Heads in the Sand

I was driving to work this morning listening to MPR and the Marketplace segment featured an interview with a director from the NGO Global Witness that promoted their new report “Heads in the Sand” talking about the coming global oil supply crunch.   “Hey!” I thought to myself, “oil prices have plummeted and gas is cheap again.  What in the hell is this guy talking about?”  Well, not really, but it sounds good and is probably reflective of the thinking (what there is of it) of the American public.

While not coming right out and stating that the global oil supply is finite and that we’re moving into the “lower quality and harder to extract” part of the inventory, the report is pretty stark in what it does lay out:

Governments have not taken on board the four underlying oil production factors which clearly show there is a problem.  Heads in the Sand outlines these factors – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – which clearly show that the world is facing an imminent oil supply crunch.  Some of these factors have been apparent for many years. [1]

Governments and multi-lateral agencies have failed to recognise the imminence and scale of the global oil supply crunch, and most of them remain completely unprepared for its consequences. The report calls for governments to officially acknowledge the crunch and to shift urgently into safe sustainable energy alternatives.

“The world’s governments have been asleep at the wheel. Their collective failure to recognise the imminent end of the oil age means we have lost a decade in which action could have been taken to develop alternatives and avert the worst outcomes of a dramatic drop off in the supply of oil…”

As the gentleman on the radio pointed out this morning, the $147/barrel oil price we saw in 2008 was possible taster of things to come.   We still had some wiggle room in supply then.  What will happen in the future when we are all trying to bid for oil output that only covers 90% of global demand, or 50%?

I’ve taken a necessary break from this blog to focus on other things (work, family, etc) and to recharge my blogging enthusiasm.  No promises on how often I’ll be posting in the future, but please know that this blog is not dead.  There’s too many signs popping up about what the future may bring, and most of it ain’t pretty.

The Naked and the Dead

Matt Taibbi has a great new article in Rolling Stone about Naked Short Selling and how it has been used & abused by the major Wall Street players for some time.  Good stuff and it illustrates a very complex situation clearly, which is a major benefit.

The way these major players manipulate and break the rules is breathtaking.  And the watchdogs haven’t gotten any smarter under the new occupants of 1600 Pennsylvania Ave either.  Considering that the major banks contributed heavily to both McCain and Obama in the last election cycle, this shouldn’t surprise anyone.   Despite the obvious damage being done to the economy at both the macro & micro levels from this white-collar form of pillaging, people aren’t being arrested and laws aren’t being changed at a very fast pace to try and stop this sort of thing from happening in the future.   Some ‘change,’ huh?

The American political process is sold to all of us as a left-right (or liberal-conservative) choice.   How much ‘choice’ do we really have when the same special interests are the major contributors to both viable candidates?

Ten Years

That’s what we’ve got until there is ‘significant risk’ of a decline in global oil production according to the UK Energy Research Council.   We’ve seen lower oil production recently, of course, but the argument can be made (and it’s a good one) that it has more to do with the global economic slowdown versus inability to keep total production numbers up.

The report said the world had used less than half of the planet’s conventional oil, but the remaining resources would be more difficult and expensive to extract.

With exploitation of the world’s reserves running at more than 80 million barrels a day, even major new discoveries, such as in the Gulf of Mexico, would delay a peak by only a few days or weeks.

Robert Gross, of UKERC, said: “The age of easy and cheap oil is coming to an end. It doesn’t suddenly come to an end, but we’re moving to increasingly difficult and expensive oil.”

He said the public should expect to see higher and more volatile petrol costs in the future, with long-distance travel also becoming more expensive.

By 2020 my oldest child will be 18.  By the time he turns 30 he (and all of us) could be living in a radically different world.   The end of cheap petroleum and the end of the global dollar hegemony are just a few of the forces that will reshape the planet in the 21st century.

In the meantime, if you can manage to hold on to your job things won’t be too bad for some time to come.  The economic slowdown has led to less inflationary pressure in the cost of living from what I’m seeing here in the great white north.  Long-term, though, I think inflation is inevitable.  The US government (and most of its citizens) have racked up huge debts that will be very, very hard to pay off, and if you pay attention to what the Fed is doing on Wall Street, it looks to be trying to monetize the debt as much as possible without triggering inflation and/or panic.  The fact that oil prices are not in freefall and gold is showing strength are both votes of no confidence in the dollar.  Combine this with the news reports and rumors floating around about the Gulf states not wanting to deal oil for dollars and stories about having a new global reserve currency and you can see that change is coming… just not the sort that Obama or anyone else promised.

The US standard of living has been based in large part on the ability to offload our debt obligations on other countries that need dollars for global trade.  Once that comes to an end, there will be many debts that will be impossible to repay.  This is a very bad thing in any fiat currency system, which relies on incessant expansion of the money supply to keep going.

