Fantasy Islanders


Triangle of Doom 041515

Figure 1: We have now entered the post-economic Triangle of Doom period TFC Charts, (click on for big); the triangle has outlived its usefulness, the oil – credit markets have broken down. What remains is relentless decline … as resources along with purchasing power are annihilated.

Can we handle it? In place of hard-headed realism and a turn toward effective policy, there is denial and lies. Analysts insist lower oil prices have no affect on output. Others pretend that debt-riddled economies can be cured by adding more debt. In ways great and small, the real world offers clear warnings about consequences of consumption … but these are ignored as the establishment frolics on Fantasy Island.

From the dawn of the industrial era, companies have been able to stay afloat by borrowing. This included oil drillers: since 2008, extraction firms have borrowed over a trillion dollars at very low cost. They can certainly and reasonably expect to borrow more, after all the funds cost the lenders nothing to create. But who repays? Someone must: a firm can borrow from its own lenders for a long time but at some point the customers must step up and borrow for the firm’s benefit. Otherwise the firm’s indebtedness becomes greater than any potential number of customers can bear: at that point the firm is insolvent and out of business.

The ongoing petroleum price crash is by itself evidence that customers can no longer support the oil industry. Citizens cannot lend their own funds into existence, they must borrow from others or swap their time- and skills for (borrowed) funds. Because the aggregate worth of human labor represents a kind of upper bound to leverage, the outcome is a ‘repayment shortage’ which strands the drillers and their lenders; every additional dollar a firm borrows to stay alive is a dollar that is ultimately uncollectible from the firm’s tapped-out customers.

Stripped to fundamentals, oil use turns out to be recreational not economic. Modernity is revealed to be nothing more than ‘lifestyle’, pointless wars and other distractions. We must eat and drink to live, we drive to fill the empty spaces between television shows.

Gold TOD 042415

Figure 2: The gold futures continuous contract by way of TFC Charts, (click for big): gold has led the industrial commodity markets down, with its own break occurring in 2012. The gold price trend over the past year and a half is generally sideways. Look for similar price action in other commodities including petroleum over the intermediate term.

Gold can be sold below cost because it is indestructible whereas oil is simply wasted. Any shortage of new gold results in a scarcity premium being attached to the gold that remains above ground. The premium is real, not necessarily nominal, the beneficiaries are the gold holders who gain whether new gold is mined or not.

Selling below cost does not work with petroleum because consumers destroy it, what they gain in return is generally worthless. In this way, fuel users turn their asset into a compounding liability. Unlike gold, the petroleum scarcity premium doesn’t benefit anyone either holders (drillers or distributors) or customers, scarcity takes the form of a disruptive tax … that is ultimately uncollectible from the firms’ tapped-out customers.

Denial creates its own perverse dynamic: when low prices do not provoke the needed ‘lifestyle adjustments’ they decline further until they do. Conservation is the necessary adjustment, yet low prices are an incentive to waste more. When customers conserve there is the appearance of a ‘glut’, this in turn leads to lower prices. The outcome is a price signal that is hard to interpret, confusion rather than clarity because the consumer response to the ‘false glut’ and a real one is the same.

Real price increases can only occur when customers become wealthier relative to the drillers … when they become able- willing to borrow more; when repayment obligations can be shifted onto others. None of this is happening right now, instead customers are bankrupted by their own energy waste. Because fuel use does not produce anything; industries can only offer improved efficiency, that is, the exhaustion of what remains of our non-renewable capital at a slightly slower pace. The same efficiency means losses that must be made up with volume => diminished (non-existent) collateral for loans => less ‘growth’ and lower prices including interest cost of money. Increased efficiency means more unsecured lending, more finance industry risk along with diminished ability to properly price it; along with customer bankruptcy, these are forms the petroleum scarcity premium assumes.

A long-term resident on Fantasy Island is Ambrose Evans-Pritchard:

Oil slump may deepen as US shale fights Opec to a standstill

Continental’s Harold Hamm says US shale industry has ‘only begun to scratch the surface’ of vast and cheap reserves, driving growth for years to come.

The US shale industry has failed to crack as expected. North Sea oil drillers and high-cost producers off the coast of Africa are in dire straits, but America’s “flexi-frackers” remain largely unruffled.

One starts to glimpse the extraordinary possibility that the US oil industry could be the last one standing in a long and bitter price war for global market share, or may at least emerge as an energy superpower with greater political staying-power than Opec.

It is 10 months since the global crude market buckled, turning into a full-blown rout in November when Saudi Arabia abandoned its role as the oil world’s “Federal Reserve” and opted instead to drive out competitors.

If the purpose was to choke the US “tight oil” industry before it becomes an existential threat – and to choke solar power in the process – it risks going badly awry, though perhaps they had no choice. “There was a strong expectation that the US system would crash. It hasn’t,” said Atul Arya, from IHS.

“The freight train of North American tight oil has just kept on coming. This is a classic price discovery exercise,” said Rex Tillerson, head of Exxon Mobil, the big brother of the Western oil industry.

Mr Tillerson said shale producers are more agile than critics expected, which means that the price war will go on. “This is going to last for a while,” he said, warning that any rallies are likely to prove false dawns.

Enter the Petro-industry Ponzi buzz-words: ‘vast and cheap’, ‘flexi-frackers’, ‘energy superpower’ and ‘price discovery exercise’: what is wrong with these? A: just about everything …

Hamm and Exxon have both lost billions since the beginning of the year. It isn’t just private companies: Russia, Saudia, Brazil even Islamic State have lost ‘vast’ amounts of income from fuel sales. It is nonsense to believe that these losses are inconsequential. Someone must bear them, if not the firms then the firms’ lenders and loan guarantors; if not the governments then certainly the drilling agencies which require investment funds. Every one, company and country, is dependent upon the borrowing capacity of their customers …

A large percentage of mid-sized energy firms are simply failing. So are lenders who stand to be wiped out, also Canada and its poorly conceived real estate extravaganza … also Canada banks. Don’t forget Australia; also Russia. Previously drilled wells are left uncompleted, rig count has plunged. The assumption is that shortages will re-ignite a bidding contest; however, customer purchasing power shrinks faster than the rate of depletion. This is because the elites’ share of purchasing power expands at the expense of the customers’. As a consequence, even very low prices for petroleum and other resources are unaffordable at any given time.

Fantasy Islander Jeffrey Sachs suggests American fuel- guzzling, Las Vegas lifestyles can be powered with solar panels and windmills. Sachs ignores how wimpy/pathetic these power sources are compared to gigaton carbon burning and nuclear, (Project Syndicate):

 

Photo of Jeffrey D. Sachs

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University, is also Special Adviser to the United Nations Secretary-General on the Millennium Development Goals.

ExxonMobil’s Dangerous Business Strategy

Jeffery Sachs

NEW YORK – ExxonMobil’s current business strategy is a danger to its shareholders and the world. We were reminded of this once again in a report of the National Petroleum Council’s Arctic Committee, chaired by ExxonMobil CEO Rex Tillerson. The report calls on the US government to proceed with Arctic drilling for oil and gas – without mentioning the consequences for climate change.

While other oil companies are starting to speak straightforwardly about climate change, ExxonMobil’s business model continues to deny reality. That approach is not only morally wrong; it is also doomed financially.

The year 2014 was the hottest on instrument record, a grim reminder of the planetary stakes of this year’s global climate negotiations, which will culminate in Paris in December. The world’s governments have agreed to keep human-induced warming to below 2º Celsius (3.6º Fahrenheit). Yet the current trajectory implies warming far beyond this limit, possibly 4-6º Celsius by the end of this century.

Just as the global shift toward renewable energy has already contributed to a massive drop in oil prices, climate policies that will be adopted in future years will render new Arctic drilling a huge waste of resources.

Sachs is as hopeful as Evans-Pritchard, he fusses over extraction but simply dismisses the consumption side with a breezy, hand-waving reference to: “low-carbon energy like wind and solar power, and to electric vehicles powered by low-carbon electricity.”

Low-carbon wind and solar are high cost, dispersed power sources that cannot provide the same loss-leading subsidy to industry that petroleum has offered since the turn of the 20th century. Sachs assumes that the same consumers who are too broke to afford diesel and gasoline will somehow pony up for alternatives that have greater life-cycle costs … alternatives that are themselves entirely dependent upon unaffordable diesel and gasoline for manufacture, transport, installation and maintenance.

Wind and solar might become something more than a marginal amendment to conventional grid electric or portable generators but this is hard to quantify due to intermittancy. EROI calculations tend to omit storage- and grid/infrastructure costs. Also avoided is energy cost of the factories making the turbine- and panel factories, factory components and these factories’ components in turn. Transportation and installation costs are difficult to calculate because they are not monolithic, self-contained processes but widely distributed (most panels are made in China and installed elsewhere). The manufacturing base of transportation industry is itself fossil fuel dependent.

