King Trump The Irrelevant

Santa came early this year, he left presents for all the children … whether they wanted them or not!

Hard to say what Santa will offer next year, Christmas may be cancelled … or Stukas might be dive-bombing Poland. In the twilight of ‘More’ anything is possible except ‘more’.

Anguish being felt across the country after Trump election, (LA Times):

Americans who voted against Trump are feeling unprecedented dread and despair.

I have never seen anything quite like the grief being felt by the majority of American voters who did not vote for Donald Trump.

Back in 1980, there was disappointment among Democrats when Ronald Reagan won. In 2000, after the long Florida recount and the intrusion of the Supreme Court into the decision, there were plenty of upset people who thought Al Gore, not George W. Bush, deserved to be president. But the losing voters in those elections were not despondent. They were not breaking out in tears weeks later. They were not waking up each morning with feelings of dread about what was to come.

This time it is different … (David Frum):

“Construction of the apparatus of revenge and repression will begin opportunistically and haphazardly,” Frum wrote. “It will accelerate methodically.”

Do you mean the apparatus of revenge and repression aimed at Chelsea Manning, or the citizens of Boston? How about other ‘Brand X’ whistle blowers? (Justice Integrity Project):

OpEd News (OEN) Publisher Rob Kall, another speaker, has a different view. “Since Obama has taken office,” Kall reported in ‘RoughTime for Whistleblowers’, “most whistleblowers say his administration and his DOJ treat whistleblowers worse than any previous president.”

Kall quoted GAP Homeland Security and Human Rights Director Jesselyn Radack, a well-credential ethics advisor in 2001 at the Bush Department of Justice. It promptly ousted her from her job and tried to inflict harsh reprisals in her later career after she provided to superiors her opinion that FBI personnel committed an ethics violation in questioning American John Walker Lindh after he was caught with the Taliban in Afghanistan. “Obama,” she told Kall, “has brought more prosecutions against whistleblowers under the Espionage Act than any previous president and all presidents combined.”

Thank you sir, may we please have another! Everyone knows Trump is a Fuhrer who is making lists and identifying enemies, (WaPo):

Obama administration tries to shut down visitor registry program before Trump takes office

The Obama administration on Thursday took the unprecedented step of creating obstacles to a widely-anticipated but poorly understood plan by President-elect Donald Trump to establish a Muslim ban or registry — by dismantling the registry system that already exists.

In fact, almost every ‘crime’ the oafish Trump is being accused of in advance has been committed already by preceding administrations including Obama’s, starting illegal wars, snooping on citizens, raping the environment, cozying up to bankers, bankers, bankers and more bankers.

Don’t forget Obama’s ‘drone war’, suspension of habeas corpus, arbitrary imprisonment and torture in secret prisons. These programs took form under Bush but Obama did nothing to end them or much to rein them in.

Erratic, bullying, Nazi, paranoid … all are unpleasant to contemplate, but are hardly new. The issues that defines our new (gauche) president are matters of form rather than substance. The conflicts of interest, the ‘massive self-enrichment’ by office holders and ‘retaliation by means fair and foul’ are as entrenched in Washington as traffic jams. Our small-d democracy isn’t threatened, it vanished a long time ago, after people decided to let ‘experts’ tend to their affairs and for corporate marketing and PR to do everyone’s thinking for them.

Remember this?

Comparing Combatants in Syria – Iraq Theater

USA Arms sales. To destabilize region to import consumption Operational expenses & loss of influence Transient tactical advantage for no one in particular Corporate plutocracy / None Capital destruction – consumption / Ponzi finance

“Corporate Plutocracy / None” … that’s us!
So is Capital destruction – consumption / Ponzi finance!


This generated blind fury across the mediasphere; the suggestion is Trump is a nuclear madman.

Obama’s Russian Rationale for $1 Trillion Nuke Plan Signals New Arms Race

February 23 2016

The Obama administration has historically insisted that its massive $1 trillion nuclear weapons modernization program does not represent a return to Cold War-era nuclear rivalry between Russia and the United States.

The hugely expensive undertaking, which calls for a slew of new cruise missiles, ICBMs, nuclear submarines, and long-range bombers over the next three decades, has been widely panned by critics as “wasteful,” “unsustainable,” “unaffordable,” and “a fantasy.”

It’s okay as long as ‘our guy’ does it: it wasn’t Trump who ringed Russia with military bases, missiles and combat formations, it wasn’t Trump who sent spies and provocateurs to destabilize Ukraine or attack Russian clients Syria and Libya from the air. It wasn’t Trump who is engaged in questionable wars in multiple countries across the globe all aimed at driving energy- and resource consumption to the world’s largest energy hog. It isn’t Trump who made al-Qaeda into a defacto ally of the Pentagon and the CIA, who gave the militants arms and training, who enabled the rise of Turkish neo-Ottoman ambition alongside Saudi Salafism and state terror. It was Obama who did all these things and more, following in the footsteps of American presidents going back to Truman.

Or was it? Whoever is president doesn’t matter, he is irrelevant. Our managers (including Trump) are actors reading from scripts, performing at the direction of shadowy back-door men, employed strictly by how they conform to the public expectations created by corporate marketing. Conforming includes how they look, dress, speak, where certified and whom they ‘know’; where they live and work and how they travel. Trump himself acknowledges this reality by selecting as footmen those who are possessed of a certain je ne sais quoi, that is, they have the appropriate outward appearance. Activities that require labor, skill, difficulty or do not present a marketing opportunity are penalized with diminished status. There are no grimy proletarians, mechanics or farmers in the current administration or those set to come; nor in Congress or the Courts. Instead, there are neatly coiffed thievish mandarins. Because our Ponzi- economy is divorced from reality the scam managers are expected to be incompetent, they have to be even as they are fashionable. There is no penalty for stupidity in America.

Competence is unacceptable except where it allows for the proper internal functioning of the enterprise. Our ostensible Ponzi- masters are grasping buffoons while those tending the boilers (Goldman-Sachs) must know what they are about.

The conflict in America is not between ‘left’ and ‘right’, ‘liberal vs. conservative’ but between logic and illogic, between reality and denial. The establishment’s factions are parties to malfeasance and mis-communication. To tell the truth is to acknowledge that business as usual is bankrupt regardless of who is in charge, (Brooking Institute):

Another Clinton-Trump divide: High-output America vs low-output America

Last week, as my colleague Sifan Liu and I were gnawing on some questions asked by Jim Tankersley of The Washington Post, we happened upon a revealing aspect of the election outcome. While looking at number of influences on the presidential vote outcome, we found that in a year of massive divides, one particular economic split stands out.

Our observation: The less-than-500 counties that Hillary Clinton carried nationwide encompassed a massive 64 percent of America’s economic activity as measured by total output in 2015. By contrast, the more-than-2,600 counties that Donald Trump won generated just 36 percent of the country’s output—just a little more than one-third of the nation’s economic activity.
Candidates’ counties won and share of GDP in 2000 and 2016

Figure 1: US counties voting preference, (Brookings Intitute, click for big).

