Voting With Empty Wallets


The Washington Post sez:

Oil-rich Saudis find new help in struggle to delay action on climate change: Cheap gas

Joby Warrick

As the ruler of a country that sits atop 300 billion barrels of oil, Saudi Arabia’s King Abdullah was no fan of proposals to limit the burning of fossil fuels. During most of his reign, the king’s chief envoy to climate talks was a ­global-warming skeptic who boasted of his success at scuttling climate treaties.

But it was in the monarch’s final months that Saudi officials hit upon a more effective way to knock the clean-energy movement off its tracks: cheap gas.

Since Abdullah’s death last week, Saudi officials have recommitted themselves to recent policies that have helped drive oil prices to their lowest levels in a decade. The kingdom’s efforts to manipulate oil markets are wreaking havoc with Saudi Arabia’s chief oil rivals, from Iran and Russia to the tar-sands mines of western Canada. Now energy experts are seeing evidence that the oil bust is helping Saudi Arabia achieve another long-term goal: undermining global efforts to reduce dependence on fossil fuels.

Lower oil prices already have spurred demand for gas-guzzling SUVs and prompted a spike in miles driven by American consumers, new government figures show. Whether intentionally or not, the continued slump in prices could hurt sales of low-emission vehicles in Western countries and cool enthusiasm for renewable energy in the developing world — objectives that Saudi officials have long pursued through other means, analysts say.

This is more of the nonsensical ‘oil glut’ Internet meme that is so beloved by Wall Street and the mainstream media.

“You need to allow prices to go as low as possible to see those marginal producers move out of the market,” longtime Saudi oil adviser Mohammad al-Sabban said last week in an interview broadcast by Britain’s BBC. Sabban, who served as the kingdom’s chief climate negotiator before stepping down two years ago, said Saudi Arabia could survive low oil prices better than its rivals because of its production costs and massive cash reserves.

“Saudi Arabia can sustain these low oil prices for at least eight years,” he said.

People either don’t get it or don’t want to get it: instead of a glut there is a shortage. Instead of a return to the ‘good old days’, the wheels are coming off. It isn’t just the oil markets: retail sales and revenue are being hammered. So are leading indicator commodities such as lumber, copper and iron ore. The Baltic Dry Index has fallen to its 2008 level; home ownership is at a multi-decade low. There are alarms going off in China and Japan, also Latin America including oil producer Venezuela; also Russia, Zimbabwe, Nigeria, Libya, Ukraine … The world’s customers are broke; it only looks like a glut in the oil patch because drillers are stuck with unsold inventory and the media is willing to lie about it.

Constrained supply will cause prices to increase as an outcome of competitive bidding … provided the bidders are solvent. There is no universal law that requires prices to rise in the event of a shortage: when customers are unable or unwilling to borrow prices will decline, even as the ability to meet the price declines faster. This occurs during deflationary recessions as the result of deleveraging. We are living at the end of a multi-decade long period of credit expansion and Keynesian economic stimulus. The price of everything including assets and the credit used to buy them have been inflated, in some instances wildly. Both fuel and loans needed to gain fuel have become unaffordable even though interest rates are in general extremely low.

The past few months has seen a frenzy of central bank activity wrapped around the annual World Economic Forum at Davos, Switzerland. After much hand-wringing the European Central Bank initiated a €1.1 trillion round of quantitative easing. The Bank of Japan added to its (already excessive) lending programs, as the Swiss shellacked currency speculators by jettisoning their franc-euro peg. The Bank of Canada cut its overnight policy rate a quarter of a percentage point to .75%. In addition, the Turks, the Danes and Peru cut rates or otherwise made borrowing less costly as if doing so might accomplish something.

Brazil bucked the trend and raised its overnight policy rate fifty basis points to 12.25%, this followed the 6.5% increase in rates to 17% by the Russian central bank in December of last year. (Updated) As with the rate cutting, the rate increasing doesn’t accomplish much. There are central banks, there is central bank monetary policy, but nothing of substance to show for either.

Central banks shift funds from customers toward lenders and big businesses who use the funds to buy their own shares and inflate stock prices. Because the banks do not create anything new; because they cannot ‘print’ oil or put resources back into the ground they can do nothing to affect outcomes longer term, they can only pretend. Because of their helplessness, they are now panicking. The media won’t say anything but they don’t have to, the ‘hair-on-fire’ antics of the central bankers speak for themselves.

Unholy Trinity 4

The incredible ‘Impossible Trinity’ because no more than two optimum macroeconomic policies can be exercised at one time. Millions of motorists around the world buying gasoline every day make monetary policy, not bureaucrats fiddling with interest rates in an office building somewhere. To the same degree, all currencies are ‘hard’: they are exchanged on demand for a valuable physical good. Gasoline has become the ‘new gold’. What is different this time is that economists do not recognize the money-oil trade as having monetary policy implications or if so, they are doing a good job keeping quiet about it. The internal (in)efficiency of fuel wasting process determines what all currencies are worth. In Japan a car wastes btus about the same as a similar car in France or in Canada. The car fleets of various countries waste fuel more or less the same. The fuel wasting rate or (non-)productivity determines the funding pace and amounts needed to gain that fuel. Regardless of the central bankers intentions, they cannot affect change how fuel is burned or how much motor fuel the drivers will swap for their money. To that degree all the different currencies are more or less the same, what is variable is their availability.

Risks in the economy cannot emerge in interest rates because of deflation- plus central bankers efforts to ‘buy’ rates down and cap them. Risks emerge in markets where prices cannot be easily ‘controlled’ for more than the shortest periods such as commodities, currencies and in the ‘real’ economy. Most of the risk that would be priced into interest rates such as default risk or maturity mismatches — is now being priced into currency pairs or the oil market. Saudi Arabia does not control the oil markets or the customers, it cannot control the money, either. Like the bankers, the Saudis are left with PR, they can lie about how badly they are (not) being hurt by their oil customers’ instant parsimony. Unlike the bankers, the Saudis are wise enough not to try to ‘fix’ anything. Customers do and are voting with their empty wallets, crashing the price of fuel and other important sectors of the economy.

The decline in fuel prices is supposed to be ‘all good’ for consumers yet this is not the case in the real world. The Greeks just held an election to replace one group of corrupt fools with another, their intent is to reverse the crashing Greek fuel consumption trend and stimulate ‘growth’:

Greek consumption 012815

Figure 2: The idea is that new ‘growth’ will allow Greece to repay its debts. Oil consumption is plunging because the entire enterprise “Greece Inc.” is bankrupt. No amount of finagling with interest rates or balances due will allow Greece to ‘grow’, chart by EIA, Global Economy.com (click for big).

To grow economies and countries must borrow as ‘growth’ is the increase in unsecured loans. Greece’s problem is because it is insolvent it cannot borrow, because Greece cannot borrow it remains insolvent, (Bloomberg):

The Syriza-led government came to power on a platform of writing down Greek public debt, raising wages and halting spending cuts while remaining in the euro.

“Talks won’t be easy, they never are in Europe,” Finance Minister Yanis Varoufakis, 53, said as he took over from his predecessor. “There will be no duel, no threats, or an issue of who blinks first.”

Market Meltdown

Greek stocks and bonds slumped for a third day, after new ministers said they will cease the sale of some state assets and increase the minimum wage. Yields on three-year bonds rose 2.66 percentage points to 16.69 percent. The benchmark Athens General Index decreased 9.2 percent to its lowest level since 2012, led by a collapse in the value of banks.

Yields on 10-year bonds rose back above 10 percent after being as low as 5.7 percent in September. In mid 2012, they exceeded 30 percent, the highest since the country’s debt restructuring, the largest in history.

