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Just a Commodities Correction - Not the End of the Bull (Part 1)
Also, there is a fundamental distinction to be made here: fossil fuels are almost unbelievably energy dense - most of the 'alternatives' are, simply, not. And there are no good substitutes for liquids replacement that offer anywhere near the ERoEI metrics of traditional fossil fuels, and the ERoEI for fossil fuels going forward looks set to drop rather dramatically.
There is no magic wand - there is no 'switch' we can simply flip. And given that we do not have a free market, but rather a heavily regulated, subsidized and politicized market which operates under the burden of profound market distortions compliments of both the government and non-governmental entities like the Fed, you cannot expect 'market forces' (which are heavily suppressed) to come to the rescue.
Additionally, while human ingenuity is a marvelous thing, it is *not* a miraculous thing. If it were, we'd have solved the battery problem decades ago, dontcha think? Not like there haven't been really smart, really motivated people working on this particular challenge for years and years and years - and with the dollar incentives involved, it's hard to see how any additional level of motivation would make a difference.
In other words, this is not a simple problem to solve, and it may in fact be the most difficult problem to solve that modern humans have yet faced, and there are no guarantees that we *will* solve it. In the current political and socio-economic climate, it certainly seems the odds are stacked quite heavily against us.
It seems possible that what we face is, in fact, not a problem in search of a solution, but a new condition to which we will need to adapt. Or not.
The Bedrock Case for the Return of the Gold Bull
"When prices start to fall in earnest, people [i.e. consumers] lose their jobs, and get scared and start cutting back on all their purchases".
The Bedrock Case for the Return of the Gold Bull
Tell that to the folks in Zimbabwe. The whole point here is that, when legal tender becomes worthless (wheelbarrows full), there will be plenty of folks willing to accept something of REAL value - gold, silver, and the like - in exchange for what they're trying to sell. At least, that's precisely what's happened the other gazillion times in history that fiat currencies have imploded, from 11th century China to 18th century France to 19th century America (ever heard of the Continental?) to 20th century Germany. Of course the poster who wrote the above may be right - maybe we are just so amazingly smart and special, we 21st century humans, with our central banks which simultaneously create AND fight inflation (neat trick, that), that for the very first time in thousands of years of recorded history, a fiat currency in the hands of a reckless government will not wind up causing a hyperinflationary environment to ensue engendering a collapse of the monetary system and a flight to whatever people perceive as 'things that hold value', with gold having historically topped the list.
Yeah. I'll expect that to happen just as soon as politicians learn to tell the truth.
Enjoy These 'Dollar Days' - But Will They Last?
"First, the Fed is taking a tougher public stance against inflation by signaling it won't cut interest rates any further. The Fed ended its rate cuts in April, then increased its inflation rhetoric, and in August said in the face of weakening economic activity that it had "significant concern" regarding the upside risks to inflation. The expectations for higher interest rates, or for interest rates not to go any lower, can support a currency by making a country's assets look more attractive, since investors earn a higher return on funds."
But this is patently false! Since this is all 'rhetoric' at this point, it's just about *sounding* tough - not *acting* tough, and everything depends on *credibility*. And with rates unchanged, investors don't earn a higher return - they simply anticipate that they may in the future - IF the Fed backs up its rhetoric with action. So this latter bit becomes the critical aspect: how credible *is* the Fed and when will they back up their words with actions? The answer to this seems abundantly apparent: not any time soon.
The End of U.S. Financial Domination
Fiat Paper Money, The History and Evolution of Our Currency
by Ralph T. Foster
I'd also suggest that, rather than reading mythology published by the Fed for its own benefit, you take a look at what independent analysts think about the subject. You could start with:
The Case Against the Fed
by Murray Rothbard
Finally, you are completely confused on one more point. You keep insisting that this was a 'market failure', which basically means the free market failed, and thus we need government to 'fix' it. But we do not have a free market. As a matter of fact, unbeknownst to 99% of Americans, America is not even a capitalist system - it's a corporatist system (i.e. a merging of govt and corporations which benefits both at citizen expense), and rather than a free market, we have a heavily subsidized and regulated MIXED market. So this has not been a free market failure - it's been, largely, a government failure and a Fed failure. If you cannot grasp this, despite the logic, fact and evidence in the resources to which I have pointed you, then you are a bigger fool than even your misguided post indicates.