Here you can see very clearly that with the exceptions of the Phoenix and Fort Worth areas and a big chunk of Long Island Clinton won every large-sized county economy in the country. Her base of 493 counties was heavily metropolitan. By contrast, Trumpland consists of hundreds and hundreds of tiny low-output locations that comprise the non-metropolitan hinterland of America, along with some suburban and exurban metro counties, as Indeed Chief Economist Jed Kolko pointed out in a tweet …

The foundation of Brooking’s argument is breathtakingly false, yet is so fashionably rendered anyone looking at it uncritically would take the authors’ premise at face value: that the metropolitan areas who fell to Clinton ‘produced’ greater ‘output’ than the backwards redneck promised lands that supported Trump. By way of Brookings’ logic, the consumption that takes place in cities is ‘productive’ because the various banks magically output ‘money’ to pay for it.

Cities are sinks not sources, their actual output is little or nothing but waste. The backwaters of America don’t ‘produce’ either, they extract our nation’s wealth — our non-renewable resource capital — and speed it to its death. Soil fertility, water, oil, gas, coal, metallic ores along with the lumpishly unfashionable activities that require labor, skill, difficulty … all these and more are sucked out of our towns making stops at Hillary Clinton’s capital-annihilating colonias on their way to the landfill. Retail sales and speculation are measured as production by Brookings’ economists and the banks which fund the process, lending abstract ‘wealth’ into existence using the wasting processes as collateral. Given four- hundred-plus years of mechanized pillaging the flyover counties have been emptied out with the extractive returns captured by well-positioned rentiers. The locals cry, “where’s our cut?” The fact of the question itself reveals the answer …

Establishment whines about ‘fake news’; what is fake is denial of the onrushing consequences of resource squander and how these are making themselves manifest.

Figure 2: Fed Funds by FRED, (click for big). Immediately before president-elect Obama took office in ’09, Santa gave the children negative real interest rates, that is, yields below the rate of inflation. Bargain basement borrowing costs were the incentive for firms to borrow astronomical sums, to fund carry trades of all kinds, to become larger and more concentrated, to buy out competition, to overpay for the firms’ own shares. Tycoons borrowed to buy luxury real estate, yachts and fine art. This offered the impression of a recovery from the ’08 crash, everyone looked like geniuses for a little while including Obama, for whom it can be said it is better to be lucky than good …

Even without the Fed, rates would have been low. Because of the Great Recession, there was a ‘flight to safety’ and the bidding up Treasuries in the absence of real, non-financial returns elsewhere. Added was systemic moral hazard and the eagerness of banks to lend back-and-forth to each other. The outcome was dollar carry trades speeding US inflation around the world; ‘Lucky Obama’ able to enjoy interest rate tailwinds every single year throughout his term in office.

Figure 3: Chart by estimable Doug Short, (Click for big). Obama is jumping ship before the storm breaks: 10-year Treasury rates are galloping upward due to dollar preference which pressurizes foreign exchange and unwinds dollar carry trades. The ‘official narrative’ is future US inflation but the decline in bonds is the re-pricing of repayment risk and the forex depreciation that is certain to come. In developing countries, borrowers with cavitating currencies cannot repay their dollar debts. The incoming president promises (more) tax relief for overburdened tycoons, those expected to pick up the tab are the same developing countries already tapped to service and retire prior rounds of credit expansion.

Remember dollar preference? Don’t pick up that economics textbook, you won’t find it there! Just because Marshall or Keynes didn’t write about it doesn’t mean it isn’t real. Dollar preference is what it sounds like: given the choice between accepting a dollar as payment or one- or more foreign currencies; between holding the dollar or spending it for shit or between holding the dollar or non-cash assets, people will choose the dollar. At issue is what determines the dollar’s worth. Conventional Lucas/Friedman economics suggests ‘efficiencies’ going forward discount future money: this and time preference ‘discovers’ present monies’ worth. The conventional narrative supports the rate-setting role of central banks and centrality of monetary policy. Debtonomics insists dollars and other currencies are priced by their exchange on demand for petroleum, something that takes place millions of times every day at gas stations around the world. Question for Donald Trump: millions of motorists vs. a handful of central bankers and corrupt politicians, who wins? The worth of the dollar is the fuel price bargain each one represents relative to other currencies, also what future dollars will be worth in a fuel constrained world. In this narrative, dollars are a proxy for fuel as dollars and other currencies were proxies for gold was during the periods of the gold standard. As such the dollar is a hard currency now becoming harder, to be hoarded out of circulation for the value it represents.

Put another way, dollar preference is the convergence between the value of the oil capital and the dollars that are exchanged for it. Fuel by itself is worth more than the real-world enterprises that make use of it regardless of what means are used to ‘adjust’ the price. By this way of reasoning, fuel in the ground in North Dakota is worth more than fuel wasted in a car stuck in traffic on an LA Freeway. Business (wasting) enterprises earn nothing on their own and are essentially worthless. They exist solely to borrow, gaining- and making use of credit is their primary product: other goods and services are intended to justify credit issuance in ever-increasing amounts. Part of this stream becomes the property of well-positioned ‘entrepreneurs’: enormous unearned borrowed profits are what drives the system. When debt = wealth, there is an incentive to take on as much debt as possible, keep what you can for yourself and to shift the retirement- and servicing burdens onto others.

Our economy as nothing more than a vast cost-shifting regime, our ongoing crisis is the shortage of ‘others’ able to bear the burdens of rapidly increased surplus-related costs.

Figure 3: Emerging market currency ETF: carry trades have been unwinding since 2011 as the dollar becomes stronger. A dollar carry is a way to sell the dollar short; investors borrow in the US at low rates then ‘sell’ dollars for higher-yielding assets in another currency. Decline of dollar becomes profits to those holding the overseas assets. When the dollar strengthens as it is doing now, the deal is a bust. Any asset appreciation in an overseas currency is more than offset by foreign exchange losses. What this means is costs are more difficult to shift, that dollar debts held overseas cannot be retired. The export of dollars and the shifting of costs that have been the mainsprings of globalization; that and the petroleum trade. Resource depletion and dollar preference are undoing all three …

Figure 4: Polygon of Doom: since 2008, price peaks in oil markets are followed by sharp declines, the amplitude of peaks diminish as the world’s customers go broke, chart by TFC Charts (click for big). Unraveling of carry trades, currency depreciation, runs out of forex and generalized credit contraction ruins millions of customers at a time. This in turn strands oil drillers who cannot extract the cheap petroleum as our economy requires. In our over-financialized world, fuel shortages don’t manifest themselves as gas lines or odd-even days. Rationing takes place through the credit transmission channel. When oil price rises high enough credit vanishes and customers cannot buy. How high is too high? Last year $65/barrel turned out to be pricey enough to torpedo China’s currency; the diminution of Chinese consumption crushed the price of crude. The current barrel price of $55 appears to be too high with another predictable banking- and credit crisis unfolding in Europe.