Nobody has an idea how to make up for the non-sale of state assets or to pay for the increase in the minimum wage. At the end of the day the Greeks have to travel to Frankfurt, hat in hand. It is either that or jettison the euro and reintroduce the drachma, neither of which is a solution.

The Greek government can issue its own fiat currency (greenbacks) but is held hostage to lenders who would crash the Greek banks. The banks themselves are too weak to distribute fiat euros into the rest of Europe and hold off the Troika. Greece is large enough to suffer but not ‘too big to fail’ like Spain or Italy.

A 21st Century Left Rises: Syriza’s Victory and Its Relevance for the U.S. and the World

Alan Minsky (Truthdig)

Syriza has maintained throughout this election cycle that it wants Greece to remain within the European Union, and to do so would agree to pay back at least part of its debt while seeking only partial debt relief, in largely unthreatening ways that could be facilitated by the very quantitative easing that the ECB initiated a few days before the election. However, Syriza calls for something that is at the root of its popularity with the Greek people, but which utterly cannot be tolerated by the neoliberal rulers of the new Europe. That is the reversal of domestic austerity policies, by taking actions such as reinstating the minimum wage, once again respecting collective bargaining agreements, and expanding public programs and infrastructure. Indeed, while Syriza’s core members have Marxist backgrounds, their immediate economic program is little more than progressive Keynesian social democratic proposals adjusted for a crisis situation. No Joe Stalin, that. More like a modest FDR trying to alleviate the immediate suffering of people, but 100 percent unacceptable to Angela Merkel’s crew.

Opposing austerity means nothing more than bringing back the mainstream policies of mid-20th century industrial societies, but that represents an existential threat to the logic of neoliberalism and must be drowned in the bath. Thus, even before Syriza has a chance to introduce modest social democratic policies (which remain in place in Northern European countries), let alone anything more radical, Tsipras and Syriza will spend their initial days, weeks, even months in government in a diplomatic trial by fire, attempting to win concessions from the (hostile) Troika in order to end domestic austerity programs without being expelled from the euro currency or going bankrupt.

Greece doesn’t offer hope, it offers the latest flavor of fashionable ‘delusional thinking’; that the new government can somehow turn back the clock, to the bring back “the mainstream policies of mid-20th century industrial societies” … the glory days of car-saturated modern American-style living: that it’s “morning in Greece, again”. Austerity cannot be wished away any more than winter can. The Greeks and the rest of us are reaping the consequence of our own vast waste over the course of centuries. The entirety of Europe is insolvent, not just Greece. The prior success of mainstream policies of the mid-20th century is the cause of our distress: there is nothing to show for the stupendous sums borrowed to gain the millions of barrels of fuel burned up for nothing each and every day, no return and no way to repay.

At the same time, borrowers in Europe are held hostage to their own financial innovation from which they cannot escape: euro = gasoline. The euro was created specifically to be an trade currency alternative to the US dollar or sterling, to provide little countries such as Greece the same access to credit (motor fuel) as powerhouses such as Germany, to provide a captive market in Europe for German, French and Italian auto manufacturers. The euro was intended as an energy price hedge against dollars and dollar inflation which is why the needed fiscal structure to support the currency was never put into place.

Governments have to play ball w/ Brussels and IMF or there is no euro, there is no motor fuel. At current prices, exporters will not ship fuel in exchange for depreciated drachma, lira, peseta, etc. The outcome in countries such as Greece would be local fiat that everyone has and is desperate to be rid of against the black-market euro that everyone wants if they wish to drive. As long as the euro exists there is no escape from it … and that is the best case scenario! Instead of the current ‘official’ euro with Frankfurt’s conditions there will be the ‘unofficial’ euro with conditions set by the various criminals trading it on the streets of Greek cities.

A worse case scenario has Greece with some euro trade in- and out of black markets but no euro loans. The outcome would be default and a severe depression or rather, a continuation of the current depressed state of affairs. The new Greek government would find itself becoming the tiresome old government then the ex-government in a rapid sequence.

Even worse would be drachma hyperinflation as the Greek central bank makes unsecured loans to insolvent Greek banking sector aimed at ‘kick-starting the economy’ and ‘getting it moving again’, this is actually most likely outcome as new premier Tsipras is a grandstanding Peronist like his counterparts in Argentina and Venezuela. Unlike them, he has no oil to bargain with.

The absolute worst outcome is rapid dollar preference within Greece and Europe; there could be multiple currencies in play, the euro, drachma, lira, franc, sterling … and dollar. The result would be complete chaos. This outcome is less likely as the euro itself would likely vanish with a Greek exit: if Greece is first country out, Germany is likely the second. Afterward the Greek external trade would be in black-market dollars: Greeks would have to buy them at a steep premium in order to buy fuel as well as repay whatever euro-denominated loans have been converted to dollars.

There is a great deal of sentimentality on both sides of the political divide. Everyone wants more prosperity even as the foundations of prosperity are cannibalized by those seeking it. While reducing inequality is fair and necessary, the resources necessary to support everyone in the world @ the lifestyle- and consumption level of Americans do not exist. What that means in turn is that standards of living must adjust … this is happening under everyone’s nose.

Right now the car manufacturers and drivers are pitted against everyone- and everything else. There will be no real change in Greece or elsewhere until the driving, ‘progress’, fuel-supply, debt regime falls apart under its own weight. For there to be change would require the Greeks and others to get rid of the cars. One way or the other they are going anyway.

93 thoughts on “Voting With Empty Wallets

  1. RobM

    You’ve been talking about it for a long time but I am not too quick and I think a light bulb just went on.

    Please correct me if I am wrong… We are not at risk of hyperinflation today, despite ZIRP and QE, because CBs still require collateral. If and when CBs start making unsecured loans is the day we are at risk of currency collapse.

    My question is, how would we know if CBs started making unsecured loans? Similarly, how would we know if they started accepting dodgy collateral?

      1. Reverse Engineer

        “The Fed can electronically create money and use it to lend against collateral of various types, such as agency mortgage-backed securities or asset-backed commercial paper.”

        So you are saying MBS are not dogshit? Facepalm Commercial Paper is not dogshit?

        RE

      2. steve from virginia Post author

        RE, I don’t use those ‘terms’ such as ‘dogshit’ or ‘facepalm’ (because I want to fool some of the people all of the time into thinking I know what I’m talking about). Some collateral is better than others but paper accepted for the purpose of ‘unconventional’ lending (QE) is different from collateral accepted at the discount window during a money panic.

        For QE the central banks prefer sovereign paper (US = Treasuries) because there is a big market for it and it is considered ‘risk free’. A run out of collateral held by the central bank would probably be fatal to the institution’s reputation for perspicacity … fatal to the bank, itself. This contradicts the common perception of central banks as being all-powerful institutions able to absorb any blows. A ‘collateral failure’ in the central bank portfolio cannot be contained within the bank, it ripples through the bank’s clients who depend upon it. In other words, defective collateral is poison to a central bank, they are very careful about what they accept as a result.

        ECB and BoJ seem willing to lend against anything, there is currency depreciation = runs out of their currencies b/c depositors perceive these banks as making unsecured loans/loans against deficient collateral = no lender of last resort. It’s likely this perception is calculated to some degree, to weaken the currency by way of a kind of PR campaign.

        Fed has both economic and political agendas. For instance, the Fed bought MBS in 2009 for strictly political reasons, to relieve ‘sucker banks’ overseas of their toxic holdings that they could never has sold elsewhere (bought in good faith from giant banks, Fannie and Freddie). Fed’s holding is mostly Treasuries. Their intent is to force down longer term interest rates; they can lend against ‘risk-free’ govt issue and the yield chasers will do the heavy lifting (by way of carry trades).

        Of course, if there is a money panic, the central bank will lend via the discount window against anything just to keep asset prices from collapsing.