Widespread penetration of low-carbon electric vehicles is found on Fantasy Island and nowhere else: every kind of car is possessed of immense life-cycle costs including interconnected chains of energy gobbling factories and infrastructure. There are no solar tires or window glass, no wind-turbine highways, bridges or real estate developments. Infrastructure requires steel, concrete, plastic and asphalt; all of these require work, high-density power derived from fossil fuels.

Our planetary scale built environment is likewise dependent upon ‘vast’ and ‘massive’ finance industry debt … as are solar panels and wind turbines.

Most likely, that ” … global shift toward renewable energy,” has added to fossil fuel demand where it would otherwise decline. Only indirectly has renewable energy triggered Prof. Sachs’ “massive drop in oil prices …” Solar and wind firms must borrow, in doing so they strip credit from their hapless customers … collapsing oil prices by way of the back door.

Energy Commodity Futures (Bloomberg)

Commodity Units Price Change % Change Contract
Crude Oil (WTI) USD/bbl. 55.74 -0.97 -1.71% May 15
Crude Oil (Brent) USD/bbl. 63.45 -0.53 -0.83% Jun 15
RBOB Gasoline USd/gal. 192.99 -0.55 -0.28% May 15
NYMEX Natural Gas USD/MMBtu 2.63 -0.05 -1.86% May 15
NYMEX Heating Oil USd/gal. 188.24 -2.56 -1.34% May 15

Precious and Industrial Metals

Commodity Units Price Change % Change Contract
COMEX Gold USD/t oz. 1,203.10 +5.10 +0.43% Jun 15
Gold Spot USD/t oz. 1,204.22 +5.67 +0.47% N/A
COMEX Silver USD/t oz. 16.23 -0.06 -0.34% May 15
COMEX Copper USd/lb. 277.00 +0.25 +0.09% Jul 15
Platinum Spot USD/t oz. 1,171.50 +11.75 +1.01% N/A

Next to Sachs and Evans-Pritchard on Fantasy Island are the Greeks and their European bankers, (Wolf Richter):

The Greek People Just Destroyed Syriza’s Strategy

Greek stocks ventured deeper into purgatory. The ASE index dove below 700 intraday on Wednesday for the first time since the crisis days of June 2012. Then word spread that the ECB had raised the cap on the Emergency Liquidity Assistance for Greek banks by €1.5 billion to €75.5 billion. It’s the oxygen line for Greek banks. Without it, they’re toast.

The ELA provides the liquidity so that the Greeks can continue yanking their beloved euros out of their banks to stash them elsewhere before their desperate government confiscates them.

The government, under the cool leadership of Prime Minister Alexis Tsipras and Finance Minister Yanis Varoufakis, is already confiscating €2.5 billion in “idle” cash that state agencies, state-owned enterprises, and local governments kept at commercial banks, the same banks that the ELA is propping up and that the Greeks are fleeing. Now these entities have to transfer the money to the central bank so that the government can “borrow” it for other purposes.

Did you get it? The flow of funds into and out of Greece is almost farcical. Money loaned by the ECB originates in EU banks, the ECB is a conduit. The funds flow to ordinary Greeks who remove them from Greek banks and re-deposit them in the same EU banks the loans came from; full circle! The EU banks are not deploying Greek savings but are instead offering loans to Greek depositors who are themselves are on the hook for repayment … the Greeks are in essence getting loans instead of their own money … the costs of which the depositors are attempting to dodge by hustling their funds out of Greece … Meanwhile, repayment for loans to Greek depositors are being extracted from the same Greek depositors by the Greek government!

You cannot make this s**t up. Behind the Vaudeville is the fantasy of Greece leaving (being forced out of) the euro. This is impossible, it cannot happen and everyone knows it. The only outcome is the euro lives or the euro dies.

The euro = gasoline. The Europeans including Greeks will never voluntarily give the euro up because it enables driving. Without the euro half of the Europeans would have to walk … horrors! Even if the Greeks could somehow ‘go off’ the euro, it would still circulate in Greece but outside the reach of government. Greece outside the euro would create more instability than it does now. Greeks would use the euros (gasoline) and do whatever they could to get them including discount their own ‘replacement’ currency. Jettisoning the euro would not solve euro-related debt problems, either. The problems — petroleum scarcity premium — would simply be shifted around from one country to others wreaking havoc.

Greece could dollarize but the country’s credit problems would not go away. Not because the government overspends or because the Greeks have too many overpaid workers (who sadly happen to be temporarily indisposed) but because Greeks have too many cars and cannot earn anything by driving them. Greece — like the rest of the world — is bankrupted by its own fuel waste and the uncollectible petroleum scarcity premium.

Greece is an agrarian vacation paradise with smuggling rings. It has its own currency — the euro — but acts like the currency is a gift from (banking) gods. Because Greece has its own currency it really controls its own destiny to the degree that it can buy some time and use it to wean itself from imported fuel and Northern European finance credit.

Another Fantasy Island resident is Yanis Varoufakis:

A New Deal for Greece – a Project Syndicate Op-Ed

ATHENS – Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece …

The “troika” institutions (the European Commission, the European Central Bank, and the International Monetary Fund) have, over the years, relied on a process of backward induction: They set a date (say, the year 2020) and a target for the ratio of nominal debt to national income (say, 120%) that must be achieved before money markets are deemed ready to lend to Greece at reasonable rates. Then, under arbitrary assumptions regarding growth rates, inflation, privatization receipts, and so forth, they compute what primary surpluses are necessary in every year, working backward to the present.

Our government’s position is that backward induction should be ditched. Instead, we should map out a forward-looking plan based on reasonable assumptions about the primary surpluses consistent with the rates of output growth, net investment, and export expansion that can stabilize Greece’s economy and debt ratio. If this means that the debt-to-GDP ratio will be higher than 120% in 2020, we devise smart ways to rationalize, re-profile, or restructure the debt – keeping in mind the aim of maximizing the effective present value that will be returned to Greece’s creditors.

Besides convincing the troika that our debt sustainability analysis should avoid the austerity trap, we must overcome the second hurdle: the “reform trap.” The previous reform program, which our partners are so adamant should not be “rolled back” by our government, was founded on internal devaluation, wage and pension cuts, loss of labor protections, and price-maximizing privatization of public assets.

Our partners believe that, given time, this agenda will work. If wages fall further, employment will rise. The way to cure an ailing pension system is to cut pensions. And privatizations should aim at higher sale prices to pay off debt that many (privately) agree is unsustainable.

By contrast, our government believes that this program has failed, leaving the population weary of reform. The best evidence of this failure is that, despite a huge drop in wages and costs, export growth has been flat (the elimination of the current-account deficit being due exclusively to the collapse of imports).

More buzzwords: ‘forward-looking’, ‘reasonable’, ‘surpluses’ (who doesn’t like surpluses?), ‘sustainability’: reassuring and even-tempered like the mad computer Hal 9000 in Kubrick’s ‘Space Odyssey’.

It’s pretty sad to see the genial/obnoxious Varoufakis scuffling from pillar to post, tugging his forelock like a latter-day Oliver Twist, begging criminals like Wolfgang Schäuble and Christine Lagarde for ‘more’; “Please sir, some more” … more loans of course. Without loans-constant increase in credit there is no Greek ‘industry’ … or any other countries’ industry for that matter.

Using econo-speak, Varoufakis attempts to square the circle, arguing the Greek claims to live large: “The others do it,” thunders/pleads Varoufakis, “why not us?” Solving an excess debt problem with more loans works on Fantasy Island but offers no hope elsewhere. Varoufakis cannot grasp the post-petroleum world he now inhabits, the world bankrupted by non-remunerative, resource-depleting ‘lifestyles’. Europe burns through 12 million barrels of imported crude oil per DAY, every barrel paid for with borrowed euros (BP). As a consequence the Continent is entirely-hopelessly insolvent; monetary flexibility is a myth, there is no such thing as independent policy; the price of the euro is set at the gas pump by millions of motorists buying (or not buying) fuel. The monetary- and fiscal establishment in Brussels and elsewhere are irrelevant. At the same time, Europeans have enslaved themselves to the (non)establishment status quo because the euro = gasoline.