Energy deflation occurs when shortages cause prices to fall instead of rise. This is another something not found in your macro textbooks, it’s real nevertheless and unfolding under @realDonaldTrump’s nose. Because shortages can’t make customers richer, they are unable to borrow in order to bid up the price. The drillers are stranded because they don’t have customers to sell products to. Ruined customers is the reason why oil prices have declined 60% since 2014, broke customers are why the entire oil extraction industry is insolvent.

Oil prices can only decline as there are diminished returns on each energy dollar invested … diminished GDP, diminished credit availability, diminished ability to meet ever-higher real extraction costs. Going forward, real energy costs will increase relative to the ability to meet them … even as nominal costs decline. The result is a net-energy death spiral or ‘energy deflation’ similar to Irving Fisher’s Debt Deflation. Whatever the fuel price happens to be at any given time it is too high. The price falls to meet the market, but fuel is removed from the market because of the drop in price, the ongoing shortage reduces the ability of customers to meet the price which is still too high … in a vicious cycle.

Energy deflation and dollar preference are large forces beyond the control of politicians, generals or central bankers. They are driving countries and events toward involuntary conservation. America’s new president is the product of economic failure; the inability of the economists to make correct analysis, a long grinding recession disguised as recovery; media falsehoods and the unwillingness of Americans and others to face reality, government policy failures and the headwinds of resource depletion. Trump and his cretinous gang of thieves represents the last gasp of a defunct industrial system that is sinking under the weight of its own costs.

Keep in mind, oil producing states like the US tend to be autocratic. The US, Canada, Mexico and others are on their way to becoming single-party police states like Saudi Arabia or Iran. Because of autocrats promise of access to energy, they gain ascendancy with their populations’ eager consent. What is at stake for Americans and the West is democracy itself: a choice between the right to have a say in our own affairs versus the false-promises of energy-driven ‘prosperity’ offered by autocrats … the choice between the (vague) promise of convenience or having a functioning republic.

109 thoughts on “King Trump The Irrelevant

  1. Bill Sodomsky

    We haven’t “officially” become one party police states as yet Steve, but police states we are. It’s interesting to watch the roll out of the Trump Team. The commonalities or should I say convergences in their pedigrees which are beyond obvious. They’re being put in place to manage the pending LOCK DOWN and to run cover for the system operatives responsible for the rape and pillaging of what WAS and IS left of our modern industrial society.

    What’s not clear to me as yet is how the collective will respond to the ever-tightening screws of the panic stricken bosses. If history is any guide though, the tragic consequences of the greed and the ignorance will run its course leaving us only with hindsight amidst the rubble.

  2. Mister Roboto

    So what do you make of the massive “Trump rally” in the domestic financial markets of late?

  3. Eeyores enigma

    Out of the park Steve!

    “Whoever is president doesn’t matter, he is irrelevant. Our managers (including Trump) are actors reading from scripts, performing at the direction of shadowy back-door men, employed strictly by how they conform to the public expectations created by corporate marketing.”

    Thank you sooooo much for stating what I keep assuming is the obvious but everyone seems to forget after about 10 minutes. I seriously thought that the Bush (Shrub) era put paid to that concept but nooooooo!

    For whatever it’s worth thank mucho!

  4. Ken Barrows

    This was one of the best articles you’ve written–hard to choose, though. Of course, you could be wrong if somehow the world is starting to expend fewer joules for each barrel of oil or each 1,000,000 BTU of natural gas. But you’re right and I don’t think anyone is really even trying to prove you wrong.

  5. SkipBeat

    “In fact, almost every ‘crime’ the oafish Trump is being accused of in advance has been committed already by preceding administrations including Obama’s, starting illegal wars, snooping on citizens, raping the environment, cozying up to bankers, bankers, bankers and more bankers.”

    Pretending Trump’s cabinet picks *alone* won’t severely worsen some of these things is not reality-based.

    As far as the environment , if he stays the course he’s on, it won’t just be a rape, it will be a mass slaughter. There’s good reason climate scientists are in panic mode, and it’s not because they are partisan idiots.

    1. steve from virginia Post author

      If simple administrative procedural changes is all it takes to ‘make things worse’, they would have been done already. After all, what disaffects one group (because things are worse) will benefit others (things are better). For instance, relaxed environmental regulation are supposed to restart growth with new businesses taking advantage of the relaxed environment, hiring new workers, paying higher wages and putting more money back into communities.

      These sorts of changes are increasingly futile. Environmental rules have so many loopholes and exemptions they may as well not exist so getting rid of the rules is pointless. Relaxed regulation turns out to provide little boost for growth or employment. The over-regulation of industry is a self-serving myth. The problem for most industries including those that pollute the worst is the absence of customers with money. For instance, the coal industry is kaput because of a lack of customers — the power industry that has relied on coal are at the point of having to invest hundreds of billion$ in new coal plants that have a much larger operational footprint compared to gas turbines … in an environment where folks are using less electricity.

      What is affecting outcomes right now, this minute is resource depletion, including diminished waste-carrying capacity. Hand-waving bureaucrats will provide hours of knee-slapping entertainment while bringing about ‘Conservation by Other MeansTM.

      1. Mister Roboto

        Another thing that is doing in coal is the fact that so many of the mines are exhausted and flooded.

      2. steve from virginia Post author

        It’s hard to say whether the US has reached peak coal as there is a lot of variability regarding energy content, ease of access, transport requirements, contaminants, etc. There is a lot of coal in Wyoming, for instance, but most of it is so far underground it is out of reach of surface miners. The low energy content precludes sub-surface mining which is much more costly. Eastern miners have certainly exhausted hard coal reserves, have probably reached peak of softer coal reserves: not every mountaintop in West Virginia has coal under it.

  6. Reverse Engineer

    “The conflict in America is not between ‘left’ and ‘right’, ‘liberal vs. conservative’ but between logic and illogic, between reality and denial. “-SoV

    IMHO, the conflict is between the Haves and the Have-Nots. As it has always been.

    Nice 2 C a blog from you Steve. Been a while.


    1. steve from virginia Post author

      RE, the Haves and the Have-Nots (wannabe haves) are on the same side of the boat. That’s one reason why there is so little progress, if the Haves falter there are 1000 Have-Nots ready to take their place.

      The level of denial on the part of both camps is about the same.

      1. Reverse Engineer

        No, they’re on opposite sides of the boat, just the Haves weigh a lot more so the boat tips over to the Have side. When 1% of the poppulation controls 99% of the wealth of the world, THEY are responsible, not J6P.


      2. steve from virginia Post author

        If they were on opposite sides, the one side would be embracing ‘less’ while the other takes more. Instead, the have-nots are demanding ‘more’ for themselves at gunpoint (at Trump-point). With the new rule being ‘less’ all around, there is … ‘less’ available to bribe people into behave themselves. At the same time, if/when fighting breaks out everything will be worth less. We are holding each other hostage but are not aware of it.