        If a central bank feels it can get away with something to do a client a favor, it will lend against something dubious but you would not know about it … unless there is that PR campaign, again.

      3. Reverse Engineer

        “RE, I don’t use those ‘terms’ such as ‘dogshit’ or ‘facepalm’ (because I want to fool some of the people all of the time into thinking I know what I’m talking about)”-SfV

        You don’t fool anybody if you don’t have readership. LOL.

        Spice up the prose with some Gonzo and you get READERS! Works for me anyhow. 🙂

        MBS = Dogshit

        I bet Da Fed is buying up Student Loans too! More dogshit.

        RE

      4. steve from virginia Post author

        RE, the Fed (claims) they ended their bond-‘buying’ in October and I believe them. Whether they might buy more in the future is hard to say … but last round had no effect/diminished returns. The central banks all need some ‘ammo’ (in the form of higher interest rates) to meet the crisis that is sure to come. Right now with policy rates near-zero there is no room for the banks to cut. Unfortunately, pushing rates even a percentage point higher would cost the central banks AND bond markets +$1 trillion, saddle them with huge losses and put a large interest-rate dent in the ability of businesses and governments to borrow. Central banks are stuck … they can’t really do anything but make matters worse.

        RE, I have you as readership, how much more do I need?

    1. steve from virginia Post author

      When a central bank makes unsecured loans = no lender of last resort (the entire banking system is insolvent). There are runs out of currencies and currency depreciation, as there is now flight out of rubles, yen, euros, etc. There are also runs out of deposit banks, not like in the 1930s but out of cash accounts into stocks, then out of domestic stocks into overseas shares.

      If commercial lenders are strong there is a period of over-investment, as can be seen in China. If lenders are weak there can be hyperinflation as in Argentina.

      A longer examination of the mechanism of inflation – deflation is here:

      http://www.economic-undertow.com/2014/02/15/debtonomics-currency-crisis-3/

      You won’t find this in any economics textbook.

  2. Reverse Engineer

    How about this possibility…

    With Tspiras cozying up to Vlad the Impaler, say he Rublizes the economy. Issues Drachma Bonds which Putin buys with Rubles, then Tspiras uses the Rubles to buy Gas from Mother Russia! Everybody in Greece gets paid in the Drachmas, which they use to buy Ruskie Gas at the pump! Win-Win for everybody! 🙂

    RE

    1. steve from virginia Post author

      Russia is as bankrupt as Greece. Putin needs to step down and let some new guys try.

      Russia is not a credit provider, it lacks the needed credit infrastructure rule of law, jurisprudence, enforceable contracts, internationally accepted currency, etc. It is an arbitrary and capricious dictatorship dependent upon the West for its funds: Greece would be forced into the position of having to bail out the much larger country.

      I did think at one time that the Greeks could offer a lease for a Russian base on Greek soil … that would give the rest of the stuffy dodgers on the Continent a conniption fit!

      🙂

      1. Reverse Engineer

        “Russia is as bankrupt as Greece. Putin needs to step down and let some new guys try.”-SfV

        Not according to Paul Roberts.

        http://www.globalresearch.ca/russia-in-the-cross-hairs-washingtons-threats-have-moved-into-the-realm-of-insanity/5427575

        “According to the debt clocks available online, the Russian national debt as a percentage of Russian GDP is 11 percent. The American national debt as a percentage of US GDP is 105 percent, about ten times higher. My coauthors, Dave Kranzler, John Williams, and I have shown that when measured correctly, the US debt as a percent of GDP is much higher than the official figure.

        The Russian national debt per capita is $1,645. The US national debt per capita is
        $56,952.

        The size of Russia’s national debt is $235 billion, less than one quarter of a trillion. The size of the US national debt is $18 trillion, 76.6 times larger than the Russian debt.

        Putting this in perspective: according to the debt clocks, US GDP is $17.3 trillion and Russian GDP is $2.1 trillion. So, US GDP is 8 times greater than Russian GDP, but US national debt is 76.6 times greater than Russia’s debt.

        Clearly, it is the US credit rating that should have been downgraded to junk status. But this cannot happen. Any US credit rating agency that told the truth would be closed and prosecuted. It wouldn’t matter what the absurd charges are. The rating agencies would be guilty of being anti-american, terrorist organizations like RT, etc. and so on, and they know it. Never expect any truth from any Wall Street denizen. They lie for a living.

        According to this site: [1] the US owes Russia as of January 2013 $162.9 billion. As the Russian national debt is $235 billion, 69 percent of the Russian national debt is covered by US debt obligations to Russia.”

        RE

      2. steve from virginia Post author

        Russia is a petro-state, you have to compare it to other petro-states like Kuwait, Saudi Arabia and Norway, not to finance-states like the US or Western Europe.

        The US is a creditor-state. It’s product is credit, it is no surprise that America is indebted to its financiers: wealth = debt. In other words, one is the flip-side of the other. No debt = no wealth (no money, either).

        I feel sorry for ordinary Russians who don’t sell oil or natural gas and therefor have no dollars with which to buy Treasuries. They are stuck with near-worthless rubles plus whatever euros show up on street-corner black markets. No doubt the bulk of the (borrowed) euros and other (borrowed) hard currencies are in the possession of the elites, keeping in mind that (more) debt = (more) wealth. Borrowing is how one becomes wealthy …

        It’s always funny to listen to hypocrites like David Stockman and Paul Craig Roberts whine about debt while counting their own fortunes and those of their friends. Like I’ve said over and over, the cause of our ongoing failure is our previous successes. Trying to revisit them simply accelerates the failure.

      3. RobM

        Thanks.

        Is the ruble crashing because the Russian CB is making unsecured loans, or because people are worried they might start making unsecured loans due to lower oil price?

      4. steve from virginia Post author

        Probably both. Central banks, commercial lenders and the public have to work together to destroy a currency but a key factor is insolvent banking system including the central bank. Oil producers are having a currency problem right now but not all of them, just those that are perceived as being insolvent.

      5. Reverse Engineer

        “No debt = No Wealth”– SfV

        You make it sound like having a lot of debt is a GOOD thing!

        I agree Stockman is a hypocrite, however I was not aware Paul Roberts is also a multimillionaire.

        Even so, in principle there is no reason the Chinese and Russians can’t set up their own credit and clearing systems. Far as “Rule of Law” goes, we don’t have that here so it’s obviously not necessary.

        RE

      6. steve from virginia Post author

        They can set up whatever they like but empty institutions cannot confer legitimacy, that requires time.

        Credit issuance is more than simply a mechanical issue otherwise Kenya or Paraguay would be credit providers. A big problem for both Russia and China is their currencies are not tradeable in forex markets. They can lend dollars (they do) but they must borrow them first or someone must borrow for them.

        We’ve discussed this before: Russia and China are both credit dependencies of the West: Russia on Europe and the euro, China on the US and the dollar. The collateral for China’s debts (including its money) is its forex holdings, ditto Russia.

        China’s industrial base is poor collateral as it erodes China purchasing power (which is equal to China’s resources, what the power actually gains). As resources are gobbled so is purchasing power.

        China and Russia would like to be free of the West and its credit but wishing does not make anything so. These countries are like two old winos in a Skid Row gutter, one more derelict than the other, both ‘hooked’ on Western money.

  3. Bill from Saitama

    Do you, Steve have a car? Not critical or judgmental, just curious. I live in non-rural Japan so I don’t need a car.

    I agree that the main function of industrial civilization seems to be building complex machines to waste oil.

    I just came back from a vacation in Hawaii and my main impression was of a vast number of vehicles wasting oil in an ideal climate.

    1. steve from virginia Post author

      I don’t have a car. I live in the Washington, DC suburbs, not having one is a considerable hardship, particularly when the weather is inclement. There is transit but it isn’t very convenient.