The first thing the humans must do is face reality. What is underway in Greece and elsewhere is ‘Conservation by Other Means™’. There is no chance at the ‘good old days’ of wasteful consumption and auto-centric ‘development’. It’s over, its untenability IS the crisis … this should be clear to both the Greek government, the IMF, the ECB and the monetary establishment. The second order of business is for the Greek government — not finance or the central bank — to begin to issue euro payments to banks as well as individuals/firms in Greece who do business with the government. If Greek government can issue collateral by fiat it can issue payments the same way. By doing so the Greeks can end the imposed, artificial ‘money shortage’ that is strangling them and buy some precious time.

Greeks can then use the time gained to reconfigure their economy around conservation and husbandry, for the Greeks to begin to live within their means … they have no choice, one way or the other this is something that Greeks and others will do.

Cannibalizing the world’s capital/resource endowment for fun is at the heart of the ongoing crisis in Europe and elsewhere. The human technology experiment including its myriad mechanical toys is coming hard up against the limits set by thermodynamics. Physical forces do not negotiate, conditions are set and humans adapt … or else. The inevitable outcome should the Greeks stubbornly carry on is that the country becomes a kind of hybrid mafia gangland dependent upon smuggling and murder.

Nobody will admit that Europe is undone by peak oil, nobody will even discuss it or entertain the possibility! This isn’t economists in 2004 missing a prediction about what might happen in 2008. This is an entire army of exceptionally well-paid, over-educated analysts, policy makers, business leaders, economists, university professors, pundits, finance- and energy bloggers, fiction writers, poets and bass fishermen not seeing what is taking place right under their noses!

Welcome to Fantasy Island …

72 thoughts on “Fantasy Islanders

  1. Karen Lynn Allen

    Oil consumption is certainly a major factor in the Greek predicament. But to be fair, the Greeks are dropping their consumption, they just can’t seem to do it fast enough. In 2007, Greeks were one of the highest per capita oil consumers in Europe, consuming oil per capita at a rate higher than Germany, France, Denmark, the UK, Spain and Sweden. In fact, they were consuming oil at a rate nearly 50% higher than Italy or Portugal, and 300% higher than Poland.

    Then troubles hit. Between 2007 and 2012, Greek per capita oil consumption dropped by a third. However, oil consumption in the rest of Europe dropped as well. By 2012 Greek per capita oil consumption was below Sweden and Austria, even with Germany, but still higher than Denmark, France, the UK, Portugal, Spain and Italy. (Especially Italy, where per capita oil consumption has been really plummeting.)

    Looking at BP data from 2013 tonnes of oil per capita (a silly measure, I know, but tonnes of oil is how BP likes to deliver the data) reveals another 9% drop in Greek per capita oil consumption. I expect when this year’s data comes out in June (with 2014) numbers we will see an equivalent or greater drop. For comparison’s sake, this is what 2013 per capita oil consumption looked like for selected countries.
    Greece–1.3
    Austria–1.6
    Czech Republic–0.9
    Denmark–1.3
    France–1.2
    Germany–1.4
    Hungary–0.6
    Ireland–1.3
    Italy–1.0
    Poland–.6
    Portugal–1.0
    Romania–0.4
    Spain–1.3
    Sweden–1.6
    Switzerland–1.5
    Turkey–0.4
    UK–1.1
    United States–2.6
    Canada–3.0
    Mexico–0.8
    Russian Federation–1.1
    China–0.4
    India–0.1
    Japan–1.6
    Australia–2.1

    As you can see, the US per capita oil consumption rate is close to double most of Europe’s. Americans still drive 40% of trips under 1 mile.

    1. steve from virginia Post author

      “Americans still drive 40% of trips under 1 mile … ”

      … which is ridiculous. Canadians drive more, how comforting! The problem as I see it is few make any connection between fossil fuel waste and credit crisis. Peeps point to US or Canada and yell, “See, fuel waste works, we need to do it too!” They need to look @ Greece and the EU instead; “See, fuel waste = ruin.”

  2. Laserninja

    Steve, you did not mention the latest arrivals to fantasy Island. The hedge funds that are raising war chests to buy tight oil companies on the cheap when they hit rock bottom value. This has caused other foolish investors to extend credit (temporarily as we know) to these same companies so that they can be in on the ground floor when the greater fools with the war chests bail them out. This seems to be slowing down the bankruptcy’s in the shale patch for now, but I would guess at the cost of even more catastrophic financial effects when it does come crashing down. Kind of like a disease with a slow incubation time that works it’s way through a population before anyone realizes they are sick, then wham! everyone comes down with it at the same time.

  3. Ken Barrows

    So, if anyone watched the television show, “Fantasy Island,” it’s TPTB shouting “the plane, the plane!” Problem is the (fossil fueled) plane isn’t showing up.

  4. Oilcrashing

    Hello everyone,

    Steve, have you noticed that the EUR is weakening against USD, and this ultimately affects the purchasing power of the european countries (because as you will know, the oil barrel is priced in USD)…?

    I mean, ECB heads decided to launch the QE program and devaluate the EUR currency because they think that European countries will gain “competitivity” and their exports to other countries will increase (and this will allow to balance their deficits)… and they will also benefit from the falling oil prices… So far they had little success… It seems that everyone wants to export to the rest of the world to get out of the crisis and there are not enough buyers out there…

    Any comments on this?

    1. steve from virginia Post author

      It’s true, everyone wants to depreciate their currencies … but that is impossible. Everyone also wants to export but that is also impossible. Every country’s gain is at the expense of other countries; in the EU the gains of the powerful countries are at the expense of weak countries such as Greece and Spain.

      All together, the losses add up to more than the sum of all gains … it’s your thermodynamic tax at work.

      Keep in mind the central banks are followers rather than leaders. The longer-duration interest rate trend is down, even without QE the German bund for instance would offer negative yield. This is what happens during deflation periods = interest rates parallel growth rates. In this case, the ECB must pretend it is leading the market not being steamrolled by it.

      Same in the US: the Federal Reserve Chairman has been trying to talk up US interest rates for the past year or so, without any success. Other than remarks, there is nothing Janet Yellen & Co. can do to push rates against the market trend. The Fed could probably dump its entire bond portfolio (and would have to) and still have only a modest/negligible affect on rates. It … and the other central banks … are stuck.

  5. Eeyores enigma

    “post-economic Triangle of Doom period ” AKA “Economic Erectile Disfunction”.

    Charts looking a little limp.

  6. Tagio

    Steve, off topic, but did you ever read Ivan Illich’s extended essay, “Energy and Equity”? http://www.preservenet.com/theory/Illich/EnergyEquity/Energy%20and%20Equity.htm

    Written in 1973, it is very complementary to the Undertow perspective. Here is Illich in the first chapter:
    “It has recently become fashionable to insist on an impending energy crisis. This euphemistic term conceals a contradiction and consecrates an illusion. It masks the contradiction implicit in the joint pursuit of equity and industrial growth. It safeguards the illusion that machine power can indefinitely take the place of manpower. To resolve this contradiction and dispel this illusion, it is urgent to clarify the reality that the language of crisis obscures: high quanta of energy degrade social relations just as inevitably as they destroy the physical milieu.

    The advocates of an energy crisis believe in and continue to propagate a peculiar vision of man. According to this notion, man is born into perpetual dependence on slaves which he must painfully learn to master. If he does not employ prisoners, then he needs machines to do most of his work. According to this doctrine, the well-being of a society can be measured by the number of years its members have gone to school and by the number of energy slaves they have thereby learned to command. This belief is common to the conflicting economic ideologies now in vogue. It is threatened by the obvious inequity, harriedness, and impotence that appear everywhere once the voracious hordes of energy slaves outnumber people by a certain proportion. The energy crisis focuses concern on the scarcity of fodder for these slaves. I prefer to ask whether free men need them.

    The energy policies adopted during the current decade [Me: the 1970s] will determine the range and character of social relationships a society will be able to enjoy by the year 2000. A low-energy policy allows for a wide choice of life-styles and cultures. If, on the other hand, a society opts for high energy consumption, its social relations must be dictated by technocracy and will be equally degrading whether labeled capitalist or socialist. . . . . ”

    “In previous discussions, I have shown that, beyond a certain level of per capita GNP, the cost of social control must rise faster than total output and become the major institutional activity within an economy. [Me: Shades of the First Law!!] Therapy administered by educators, psychiatrists, and social workers must converge with the designs of planners, managers, and salesmen, and complement the services of security agencies, the military, and the police. I now want to indicate one reason why increased affluence requires increased control over people. I argue that beyond a certain median per capita energy level, the political system and cultural context of any society must decay. Once the critical quantum of per capita energy is surpassed, education for the abstract goals of a bureaucracy must supplant the legal guarantees of personal and concrete initiative. This quantum is the limit of social order.