Oil: Does Supply and Demand Still Apply?
Not to be facetious, but: does the author not grasp the meaning of the term 'peak'? It implies that looking forward at the downslope is vastly different than looking back at the upslope. Peak oil means an entirely new paradigm, and a new paradigm is one in which the tried and true adages and analyses of the past no longer apply, because the fundamental assumptions have been made invalid - that's what defines a paradigm shift.
I also must question what part of the terms 'finite' and 'non-renewable' are not being understood here?
The implicit assumption underlying the author's logic is that oil is an *effectively* infinitely renewable resources - in which case, more exploration and more drilling, over time, will inevitably yield more oil. But we know this to be false.
Interestingly though, on his own graph, the percentage of successful wells peaks in 2005 - which seems to have been when production peaked as well.
Additionally, this seems to be a rather contrived metric to use - it does not make clear that over time, the *size* of the fields being found has diminished considerably! So in this graph a successful well drilled into a field of 1Gb has the same status as one drilled into a field with 10Gb. The percentage of successful wells is not nearly as significant at the ultimately recoverable resources in these new fields, nor as important as the ERoEI for recovering those resources.
In fact, I would argue that the proper way to interpret his graph of increasingly successful wells over time is by explaining this as an example of what Matt Simmons has called 'super straws' - the better the technology for extracting the oil discovered in new fields, the faster those fields peak and then go into depletion.
Simply, this analysis should makes perfect sense to those who believe that financial trend analysis can somehow render moot and thus obviate physical, geological facts.
Nobody Cares How the Energy Crisis Gets Solved
I have no doubt that demand destruction will have an impact, and that particular game may be played over and over several times in the coming months and years - as oil inexorably continues its long term upward trend, absent some quasi-miraculous change in the fundamentals. But every time it does, a vast sigh of relief, a back-pedaling of pressure for *real* change will accompany it. This 'refusal to accept reality' which you and I both see so clearly, will thus perpetuate itself. I can see it happening already. What evidence is there that at some point, people will in fact wake up? Perhaps you see some - I do not. In point of fact, large elements of our socio-political system - educational, corporate, political - are designed to indoctrinate us into being willing believers of political and historical and economic mythologies - we are unknowingly cloaked by our illusions, here. Our refusal to accept reality is no accident - it is a natural and entirely intended by product of the cultural conditioning to which we are subjected from the moment we are born. I don't see this changing any time soon.
Further, it's not peak oil that should concern us - in the end, that won't matter - it's peak *exports*.
www.energyandcapital.c...
If we'd hit this patch 15 or 20 years ago (back before I gave up on the hopelessly corrupt political process), I would probably not have been as gloomy. But the past few years have demonstrated - I think conclusively - that enough of the American populace has been so thoroughly conditioned, that when depression comes, our response will be - predictably - wrongheaded, jingoistic, confused, inarticulate (much like many of the posts we see here on SA about energy) and - in the end - violent. We've already seen a foretaste of the scapegoating and saber-rattling impulses that accompany such events, after all. Just a pale shadow of things to come.
The Carter Doctrine remains in effect - it is difficult to imagine that our politicians - knaves and rascals that they are - would *not* use the military to go get 'our' oil once severe dislocations begin to occur (thus threatening their hold on power, or offering the political opportunists among them a shot at power via this path) - the public will *demand* it. And the politicians will respond as they always do. We'll go after the 'evildoers' who are conspiring against and imperiling American national security interests. Man, won't that be righteous?
I'm certain this sounds outlandish to most, but in my view, it's entirely within the realm of plausibility. So history assures us. And we are no more creatures free of the lessons of history than we are creatures free of the limits of nature.