      1. Reverse Engineer

        You should get an Electric Scooter like my EWz! I added a spare battery pack so my range is now up to around 25 miles. Great for shopping trips to the grocery, visits to the museum, beer runs, whatever. Less than $1000 gets you a nice one.

        RE

  4. ellenanderson

    @Steve – “Of course, if there is a money panic, the central bank will lend via the discount window against anything just to keep asset prices from collapsing.” Would a money panic present as a ‘sudden shock?’

    @RE – I use a homemade recumbent ‘nomad style’ trike with a Ridekick trailer. My long years of trying to electrify bikes have taught me that they break down with great regularity or run out of charge unexpectedly. So if you get a good safe bike with granny gears you can at least pull the trailer into the woods, chain it to a tree and pedal home. I hear that there are some very high end electric bikes now but they are more expensive than a good used car.

    However, an older person trying to use any bike or scooter as a substitute for a car in the bad winter weather is going to find it tough going. Car sharing or trading rides to the store for other services is a better bet. I imagine that Steve has got some sort of system going along these lines.

    Eventually society will reorganize so that people won’t have to be traveling so much and they won’t need carz. This is what is going on right now really, as we run out of resources. Think of it this way: a draft horse foals in 2004 the same year you buy a Mercedes for $50,000. Ten years later, the mare is probably still working, the foal is in the prime of her working years, has been working since the age of three and may be worth $10,000. The Mercedes, with 175,000 miles, even if well maintained at about the same amount of $$ it takes to keep and train a horse, is approaching worthlessness. Ten years later the Mercedes is in the land fill and the horse may still be working. It may have produced other horses and, in the old days, it might have been butchered to provide food for dogs or people at the end of its life.

    Of course, we are probably going to be so impoverished that even horses will be too expensive.

    1. steve from virginia Post author

      The battery manufacturers make most of their products for automotive and marine use, there are now better batteries for solar and wind installations but not for bikes, not yet, anyway. Batteries have real problems in colder weather, that is not so much an issue w/ vehicles as a battery warmer can be installed in the car or boat. The bike can be brought inside in the winter but not kept there all the time so the battery discharges just sitting outside while you go inside a store.

      I can walk from my apartment to most of the necessary services such as food stores. I also share rides with others when needed but this is not a formal arrangement. Fortunately, transit in this area is (somewhat) available so I can use the buses and rails to go to Washington proper and into some of the surrounding areas.

      In 2008 there was a panic in the money-markets, that is in overnight cash markets. There is a good article about it, here:

      During the financial crisis in 2008, just one money market fund (MMF) “broke the buck”—that is, its share price dropped below one dollar. The Reserve Primary Fund announced on September 16 that the value of its shares had dropped to 97 cents. As we discussed in a previous post, Reserve’s announcement helped spark a widespread, damaging run on MMFs that slowed only when the federal government intervened three days later to backstop the funds.

      http://libertystreeteconomics.newyorkfed.org/2013/10/twenty-eight-money-market-funds-that-could-have-broken-the-buck-new-data-on-losses-during-the-2008-c.html#.VMuoFcZM4y4

      One of the reasons why Germany lost World War One is that it depended on horses for motive power away from the railroads. As the war dragged on hundreds of thousands of Germany’s horses were slaughtered: there were gas masks for soldiers but never for animals. A reason for the heavy .303 cartridges used in military rifles of the time was the need to kill horses. Germany needed horses at the front to haul supply wagons and pull artillery pieces but it also needed them on the farm. With the loss of animals — and farmers’ boys — there was a sharp decline in agricultural productivity … by the time the war ended, Germany was starving.

      The Allies avoided problems by shifting from horse-drawn logistics (Allies also had a horse-shortage) to using thousands of motor trucks.

      Ordinary Germans suffered acute food shortages until rescued by the Allies/US after the surrender. Germans and others set about break-neck mechanization of their agriculture … but increasing agricultural productivity was not something that could be ‘switched on’ like a light. Even in the late- 1920s German food supply was tenuous … giving rise to Hitler and his obsession with increasing German arable land area — ‘lebensraum’ — and eliminating ‘useless eaters’.

      The US can escape something similar but it will take a very refined approach that the current regime seems incapable of. We need to shift with some dispatch from the one-size-fits-all, fuel-chemical-finance industrial model for agriculture toward a more granular, localized, nature-friendly model. The US must become more ‘agrarian’. We also don’t have a lot of time to do so. Indeed, we need to breed more horses along with a whole lot of new attitudes.

    2. Reverse Engineer

      There are Li-I batteries available for scooters.

      It stays indoors all the time except when you ride it, and in cold weather you can keep the battery compartment warm with a gel pack heated in the microwave.

      Example:

      Walmart is 6 miles from where I live. My scooter does about 12 mph, so it takes 30 minutes to get there. When I arrive, I ride it right into the entrance where the handicapped scooters are plugged in, and I plug it in next to them. Then I do my shopping, get back on the scooter and ride home where I drive it inside and plug it in.

      In reality, when it’s really cold or pouring rain I don’t ride it, I DO have a car. However, even here in Alaska its only about 3 months of the year it’s too cold for comfortable riding.

      The reason I got the second battery pack is for unexpected drainage of the primary pack. I stay inside the range of one pack, so if it fails I have the backup. 12 miles is plenty of range in most communities to get to the library, stores etc.

      In a worst case scenario, you can always push it along with your foot like an unpowered scooter, and you can also hitch a ride with somebody, because the scooter folds up small enough to fit in your typical SUV. I carry it in my Mazda all the time. You can also lock it to pole or fence and come back for it later.

      By the way, my Mazda is a 1989 and still going strong, long after most draft horses are dogmeat.

      RE

      1. ellenanderson

        RE I KNEW you would say that (and I am the patron saint of lost causes, bicycles and really old old carz.) However, you are confusing the fact that you are using it with the question as to whether it is useful vs wasteful.
        Also, your Mazda has never bred any little Mazdas and it will certainly not ever become anything as useful as dog meat.
        BTW – do you have to get a license for your scooter? The nice thing where I live is that you don’t need to register an electric bike so long as it won’t go over 20mph on the motor with no human assist. Horses don’t need to be registered either tho there are some who might insure them (I don’t.) I think that you have to go to the RMV for an electric scooter but I am not sure. This mean eye exams and IQ tests to renew licenses as we get old, infirm and crazy.

      2. Reverse Engineer

        Anything you ride on the STREET that has a motor you are supposed to have a license for and register. However, I don’t ride it on the street for the most part, I ride it on Bike Paths and Sidewalks. It’s too slow to be safe on the street anyhow.

        So, no license, no registration, no insurance. I’ve never been stopped by a cop, if I was I would just tell him it’s my Mobility scooter for my bad legs. 🙂 Most I would get is some kind of warning or told I need to register it, but I doubt this will occur.

        I’m considering getting a trailer for it, however I am able to carry everything I buy on the rear carrier and from basket, so don’t really need it.

        RE

      3. RobM

        I went with a used Yamaha Majesty scooter. Cheap to buy. Cheap to operate (75 mpg imperial). Just enough power to ride on highway at 60 mph with a passenger. Small enough engine (400 cc) to be in cheap category of motorcycle insurance. Built in storage large enough for 3 shopping bags. Can add extra rear trunk if more space required. Big windshield provides decent comfort in rain.

      4. Reverse Engineer

        RM, your Gas Scooter post got me looking at a Gas Powered Scooter to add to my Arsenal of Preps!

        I don’t think I need a 400cc like the Majesty for what I would use it for, I think the 125cc models will do fine. The Majesty is a bit large to carry on my Bugout Machine or keep inside my apartment.