The Quiet Coup

Here’s a very good article written by the former chief economist for the International Monetary Fund dealing with how the US has been more or less captured by the financial elites while offering a way out of this mess.   It won’t be pleasant reading to many folks, seeing how the current US economic crisis neatly compares to past ones from countries we would make fun of in the past over their financial improprieties.  If you know people who still think we’ve hit the ‘bottom’ and that recovery is on the way, this article would be a good corrective.

Mr. Johnson’s proposed plan isn’t fun, but it sounds like it would provide the ‘come to Jesus’ moment that this country really needs to start clearing this mess off the books.  Naturally it’s therefore political dynamite to our two major political parties who thrive on donations from the financial sector.

The Quiet Coup

The Hidden Hand of Peak Oil?

Gail the Actuary has another short overview of peak oil at The Oil Drum today.  Great stuff as always from her.  The summary section has the good stuff, and I agree with her assessment that the global peak in oil production helped trigger the financial crisis we’re in currently and that low oil prices reflect a temporary glut in supply due to demand destruction, not a permanent state of cornucopian bliss due to magical new supplies of light sweet crude making it to the market.

For all of the hacks (both political and ‘journalistic’) that are calling bottoms to the equity and housing markets, all I can say is bullshit.  Banks are keeping large numbers of foreclosed homes off the market to avoid further scuppering house pricing.   Likewise, the largest banks are being intentionally opaque with regards to their balance sheets to avoid having to show what levels of toxic crap they’re still holding on to.   It is impossible to truly call a bottom until all of these assets are ‘marked to market‘ and cleared off the books.    That is unlikely to happen willingly anytime soon, so we’ll continue to bumble along in what looks to be a prolonged, jobless ‘recovery.’

Our entire economic and monetary models are based on perpetual growth, therefore we cannot have economic growth without energy supply growth.  Without a real economic recovery starting, we’re stuck in a holding pattern at best.    For those people that can hold on to their jobs, there will be deals to be had in the retail sector as the pool of willing shoppers contracts.   Like everything else happening right now this will be a temporary phenomena.  Eventually we’ll hit some tipping point where we’ll be forced to adapt to the new market conditions.    Whether this will be an immediate result of decreasing oil production or some other trigger remains to be seen.

Time Flies

Life gets busy… really busy at times.   You turn around, and half a year has passed by.

I haven’t posted in recent months for a few reasons.  Mostly because I’ve been really busy at home and work.   For all the pronouncements of immanent economic recovery, I still know more people losing their jobs than unemployed folks finding new ones.  Seeing as I still have a great job, I’ve been working hard to make sure that situation stays the same.

There’s also that issue of burnout.   There are plenty of great sites out there that cover similar topics, and I often felt like I was simply regurgitating and repeating what others were writing versus offering a whole lot of original thinking.   Taking some time off to concentrate on other things has been good for me.   The more I focused on the subjects this blog covered, the more negative I would be in other parts of my life.   I’ve been able to recharge my batteries, so to speak, and it’s felt good.

In the last year I’ve been focusing more on economic issues rather than straight peak oil and sustainability.    As other bloggers are noting, peak oil has changed a lot.  Before, it was assumed that the increasing cost of dwindling supplies of oil would sooner or later hamstring the global economy and we’d all be screwed.   As it turns out, we’ve managed to make a hash of the global economy all on our own, and as a result we’ve curtailed oil usage to a degree that has bought us some breathing room to adapt to different energy technologies as well as different patterns of daily life.  The end result is still the same:  lower standards of living (in both energy and economic terms) and massive debts for the common person.   The difference is that there won’t be the catastrophic ‘liberal apocalypse’ that some peak oil proponents have written on endlessly for the last five years or more.   Instead we’ll see more of a gradual lowering of living standards and unwinding of many components of the global infrastructure as we slowly fail to keep more and more parts of them operational.

The fact that our economy is badly hurt shouldn’t be news to anyone, so I fail to see the point in writing about that fact several times per week.  If your eyes are open, it’s obvious.   I have better things to do that continue to harp on this stuff, and you’ve got better stuff to do that read the same, re-hashed crap multiple times.

Two interesting posts that did catch my eye recently:
Devolution: 20 Predictions

Spin Economics

I’ll try to post ever so often as the muse dictates.   In the meantime, I sincerely hope that all of you are doing as well as you possibly can, and are making your own plans to adapt to the coming changes.

The Global Depression Scenario

I’ve been way too busy with work, family, etc. to do much original thinking about current events, so I’m passing on interesting things I find on other blogs.  In that vein, here’s a short piece by John Robb of Global Guerillas discussing how the ‘global depression’ scenario is becoming the most likely one in his thinking/modelling.