    I will argue here that technocracy must prevail as soon as the ratio of mechanical power to metabolic energy oversteps a definite, identifiable threshold. ”

    The essay goes on to describe how the desire for speed supplied by the auto degrades social relations and deforms natural human scale (over and apart from the waste and ecological destruction). The punchline is that the ideal balance point and limit between mobility and equitable social arrangements and conviviality (a favored Illich term) is the bicycle. Motoriazed transport has its limited place but speed must be capped at 15- 25 mph.

    Well worth the read.

    1. steve from virginia Post author

      US oil peak and the Vietnam war opened up how people looked at energy and consumption. You had Wendell Berry, Vance Packard, the Meadows and Victor Lebow. Also EF Schumacher.

      I didn’t know who Illich was until I started this project, one of the other readers brought him up. He’s a good one.

      I see the current energy crisis is not allowing any space for more Illichs or Meadows, instead we get nazis, thieves and liars. Tomorrow, each of us can have a modular fusion/thorium reactor in our (suburban) back yards, but only if the government will get out of the way and let free markets do what they are meant to do.

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  8. Jb

    The supply / demand equation is out of balance and it will correct itself. The world as we know it cannot exist without oil. With some luck, we can redraw the ToD in a couple of months. Otherwise, something is seriously going to break. I am beginning to wonder if the KSA and the US are in cahoots to win all the marbles.

    1. shipREKD

      I see the gist of it he’s looking to expand battery scheme costs accumulating out in Nevada someplace onto every household on the planet – all packaged around rock music intros into a room filled with tech fans squealing at the picture book narratives.

      Nathan Lewis posted sometime back on approaching self sufficiency this way
      http://www.newworldeconomics.com/archives/2009/050309.html

  9. Mister Roboto

    I have a question I’ve been meaning to ask you. You often speak of the non-remunerative uses of oil, but oil in the form of petroleum fertilizers and mechanization grows a lot of our food for us. This is probably not the most sustainable or ecologically sound way to go about it (it now takes something like ten calories of ff energy to produce one calorie of food, which is way past the real point of diminishing returns), but the fact remains that animal organisms such as humans need to eat, and for the time being, that is from where our food comes. Would you also call food-production a non-remunerative use of petroleum?

    1. steve from virginia Post author

      The current industrial regime is certainly non-remunerative as it is too effectively extractive. We get the excessive output we want now at the expense of the future. What the future arrives, all else being equal, there are massive throughput channels but output is a trickle – plus a lot of head scratching as to why.

      70% (roughly) of oil use is for personal transport, the rest is largely commercial transport (much of which is redundant or unnecessary) and chemical feedstocks including material required for pesticide production.

      Big problem in food production is the asymmetric nature of the enterprise itself: it takes generations to learn how to farm a particular piece of land but two failed crops in a row will do in the farmer. Fast forward to 2015+ there is the climate curveball: how many more generations will it take to learn to farm? Is learning possible, can any farmer produce two crops in a row?

      Fossil-fuel farming does work and it allows for a ‘one size fits all’ approach to all kinds of croplands. We can theoretically maintain the current regime for a few generations or so … to allow farmers to learn how to produce without petro-chemical inputs. Sadly, it is more likely that the military and motorists will fight over what remains of our fuel, crashing the current regime, leaving a lot to go hungry.

      1. hiruit nguyse

        Wow….Big problem in food production is the asymmetric nature of the enterprise itself: it takes generations to learn how to farm a particular piece of land but two failed crops in a row will do in the farmer. Another Surprise example of the Seneca effect.

  10. Tagio

    I watched that Musk video. It is astounding how little info these guys provide about the product itself, it’s all an Apple-ized fashion “this is so cool” style presentation, which they clearly believe is sufficient to motiviate people to buy. For example, Musk never points out that these are lithium ion batteries, discusses whether there is sufficient lithium in the world to make the 200 billion batteries that he projects would be needed to eliminate fossil fuel dependence, talks about how long the components will last, maintenance costs, how we are going to recycle that much lithium,etc. Even his “it will only cost $3500 for a 10kwH unit” for home use is disingenuous. A quick google search indicated avg american household use is around 900kwH per month, i.e., 30 kwH per day, which means you need 3 of these things for a house, or $11,500 in batteries, if you are planning to be entirely off-grid without changing your lifestyle.

    I don’t know if the guy is stupid or just playing the technolgy obsession to milk the last dollars obtainable before the whole thing comes down.

    1. Ken Barrows

      Oh, he’s smart, a smart carnival barker. Also remember he’ll need trillions of batteries (about 6,840 per car) if he wants a Tesla in every garage (on credit, of course) to accompany the Powerwall.

    2. Jb

      Nor does he talk about the environmental destruction caused by lithium mining or that the supply isn’t sufficient to drive us to the Promised Land.

      “However, starting in late 2016, early 2017, lithium demand will grow much more than supply. Thus, new sources of supply and ways to reduce demand will need to be found for lithium.” (at a price the consumer can afford, says the Undertow.).

      http://web.mit.edu/12.000/www/m2016/finalwebsite/problems/raremetals.html

      Lithium has the same Achilles Heel as LTO.

      1. steve from virginia Post author

        Lithium is a power container not a power source. Power has to come from something else.

        The assumption is that power will come from solar panels and turbines but this is not well thought out. The life-cycle costs of solar and wind are little different from petroleum at this point, less than nuclear but still very high. What it means is the prime mover will be the same as it is now: gas, oil and coal (with a smidgen of hydro thrown in for fun).

      2. Jb

        “Lithium is a power container not a power source.”

        Oh yeah, hey – I totally get it. He wants us to turn our houses into giant flashlights so we can retire his debt. I’m just waiting for a client to call me and ask if we can do this on their project.

        I’m totally with Foss, Berman, et al. on this one: Powerwalls, PV, EV, LTO, etc. are a retirement party. Pick up any nice swords lately?

  11. ellenanderson

    Interesting thread – I have been too busy to write anything coherent in response but I think that I brought up Illich several years ago when you put together a reading list. My favorite quote is “Tell me how fast you go and I’ll tell you who you are.” I still go way too fast so who am I?
    I do have another recommendation for the reading list – someone I read long ago but didn’t really understand. Yves Smith recommended it several months ago and there was a brief discussion on NC but those are over too soon. It is ‘The Great Transformation’ by Karl Polanyi, recently re-released with an intro by Steiglitz. It is not on Audible so I have to read it which is hard on my eyes and taking me some time. I am listening to a book from Audible called “After the Black Death” which discusses how the rentier class grew up in medieval cities as the guilds lost political power and the peasants were driven off their land by enclosure. These two books together with Simon Fairlee on enclosure are really turning my head around.
    I wonder whether there are any writers out there who are putting Polyani together with energy. He viewed oil as just another ‘raw material’ I think. But one has to wonder how long the utopian vision of ‘self regulating markets’ would have been allowed to play out without fossil fuels.
    Have you read that book, Steve? Its implications are radical and very much in line with what you are saying.

  12. ellenanderson

    Also for what it is worth. Solar “farms” are not farms at all. They are ugly industrial structures that we in Massachusetts are taking down acres of forest to install. Disgusting and stupid. We had better start figuring out how to live without all of this stuff because it is going away. Lights out!

  13. Jb

    Wondering what the Undertow thinks of the latest ‘attack on cash’ meme. Trial balloon – for real? Financials looking for another source of revenue? Latest gimmick to convince people to ‘buy gold now!?’ Does it come before or after. an entity such as Greece goes medieval? – Thanks

  14. Tagio

    Imo it’s just an economist’s financial engineering wet dream with zero chance of being implemented. 1) how are politicos going to be paid off – with brown bags of bitcoins? 2) how is the govt going to fund black ops if the illegal drug trade is eliminated by eliminating cash? 3) how is the upper middle class going to afford all their undocumented servants if they can no longer use cash?

    There’s no constituency for this except pointy headed economists

    1. Jb

      Good arguments,Tagio, so I’ll play Devil’s Advocate for a moment.

      1. Politicians could still be paid off through tangible gifts of various kinds. A nice Renoir perhaps? A college scholarship for the kiddies? Or, give them a DoD account (see below).

      2. The current DoD black budget is estimated to be around $60 B. I would assume this includes a banking arm that can wire ‘money’ wherever it needs to go. Large pallets of cash are not worth the cost associated with them and ‘businessmen’ are exposed when they have to launder cash. What DoD clients want is a global black financial network accessed via satellite phone.

      3. Ah yes, the local level is tricky especially in rural areas. I can imagine a healthy black market as people adjust to the new regime. But, if there is some ‘unforeseen’ financial crisis, the fastest way to get people access to necessities will be electronically.