        The Syrians aren’t fighting so everyone can enjoy the ‘Aleppo lifestyle’, scurrying about in ruins under fire, they are fighting to gain the American Way: cars, flat screens, suburban housing, smartphones, jet vacations; all the things they see on TV, all that are the domain of the 1%ers. It is only a handful of individuals in the West who have decided voluntarily to refuse these things, to ‘live off the grid’ and content themselves with their families, their chickens and their gardens. The 30% of the world who live the subsistence lifestyle are eager to gain the American suburban way just like the other 69%. Even those who have ‘it’ want more.

        Always more.

        As far as ‘controlling’ 99%; the tycoons have a lion’s share of the CLAIMS but these are non-perfectible. It’s like the game of musical chairs except the number of chairs is shrinking fast as the ‘little people’ burn them for fun. Of course, when claims are perfected, they are diminished: this is the ‘friction’ that economists talk about. Bill Gates can sell his shares in Microsoft and hold cash, but that must be spent on something, right now what ever he buys will be worth less than the cash (the proxy for fuel). He could buy more shares in other companies, or bonds or some other abstract claims and return to the beginning. These things are nothing but portions of (obsolete) narratives.

      3. Reverse Engineer

        Of course everyone seeks a “better” life. If you are starving, your farms are drying up, your country is in ruins, what ELSE would you do but head somewhere else where you perceive the grass is greener? You wanna BLAME poor folks trying to migrate to the west so they also can have plenty to eat and a big screen tv and iphone too? This is just absurd. You are blaming the victims because they are trying NOT to be victims.

        The Perps here are the .01%, the Industrialists and Banksters who run this show. Blaming the victims is counter productive and immoral. You need to place the blame where it properly belongs, on the .01%.


  7. Eeyores enigma

    Money is everything…all the way to the end!

    With money you can live like a god.
    With money you can LIVE! No money = you die!

    Money has replaced genetics in survivability (sorry Darwin).

    We can argue all we want about value, true wealth, happiness, whatever but with enough money you WILL live longer than the next guy.

  8. London Underground

    I love EU, and come here regularly to check for new posts and comments. Truly seminal site, many thanks to Steve and this is a return to form. I lost interest a bit during the posts on Syria unfortunately, as I have my own information/interpretation. Mostly the only thing I got from EU on this was ‘Syria pre-colour revolution 10GJ consumption, now 1.5GJ’. Which nails it, and (if I might add) Western agencies have spent over 70billion on regime change, failed, but it’s given a few jobs to our mates, so all good. Geopolitically it’s Empowered the Eurasians in Russia too, against the ‘Atlanticist’ but that’s another story, ongoing and part of the great game, so old hat.

    Best with the Middle East (like the Balkans) to reserve judgement, forever. These places never fit neatly, and embarrass the most studied scholar. Cross roads are lively places.

    Cheers and merry Xmas to all!. If I remember my log in details, I’ll be back.

  9. ellenanderson

    Right again Steve. As you observe, even the poorest refugees are heading west. Everyone wants at least a part of what industrial civilization has offered to a minority of people in the past. Actually even the people busy “collapsing” with their chickens and gardens are still hoping that the same old sun will rise tomorrow. We are all on the same side of the boat for sure. We will all be swimming for our lives when it finally tips.

  10. Usman

    “Put another way, dollar preference is the convergence between the value of the oil capital and the dollars that are exchanged for it. ”

    Interesting observation. Is this a restatement of the Triangle of Doom, or is there a different relationship here?

    1. steve from virginia Post author

      It’s not the same.

      Money, resources (capital), commerce are all supposed to have different values (or none at all) so that each can be traded without concern for the others. Convergence = stasis (which arguably is taking place now except on Wall Street).

  11. Volvo740...

    Couple thoughts: At the grand scale we’re facing a many predicaments. Here are two:

    1. We need to reduce debt (since it’s not sustainable) while at the same time grow debt to fuel growth.
    2. We need to emit less CO2 (in order to rein in climate change) while at the same time sustain or grow CO2 emissions to sustain growth.

    At the local level it seems that the optimal choice for the individual is to be frugal. If anyone realized how unsustainable the situation was they would probably be a lot more frugal than they are today. Advertising/MSM is playing a key role here, and making sure the general population keeps buying stuff they don’t really need. If they only bought things they really needed GDP would be less than half.

    Thanks Steve!

  12. Creedon

    Currently small towns in our world are corporate developments. After a drive across Missouri and Illinois today, what I see are lots of money invested in hotels, restaurants, commercial developments with lots of stores and service sector jobs. They have also invested much money in shale oil. The next five years should tell the tale of whether there will be a good return on their investment.

    1. steve from virginia Post author

      Pemex is also competing against US refiners in an environment where margins are increasingly under stress. It isn’t just drillers having a hard time.

  13. Creedon

    This was logged by the Old Dane on the 30th of Dec. 2016 @ Peak oil News and Message boards
    1. The bad things you fear will never happen exactly as you predict it.
    2. The good things you hoped for will turn out differently than you expected.
    3. Something you never imagined can often give you a big surprise, good or bad.
    4. That which you do imagine in details will never come true.
    Since any prediction that I may make will of necessity be wrong, let me say that the people of the world want oil and the oil lifestyle. We are about to see the results of our desires.

  14. ellenanderson

    @RE Interesting link, thanks. Especially this: “One message that circulated on social media called on people to fill their tanks before New Year’s and boycott gas purchases the first three days of the year as a ‘peaceful revolution.'”
    I will be really interested to hear how that boycott works out. Boycotts and general strikes are most powerful weapons in the hands of the masses. Will the social media be allowed to exploit that power? If not who will oppose and how will they do it? So long as the electric grid supports the internet I am predicting that control will be impossible whether that be control of hacking or control of organizing. And when/if the grid goes down the main mechanism for central control by anybody disappears – at least for awhile. This is a real contradiction at the heart of our society.
    However, since we are all on the same side of the boat right now I don’t think anyone is going rock too hard. I’ll bet that there will be no boycott. Will be interested to hear, RE, if you follow this story.

    1. Reverse Engineer

      What’s the point of a 3 Day “boycott”? Once they remove subsidies and jack up the price Mexicans will “naturally” boycott because they can’t AFFORD the gas!

      This happening at the SAME time the Mexican Peso is being CRUSHED against the dollar.

      The increasing cost of transportation will drive the price of food up as well, all while the Mexicans are losing purchasing power. Forget the boycott, look for Food Riots to start in Mexico in 2017.


  15. Creedon

    I know that Steve and the federal government both say that there is very little inflation, but I don’t buy it. I believe that in the U.S. of A we are seeing creeping inflation if not inflation at full march. The corporates now need to to increase prices because they’ve invested huge amounts in the fossil fuel based infrastructure. They desperately need oil to go up.
    If we are seeing the failure of the emerging markets, Venezuela, Mexico, Nigeria, this is the beginning of the failure of the dollar. I, however, don’t pretend to understand the basic science involved in collapsing currencies. The ability of the BAU community to ignore what is happening is astounding. If at some point in the future the oil infrastructure in the U.S. fails, we have no options.