        I’m leaning toward the Yamaha Zuma 125cc. @ 80mpg, between using this and the electric, I doubt I would use more than 100 Gallons of Gas a year. @ $10/gallon, that is only $1000, easily affordable right now for me. This winter, I have so far kept fillups on the Mazda to one per month, but I could easily do better than that if I had a Zuma to use on the nicer winter days. The rest of the year, almost no reason to use the Car at all, so one tankful could last several months.

        Imagine if EVERYONE did this! We could cut Gas Consumption in the FSoA by 50-70% in NO TIME! Shift most food transport to the rails, and people pick up their food at the railheads, even MORE savings as the trucks go off the road!

        RE

      5. steve from virginia Post author

        See … it isn’t impossible to ditch the car habit. I suspect when it ‘hits the fan’ there will be this kind of conversation around a lot of dining room tables.

      6. Reverse Engineer

        Forgot another Option if your Batteries Die on you with the Scooter.

        Long as you have your Cell Phone, just CALL A CAB! LOL. The Scooter will fit in the cab trunk.

        However, if you carry a spare battery pack, this is a very negligible problem.

        RE

      7. RobM

        125cc scooter is a nice size. Just big enough for modest speed highway travel. I considered this size but the large (and very unique) storage trunk of the Yamaha Majesty plus the availability a good used one sold me.

        I forgot to mention the excellent range. I get 200 miles on one 14L tank. I keep four 20L gas cans in my shed which gives me 1300 miles of range without visiting a gas station.

    3. RobM

      Horses are an excellent renewable energy source but their return will require us to swap about 1/3 of our agricultural land from producing fuel for us to producing fuel for the horses. To reduce the use of fossil carbon based fertilizers we will need to fallow about 50% of the remaining land. So we end up with at best 1/3 of the land we have today for human food. We can expect further agricultural land losses due to climate change, fossil water depletion, and soil erosion.

      This leads to the only solution that might avoid suffering and premature deaths: A global one child policy coupled with policies that drive down total consumption of material goods faster than non-renewable resources deplete.

      Austerity policies in rich countries will need to be extra aggressive so that poor countries can catch up a little to avoid World War III and/or border problems.

      All we need is 50% of the worldwide population to override their gene driven desire for status and more stuff, religious beliefs, steep discount rate, and denial of all of the above. Oh, and be willing to resume hard physical labor for most jobs.

      Maybe if I write a letter to the editor people will see the light and vote for less.

      Or maybe Naomi Klein is right, and all we need to do is raise taxes on fossil carbon companies and rich people and use the trillions of tax proceeds to build out renewable energy so we can live in sustainable bliss forever with healthy food, fair salaries, public health care, public transportation, and no social injustice.

      1. steve from virginia Post author

        Change we can all believe in …

        I suspect there will be fewer horses and more begging.

  5. ellenanderson

    People have a hard time accepting trade-offs don’t they? Perhaps that is because one has to start by defining goals and that is not fun because we want everything that is fashionable and as ‘affordable’ as possible.
    For example, start with what should be the goal for a bike – to maximize the efficiency of human power using chains and gears. To do that you want the bike to be as light as possible. Motors and batteries add weight. Then, assuming you are OK with the extra weight, you have to decide whether you want power to go uphill vs. to go fast vs. to go far. There are some pretty good lithium iron batteries available now but they still weigh something and electric motors, even if built into the hub of the wheel add weight. And you still can’t have it all without adding a lot of weight. Of course then you have to wonder about snow and rain on your electrical system so you try to devise some sort of cover for the bike (ie velomobile.) Pretty soon you can no longer pedal it. So what have you created? Ta dah – a car!
    Even worse when we try to define our goals for society. Most of us would prefer a peaceful life where our basic needs are fulfilled and we can find some meaningful work that doesn’t kill us and over which we have some control. So think about what you would have to do or change to get to that point from where we are now. You would be thinking about how to use as little energy as possible because if you use too much you waste and make things difficult (and expensive.)
    However, if your goal is to win a war or to compete with your neighbor to build up a commercial surplus then you will be likely to be more than willing to waste energy just as we do. Of course trucks will beat horses in war and in agriculture if your goal is winning rather than living well. I have heard that humans using hand tools and permaculture techniques are preferable to plowmen with horses if you goal is healthy food in a sustainable system. I guess that the laws of thermodynamics tell us that there is always some waste, but the less of it the better if the goal is a reasonably meaningful life.
    To reiterate what you keep saying that some people just can’t get – waste is the opposite of productivity. When you toss your car/TV/computer into the landfill you have to borrow to get another one so you can waste even more. We are all Red Queens from that perspective! How do we get out of this?

  6. James

    I suppose there are different grades of collateral and that fossil fuels are the highest grade. The secondary collateral would be land and all of the assorted infrastructure, government bonds, gold and so on. However, for the most part, fossil fuels give the second tier collateral its value. Since expectations were that oil would remain at over one hundred dollars per barrel for the foreseeable future, wouldn’t this allow a significant expansion of the credit base? And now that oil has fallen to fifty dollars, does this mean that a lot of that debt is uncovered by collateral now? And regarding student debt, aren’t indebted students essentially collateral slaves whose future earnings are used to pay off loans? And what is the leverage on that collateral? 35:1? How many times has the collateral been pledged? Who keeps up with it?

    Finally, since we are burning up our collateral while at the same time expanding the credit base, when does the curtain close on this one-time, unsupportable consumption paradigm?

    1. steve from virginia Post author

      Actually, the extraction companies are the collateral, not the fuels as they are indeed ‘used up’. The ‘investments’ endure including the wasting components, not the actual capital. The relationship between capital and extractor orbits around the time the extractor can remain in business … generally determined by the amount of capital that remains to be extracted.

      Lower price affects the companies as the resources themselves have no real worth until they are brought to market, then their worth evaporates literally right before our eyes. With petroleum the path from worthless to worthless is very short, from under the ground to circling overhead as toxic gases in the air. You are otherwise absolutely right, the decline in oil prices shrinks the credit base (although that base had shrunk previously, the market for fuel simply ‘catching down’ to the credit market).

      Student loans are unsecured which is why they are so problematic and why lenders appear to be draconian. If the students decide not to pay there is no collateral to retrieve, the only recourse of the lender is to bully the student.

      As far as re-pledging collateral: it can be re-pledged as long as it can be gotten away with. Oil market says credit has unraveled already, that the crash is at our doorsteps.

      🙂

  7. Pingback: Voting With Empty Wallets | Doomstead Diner

  8. Oilcrashing

    Hello Steve,

    Do you think that a GREXIT can be contained? That this dominoe will topple the other dominoes?
    My question is how do you think that this incoming collapse will play out… Do you think that we are living a slow-motion collapse that will gain more and more traction as more dominoes are toppled? Because this is actually how I see this playing out.

    BTW, oil suffered a signifcant bounce yesterday. I am wondering if we are headed to 70-75 $ per barrel (ETP model predicted an average price of 70-75 $: http://www.thehillsgroup.org/), and thus the system can cope (miserably, but it can cope) with the current state of affairs for another year.

    Best regards,

    1. steve from virginia Post author

      Can Grexit be contained? Look at the EU trying to keep Greece in, that speaks for itself. The Greeks would have been gone a long time ago if their leaving was painless. Nobody would have bailed out the Greek banks unless the other European banks weren’t in the line of fire.

      It’s hard to see past all the lies, a lot easier to see what system managers do.

      http://www.telegraph.co.uk/finance/economics/11381071/Europes-creditors-play-with-political-fire-in-pushing-Greece-to-the-brink.html

      The Greeks have to be kept from successfully defaulting b/c all the other over-indebted EU states would default afterward. The Greeks have to be kept in otherwise the Continent’s liabilities would all flow toward Germany … the only EU state with any money. The Greeks have to be kept in or the entire euro-denominated edifice is revealed to be inept and untrustworthy. This last is fatal to ‘confidence’ and the endlessly rising stock market. for which all other things including the world itself … is sacrificed.