      Interesting stuff, thanks T. We’ll see how this plays out for the rest of the year on Fantasy Island. I think the ‘attack on cash’ fear-mongering will leave on the same plane as the trillion dollar coin. Cheers.

      1. steve from virginia Post author

        Lots to feast on here … starting w/ Polanyi:

        I’m familiar with- and agree with some of his ideas, but … His approach to industrialization is similar to how I view modernity. What he sees as market emergence is partly the outcome of hegemonic/monopolistic tendencies of ‘progress’ institutions. Progress is the narrative change that accompanied the invention of printing and end of the Catholic Church’s monopoly on information. From printing emerged the ascendency of the written word, widespread literacy and an explosion of content … out of which emerged what we recognize today as (political) liberalism, including constitutional representative government, rule of law, suffrage, basic citizens rights (beyond Common Law), etc. There was a reaction to this … the great Roman Empire would not vanish without a fight … much of the argument carries forward to this day.

        The other ‘great invention’ that appeared during this time was the three-masted sailing ship. It allowed long ocean voyages b/c it was faster, and could carry more water and provisions … being longer, it could point into the wind … three-masted sailing ships allowed the Europeans to ‘explore’ (loot) the rest of the world; the ships being armed with cannons, capable of carrying large numbers of armed men and horses; the Europeans could intimidate other countries into submission (then force one-sided ‘trade’ concessions onto them). Printing and three-masted sailing ships were the great, self-annihilating inventions of the high middle ages … you know … that period when people were peasants, wore rags, lived in mud huts while Great Lords lived in gloomy castles drinking their adversaries’ blood out of goblets:
         

        San Lorenzo in Florence the nave from the 1420s, the columns are all re-purposed from Roman buildings.
         

        Medieval church in Amalfi: the gold was added to the gable end in the 16th century.

        Europeans at this time were truly barbaric:
         

        Part of the complex at Alhambra, in Grenada, Spain, begun in the 11th century. The medievals built as well- or better than the classic Romans with greater delicacy and economy of materials …

        Winchester Cathedral.

        The town hall of Leuven, Belgium was built in the 15th century. The hall and much of the rest of the city was destroyed by the Germans in 1914, rebuilt afterward.

        The medievals lived like pigs …
         

        The real problems in Europe up until the industrial period were soil exhaustion and improperly developed watersheds.

        Otherwise, the middle ages simply were a continuation of the Roman Empire with with small changes in administration + iffy agriculture. The conquest of the West in the 16th century not only gave the Europeans a massive flow of gold and silver but also hundreds of millions of acres of new land to exploit, which they set about doing in earnest.

        Rather than being ‘economic man’ we are instead ‘agricultural man’ with all the hazards that implies. Much more on this later.

        War on Cash: the system might ‘win’ but it would lose credibility instantly: since money is nothing more than a symbolic promise, when the promise is broken at any point it is broken everywhere. Changes in the basic rules of finance tend to immediately blow up in the faces of those changing the rules. For instance:

        “The first slight alarm that was occasioned was early in 1720. The Prince de Conti, offended that Law should have denied him fresh shares in India stock, at his own price, sent to his bank to demand payment in specie of so enormous a quantity of notes, that three wagons were required for its transport. Law complained to the regent, and urged on his attention the mischief that would be done, if such an example found many imitators. The regent was but too well aware of it, and, sending for the Prince de Conti, ordered him, under penalty of his high displeasure, to refund to the bank two-thirds of the specie which he had withdrawn from it. The prince was forced to obey the despotic mandate. Happily for Law’s credit, De Conti was an unpopular man: every body condemned his meanness and cupidity, and agreed that Law had been hardly treated. It is strange, however, that so narrow an escape should not have made both Law and the regent more anxious to restrict their issues. Others were soon found who imitated, from motives of distrust, the example which had been set by De Conti in revenge. The more acute stockjobbers imagined justly that prices could not continue to rise for ever. Bourdon and La Richardière, renowned for their extensive operations in the funds, quietly and in small quantities at a time, converted their notes into specie, and sent it away to foreign countries. They also bought as much as they could conveniently carry of plate and expensive jewellery, and sent it secretly away to England or to Holland. Vermalet, a jobber, who sniffed the coming storm, procured gold and silver coin to the amount of nearly a million of livres, which he packed in a farmer’s cart, and covered over with hay and cow-dung. He then disguised himself in the dirty smock-frock, or blouse, of a peasant, and drove his precious load in safety into Belgium. From thence he soon found means to transport it to Amsterdam.

        Hitherto no difficulty had been experienced by any class in procuring specie for their wants. But this system could not long be carried on without causing a scarcity. The voice of complaint was heard on every side, and inquiries being instituted, the cause was soon discovered. The council debated long on the remedies to be taken, and Law, being called on for his advice, was of opinion, that an edict should be published, depreciating the value of coin five per cent below that of paper. The edict was published accordingly; but failing of its intended effect, was followed by another, in which the depreciation was increased to ten per cent. The payments of the bank were at the same time restricted to one hundred livres in gold, and ten in silver. All these measures were nugatory to restore confidence in the paper, though the restriction of cash payments within limits so extremely narrow kept up the credit of the bank.”

          ‘Memoirs of Extraordinary Popular Delusions’ regarding John Law, by Charles Mackay

        There are actions followed by public responses (farmer’s cart, etc.) then more actions/responses leading to disaster as the steps taken indicate that system is without merit.

        If the system repudiates its own issue than people will produce their own media of exchange. Afterward, what use is the government? Money is a service that the government provides for its own benefit. Sadly, the folks in charge tend not to be too smart … they believe they are indispensable when it is the citizens, the customers who cannot be done without.

      2. Manual Labour

        “We must eat and drink to live, we drive to fill the empty spaces between television shows.” -SFV

        “Rather than being ‘economic man’ we are truly ‘agricultural man’..” -SFV

        Spot on as always, however the rub lies in who takes responsibility for providing the food and drink. Growing-up the family always had a large garden, over two acres, and year after year neighbors/relatives/friends would gladly accept fresh fruits and vegetables. This lifestyle continues for my parents who are in their eighties and for me and my wife.

        Not once in over sixty years of growing seasons has anyone who received produce ever
        asked how do I do this for myself. It is very difficult for me to understand how
        “adults” have no desire to take some level of responsibility for the fundamental
        requirements of life.

        If driving between TV shows ever ends a reality check awaits. This really does distill
        down to what type of society/culture one wants. One filled with distractions and
        grown children frantically stealing from the future for their own wants or one
        where living within the bounds of real-time energy flows focused on what is truly
        needed.

  15. Oilcrashing

    Hello everyone,

    Steve, what’s going on with the bond markets? (European bonds are surging and the german bund – the most important bond in Europe is going up vertically) What’s your take on this?

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015/05/Bund%2010Y_0.jpg

    http://www.zerohedge.com/news/2015-05-07/global-bond-rout-sends-futures-tumbling-bund-has-sharpest-two-week-selloff-history

    I read this explanation in the same site. I don’t know if you agree with it:

    “The exponential function wants more debt/credit to service existing debt. Print or we’ll see a deflationary collapse. Option b is to print to hyper inflation.”

    Are the central banks running out of ammo? Could Draghi do something to stop this trend?

    Best Regards,

    1. steve from virginia Post author

      Right now, German banks are lending less to the German government. The means the government must pay more. The €64,000 question is who are the German banks lending to if not the government? Is the answer, “nobody”? Is there a panic (or a fat finger)? Who can tell?

      Central banks have been lucky (not good) so far. The world’s finance system has been more than ready to lend (to itself), everyone likes happy endings (no depression). The Janet Yellens of the world have been content to sit back and bask (take credit for plunging interest rates, massive self-lending and no depression). They haven’t done anything, there really is nothing central banks can do! The price of money (what it costs now and in the future) is set by millions of motorists every day buying (or not buying) gasoline @ filling stations all over the world. For all intents and purposes, we have a hard currency regime with money exchangeable (not redeemable) on demand for a valuable physical good. In this environment, fluctuations are to be expected with periodic reversions to some sort of mean.

      I put this out here every now and then:

      Unholy Trinity 4

      It has a mistake in it, because capital isn’t money, however this ‘Impossible Trinity’ is a familiar economic refrain. The affect of fuel-money exchange can be seen as nonfunctional policies and flows of funds here and there as ‘capital’ flight is all that remains, driven by currency exchange fluctuations and solidifying-dissolving pegs.