    1. Front Range Mike

      In my neck of the woods, house prices and rents have exploded the past few years. However, that may be due to legalized pot reeling ’em in here in Colorado.

      You also could argue that inflation has heavily hit the stock markets the past eight years too. There’s no fundamental reason for stocks to be so high, except possibly savings interest being so low that savers are forced into stocks. Good old welfare for stock holders and dog-eat-dog capitalism for everyone else. Same as always.

      One more possibility is the price of new cars is incredible. Price a new Ford F-150 these days. They cost about twice what I paid for my first small house in 1985. Inflation lurks out there, but they have kept it away from food for the most part. If that happens drastically, they know it’ll be Katie bar the door time.

  16. ellenanderson

    @Steve. There is an interesting post about the bond bubble on ZH today: Bank of England Blog Warns…
    “Indeed, judging purely by historical precedent, at 36 years, the current bond bull market had been stretched. As chart 2 shows, over 800 years only two previous episodes – the rally at the height of Venetian commercial dominance in the 15th century, and the century following the Peace of Cateau-Cambrésis in 1559 – recorded longer continued risk-free rate compressions. The same is true if we measure the period by average decline in yields per annum, from peak to trough. With 33 bps, only the rallies following the War of the Spanish Succession, and the election of Charles V as Holy Roman Emperor surpass the bond performance since Paul Volcker’s “war on inflation”.
    Do you offhand know what the specific events were that triggered the bubble bursting at those times?

    1. steve from virginia Post author

      Here is the article here by Harvard prof Paul Schmelzing:

      The argument presented is an abstract overview of bond market reversals (along with longer periods of increasing prices for securities leading up to them). Without accompanying narratives it’s hard to see what ‘made it all go’. There is an apples-oranges aspect to this exercise: ‘modern’ countries like the one we live in emerged from the end of the 30-Years War/ Peace of Westphalia in 1648. That event marked the final end of the Roman Empire … the Catholic administration by way of the Papacy … replaced by ‘national’, language-based forms of secular political control with limits on what the new countries could do to each other along with a list of acceptable reasons. The printing press indeed killed the Roman Empire which had lasted in various forms in the West for almost 2,000 years … but it did not do so all at once. It took a century and a half as the Vatican fought back against rising secular power with all the resources it could command. The outcome = a century-long period of generalized European bloodletting, ironically good for governments as distress caused by the governments’ own actions gave them both a reason to be and the means to tighten their grip.

      Schmelzing is arguing for an inflation-driven bear market in bonds which seems to be a ‘Business Insider’ kind of cheap argument. You ‘never say never’, inflation is possible … but there is a lot of debt outside the ‘risk-free benchmark security’ markets particularly in consumer lending area (including mortgage loans) as well as in derivatives and foreign exchange. When defaults begin to pile up (as they are in Italy, for instance) the inflation impulse will vanish (as it is in Italy). At that point the lenders — who extend loans to both governments and citizens — will become credit black holes (as is the case in Italy) from which no dollar/euro/yen dares hope to escape. What 90% of economists don’t understand is foreign exhange — money that is not your own — is collateral for the issue of money that IS your own. More forex = more lending. Of course, lending against forex a) does not increase purchasing power beyond that of the foreign exchange collateral so that b) increasing leverage is deflationary with regard to the collateral currency. In other words, Argentina can lend $16 billion worth of Argentine pesos into existence using the dollars as collateral. It can also lend twice that much or ten or a hundred times that much … but the total will be worth $16 billion, the total amount of the dollars held as reserves. What is inflationary on the peso side is deflationary on the dollar side. Add all the different Argentinas together and the deflationary impulse on the dollar side becomes pretty intense.

      That would ordinarily be bullish for dollar bonds, so the decline in bond prices suggests to me that the real price-setting mechanism is something else: pricing repayment risk rather than the effect of a flight to dollar quality and safety.

      I’m going to stick with the ‘energy deflation-dollar preference’ argument until it is proven false — always possible — or becomes impossible to ignore. In that event, the rise in bond yields is the result of foreign exchange risks increasing to overpower the central banks, lender ‘pools’ (who rig rates privately) and governments.

  17. Creedon

    Re: The Etp Model, Q & A

    Postby shortonoil » Wed 04 Jan 2017, 17:00:09
    “from here on, each $1 of growth is going to cost us over $4.70 in new borrowing.”

    Using the 10 year Treasury as a benchmark, which is paying 2.45%, it would take 64 years to get the $1 back. Somehow, someone is likely to run out of patience before that debt is retired. To get that money back in a reasonable period of time, say 20 years, would take an 8.01% rate of interest. With $20 trillion in debt, 8.01% would completely bankrupt the US government. The interest would be $1.6 trillion per year, or 50% of US government receipts in 2016.

    In other words, we can no longer afford growth. The funds needed to accomplish it can not be paid back. Growth is now an illusion; produced strictly by a fiat printing p

  18. Creedon

    The Romans and the Venetians did not have fiat money printing on computers. We are all certifiably insane.

  19. Eeyores enigma

    I have a theory. TPTB/banksters/centralbanks…whatever you want to call them WISH they could create general inflation but they have no mechanism for getting the amounts of money needed to generate it to the general public. That is inflation or even hyperinflation – an increasing amount of money chasing limited resources. So that is why they proposed doing away with SS and making 401K’S manditory back in the bush/shrub era. Everyones portfolio would have increased as the stock market was pumped up and everyone would then be able to afford a more expensive world. It is also why a cashless society is proposed. Everyone will receive a mandatory credit bump every period allowing forever increased spending (and interest payments) so everyone can live in a more expensive world. Problem solved.
    I realize the shortcomings of this theory but in view of the on going insanity it isn’t totally implausible.

    The other way to have inflation, or what some people think of as inflation, i.e higher prices, is for the money supply to not increase or even decline but the resources people seek become scarce faster than the money does. TPTB can do little or nothing about this predicament except enrich themselves so as to out bid those less fortunate.

    1. steve from virginia Post author

      Inflation seems only to take root where the establishment can create ‘conduit schemes’ that lock in helpless 3d parties into repaying obligations taken on by the 2d party from the 1st: think medical, higher education, government expense, military; also assets that have the quality of collateral such as real estate.

      What appears to be happening is resources become scarce, and people stop spending. They either cannot get credit or they don’t want it. There may even be a few that are conserving.

  20. Creedon

    It’s been a while since I have read John Williams, but he used to say that inflation in general was running at about 6 or 7 percent. Over a 10 year period when wages are not going up that much it reduces our standard of living. If a meal at Applebees is 12 or 15 dollars as opposed to 8 or 10 it has an effect I could list a number of things like this that I’ve encountered recently. John Williams was preaching some years ago that we would get hit with hyper-inflation, which hasn’t happened as such. Right now, one could posit, that there is a 50 percent chance of the EU breaking up this year. What would the effect of that be on inflation in the U.S.
    By the way Steve, I do not understand the system by which dollars are collateral for foreign lending. Argentina can only get money from American Banks? Common sense would say that if dollars are converted to pesos and the loan is defaulted on that the money would be lost and so dollars in general would be worth more because there would be less of them.