      No market runs in a straight line either up or down forever … even the stock market. There will be price rallies in fuel markets but the customers are still broke … and becoming more so every day.

    1. Reverse Engineer

      While there are Li-I batteries that will fit my scooter battery compartment, I don’t have a set. The battery supplier up here doesn’t carry them. My batteries are SLA, Sealed Lead Acid.

      The Scooter runs on a direct drive 1000 W 36V motor. The battery pack has 3 10 AH 12V batteries wired in series. I wired the spare set up myself and practically brought a thunderbolt from heaven down the first time because I didn’t have the right hardware and was trying to jury rig it. If you ever shorted out a 12V battery while charging it, the sparks you get at 36V are about 10X the size. LOL.

      Scooters of this type are way simpler than electric bicycles, no gears, no chain, there is about nothing that can fail on them beside the battery or the motor. I have spares for both.

      If you want to charge direct off Solar Panels, you take the batteries out of series and hook them together in parallel, which gives you the equivalent of a 30 AH 12V battery. A decent set of 12V PV panels putting out 5A will charge this up in one day. I have a set, but don’t use them, they are in the preps for when the grid goes down.

      RE

      1. ellenanderson

        I have never tried to wire a series of batteries. However I have had some spectacular crashes on experimental electric bikes – mainly due to controller fuses failing so motor won’t shut off while going downhill. (Solution is to hope brakes are powerful enough to burn out motor.)

        That is just why bike shops don’t want to deal with home made jobs.
        I think one has to be careful with lithium iron batteries to be sure that the charger doesn’t hurt the battery. I would like to be practicing now before the grid goes down.

        I like chains and gears. All this stuff is reasonably high tech I do understand. But you get some exercise and can still deliver the milk if the car won’t go for whatever reason.

      2. Reverse Engineer

        For this application, the Li-I batteries would save a little weight and give you a little more range, but really the 12 miles on a charge it currently does is plenty for my applications, which is driving 2 miles up the bike path to my workplace, about a half mile to 3 Bears for food and beer supplies and 5 miles to the Food Pantry where I volunteer once a week. There are also outdoor electric outlets everywhere because people plug in the cars for Block Heaters in cold weather, so if I need to charge it while out and about, I usually can. At 3 Bears they even let me drive it around INSIDE the store to load my basket with groceries! 🙂

        If you were delivering milk inside this kind of range it would work fine with a small trailer as long as the grades on the local hills aren’t too bad. It’s rated to pull up to 240 lbs, I weigh 165 so it has about 75 lbs of spare capacity for load. On flat ground you could pull a bit more.

        I would like to see a model with a 5000W motor, and a clutch to disengage the rear wheel from the motor for easier physical scooting. On flat ground or downhills I could then scoot it along with my foot and save juice, which would up the range considerably. The more powerful motor would give more load capacity and do better on steeper hills. You would need a larger battery compartment for this though.

        There are some models which will do up to 30mph as well, but that is still too slow for the roads and too fast for bike paths.

        I went over to the Yamaha Dealership today after work, and if I buy one, it will probably be the Zuma or S-Max. @ 80 MPG, as long as there is SOME gas still available, together with the electric it will cover 90% of my needs 9 months out of the year. In deep winter, still good to have the car, but even there if it is above freezing I am OK on the scooter if I HAVE to use it.

        RE

  9. James

    The future: a state of affairs whereby the middle class has been squashed by interest on debt, taxes, and increasingly unaffordable essentials. Housing values and other assets inflated by easy credit will be equally squashed as the credit needed to buy them will be unavailable to those still working for deflated wages and out of the question for those without jobs – a large majority. The price of oil will whipsaw up and down, smashing the world’s economies a little more when it goes up and destroying high-cost oil producers when it goes low. The end result, judging by yours and Gerry from the Piedmont’s comments on Peakoilbarrel.com, oil will end up being rationed and this will spell the doom of the car culture, producing economic anemia bordering on coma and further deflation. At some point paper assets will try to dive into remaining productive assets, thereby hyper-inflating their values and making most things unaffordable to the now impoverished 95% of the population. Just trying to arrive at a likely scenario. On the other hand we may see the United States corner Russia into a nuclear war that would provide the excuse to rid the earth of a few billion superfluous, useless eaters. And I know the sun will come up tomorrow, but only to illuminate the devastation upon the landscape and the aimless wandering of sallow-faced drifters. What’s in your crystal ball? Or dare you say?

  10. ellenanderson

    @James. I don’t have any crystal ball but usually currency and resource conflict turn violent eventually, don’t they? Given that there is no easy way out, the question is what form the violence will take. Usually countries deploy their latest technologies which would be drones and cyber attacks.
    We have to hope that the snooping and surveillance will give all countries warning of any attempts to deploy nuclear weapons. Of course, if power grids were attacked there would be nuclear consequences at our electric plants.
    Otherwise I think that the problems we encounter will vary depending upon our local circumstances. Things like weather and soils basically. I wouldn’t want to be living in China. I think that they are in a very tough situation. Japan too. Look at the droughts in California and in Brazil. There are dragons everywhere. You could go nuts spinning out scary scenarios. If that doesn’t sound like fun just don’t go there.
    Germany is up against the wall too as Steve says. Greece can’t be allowed to succeed in defaulting otherwise everyone will default. But they can’t be bailed out either.

    1. Reverse Engineer

      Greece can’t be allowed to succeed in defaulting otherwise everyone will default. But they can’t be bailed out either.– EA

      THIS is the BIG MORTON’S FORK.

      Only extremely small debtors can ever be allowed to default. Argentina could default for instance, it would not upset things too much.

      Greece SEEMS small enough to default, the PROBLEM here is that Greece is a member of the EU, with other countries in precisely the same situation who are NOT small enough to default. AKA, Spain, Portugal, Italy…

      Can’t be bailed, can’t be allowed to default. What’s the 3rd option? Extend and Pretend, ongoing for the last 6 years.

      If the EU grants debt forgiveness to Greece, EVERYONE will expect Debt Forgiveness. If everyone has their debt forgiven, EVERYONE is BROKE!

      So, who blinks first, the Creditors or the Debtors? CFS says it will be the Creditors, because the Debtors already got nothing left to LOSE. They are already broke. Tspiras can give the Krauts the Finger and it really is not any worse than it already is.

      RE

      1. Mister Roboto

        One thing I can see happening is that Syriza is entirely unable to deliver on any of its big promises, and then Golden Dawn gets voted in, and then the fun *really* begins! Smeg Heil! 😛

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  12. ellenanderson

    Hi RE: I posted this on your site but will do it here too. It pains me to see all solutions relying upon liquid fuels. “My solution is a trike (or a bike) with a detachable trailer powered by a rechargeable battery (either lithium or SLA.) You could build one yourself or you could buy one off the shelf. Mine is from a little company in Colorado called Ridekick. They have redesigned their system this year in response to some issues from early adopters like me. I would send a photo of me on my recumbent nomad trike with Ridekick but my bike shed is totally frozen in with the recent snows in the Northeast. Once I dig out though, the battery is safely charged in my living room.”
    I don’t really need the electric assist on the flat but I have giant hills here where I live. If I had to ride all winter I would probably use my 2-wheeled recumbent BikeE which is more easily used on a snow-narrowed road. The nice thing about an electrified trailer is that it can move from bike to bike.

    1. Reverse Engineer

      My solution doesn’t rely on liquid fuels, both the Vans and the Scooters can be electric.

      I like the power assist trailer idea, but far as commuting goes you have range issues and speed issues. The electric vans resolve that problem, plus provide weather protection for the bulk of the trip.