      Keep in mind: bond traders cannot make money if the price of rented money is ‘fixed’. If bond prices are too low they must move (be moved) higher and vice-versa. The outcome is that the market has … ‘perturbations’ occasionally such as short-squeezes, carry trade unwinds … German banks lending less to the German government.

      https://www.youtube.com/watch?v=UA0kNGaYrtg

  16. ellenanderson

    Love those linked photos especially as I have just had to spend a weekend in Buffalo.
    How we got into this pickle is a question that we are going to be able to think clearly about soon (on the assumption that “The owl of Minerva takes flight only at night.”) Polanyi says that there is no historical evidence to support the claim that people have always be merchants – trading and needing money. Rather he says that most societies have focused on subsistence and gifts. He says that the real utopians are not the people like us who want to find conservative/conservationist alternative to industrial capitalism but those who ever believed that there could be such a thing as a self-regulating market.
    The Black Death in western Europe may have been more responsible for the emergence of modernity than we have supposed. George Huppert (in After the Black Death) says that it came out of the urban communes and was then corrupted by the rentiers. The ability to share information through the printing press surely enabled them. Those will be the same folks who financed the building of the tall ships and their voyages. He gives a really cogent and simple account of ‘rents’ and ‘rentiers’ as well as a hair raising description of the peasant rebellions and the growth of the war-based economy in the mid 17th century.
    What has been lacking until now is an understanding of the multiplying effect of fossil fuels and debt financing.

  17. ellenanderson

    Steve – do you think the iffy agriculture was what led to population increase in the 12th-13th centuries (deforestation and erosion) or was it the result of population crash and labor shortages in the 14th-15th centuries (enclosure and more deforestation and erosion)
    I imagine that the Black Death probably had a lot to do with western Europe’s loss of faith in the ecclesiastical system. The monks were great gardeners I believe. Who knows whether their practices may have been informed by the much more sustainable eastern practices? Peasantry and a monastic existence have been given a bad name by the moderns but that is likely undeserved.
    Loss of faith in society leads to material changes. Material changes lead to loss of faith in society (which we call by the name of “the economy.”) So which is the substructure and which the superstructure? It really is a chicken and egg problem, isn’t it? We assume we have some control but maybe all we can do is observe at this point. Some questions can’t be answered and some would say we should stop asking them.
    But we can at least draw conclusions: money lending leads to trouble; surpluses lead to trouble; using too much energy – human or natural – is facilitated by allowing money lending and accumulation of surpluses so it leads to trouble.
    One should stay home and cultivate one’s garden if at all possible! Sustainably and organically of course.

    1. steve from virginia Post author

      There are certainly agricultural cycles over extended periods that start with the cultivation of virgin lands. These are broken to the plow; yields increase along with the number and prosperity of farmers. At that point there is a divide: nutrient extraction is balanced by return of human- and animal waste to the soil. Where this is not possible or ignored, the farmers deplete soil nutrients and the land becomes unproductive. As crop yields decline the farmers ‘try harder’, they plant from fence row to fence, seeding in as many crops as the season allows in order to make up their losses with volume; afterward, there are the crop failures, the land is abandoned, number of farmers declines and those who depend upon the farmers’ products are left to fend for themselves.

      Small-holders working the same plots over time learn how to coax repeat crops out of them. Italy has been continuously cultivated for over 5,000 years, so are parts of Andean Latin America, south and central Asia, also riverine littorals in many separate places around the world. I call this process, ‘sustainable monocropping’ as farmers are able to produce good crops of corn, roots, rice or other staples from the same bits of land for long periods, even generations. In areas where proper husbandry is practiced, there is no loss of soil fertility, also no need for synthetic fertilizers or other ‘amendments’. Yields are modest but repeatable.
       

      Corn- and potato terraces @ Macchu Picchu, Peru.
       

      Rice terraces in Bali, Indonesia

      Plantation agriculture particularly monoculture is highly destructive of the soil: the owners have little interests other than gaining as much money as they can over the shortest period while the servants have no personal stake in long-term outcomes; they don’t care. This is true whether the workers are slaves on a plantation or comrades on a ‘State Farm’. Plantation agriculture offers very large immediate-term yields to owners (original capitalists) but these yields decline over time due to nutrient depletion, alkalization and compaction/erosion of the topsoil. This can be seen almost everywhere plantation agriculture has been practiced: as a cause of the collapse of the Soviet Union, in the US Midwest leading up to the dust bowl, certainly in the Dixie South with its slave-driven cotton- and tobacco economy, as the cause of the failure of hacienda agriculture across Latin America and the Caribbean from the 16th century onwards.

      When staple crops fail there is famine and outward-migration. Only after lying fallow for a period decades does the land recover enough to allow new cultivation. Europe has gone through multiple feast-famine cycles starting with the Roman Republic and its widely distributed small-scale agriculture. Improved techniques was why Rome became powerful in the first place … not at all its military prowess. Expansion of plantation agriculture, the stripping out of Rome’s prime mover — firewood and coal — rural landlordism and rapid urbanization led to the Empire’s wane, then its shift to a Catholic theocracy. Rome’s failure was not due to any military deficiency on its part; it could always defeat its enemies but could not always feed its big cities, nor could the cities recycle their human- and animal waste back to far-away latifundia.

      Europeans after the Crisis of the Third Century had to re-learn how to farm every few generations: agricultural success led to waves of urbanization and then soil exhaustion, followed by famines, disease and decline. With urbanization came the loss of farmer lore and intimate knowledge of local conditions. After fallow periods lasting as long as a century with perhaps a wave or two of in-migration and new techniques there would be an agriculture revival and the cycle would repeat.

      We moderns take agriculture for granted because it is largely done with machines and fossil fuel inputs which we assume will last forever. It is absolutely certain there will be a period of agricultural decline then a return to the older cycles of revival and exhaustion. The question is whether we can be as smart as small farmers during the Middle Ages. Right now … that’s iffy. We certainly cannot feed 7+ billions of us plus our billions of fuel-guzzling toys plus billions more food animals … and do so with sustainable monocropping. It is simply impossible, just like it is impossible to continue the wasteful Las Vegas-style ‘American Way’ with solar panels, wind turbines and electric cars.

      We have really stuck ourselves at the end of a gangplank, this time.

  18. dolph

    Anybody from UK want to comment on the election there?

    Seems to me like the people of England voted for the status quo and people of Scotland voted against it. Does this spell the end of the UK or are we reading too much into it?

    1. steve from virginia Post author

      I cannot believe the British would re-elect Cameron and his flying circus. A comment on the election itself can be read, here:

      “First, Britain is now a country effectively disenfranchising the entire Scottish nation, the poor, the abstainers and disapprovers, and the near-majority vehemently opposed to the EU. That is politically and socially unhealthy. On the European question in particular, David Cameron campaigned on a renegotiation angle that was shot to pieces by almost all EU leaders of note and power during that campaign. And neither he nor Hunt has any mandate to kill off the NHS based on these statistics – of which, more in a later bulletin.

      Second, it is an uncanny irony of history that, just when people, organisations and regimes seem to be at the height of their power, a dramatic fall from grace ensues … “

      The next sound you will likely be hearing is that of popping bubbles …

  19. Oilcrashing

    Hello everyone again,

    Steve, Do you think that OPEC is living in a fantasy island? They forecast oil prices below the fiscal break-even for most of OPEC countries (see link below) for the coming years. In the event that these low prices are sustained for some time, they will undoubtedly cause major upheavals in the oil-producing countries.

    My question is… do they realize that if oil prices don’t recover, they are in for a bad surprise? Don’t they see that is not profitable drilling costly oil (shale, tar sands, deep-water, depleting oil fields…)… and afterwards, sell ing it below their extraction cost? What are they thinking right now?

    http://www.zerohedge.com/news/2015-05-11/opec-forecasts-oil-low-40-next-decade

    Best Regards,

    1. steve from virginia Post author

      Nobody wants to face the truth that the drive-first-and-last approach is coming to an end. People believe if they pretend hard enough, reality can kept at a safe distance.

      There are already major upheavals in oil producing countries, taking every shape and form. However, it seems better for the drillers to sell some oil now, even at a loss, rather than not sell and go out of business. Everyone is hoping for a miracle.

      http://www.dailyimpact.net/2015/05/07/oil-a-fit-of-peak/

  20. Reverse Engineer

    THE NEW DOOMSTEAD DINER LIBRARY CATALOG

    I have added a new Page on the Diner for Library Information of important collapse resources.

    Contributions of resource material to the Library are WELCOME!

    RE

    1. Reverse Engineer

      The New Doomsteaf Diner Library is beginning to take shape. 🙂

      I am working together with JS from OFW, a Librarian with his own large collections of material to develop the DB.  We will hopefully have our catelog up soon, then gradually update with links ot material.

      The Form for Submission works, I have tested it.  However, if you have a large number of submissions to make, it’s better to create an Excel or Open Office file in the same format as the User Submission Table, and I can simply append them to the table en masse.  You can send me the table as a File Attachment in Email.  If you do not have my email addy, use the Contact Form on the Diner to contact me.