  21. Creedon

    Reverse Engineer is correct; rioting has started in Mexico.
    Looting, Riots In Mexico Spiral Out Of Control Over 20% Gas Hike; Hundreds Arrested

    Four days after the first sporadic protests emerged in Mexico City, following the infamous “gasolinazo”, or mandatory 15%-20% increase in Mexican gas prices which went into effect on January 1, the mood across the country has significantly deteriorated, with hundreds of demonstrators blocking highways, snarling traffic, raiding gas stations, jeopardizing critical supplies, and looting stores as angry but impotent motorists lashed out at the price surge, which is only going to get worse as inflation spikes even more following the record plunge in the Mexican Peso. Residents steal fuel and diesel from a gas station in Veracruz state As a reminder, the price of oil rose Sunday by as high as 20.1% to 88 cents per liter, with diesel at 83 cents — the equivalent of 12 days of a minimum wage to fill a tank of gas – compared to the …

  22. Creedon

    From the Credit bubble bulletin.

    January 5 – Bloomberg: “Chinese state media warned U.S. President-elect Donald Trump that he’ll be met with ‘big sticks’ if he tries to ignite a trade war or further strain ties. ‘There are flowers around the gate of China’s Ministry of Commerce, but there are also big sticks hidden inside the door — they both await Americans,’ the Communist Party’s Global Times newspaper wrote… The article was published in response to Trump picking Robert Lighthizer, a former trade official in the Ronald Reagan administration who has criticized Beijing’s trade practices, as U.S. trade representative.”
    A trade war with China would slow world GDP, a vote for Penn in France and against Merkel in Germany and the EU is all finished but for the shouting. Mexico begins to collapse.
    Saudi Arabia begins to collapse in two years. We don’t yet know how trigger happy the Donald is with the U.S. military, I would say not very. It’s death by a thousand cuts.

    1. steve from virginia Post author

      It would indeed be tragic if Americans are deprived of their fair share of Walmart’s bounty. The problem for the Chinese is the impossibility of engineering their ‘products’ to be more dysfunctional than they are already. They’re stuck.

  23. Volvo740...


    “So…while the rules are complex the common sense reality is actually quite simple. Banks can create as much money as we can borrow.” This is the real point I was intending to make and so far no one has disputed it with me.


    Beppe Grillo may have studied money quite a bit, but on energy the best answer they have is ‘renewables’, and we know that won’t work for all the reasons Gail has raised.

    Re inflation: Reduced purchase power is coming for sure. Resource depletion/damage to the environment guarantees this. Either through price increases, or lack of money in consumer’s pockets. The best opportunity to raise prices is probably on discretionary spending for the upper class. Lift tickets, high end cars, art work.

    Things that are needed by everybody (basic food stuff, used cars) is a different story, since the marginal consumer is unemployed (or worse). Gas still is used for a lot of joyrides, but I don’t think all of it can be cut. People still need to get to work – if they have one.

    But we haven’t really hit Peak in the USA yet it seems. 17.55 million cars sold last year – about the same as year before. Of course fueled by new debt. When the fuel supply starts to shrink at 4% per year, the need for new cars could drop significantly.

    And for CO2, there is 0 hope. Absolutely 0, since the melting of the arctic has the equivalent impact of 50% of all CO2 emitted to date. And any human activity releases more…

  24. Creedon

    I believe that the melting of the arctic and the warming of the pacific is for different reasons than people think, but we can’t turn all of these trains around. That is why there are collapse blogs like this one. Those of us on the fringe need someone to talk to.

  25. Creedon

    From Shortonoil
    The reason that the US imports oil is because it is very profitable for the refining industry, which is the best in the world. As long as the US can buy crude; which is as long as it can find costumers, which is as long as someone can find US dollars to buy it with. The US will be a petroleum products exporter. It may outlast the internet by several years.
    This is the same thing that Steve says; in the process of coming up with dollars to buy oil with,
    the currencies of the world are breaking down.

  26. Creedon

    If all currencies outside the dollar collapse, what then becomes of the last man standing, the U.S. economy? If there is eventually no one to sell gas to, oil becomes worthless. It will all be a wall street confidence game. When wall street finally collapses we will have to turn over what is left to nationalization. Those who live and those who die will be chosen.

    1. steve from virginia Post author

      At some point there will be a transition, when credit stops working; when the world is unable or unwilling to sell to us and we are unwilling to buy. The depletion will be undeniable, the big exporting countries will keep their fuel for themselves rather than send it to us to squander. Americans will also be very stingy with their money, particularly when that last dollar buys a trip to the hospital or the chance to go ‘around the bend’. The US would have left what is in the ground within our borders; the flow is about half of what we use now. But a cut of half of current supply would be severe, anything that would support demand would quickly exhaust what little remains. Fuel would be sharply rationed so that we might hold onto our pittance for as long as possible. There would be a command economy with the sort of controls the management has been refusing to even consider since the early 1970s: ration coupons, gallon limits, rights to drive or use petroleum-powered equipment.

      The chaos is front-loaded. I suspect a lot of wailing about politics is really uncertainty about resource constraints, concerns that sit just below the surface. Soon enough is the ‘International Come to Jesus Moment’ when 7+ billions wake up in the morning and all realize at once, “We’re fucked!” Who knows, it might be happening right now.

      When the break comes, there will be a conflict between the military — the #1 single largest waster of petroleum in the US/World — and the motorists. Everyone involved will forget about agriculture … Oops! Things might get very nasty until some order – common sense prevails. That’s why I say put some food aside; a few weeks’ worth of staples such as beans, rice, pasta, root veggies, dried meat, canned food, chocolate, coffee, etc. Water is needed too. Whatever it is that is coming down the road is getting closer every day.

      1. Usman

        The world is still producing ~96.5 million barrels/day, even with diminishing demand and credit. Given the oil price collapse almost 3 years ago now, this is surprising. How is that possible?

      2. steve from virginia Post author

        I would guess appearances are deceiving.

        – Nobody really knows what- and how much is coming out of the ground. There is a lot of oil in storage, a lot floating off shore. How long has it been there? We know drillers are lying about their expenses, breakeven costs and reserves (because the drillers have lied in the past and have a good reason to keep lying). Why not lie about output?

        – The price crash is someone else’s problem as long as the drillers can borrow. Q: who repays?

        – The drillers and their lenders appear to be getting loan guarantees from their respective governments, they just aren’t talking about it. Q: who makes the guarantees good? A: same people who are on the hook for loan repayment = the customers. The idea is magic will happen and the guarantees will not have to be exercised.

        – The world needs oil regardless, drillers will pump whether it makes economic sense or not.