So will there be oil? Absolutely - but will we have access to it? I am not so sure.
I think the Saudis have been playing a careful game of recent years, and this is the transition time for them - even the most dense observers will soon realize that Saudi production has been flat since '05 - despite repeated assurances that 'more's-a comin' - we promise!' The time when they need to begin to - carefully - distance themselves from their former best-bud/best-customer... supplier, the US, and move away from the commodity driven pricing regime to bilateral agreements which will drastically alter the game. Where we will be just one of several bidders, and *they* will have the leverage. More on this here:
www.clingendael.nl/pub...
IMO, Iraq was intended to serve notice as a demonstration of American power, which could be leveraged to secure favorable status for such agreements. That is, this was our opening gambit in the resource wars to come, intended to secure a prime position for us going forward. Instead, it turned into a demonstration of the *limits* of American power - and in turn has considerably diminished our leverage. We thought we had -and led with - the Ace of trumps - we did not realize the rules of the game had changed. So sad. We forgot to learn from history (and not for the first time).
Maybe you are right. Perhaps not. I hope you are. I don't want to be right this time. Time will tell.
Nobody Cares How the Energy Crisis Gets Solved
I see little to no evidence of this happening on a sufficient scale, and plenty of evidence - e.g. some of these comments and innumerable others in various SA articles - that there is a powerful resistance to accepting this reality, and that this resistance persists at all levels of our society, including among the ludicrously worthless and venal political classes. Denial, illogic and magical thinking (the miracle of human ingenuity can solve ANY problem! Wheee!) continue to reign supreme here in America. Thus, while I agree with Allen wholeheartedly in his assessment of the 'problem', I am considerably less optimistic about the outcome of the "solutions".
Many have proven willing to switch to a Prius - few are willing or even able to switch to a bicycle, and that's the level of change - not change, but *convulsive* change [ref: Kunstler] - that needs to be undertaken to avoid a probable outright collapse.
Every non-renewable - oil, gas, uranium, coal - faces near term depletion, especially if we make the huge moves to them that wouild be needed, while attempting to sustain anything close to current usage patterns. Regarding the '200 year' supply of coal - how can so few understand the implicit clause here: "at present rates of consumption"?? Also, the underlying fossil fuel platform is necessary to locate, mine, extract, process and distribute all of these. And environmental consequences, en masse, for many of these 'cures' - like coal-to-liquids, or synfuels - could easily be worse than the disease.
What I'd like to understand is: what part of NON-RENEWABLE, what part of FINITE, do the folks who think we can drill or mine or build our way out NOT understand?
Biofuels also are hugely problematic in terms of ERoEI, scarce land (you wanna eat or drive? or, which nation shal we starve so we can keep driving?) and the fact that fossil fuels supply the feedstocks for Industrial agriculture as it is practiced today.
Solar, wind, geothermal, by all means (I'm not only invested in these monetarily, I am preparing to BUILD them in real life). The primary problem with these is 1) the time they will require to scale (decades), and 2) the cheap fossil fuel platform upon which these, like all 'alternatives', depend utterly to manufacture and deploy.
All these options, combined together *intelligently* (I guess these days it doesn't go without saying), may - *may* - be able to *soften* the blow that is coming, at least in some areas, but at this late date they most assuredly cannot be ramped in time to *replace* - and that fact leads to an ineluctable discontinuity which will manifest itself in the collapse of at least *some* of the systems currently totally reliant upon cheap oil to function (e.g. suburbs, transport, big box retail, agricultural/grocery, computer, pharmaceutical systems, for starters - and did I mention the military?). Once you begin to grasp the degree to which these systems that, to a large degree, comprise that which we call 'society', are interconnected (read: interdependent), you will grasp the fact that collapse of one, or two, or several, means the likely collapse of others, then others, etc - the domino effect, at the least creating a powerfully destabilizing affect across society, with attendant severe political, economic and social dislocations. The same thing that makes networking - interconnectedness - so powerful is the thing that makes it so vulnerable. More on this notion and how it ties into the energy debate here:
anz.theoildrum.com/nod...