      Bonus, it provides a job for many more Van Drivers!

      RE

    2. Reverse Engineer

      NEW BRAINSTORM!

      EA’s Electric Powered Trailer combined with a Gas Powered Scooter!

      For this one, you use one of the smallest size 50cc Scooters which do up to around 50mph, and you equip a trailer for it with a 5000W motor and batteries. This motor should be capable of pushing said scooter along at up to around 30mph.

      Most of the time around town, your trailer provides the power, but if you need to go a little faster or further or your batteries die you flip on the motor of the scooter and that moves you along. Bonus here, the alternator of the scooter charges the batteries of the trailer while it is running!

      The additional weight and drag of the trailer probably cuts your gas mileage down from the 90mpg the small scooters get to maybe 70mpg, but since most of the time you run electric, it’s still going to be better overall on gas mileage. You have a battery pack on the trailer good for say 20 miles, so only if you need to go further than that would you engage the gas motor.

      The additional bonus is the greater carrying capacity with the trailer addition. You probably could even pull a Big Screen TV home from Best Buy with this! 🙂

      RE

    1. steve from virginia Post author

      Timing is interesting, they might have had more leverage this time last year w/ + $100 crude and strong demand for refined products. Right now the refiners are stuck with inventory and a very sluggish market. Oil feedstock is indeed cheaper but costs are higher; refineries use more of that (cheap) energy every day. The companies are also more leveraged.

  13. James

    Let’s consider all the bonds that the consumer must pay off: government bonds, hospital bonds, education tuition bonds, school bonds, utility company bonds, mortgage bonds, corporate bonds, hospital bonds, football stadium bonds, city bonds…… The cart full of debt has become too large for the citizen donkey to pull. The consumers can no longer retire the debt of all the various investments because the sum total of investments, society, can no longer acquire the required net energy to pay the consumers adequately so they can retire the debt with their consumption. Even at 0% interest the debt can’t be retired. International wage arbitrage exacerbates the situation. No amount of increased debt and investment can overcome the diminishing net energy and growth on a planet with finite resources. The debt continues to pile up until the donkey pulling the cart is hoisted into the air and all forward momentum stops, then panic and all the future consumption represented by paper wealth, disappears. The debt donkey must keep walking at any cost, just so the saver/investor believes their future consumption still exists. How gullible can they be? Gullible enough to lose everything they think they own.

  14. Jb

    So the Hill’s Group link has been posted before but I’m curious what the Undertower’s think of this quote from their page:

    “The Maximum Consumer Price curve is curtailed at 2020 at $11.76/ barrel. At this point petroleum will no longer be acting as a significant energy source for the economy….All production from that point forward will be from legacy fields only. The economic impact that will result from the energy lost to the general economy is beyond the scope of this report.”

    http://www.thehillsgroup.org/depletion2_022.htm

    Even before we get to $11.76, the demand destruction will be shocking. Anyone have thoughts on this?

    1. steve from virginia Post author

      Hill’s analysis is not so much different from Ugo Bardi’s (or mine, for that matter). With access to credit, activity isn’t directly linked to efficiency of consumption but efficiency of credit. Now that the price is crashing it seems that loans don’t work as well as they have and now we’re stuck with consumption efficiency after all.

      I ordered the Hill Report a month or so ago and sadly … the first version didn’t work in my computer so he’s sending another. I’d like to see if I can parse out his math and then do something/play around with it.

      James’ observation is apt, too many burdens not enough real returns. Maybe the central banks can print some more money … right?

      I think Ellen and RE have the right idea, cutting back on the waste is doable and necessary. I’m a pedestrian where I live but the suburban distances are daunting, I’ve thought about getting a small motorbike for getting around.

      1. Reverse Engineer

        I’m about 80% of the way there on convincing myself to buy the Yamaha S-Max, if I do I will let you know if I think it’s a good choice for your around town transport.

        My guess though is that since you mostly work Pedestrian now, one of the Electrics EWz style scooters probably would work for you quite well, and much cheaper.

        If my legs worked better, I would use my Bicycle more as well, but sadly my muscle power and endurance just are not there anymore for this methodology. When I first left NY Shity and moved to Springfield, MO, for 6 months I worked on just my bicycle, I had a 6 mile ride to the main location, a 12 mile ride to the second location, and another 6 mile ride home. I rode about 24 miles every day during this period. I was very fortunate on weather during this time also, no major rainstorms or snow, ice etc. RIGHT after I bought my Car of the era (a 1989 Toyota Tercel 4WD Wagon which lasted me about 8 more years), we had several weeks of heavy rains. Very weird coinkidink there.

        RE

      2. Jb

        Thanks to Steve. This matches my understanding of RE’s ‘Liquidation Sale’ as well: sell it now before all your customers go broke. Still, we have a ways to go before we break support at $1.59 from 2008.

        And thanks to James as well. I would just add ‘wide spread civil unrest and a dramatic increase in violent crime.’

      3. Reverse Engineer

        The S-max is a gas scooter, it doesn’t need to be plugged in.

        Far as the electric goes, I keep it inside my apartment. You don’t ride it on the street with the carz, you ride it on sidewalks and bike paths.

        RE

      4. hiruit nguyse

        Just ordered my copy today….I have been wanting to read it for a while….the most important thing I learned from him today is that EROEI is calculated at the wellhead, and since our Transportation Sector is only about 20% energty efficient, I think you can see where that is going rapidly. We are probably already a Net energy Sink today.

  15. James

    “The economic impact that will result from the energy lost to the general economy is beyond the scope of this report.”

    Martial law, command and control, war, confiscation, services cut from marginal areas, majority of population sitting at home without income with emergency rations delivered to central distribution points. Severe shortage of transportation fuels resulting in all of those little transactions that had previously been the largest part of the economy being discontinued. No money. No income. Shortages of everything. Limited conversion of transportation to natural gas and electric, but most cannot afford to drive a personal vehicle, internet or cable TV. The population begins to erode away as the elderly are underfed, cold and sick with only rudimentary medical care. Propaganda is rampant as is religious fundamentalism. Anyone perceived as “rich” have their assets distributed and are persecuted. Sort of like what is happening in Greece and Venezuela but much worse without any end in sight. Wall Street and capitalism are dead. There is no way to spend existing energy and obtain an energy profit, positive EROEI. Things are at a standstill as people wait pensively for the lights to go out and water to stop flowing from the taps. Government benefits are gone except for the small emergency rations.

  16. willb

    I realized after i posted that I blundered in that request. I am selling a home in a week or two, in wethersfield ct, and 70,000 dollars or there about, I will be able to do something with, I have read, and watched a video, am 62, still work as a painter, was in dc working for a couple weeks in nov. near Steve I guess, 2015 IS unsteady, and there are liars and thieves in the money arena certainly, but you folks are good, any recommendations? Analysis is your area, maybe investments is not really, but still, maybe it is ! Best to you, will

    1. steve from virginia Post author

      Don’t blow it all on ‘investments’. Invest in yourself and your best abilities. Tools are always good, so are books (the old fashioned paper kind). Try not to get caught up in trends (including those found here). Think for yourself and be flexible.

      Stay away from credit, gambling, cars and ‘urbanization’. Try to have fun and exercise yr sense of humor. Don’t be dogmatic about anything. As times become more troubled, the pleasant, happy fellow with some detachment and sang-froid will be more valuable than the grim ninja or Navy Seal with a footlocker full of weapons. Learn how to do things, pick up some carpentry and maybe a foreign language. Take some photographs, paint a picture, learn how to play guitar, volunteer to feed the homeless, get a ham radio license. Get involved with other people.

      I cannot tell what your family situation is, but getting closer to yr family is not a bad idea (provided you get along, that is.)