For my part, I’ve been reading and watching what President Obama and his economic team are proposing to do, and it seems very similar to what the last regime did.   Keeping the global money game going by sticking it to taxpayers does little to reduce the mountain of debt we are accumulating… all it does is shift the burden away from the bastards that did much to facilitate this crisis in the first place.    I’m starting to believe more in the line of thinking that the US may be screwed, but the rest of the world will be screwed even more than we are.   There aren’t enough euros, pounds, yuan, gold, or any other financial instrument in the world to soak up all of the trillions of dollars floating around out there.

How this all will shake out is beyond me, but eventually there will have to be a global reset of one sort or another.  Until that happens, it’ll be Groundhog Day redux… another month or two passes, and another round of bailouts is proposed… rinse and repeat.

The Coming Nationalization of the Big Banks

Interesting commentary at Jesse’s Cafe Americain this morning regarding when (not if) the major US banks will be nationalized.   While not naming names, the author indicates that the major problem is with the big banks (Citibank, Bank of America, Chase, etc.), and until those banks are truly inspected and cleaned out, we will continue throwing bad money after worse money.

The big banks will, of course, claim this will lead to economic armageddon, and it ,may do so for them personally I suppose.   Much like an overgrown forest, though, you need a big fire once in a while to clear out the dead wood and create the opportunities for new growth to take root.     Won’t be pretty or fun, but it is necessary.

Another Reason to Plant a Garden This Year

Consumers may pay more for spring lettuce and summer melons in grocery stores across the country now that California farmers have started abandoning their fields in response to a crippling drought.

link

This reminds me of Kunstler’s rant about the ‘3,000-mile salad.’   We rely on areas like California’s Central Valley for fruits & vegetables more than most Americans realize.  Economies of scale are great when they work in our favor, but the flip side is that when these huge farms fail to deliver the crops we expect from them, we have few other options to explore.

This is also starting to bring water resource conflicts to the front of the news as well:

With such a grim outlook, many California farmers including Giacone are investing millions to drill down hundreds of feet in search of new water sources.

Depending on how much it rains this winter, federal water supplies could be slashed down to nothing this year, forcing farmers to rely solely on brackish well water. But the U.S. Bureau of Reclamation won’t make an official decision until late February, said Ron Milligan, the agency’s Central Valley operations manager.

Since it isn’t raining, farmers that are trying to stay in business are drilling further and further down to find & drain underground reservoirs.   For those that may not know, the term ‘brackish’ indicates that there’s more salt in the water than in normal freshwater, which means that in order to survive, the farmers are increasing the salinity in their fields by irrigating from this source… extracting perhaps more yields over the next few years but drastically reducing the long-term fertility of the fields.

It’s been a cold winter here, but one of the things I’m thankful for is that I live in a state with abundant fresh water… assuming we can stop polluting it.

Hail to the Chief

It’s been a busy January for me, so I apologize for the lack of posts.

Today is a momentous day in America.  We inaugurate a new president.  He’s well-spoken, educated, telegenic, has an attractive wife, two cute kids and a mandate for change.   The main differences from past presidents?  The color of his skin and an exotic name.

If nothing else, Obama’s installation as president should give hope to every child that they can achieve pretty much anything they want to if they are willing to work hard enough to get it.

I approach today’s transfer of power as a good thing and as a historic event, but without the sense of jubilation that many in this country have.   I’m very glad to see Bush gone.  From the standpoint of the average American citizen, his policies have ranged from mediocre to terrible.  The best thing one can say about his administration is that there was not another terrorist attack on US soil after 9/11.  How much of that is due to his policies is a matter open for debate.  With Obama as president, it will be hard for him to not improve foreign relations with most of the rest of the world.

My main worry with the incoming Obama team deals with the economy.  We’re still in serious trouble here, and I don’t think continuing to shovel debt at the problem will work.   That is the approach being forwarded by the Obama economic team, though.   We may see a short-term economic bounce, but over the longer haul I don’t think it will have lasting effect.   The measure of the man will be in how fast Obama recognizes this and changes policy because of it.  If he follows the Bush/Paulson plan of just continuing to throw bad money after worse money, then I will be sorely disappointed.    I voted for Obama because under all of the ‘change’ claptrap he seemed to be thoughtful, intelligent, and pragmatic.  If he cannot break out of the Keynesian economic approach if that fails to work, then we’re all in for a turbulent ride.

I fear that the historic impact of Obama’s election may be swept away by both current events and extremely elevated expectations for his administration.  Some folks are simply happy to have a new face in the White House while others seem to be expecting that we’re all going to have  our money problems magically go away and we’ll get a free pony to boot.  We have dug ourselves into a deep hole, and getting out will be long, hard and messy.

Those are worries for another day, though.  For today, I’m content that the old regime is being swept out and we have a chance to move forward in many areas.  Enjoy the day.