You see, what is not clearly understood in the discussion of 'alternatives' to oil is inherent in this misleading nomenclature itself. These technologies are not so much *alternatives* to, as they are *derivatives* of, oil. Try making a PV panel without oil - or a wind turbine. Or cooking oil out of kerogen without vast fossil fuel inputs.
It is difficult to imagine that we could have devised - in full knowledge - a tighter trap than the one in which we find ourselves.
Now add one final straw to this energy camel's back:
To accomplish these things which can soften the blow - to ramp renewables, migrate oil/gas to nuclear/coal/etc as part of a sensible, coordinated transition - and to do it in a way such that the pieces function together and support each other along the way (thus creating new and more sustainable interdependencies): this will cost a truly stupendous amount of money (IEA says $45T to halve CO2 by 2050 - how much more to radically restructure, replacing wholesale the fossil fuel platform which undergirds and interconnects every aspect of our society?).
Not to mention, properly functioning global capital markets, which at the moment seem to somewhere off beyond the horizon.
But we have no money. We are no longer the affluent society we used to be. Has nobody awakened to this fact? America today is like one of the dotcom companies that promised huge profits way off in the future but is flat broke and leveraged up to its eyeballs today and for the foreseeable future. To say that we are broke is not going far enough - we have also bankrupted our children and their children after them in our quest to perpetuate the New American Dream (read: our unsustainable lifestyles). And the very same agency which is primarily responsible for our vast pauperism thanks to nearly a century of reckless disregard - the wildly out of fiscal control, drunken sailor on shore leave federal government [coupled with its best friend the counterfeiting, inflation-generating, purchasing-power-annih... Fed] - is the agency to which so many now wish to turn for succor, the agency with which many plead: 'do something!!'! It has done something. It has, with our willing and often eager participation, effectively destroyed us. That's what happens when you feed the hand that bites you. So to speak.
Nobody Cares How the Energy Crisis Gets Solved
Nobody Cares How the Energy Crisis Gets Solved
I also did not cite conservation as the "real" solution - two straw men in one post, goin' for the record I guess.
But to take conservation off the table - which seems to be the general argument, near as I can tell - in a time of at least *apparent* supply issues going forward (well, if you listen to those dangfool petroleum geologists - but then what do they know compared to us smart investors??), is, to put it mildly, foolhardy.
Whatever happened to the notion that adapting to changing conditions was a wise thing to do, even one of the things that made humans 'masters' of the planet?
I do know this - regarding this astonishing assertion:
"Oil as a natural resource is plentiful in our country -- remove the government/environment... blockades and our increased production of oil will drive prices down for a long time to come."
That's not supported by fact, evidence or data (nor is any provided to back it up). The amount of oil left in this country is either 1) too small to make much of a diff, or 2) too difficult to get to for it to be economically feasible (i.e. ERoEI too low). Lots and lots of info at theoildrum.com and other similar sites.
If you wish to disagree with the majority of petroleum geologists (the ones NOT currently consulting to the international oil companies), then listen to what Matt Simmons, Chairman and CEO of the biggest energy investment bank out there, says. This guy is no 'government scientist' nor 'wacko environmentalist'. Read his 'Twilight in the Desert' for a full treatment. In the meantime, here's a brief item in 'The Economist':
www.economist.com/peop...
Magical thinking is the opposite of critical thinking. Stick to the latter for planning, the former for hoping.
Nobody Cares How the Energy Crisis Gets Solved
Suggest the author stop reading political polemics and begin reading petroleum geologists reports. Should also acquaint himself with the 'law of receding horizons', and other salient aspects of REALITY rather than focusing on the fantasies listed above, to wit: oil shale/tar sands, big oil companies and their profits (the nationalized oil companies now control the market), ERoEI, OCS/ANWR facts, oil rig technology (esp. deepwater) and current availability, etc.