      One thing to keep in mind: the world is not going to come to an end tomorrow. There are going to be ups and downs. Rome wasn’t built in a day and it didn’t fall apart in a day, either. It took four-hundred years for the Western empire to dissolve (I don’t actually believe the Roman Empire fell the way ‘Brand X’ historians claim it did, but that’s another story). The Eastern Empire wasn’t extinguished until the 16th century! We have a long way to go, there is no rush, some stuff will (mercifully) fail in a hurry but the system as a whole is remarkably effective at preserving itself … against all odds. We live in remarkable times, what is ongoing right this minute will fascinate people for thousands of years … presuming there are people for thousands of years. We might be extinct … we might also be colonizing Mars and the Moon. Right now = hard to say. Keep yr eyes open and be ready to laugh.

      1. Ken Barrows

        Colonizing Mars and the Moon? I’ll do better than that: some institution will propel 200,000 people per day into space to keep the Earth’s population constant 😉

    2. Jb

      willb,

      The first rule of Fight Club is: You do not talk about… oh snap, wrong blog.

      Actually, since no one has mentioned it yet, the first rule is ‘get out of debt.’ TAE has said this for years, and I agree, but it’s hard to do if you have mortgage (refinanced <4%) and a 15 year old son headed to college like we do. So, we're accumulating cash. I refuse to gamble any further. We have no other debt hanging over our heads. Besides, if the next phase is deflationary, cash will be king.

      'Natural capital = real wealth' is rule #2. I'm doing my best to turn the yard into an urban farm. There are a few other folks here in town doing the same.

      Otherwise, I agree with Steve's suggestion to invest in yourself and personal surroundings: your health, learn some new skills (brewing, canning, small engine repair, sewing, etc.), put in a wood stove, solar hot water, insulate the attic, buy a couple wool blankets, etc.

      Good Luck.

  17. ellenanderson

    If you have children you might consider living with them, especially if you can help sustain a family with no debt.

  18. rj wallace

    In 2009 I bought a nice $30 shovel, dug up some of my yard and threw some plants in the ground. Next year I bought a pressure canner and some jars. Got some chickens and last fall built a solar food dehydrator. Put together a keyhole garden too. I’m getting kind of old to learn bushcraft but looking into that also. I live in a city/town, just outside the five mile radius of Nuclear One. Its a run for your life town. Image if we cannot get gasoline and the sirens sound off.

    1. ellenanderson

      “A run for your life town..” I love it! My town is about 30 miles away from a Fukashima-stlye plant with all sorts of spent fuel rods hanging around. At 30 miles we won’t be able to hear the sirens. What would you call that kind of town?

  19. willb

    Thanks, I will give you folks something for answering, just give me one snail mail address, I will send a manila envelope with stamped letters, and whomever can forward them. Do give me time ! will

  20. rj wallace

    Thank you Steve. We’re very fortunate that you share your knowledge and insights. This is a difficult puzzle to figure out. You paint a clear picture and your work is invaluable.

  21. Reverse Engineer

    The ECB pulled the plug on Alex and Yanis!

    ECB SAYS IT LIFTS WAIVER ON GREEK GOVERNMENT DEBT AS COLLATERAL
    ECB SAYS IT CAN’T ASSUME SUCCESSFUL CONCLUSION OF GREECE REVIEW

    Now we get to see if the Greek Central Bank will just print their own Euros! 🙂

    Poll: Who thinks Syriza will capitulate?

    RE

    1. Ken Barrows

      I think something will be “worked out.” How about a Kickstarter to raise money for the Greeks if the government tells the EU to drop dead?

  22. ellenanderson

    I think that if the EU strung them along for awhile they would be more likely to back down. Right now it is too close to the election.

  23. Oilcrashing

    Hello again everyone,

    Interesting times.

    According to Steve’s opinion, this is a German/ECB bluff … Because they stand to lose more if the Greeks announce that they are bankrupt(what a surprise!). Do you think that the ECB will try to provoke a Grexit and at the same time will rescue the european banks and creditors? Is that doable, can they kick the can down the road and hold the market if they do that?

    I think this is a chicken game. Maybe the germans want to create panic in Greece so the population can pressure the government into accepting the german terms… What is your interpretation guys?

    Best regards,

    1. steve from virginia Post author

      If the EU starts a panic there is no telling where it ends. The run will be out of Greek banks but also out of the euro itself. That’s what the business with the Swiss is all about.

      http://sproutmoney.com/greek-situation-unfolding-rapidly-ecb-provides-emergency-funding-kills-troika/10325/

      The idea here is to do anything but change the way business is done in Europe and abandon the Anglo-American model. It is hard to see the EU managers thinking they can panic an electorate that just gave the current government a rousing mandate.

      At the same time, the new Tsipras government has no clue about what needs to be done, they are already floundering. (Hint: they need to get rid of the cars and stop importing petroleum.)

  24. Reverse Engineer

    Another GREAT opportunity to GO BALLISTIC!  More Greek Kabuki Theater.

    GREEK DEBT CHICKEN GAME

    Hopefully, this will explain to the unitiated the complexities of our monetary system and how it relates to Energy distribution and GDP growth or “degrowth”.

    Of course, you gotta have a tolerance for my Gonzo to get the idea. LOL.

    RE

    1. steve from virginia Post author

      Good job, RE! You figured it out! Governments and central banks have nothing to do with creation of the (various and sundry) debt. Now if only a few economists would do the same.

      There was talk early-on the Tsipras candidacy several years ago that any new Syriza government would perform a forensic audit of EU-Troika loans to determine whether they were lawful or not. I suspect that a large percentage (everything after 2009) of the debt is odious and uncollectible.

      “The international law obligation to repay debt has never been accepted as absolute, and has been frequently limited or qualified by a range of equitable considerations, some of which may be regrouped under the concept of “odiousness.”’

      Why this audit is not underway right now … with a look toward criminal prosecutions of involved parties (including lenders) is a mystery (maybe something held in reserve by the Tsipras government).

      1. Reverse Engineer

        Pat yourself on the back there Steve. Chatting this topic up with you over the last few years has refined my thinking on this topic quite a bit.

        Getting Economistas to understand this is a losing proposition.

        “It is difficult to get a man to understand something if his salary depends on not understanding it.” -Upton Sinclair

        RE

      2. Eeyores enigma

        Hello Steve – The only issue I would have is you all keep stating how debt/credit can only be created/issued if there is underlying collateral i.e. real assets.

        It seems pretty clear to me that the amount of debt/money outstanding is somewhere on the order of 100’s of times more than any possible measure of real assets/resources. How does that compute?

      3. steve from virginia Post author

        Central banks cannot create ‘new money’ or make loans without good collateral.

        The private sector can make unsecured loans in any amount, as does so … long as there are willing (able) borrowers. Private sector finance creates our money, indeed the bulk of it is unsecured.

      4. ellenanderson

        Go Blue! That is a great paper. Note that it came out of a midwestern university and not Yale/Harvard/Princeton.
        The most odious example of odious debt may be found in the student loan scam. Imagine giving thousands of dollars to children and then turning them into debt slaves. They should get together and repudiate it collectively. Don’t wait for the government to take pity on them because it isn’t going to happen that way.

    2. Reverse Engineer

      Diesel-BOOM just cut D-Day down to a week from Monday.

      CAPITULATE OR GREXIT!

      Obviously the Jokers & Clowns in Brussels think they can contain the damage and want to make an example out of the Greeks so the Spaniards and Italians fall into line.

      RE

  25. Eeyores enigma

    So the private sector is casting about for any sign of growth potential to throw money at for investment and the public sector is doing everything it can (including fudging numbers and lying) to promise/promote growth in hopes of money being thrown their way.

    So it seems like this back and forth can keep going for a long time until it is universally understood that growth is dead right? Something that no one will ever admit.

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