        The industry is desperate to get through each day as they come, without any longer-term considerations. The hope is for circumstances to bail (almost) everyone out: a big driller will fail causing a shortage and quick leap in prices. So far the big drillers are hanging in … but marginal drillers are failing including some biggies such as the Canadian oil sands miners.

  27. Creedon

    Shortonoil is saying that the Saudis are announcing a cut in production to under 10 MBD. He says that if the cut is due to depletion that their currency will implode in the future. It seems to me that the imploding of the Saudi currency would wake the world up to what is happening. It would be pretty hard to ignore, but I suppose that many things could come about to wake up the world.

    1. steve from virginia Post author

      BW Hill has an excellent grip on what’s underway. Matt Mushalik was saying something similar about the OPEC ‘cut’, that the figures seem to reflect depletion as much as policy. Of course, depletion makes sense w/ the Saudis watering their fields, infield drilling, exploring offshore, etc. Not the sorts of actions associated with large spare capacity.

      The Russians and Americans are doing the same thing. Fracking is really scraping the bottom of the barrel.

      Jeffrey Brown has mentioned much of the increase in liquids output is lease condensate, useful as a diluent for heavy, sour crudes but not so good as a motor fuel. Much of the condensate increase has been in the US … we are really on a conventional crude oil diet w/ the peak having occurred in 2005. Of course the affordable crude peak was in 1998 (sez the lonely Steve … ) which explains our long-running economic woes. Affordable crude is the only kind that matters, without the cheap stuff our suburbs are stranded.

      1. Mister Roboto

        The way I look at it, we’ve been using “scraping the bottom of the barrel” techniques such as tar-sands (a terrible waste of natgas and fresh water in return for huge ponds of toxic waste), fracking, and whatever else to mitigate the effects of the peak in production of easily-accessed light, sweet crude since 2006. When world production of easily-accessed light, sweet crude finally goes into terminal decline (2021 at the latest, IMHO), capital-intensive cheats such as tar-sands and fracking won’t be even kind-of-sort-just-barely-but-not-really economical anymore. Also, I read at Gail T’s site that the world has probably already passed peak coal production. Heaven help us once we reach peak natgas production, which will probably also happen by 2021 at the latest. IOW, the clock is ticking, and soon not even frantic, overheated money-printing will be able to keep the clusterfuck going any longer.

  28. Creedon

    Yoshua wrote:
    It will be bizarre to see production falling, inventories’ growing and oil prices falling. It will be bizarre to see it even if I know about the etp model.Yoshua wrote:
    They will blame it on what ? LTO producers ? Trump ?

    Will all currencies start to fall against the dollar ? Will they blame it on the dollar ? The Fed ?

    Will a deep recession start ? A financial crisis ? A derivatives implosion ?

  29. Creedon

    Someone I know has just gone back to work in the shale fields of North Dakota. This pick up in work in the Bakens may not last long if B.W, Hills price forecast is accurate.

  30. Creedon

    At some point the price is going to depress the drillers activities, but that price seems to get lower all the time because none of it is done because the big banks care about getting a return on their investment. At one time 50 to 60 dollars a barrel seemed to be the lowest price that would keep them in business. Now I’m of the belief that that they would continue to pump under 30 dollars a barrel. I think that B.W. Hill said that under about 22 to 23 dollars a barrel the Petro dollar system would fail. The only thing that seems certain is that they are getting more and more desperate.

  31. Eeyores enigma

    Cree – The Spice must flow!

    ” A 2016 study estimated that global fossil fuel subsidies were $5.3 trillion in 2015, which represents 6.5% of global GDP.[3] The study found that “China was the biggest subsidizer in 2013 ($1.8 trillion), followed by the United States ($0.6 trillion), and Russia, the European Union, and India (each with about $0.3 trillion).”

  32. Creedon

    From Shortonoil
    As we have been saying the end of the oil age will not arrive everywhere at the same time. But if one major, like China, were to fail the world’s monetary system would collapse. That would bring on the worse depression in history in short order. From there the situation could only deteriorate. Looking at how incredibly inefficient they are, the exploding world debt, and the deteriorating state of the petroleum industry it can only be a matter of time. Like falling dominoes nations states would fail, and one of those dominoes is looking awfully shaky.
    Is China or Europe going to be the first major world power to go. We’re just speculators. Shortonoil also mentions the irony of Trump making America great again only to collapse China and bring on the next great world depression.

    1. steve from virginia Post author

      Mexico has to be considered a major(ish) economic power as they are number three US trading partner after Canada and China — and they are the ‘failing-state next door’. Problems in Mexico have in the past tended to ricochet into the US: fast-forward into the present: when Mexico topples over the cliff the US credit market will be hit hard as it was during the Tequila Crisis. This was caused by reduced flows of dollar funds to Mexico and Latin America, they couldn’t repay their bills or borrow enough to roll them over.

      What I don’t get is the other ‘brand x’ analysts are universally discounting risk as if it has vanished.

      There is more risk now than EVER.

  33. Creedon

    If I am getting Steve’s meaning. Basically that bonds aren’t going up, in yield, as much as he might of thought; I disagree with what Steve taught at the beginning of the series, that anything now days is collaterally restrained. I would agree more with B.W. Hill that all that is really going on is that they are printing fiat money. That would also mean that we are getting to the latter stages of collapse. Printing fiat money with no restraints should be inflationary. What it actually is, is making a few world wide very rich, while the masses are getting poorer and poorer. That is why they are beginning to have these votes, to vote them out of office. If fiat money can be printed to solve every problem, it also means that you don’t really have collapse, because there is always more computer money. The real question is how long they can keep people in jobs, or jobs that are worth anything. They have done too many things that are of questionable economic value. Sky rocketing inflation and bond yields will probably come after the economy collapses.If the Mexican economy were to truly collapse we would probably have more immigration here not less. It might get a little like Europe with Mexicans walking around with suitcases. I don’t envy Trump his job.

  34. Creedon

    Postby shortonoil » Sun 15 Jan 2017, 09:54:09
    “But what happens when they have burned through their dollar reserves ?”

    How long before the loses flow over into the industrialized economies of the world. The money the oil producers are spending is being cashed-out primarily from them. The oil producers are now consuming the working capital of the advanced nations. It doesn’t seem likely that this situation can persist for very long. At some point the advanced nations will have to stop the out flows; then things will get very bad for everyone. The huge leverage that has been built into the system on the way up is still going to be there on the way down

  35. Creedon

    CNBC is announcing that inflation is now going above 2 percent. Inflation has arrived they are saying. LOL. Here in Missouri the Governor is making larger cuts to the higher education spending than the previous democratic governor. Higher education is one of the major pillars of our society.

    1. steve from virginia Post author

      Anyone with any sense would realize things are falling apart.

      Nobody with any sense would try to take things apart for no possible return = vandalism.

      Maybe not in this particular instance as more- or less funds don’t correlate with educational success, but priorities are skewed to the degree … that everything seems to be falling apart.