      Be careful with submissions of video links in the Form.  A full link will screw up the Formatting.  Just drop in the ID Code for the vid.

      Your submissions will NOT go up immediately.  I will update the Table once a week or so as more submissions come in.

      RE

  21. Tagio

    Steve, I am sure you will appreciate this. Greeks withdrawing their funds from Greek banks are preserving their wealth by buying hard assets, including . . . German cars! H/T to today’s Debt Rattle over at Automatic Earth for today’s suicide/irony alert:

    “Here is a slightly surprising sign that Greece is in the classic throes of a bank run: car sales jumped by 47pc in April. It was the 20th consecutive month that car registrations of new and used vehicles has risen. People living in a country gripped by financial turmoil often worry about the security of their money. If it’s in a bank, it can be caught up in capital controls or lost through insolvency. Better, then, to spend it. And the purchase of choice is often a car. This makes motor vehicle sales a decent proxy for financial turmoil (under some circumstances). Ordinary Greeks, many of whom are not wealthy enough to hold bank accounts outside of the country, are taking their money of the financial system and spending it on “hard” assets. . . .

    . . . Despite depreciating in value quite quickly, cars are still a handy asset to own because they can be put to productive use – especially if the alternative is just stashing your money under a mattress. In a strange irony of Greece’s woes, German industry is perversely one of the main beneficiaries of the country’s banking collapse. Greek consumers, like many of their fellow Europeans, buy German cars more than any other brand.”

    Steve, apparently you are just wrong about cars not being productive! If you are so wrong about that, maybe you need to re-think your whole life!

    Here’s the link to The Telegraph’s article:
    http://www.telegraph.co.uk/finance/economics/11599513/The-real-sign-that-Greeces-financial-turmoil-is-getting-worse.html

    1. steve from virginia Post author

      Ha haha!

      I forget you can live in a car, pack a car with explosives and blow up something, you can be buried in a car.

      Cars can be dumped into the ocean to create an artificial reef.

      Not surprising the Greeks are killing what remains of their economy with car purchases as they destroyed the bulk of it with car purchases … and the fuel purchases, of course.

      As for rethinking, I constantly rethink my own life the problem is my life is constantly rethinking me.

  22. Ken Barrows

    Seems to be a meme out there that US production is holding steady. I don’t know.

    However, March Bakken production was slightly above January (both 31 days). All it took was 364 additional wells and barrels per day per well went from 125 in January to 120 in March. Fewer rigs more wells?

    1. steve from virginia Post author

      There are a lot of drilled wells around the country ready to be completed as well as drilling commitments that have yet to be acted upon. Much of current extraction is hedged (which is one reason why futures’ traders are desperate to push up futures prices for crude). Once the hedges expire, once tight-oil wells are completed, once depletion of last year’s wells takes hold, there will be a more noticeable decline in US output. Right now the US is in the ‘Capex Lag’ period. Investments take a long time to bear fruit, it also takes a long time for investments to wind down.

      The key is that fewer new wells will be drilled; fewer drilled wells will be fracked, fewer rigs will push into deepwater and the Arctic. Obviously, the new wells are drilled for a reason, their absence will be felt but not right away.

      Meanwhile, the recent rise in fuel prices has drillers sighing with relief, but making oil too expensive to end users is just as self-defeating now as it was last summer. The customers have not gotten any richer, in fact, nobody has.

  23. Tagio

    Another triangle of doom playing itself out. Consumers can’t pay enough for food to offset the increasing input costs (energy, fertilizer)

    From Z/H:
    “The Kansas City Fed warns that persistently low crop prices and high input costs reduced profit margins and increased concerns about future loan repayment capacity, and JPMorgan concludes, the industry is currently in dire straits with the potential for a liquidity crunch for farmers into 2016.

    Not so long ago, US farmland – whose prices were until recently rising exponentially – was considered by many to be the next asset bubble. Then, almost overnight, the fairytale ended, and as reported in February, US farmland saw its first price drop since 1986.”

    http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/02/20150213_farmland.jpg

    1. steve from virginia Post author

      Finance credit enables the rot; it subsidized ‘growth’ (finance credit WAS growth) but now it subsidizes ruin; finance credit costs have overrun (borrowed) returns. All that remains is the Minsky Moment … when borrowing capacity is committed to paying interest (at near zero yields!).

      Getting real = to live within one’s means; something that nobody wants.

      Still more nonsense everywhere in finance:

      “If you think about it, we are literally choking on loanable funds. The banks are sitting on tons of cash and not lending it out, which you can see in this chart of excess reserves … ”

  24. Reverse Engineer

    The Human Extinction Survey is now UP on the Diner Blog!

    Your opportunity here to weigh in on this most important questions of our time.

    Results will be published after sufficient records have been accumulated.

    RE

    1. steve from virginia Post author

      Yr marginal customer is not necessarily an American. He certainly isn’t living in Silicon Valley, San Francisco or the coastal enclaves in SoCal.

      He’s more likely to be Japanese, Russian, Greek or Spanish. He might be underemployed in China or struggling in Argentina. If he’s American he’s on disability and- or food stamps (Snap).

      High pump prices have certainly contributed to ongoing credit crisis; price- access to credit is still means to allocate access to gasoline. High price also creates that marginal ‘glut’ we keep hearing so much about.

      We haven’t hit ‘energy deflation’ yet … when prices fall but are still too high … but it’s coming.

      The buzz is over @ Doomstead Diner regarding the potential of human extinction. Maybe, maybe not … but certainly cars and jet airliners are on their deathbed. People will believe the world has come to an end when they learn they cannot drive any more.

  25. Tagio

    Steve, I don’t know if you have had the spare time to review this, but the IMF has released a new paper on the size of fossil fuel subsidies, “How Large Are Global Energy Subsidies?”. Quoting now,

    “The key findings of the study are the following:

    – Post-tax energy subsidies are dramatically higher than previously estimated—$4.9 trillion (6.5 percent of global GDP) in 2013, and projected to reach $5.3 trillion (6.5 percent of global GDP) in 2015.
    – Post-tax subsidies are large and pervasive in both advanced and developing economies and among oil-producing and non-oil-producing countries alike. But these subsidies are especially large (about 13–18 percent) relative to GDP in Emerging and Developing Asia, the Middle East, North Africa, and Pakistan (MENAP), and the Commonwealth of Independent States (CIS). 6
    – Among different energy products, coal accounts for the biggest subsidies, given its high environmental damage and because (unlike for road fuels) no country imposes meaningful excises on its consumption.
    – Most energy subsidies arise from the failure to adequately charge for the cost of domestic environmental damage—only about one-quarter of the total is from climate change—so unilateral reform of energy subsidies is mostly in countries’ own interests, although global coordination could strengthen such efforts.
    – The fiscal, environmental, and welfare impacts of energy subsidy reform are potentially enormous. Eliminating post-tax subsidies in 2015 could raise government revenue by $2.9 trillion (3.6 percent of global GDP), cut global CO2 emissions by more than 20 percent, and cut pre-mature air pollution deaths by more than half. After allowing for the higher energy costs faced by consumers, this action would raise global economic welfare by $1.8 trillion (2.2 percent of global GDP).”

    The paper argues that increasing taxes to appropriately price the climate change and other effects of fossil fuel consumption will free up resources to develop infrastructure projects, better for all. It expressly states that “Energy products should also be subject to the same standard rate of value-added tax (VAT) or general sales tax (GST) that applies to consumer goods for the purposes of raising revenue. These taxes should only apply at the household level (for example, for gasoline and residential electricity consumption) and not at an intermediate level (for example, for non-car diesel fuel and industrial electricity) to avoid distorting firms’ input choices.”

    The study is here: http://www.imf.org/external/pubs/cat/longres.aspx?sk=42940.0

    Without expressly saying it this way, the paper seems to be urging the underdeveloped economies to reconsider their efforts to join the car culture in favor of important infrastructure projects [Hey IMF, Ivan Illich begged Latin America to reconsider its desire to “modernize” back in the 70s in simple to understand prose and analysis on both economic and humanistic grounds, but thanks for at last catching on!] its and to be suggesting the developed economies, especially, increase taxes on consumption to rein it in. Overall, seemingly an attempt to husband and redirect resources, though it doesn’t address at all whether the effects of their proposals on the oil industry and whether they can continue to produce oil subject to these constraints)

    I am wondering not so much what you think of the merits of this paper, but the fact that it has been released and publicized (in the Guardian, at least). Is someone is trying to lay some sort of groundwork for the coming oil shortage crunch and the drastic curtailment if not outright end of Happy Motoring? Or is it just one of those IMF papers put out there to give the institution credibility while being completely ignored operationally?

