned the Hill’s Group report here before but I don’t have a copy. I think I will probably buy it for reference … I won’t post it online but I can summarize it to provoke some more discussion. It’s not fair to post someone else’s work online when it’s their business and the product of significant effort.

        Their price-depletion analysis makes sense from the standpoint of purchasing power which is (of course) resource/capital constrained. I think people will be surprised by how rapidly prices can decline when there is a scramble between banks, governments (banks), customers (banks) and oil industry for purchasing power … not to be had as it has been exhausted on nonsense.

        As far as the shift to outright rationing: regardless of what the media trumpets, there is indeed a shortage of petroleum, a look at the price indicates a shortage relative to the late 1990s … In a way, the idea behind ‘high prices will bring more crude to market’ is false. Instead of the 90mbpd flows we have now there should be 100+ million barrels per day flows. Shortage => high prices => kills demand faster than the same prices can ‘finance’ replacement crude stocks. Once the high-price illusion is shattered the shortage becomes obvious and steps are taken to manage it: odd-even days and ’55mph speed limits’.

        Of course, these steps would take place with the credit system already under severe strain.

      4. AugustusGloopius

        Yeah, so far, the declining maximum consumer price slope is tracking well with current prices. We shall see how it hold up in 2015. It’s predictions are similar steve’s mentality, i.e. what was once expedient to do under past conditions is no longer expedient, and actually exacerbates the problems. So a rise in the price of oil no longer brings more energy into the system like it used to.

        As for the report, yes, I agree about not putting it up in full for obvious reasons, so a summary would be great, or maybe just pick apart one aspect of the report.


      5. Reverse Engineer

        I got in contact with ShortonOil and he is up for doing a Podcast or Vidcast.

        I’ll let you guys know what is up when we have it organized.


    1. AugustusGloopius

      Ambrose mentions the, by now, well known observation of greatly increased CapEx for negative gains in production. A lot of the CapEx was/is due to near free money and high liquidity. If they can’t increase energy output in this financial environment, where even ~0% interest rates are too high, what hope is there when rates rise for whatever reason? I’m sure much of CapEx was paid paid from organic cash reserves, but it still begs the question. I wonder if these two graphs are correlated. Maybe they are poorly connected if at all, but still, interesting to me.

      As the blue curve in the Hills Group’s Etp model increases and thus raises the minimum price needed to bring more energy into the system, the interest rates must be forced down to allow the red dots (price of a barrel) to scale that blue slope (allow customers to purchase those increasingly more expensive marginal barrels via overall system leveraging). You can see in the St Louis Fed Funds chart this concomitant ratcheting down of interest rates to allow increased debt/buying power. Now that it has flat lined at the bottom, it may necessarily meant no more energy can enter the system via normal market (albeit kind of manipulated) processes. Deflation must then occur as the Etp Maximum Consumer Price curve shows, going out to 2020 and beyond.

      The Fed Funds rate is obviously just showing the US, but central banks the world over are in the same process. I don’t know how much of these financial processes are purely monetary, but I am sure that these monetary responses are reactions to a very non-monetary threat. I wonder what the relationship is between the Etp’s 2012 inflection point and the near-in-time flat lining of the interest rates?

      1. Ken Barrows

        Good points, although I am starting to think cash flow from operations isn’t as important as I thought it was. When conditions get really hairy for the frackers, Congress will pass a bill to subsidize production (even more?). The big limit will then be energetic: more than one barrel of oil equivalent to extract one barrel of oil.

      2. steve from virginia Post author

        Problem is not on the extraction side as much as on the consumption side.

        The customers ‘use’ the oil (or other forms of capital) they have to pay for it. However, customers cannot earn anything by way of their consumption of capital. They HAVE to borrow or someone (thing) must borrow in their place.

        Right now it is the customers (and what remains of their purchasing power) vs. their own governments (who deploy customers’ purchasing power in their place). See Japan and Germany. All trying to end the Great Depression when they are facing an energy shortage.

    1. steve from virginia Post author

      CNBC gets its info from Dan Yergin and Ed Morse who live on the sunny (mendacious) side of the street.

      People don’t understand, we are having an oil shock right now … OPEC cutting extraction will not support this market.

    1. Reverse Engineer

      I just heard from Roamer who is working on a rig out in the Bakken. He said a couple of rigs have shut down already and it looks like the axe will fall on a few more soon.


      1. Usman

        Literally can’t believe my eyes right now.. touched a low of 67.74.

        Anyone have any idea what the largest one day drop on record is?

      2. Mister Roboto

        Yeah, and it just fell down to about 68 and bounced back up to 69 while I was eating breakfast!

        [Tongue Planted Firmly In Cheek]Thanks, Obama![/TFIC]

    2. Reverse Engineer

      Could go to the $50s EZ. Check out what is going on with the Rouble.

      This is a run on Energy producers. Short the living shit out of energy companies right now, you will do very well.


      1. Mister Roboto

        DOIEEEE! I read the information from my source exactly backwards. My bad. At least the Rouble is in better shape than the Japanese Yen, though. 😀

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