I have to say, this list epitomizes precisely why "we" will not "solve" the "energy crisis" - it's a perfect example of how deeply Americans are in denial, and how lacking in critical thinking skills is our legacy from public schools. To demand simple solutions to incredibly complex problems is not productive.
Note that there is not a SINGLE measure on the list which proposes any sort of conservation, or readjustment to a lower level of per capita energy usage. Astonishingly myopic and utterly fantasy-driven.
Gold and the Demise of the American Dream
The author makes a point - a valid one, IMO - with which the vast majority will disagree - that our 'troubles' started with the vaunted industrial revolution (most would say 'progress' started there - but progress toward what?). Yet, the acceleration of this revolution was made possible only via access to energy-dense fossil fuels - coal, then oil. Which brings us back to bearfund's salient points.
The American public, conditioned into mindlessness across generations by TV and other powerful cultural factors as the author notes, is, has been and will continue to be in denial about the costs of their choices to the point of refusing to accept the consequences of continuing to make these choices. Whether these choices involve electing venal leaders whose only goal is to enrich and empower themselves at the citizens' expense, or chasing after ever more of a fiat currency which is constantly diminishing in value (and has, not just these last few years, but ever since 1913 when the counterfeiting outfit that is the Federal Reserve - the originator of inflation - came into existence), or chasing after an American Dream which is growing daily less sustainable as bearfund argues, I see no evidence whatsoever - aside from a few voices in the wilderness - that this will change. America is far too deep in too many holes and far too deep in denial about the realities of the world to stop digging and start choosing wisely. It's far too late for that.
Gold Losing Its Shine?
This is one of the most astonishingly pollyanna-ish statements I've seen in SA in quite a while. Given that we've still seen less than $500B worth of losses reported out of the financials, and estimates of the sub-prime mess and it's spillovers range from $1T - $1.5T, there are still an enormous amount of losses that have not been flushed out yet, and which could still collapse the whole shebang, Bernanke and cohorts notwithstanding. Do the failures and attendant rabidly anti-free market government takeovers and bailouts of IndyMac (costing 10% of FDIC reserves in one fell swoop) and its smaller brethren, along with Fannie and Freddie, all within the last few weeks, mean nothing to this author? Merrill's accepting 5 cents on the dollar for its CDO's? Hello? McFly?
Is anyone else having a flashback to the Wizard of Oz, with Dorothy closing her eyes tightly and desperately wishing her escape from Oz? That may work in the fantasy genre, but it's a recipe for disappointment here in real life.
For the record, and no offense to Kansans, but for the life of me I could never figure out why she chose a Kansas farm life over Oz...
Which Inflation Is It Anyway?
"We expect continued heavy spending on infrastructure in many regions, and that they could be joined by the US itself post election. The US needs that spending anyway and infrastructure has been proven to be some of the most effective 'make work' money."
I am aware of no proof along these lines whatsoever. This is nothing but Keynesianism - an ideology which insists that economic stagnation and inflation can *never* exist side by side. And yet - we know it does. Thus, the underpinnings of this form of economics is fatally flawed.
Bastiat's 'Broken Window' parable is on target here. Money coercively extracted by the government and spent on 'make work' projects is money that is NOT being allocated by the market, thus represents a reduction in efficiency, and thus a reduction in net productivity, compared to a situation where government did *not* extract and spend that money. This is not a difficult concept, yet it is apparently not understood by those analysts who cheers government spending.
Which Inflation Is It Anyway?
In truth, this has nothing to do with entrepreneurship. It has to do with the fundamental soundness of the monetary system. Have you looked around lately? It is precisely this soundness that is crumbling even as we speak - and for the reasons Simon and other cite, among others - hard to imagine how more blatantly obvious this could be. But let's not bother YOU with facts, either from the daily news, or from history. Facts are, after all, inconvenient things when they get in the way of 'flexible banking'.