    Cheers!

  26. ellenanderson

    I am responding without reading the paper – bad practice, I know. Ivan Illich was a radical thinker not a reformer. I believe his economic belief were generally in line with distributism.
    What is most lacking in all of these well meaning articles on how to reduce carbon emissions is the recognition that the lowest energy lifestyles require household based or small local mainly self sufficient economies where participants can walk where they need to go (aka families or clans?) or travel along waterways in small boats. They don’t need infrastructure.
    If people stop racing out of their houses to go to work in the city they won’t be using cars, generating carbon. Also, they won’t need all of this infrastructure. It is all part of the same misbegotten social arrangement we know as modernity. If you are part of a small local enterprise you don’t want railroad cars and highways bringing strangers to town.
    JUST STOP AND STAY HOME. You won’t need ten pairs of shoes, a car, railroad lines, bridges etc etc.
    To those of us who are used to flying to Paris every now and then, who love NYC and the opera this doesn’t sound palatable. It sounds plain silly.
    But that is what is going to have to happen unless we in the the West can figure out some way to re-impose the totally austere non-carbon life style on the rest of the world while we carry on our non-negotiable way of life.
    If there is a financial credit crash or a global epidemic or a war or some other cataclysmic event we are all going to have to STOP AND STAY HOME for at least awhile. People might want to make sure they could do that for at least awhile.

    1. Reverse Engineer

      “JUST STOP AND STAY HOME. You won’t need ten pairs of shoes, a car, railroad lines, bridges etc etc.”-EA

      I am already doing that! Of course, it was forced on me with the health issues, but I can report that it’s great to not have to go to work or school etc. Just about never drive the car anymore, I use the EWz for all my shopping. I can even ride it into the store!

      It will not be so great when the savings run out though. Hopefully workman’s comp or SSDI comes through before that happens.

      RE

  27. Jb

    “They don’t need infrastructure.”

    I am of the opinion that without said infrastructure, ever expanding in all of it’s grotesque and macabre forms, that most of us would starve within a month. The system as we know must expand, or die. When it dies, anyone who is prepared to STOP AND STAY AT HOME for a period of time may fare better than average. We need time to adapt. It will be easier to adapt if you are prepared. At least, I hope so.

  28. Eeyores enigma

    People need money or else they begin the death spiral in ernest, life becomes very ugly. We have only figured out one way to get money into peoples hands. They need to make, by, sell, or clean up after STUFF. If we stop extracting resources and making stuff, or if we even slow down a bit many millions, billions even start to die.

    Taxing this process is no solution to anything except making some people more wealthy and speeding up the death of others.

    As long as people need to persue money in order to not die nothing much will change. Nobody will get rich solving the real issues facing mankind.

  29. Oilcrashing

    http://www.zerohedge.com/news/2015-05-20/crude-tumbles-despite-3rd-weekly-inventory-draw-production-plunge

    Steve, do you think that one year from now… the inventory will have run out of space, or will it be always full of “Petroleum that the consumer cannot afford to pay ?

    And production is plunging… EIA said that May/June will mark the decline of the Oil production in the USA caused by the oil price slump (because of the time lag between the installation of a drilling rig and the moment it starts producing oil)…

    http://www.zerohedge.com/news/2015-05-20/crude-tumbles-despite-3rd-weekly-inventory-draw-production-plunge

    Do you think that oil production has started its downward trend and will not recover again? What should we expect from now on?

    Best Regards,

  30. Volvo740...

    Hi Steve,

    Question RE: “We haven’t hit ‘energy deflation’ yet … when prices fall but are still too high … but it’s coming.
    … but certainly cars and jet airliners are on their deathbed.”

    Could Aviation not continue even for the wealthiest? If not, what would this look like? Airports closed etc..

    Question 2: Clearly the current recipe is to add debt, and make interest rates negative. Do you think we’ll face a Cyprus event in the US or what “discontinuities” do you see on the horizon?

    Question 3: Do you think the government would step in and lend (or directly give money) to corporations it deems necessary to an even larger extent than it already does, and what kind of “event” would put an end to that?

    What about the inflation/deflation debate. Can they keep stocks up forever?

    Thanks!

    1. hiruit nguyse

      Your Survey was like Gloria Stienems first issue of MS….much more popular than expected, and sold out in just a few days!

  31. Usman

    I’d really be interested in learning more about thehillsgroup report, but the math is way beyond me. shortonoil has been posting at this thread: http://bit.ly/1Es62tz

    I found his latest comment particularly interesting:

    “The Etp Model indicates that after the energy half point has been reached that the consumer will never again be able to acquire all of the petroleum that is produced.
    (…)
    The spread between what the world economy can afford, and what its industry can provide is now growing by 2.3 mb/d per year. Production declines will eventually have to match that number. Over the next year it would be a pretty safe bet to assume that world inventories will continue to grow. ”

    If that is true, the world will be using 11.5 mb less per day by 2020. That’s 94 mb/d currently to 82.5 mb/d in 2020. The question is… which customers will become marginal? And will we be able to avoid a financial crash?

    1. steve from virginia Post author

      I’ve been looking @ the latest version that BW Hill so kindly emailed my way. It’s useful and interesting to people who like information outside the confines of advertising. The ETP model does not support further car sales, sorry.

      The idea is foundationally simple: we ‘do what we do’ until we run out of needed stuff then we have to stop; the rest is commentary. So far we haven’t run out of anything important but observation suggests constraints are at hand … there are forms of analysis to model how this constraint process plays out in detail, the ETP model is just one of many useful models.

      There are some points in the model I disagree with, but they are trivial: oil is our prime mover and less net energy from oil is available as the extraction process carries forward. This incredibly simple observation escapes many of our best (economic/political) minds.

      Using north Atlantic cod fish as an example: increased spending money for bigger, faster boats resulted in larger cod fish landings. This investment proved counterproductive the gains were trivial longer-term: spending more on boats to catch cods became pointless because there quickly became too few fish to catch. For the same reason, the more spent to extract oil is likewise counterproductive. The dynamic is simple but escapes conventional analysis: no increase in the number or size of boats will put more cod fish back into the north Atlantic, likewise no increase in the oil industry or consumption ‘efficiency’ will put anything useful back into the ground.
       

      Cod fish landings
       

      As far as it goes, our best hope for any sort of future is that customers all go broke quickly, leaving sufficient resources that a smarter group can make better use of.

      The bankrupting process is underway right now: customers working as hard as possible to ruin themselves in ways that discredit the entire process.

      BTW: the decline in available fuel will likely be quite sharp but the consequences might not be so dire as most fuel use takes place in the West; it is simply waste for entertainment purposes. This means the marginal consumer is likely to be anyone, not necessarily a citizen of a fallen country like Argentina but perhaps a Greek, Japanese or Russian. The great bulk of the world’s poor are not oil consumers at all, they will be little affected by any shortages in the near term.

      1. Eeyores enigma

        You really have a way of looking at and explaining things from different perspectives. It help so much I can’t even explain. Thanks!

        I disagree with the comment; “…the decline in available fuel will likely be quite sharp but the consequences might not be so dire …”

        The only thing holding the west together is the fallacy that each and everyone of us can possibly become rich or at the very least live a very good life i.e. have all the stuff. The minute that fuel becomes noticabily scarce is the minute that that fallacy ends and chaos ensues. IMHO.

  32. Volvo740...

    Boeing is an interesting case. Who in their right mind would buy an aircraft now? I guess they have their military devision also, but not sure how big it is…

  33. Tagio

    EE,
    I took Steve’s comment to mean the consequences wouldn’t be so dire FOR THE WORLD AT LARGE, because most of the world’s people are not that dependent on gasoline. I think the unstated implication is that for us in America (foremost) and the rest of the Western world, the consequences will indeed be shattering and wrenching. At first, the crisis will be sold as temporary, but I agree, once enough people see that the end of the age of oil is nigh and can’t be fixed by higher prices, and this perception becomes “the new normal” (as opposed to a very few seeing it and using that perception to game the system to grab as much as they can before the end), the financial system, “investments,” consumption, waste-based businesses and our suburban lifestyles will be revealed as the glittering deathtraps they are. And that is going to be one crazy time.

    But globally, once you stop making and selling gasoline for use as “entertainment,” which in Steve’s book I think includes the choice to live where you HAVE to drive to work, there will still be enough oil (for a short time), AT LEAST WE HOPE AND PRAY, to keep the lights on, decommission the nuke plants, make fertilizer, and transport food to markets, if the crazies don’t use it all for war to “solve” the problem.

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