  36. Elmar

    Hi, Steve,

    I studied economics in Germany. In the meantime, thanks to my “real experiences” I, know how wrong the official economic strories are. “Infinite world, perfect competition, homo economicus” and so on.
    Your blog is one of the best I know, and i agree, everything is now falling apart cause of “diminishing marginal utilities”. Here in Germany smolders a large scale National-Fire that has been covered due to our history up to now. The boiler pressure is very high. Mrs. Merkel will not survive politically.

    Could you please explain your expectations regarding a time frame for the road to “everything is falling appart”?


    el mar

  37. Being Frank

    Usman said “The world is still producing ~96.5 million barrels/day, even with diminishing demand and credit. Given the oil price collapse almost 3 years ago now, this is surprising. How is that possible?”

    Shortonoil has made the point that 2012 saw the world using half its oil output within the oil sector. Say that figure was now 55%. That would leave just ~43.4mb/day for everything else, and it is that paltry amount which is responsible for maintaining a price of 55$, even in a world where everyone is flat broke. Well that’s my 2 pennyworth.

    1. Usman

      That is an interesting point, because it means the oil industry also bids its own product. So if/when drillers go bankrupt, the bid on oil is reduced further. It also means that the oil sector exacerbates dollar preference, as it is the means to gain the oil it needs. As the pool of total credit (and capital) shrinks, the allocation of credit also changes so that industries responsible for capital accumulation and distribution (mining, energy, agriculture) receive a larger proportion of it than they would in an otherwise expanding credit cycle. At some point perhaps, the economy is reduced to nothing but capital arbitrage (barter)!

  38. Creedon

    Elmar, I appreciate your comments on the German elections. It will be an important world event this fall.
    Frank; I think that Shortonoil says that we reached the energy half way point in 2012. Currently he says that it takes 57 percent of the energy to produce the energy, leaving, obviously 43 percent for the world economy. That is energy, not barrels of oil if I’m not mistaken. This apparently comes from working established, thermodynamic, petroleum engineering formulas. It’s called the ETP model.

    1. Volvo740...

      The ETP model has been challenged. I personally find it unclear where to draw the boundaries around the oil industry. To get to half it seems like you would have to include truck manufacturing and all kinds of stuff we just call “industry”.

      Nothing wrong with it per as such, but I would argue, and I think Steve has said the same, that it almost becomes “all of it”… For example: Oil workers have travel needs. So you need airplanes and airports? Is that included? What about education of oil workers?

      1. steve from virginia Post author

        Same issue w/ EROI: where do you draw the boundaries? If you’re not careful you give wind turbines an EROI of 30+ (because you leave out the concrete and steel- making needed to make the turbines and install them; leave out the grid improvements needed to put the power where it’s needed).

        Economists keep making the same assumption; in the background there is the ‘dark economy’ purring along providing services that hold the entire complex system in a tightly-bound state. As we can see w/ Brexit and the election of Mr. Trump, the dark services don’t do as their are told; the center spins out of balance and tightly bound begins to work against itself.

  39. Creedon

    I’ll admit that I have become a fan of the ETP model, probably for intuitive reasons. Currently, with wall street doing their best to get the oil price up; 52 t 54 dollars a barrel seems about the best they can do, which would seem to validate the ETP model. He also gives exact, maximum price levels for the next few years and put it out there, so the whole world will be able to see and know if it fails.

  40. Tagio

    The beauty of the ETP’s thermodynamic analysis is that you don’t have to draw precise boundaries about how much of road costs, education costs, etc. etc. are “included” in defining the energy production system. The analysis determines the net energy left by the time it round trips back to the well-head to perform the work of further extraction. Dr. Alister Hamilton explains this pretty well in this presentation, which is the best one-hour presentation of the Hills Group’s ideas going:

    And here is my own humble explanation, fwiw, that I posted on the ETP forum over at Peak Oil some time ago, in response to critics who said the model is BS because actual refinery BTUs or actual extraction BTUs are only such and such:

    “As I understand it, the ETP model calculates the total energy change/loss from a global oil reservoir back to the well-head to perform the work of further extraction, based on a well-established thermodynamic equation for calculating the energy loss/change across “control volumes”. The primary factors in the ETP calculation are the (ever-increasing) depth of the well (temperature change from reservoir to well-head/open air), the (ever-increasing) water cut needed to extract the oil, and an efficiency factor that takes into account the waste energy necessarily lost in any process of burning/using the fuel.

    The key statement that, for me, was missing from the ETP report by the Hills Group necessary to understand the import of their analysis, presumably self-evident to any well-educated engineer or scientist but easily escaped by a lay person not up to speed with thermodynamics and prone to wishful thinking, is that the actual real-world total work done to extract the oil and deliver it to the non-energy producing economy, which the model does not attempt to measure and sum up, CANNOT BE LESS THAN the thermodynamically derived change in energy level between the control volumes. This truth follows from the laws of thermodynamics, which my high school chemistry teacher once colloquially summed up for us as meaning: you can’t get something for nothing; you can’t win; you can’t even break even.

    This means that the ETP model is a BEST case scenario. You can’t challenge it by arguing that so-and-so says that the lifting BTUs are only XXX, which is only a small fraction of the total energy in a barrel of oil; therefore the ETP, which indicates a total systemic energy change of, now, more than one barrel of oil to deliver a barrel of oil to the non-energy sector of the economy, is total BS. This kind of argument completely misunderstands what the model measures – either through lack of understanding or a desire to mislead readers and keep them thinking happy thoughts. The model doesn’t need to identify, measure and sum up all the energy components that go into extraction, refinement and delivery, because that sum CANNOT, BASED ON THE LAWS OF THERMODYNAMICS, BE LESS than the total energy change between the control volumes. Once you understand this, you also understand that we are well and royally screwed, because entropy is like the freaking Terminator. Bargaining, reasoning and denial, let alone money-printing and price-fixing, aren’t going to work. To attack the model in hopes of finding a less horrific conclusion, you have to argue and explain why (I) it is inappropriate to use the control volume approach, (II) the temperature gradient and/or depth of drilling is overstated, (III) the water cut formula overstates reality, (IV) waste heat loss is overstated, or (V) some of the subsidiary assumptions in the model for simplicity or other purposes are inappropriate and lead to materially wrong conclusions (e.g., the model assumes that for purposes of the calculation, both oil and water are incompressible). The model is a global analysis; picking this or that particular well and saying the model overstates reality for that well, doesn’t cut it. Once I start seeing this kind of critique in these pages, I will know we have a serious contender.”

  41. Ken Barrows

    Big surge in rig counts in the oil patch. I know drillers gotta drill, but seems surprising to me. Any thoughts, Steve?

    Oil companies’ free cash flow has to go more negative. Right?

  42. Creedon

    I appreciate your comments Tagio. How much of the energy industry do you think understands the implications of the ETP model and there fore have a plan in place for what’s to come, or for that matter, do you think there are elements of the investment banking system that understand this.

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