Back to Doom & Gloom

Hope you all had a nice holiday weekend… now back to regularly-scheduled programming…

Very interesting blog post by Charles Hugh Smith here, discussing the impending recession/depression/whatever that’s coming our way.   The slow death of the FIRE economy like a slow-motion tragedy of sorts, and it has yet to truly affect many American households.

Happy Thanksgiving

No ‘doom & gloom’ today… plenty of time for that coming months.

Today I’d just like to wish everyone in America (and elsewhere) a Happy Thanksgiving.  Hopefully you’ll be able to spend some time today with the important people in your life and reflect on what you can be thankful for in your life.  That’s what I’ll be doing today… along with drinking some good beer and watching some football later today.

Some Quick Math

Ouch

Citi Will Not be the Last Bank Bailed Out…

More bailouts for large banks, and more burden put on taxpayers… Happy Thanksgiving!

The government has guaranteed around $300 of bad debt in Citibank and has also given them $20 billion in a direct capital injection.  And, from the sounds of it, this will not be the last bailout of this sort.  From the linked article:

Citi and the US government made it clear that the Citi arrangement would be extended to other banks that pose risk to financial system stability, if need be. That is why the arrangement included broad swathes of Citi’s assets but was not tailor-made to suit Citi alone.

Anyone else think the other major banks aren’t going to line up, hands held out, asking for similar treatment?   This is particularly interesting coming right after Congress showed some spine and told the Detroit auto makers to get a valid plan in hand before coming back to ask for funding.  If there were any doubts about what the pecking order is with regards to who gets money from DC, this should help clear things up.

Looking at the largess being handed out right now, I can’t wait to see what kind of stimulus package will be delivered to Obama when he takes office in January.  Anything south of a trillion dollars or so won’t be seen as game-changing I’m thinking.

Why Rioting in China is a Risk

This quote says it all:

“The whole area is under curfew,” a local official who declined to be identified said. “Any groups of more than three people will be beaten without mercy.”

Not arrested, not detained… just beaten.

Any thoughts that China will be immune for the economic flu that is infecting the rest of the world should be put to rest.  The Chinese have some advantages, but they have a number of disadvantages as well.   There are rumors out there that Chinese electrical usage is dropping fast, which indicates less economic activity.    A bad retail holiday in the states could be an unhappy new year in Asia.

Why Obama Won’t Worry About the Deficit Next Year

We’re already screwed.

Why the Credit Crunch Matters

I just added London Banker to the blogroll…

This is an excellent summary of why the global credit crunch will sooner or later unleash havoc if the powers that be cannot get it under control again.

If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn’t go to the refinery, there is no plate steel. If the plate steel doesn’t get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don’t buy. If the consumers don’t buy, there is no Christmas.

Everyone along the supply chain should worry about their jobs. Many will lose their jobs sooner rather than later.

If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall.

Everyone along the supply chain should worry about their children going hungry.

When that happens, everyone in governments should worry about the riots.

Fiat currency is attractive to governments because it is based on nothing other than goodwill and a firm belief that it is worth something more than a scrap of paper or bytes in a database.   If need be the supply can be expanded more or less at will, and it can be contracted again for a variety of reasons.    This ability to create cash out of thin air becomes addictive to large governments, as our burgeoning national, state and local government debt loads can attest to.

The dark side of the ease with which we create money is that it is a debt that needs to be paid sooner or later.   Greed causes men and states to issue more & more money.   Creditors start to wonder how likely they are to be repaid, and how much those funds would be worth.  Trust erodes, credit dries up, and the system starts to experience stress.   As London Banker points out, this is a somewhat abstract concept when it revolves around Wall Street gaining or losing a certain number of points on any given day.  It becomes a lot more concrete when you start wondering how you’re going to feed your family or pay the mortgage.

President-Elect Obama appears to be signalling that he’s preparing to flood the monetary system with liquidity if necessary to jump-start the economy again, much like FDR did back in the 1930’s.   Whether that would work or not is a matter for discussion.  I personally have my doubts, but I’m no expert when it comes to such things.

Some commentators are already starting to call a bottom for the market.  I think it’s way to early for that, personally.   Maybe I’ll ask Santa for some 50-pound bags of rice…

Not Throwing Fuel on the Fire

Interesting open memo by Hirsch Report author Robert Hirsch, in which he more or less tells peak oil proponents to shut up… at least for a while:

TO THE PEAK OIL COMMUNITY:

The world is in the midst of the most severe financial crisis in most of our lifetimes. The economic damage that has already been wrought is considerable, and we have yet to see the bottom or the turnaround. Against this background, I suggest that the peak oil community minimize its efforts to awaken the world to the near-term dangers of world oil supply. The motivation is simple: By minimizing our efforts in the near term, we may not add fuel to the economic fires that are already burning so fiercely.

We are all aware of how disoriented governments and business are right now. Our leaders, leaders-to-be, and best minds are disoriented and seeking pathways out of the current morass. The public is in a quiet panic mode — those who were reasonably well off are less well of, and their options for action are limited. Those that have lost their jobs and/or homes are desperate. Businesses and the markets are in what might be called a free fall. If the realization of peak oil along with its disastrous financial implications was added to the existing mix of troubles, the added trauma could be unthinkable.

Like many of you, I’ve devoted my recent efforts to trying to wake the public and governments to the impending horrors of peak oil. As much as that awaking is urgently needed, continuing to press forward now is almost certainly not in the broader interest.

Many may be tempted to directly challenge the recent IEA World Energy Outlook. I am among those who were very disappointed. Pressing those concerns at this time might further the peak oil “cause,” but it could well do much more damage than any of us really intend.

Please keep up your studies and thinking, because helping the world realize the dangers of peak oil is an absolute must. In the near term, keeping relatively quiet is likely the better part of valor.

Mr. Hirsch has a point… many people are freaking out right now about losing their jobs, houses and means to secure food & other essentials for their family.   Hammering home the point about declining output of global oil production is only going to make those people freak out even more.

An imperfect analogy would be to go back to the last time the world’s economies simultaneously went into the shitter… back in the 1929-39 timeframe.   One of the things that dragged the world out of its prolonged economic slump was the breakout of World War II.  Global war is at least part of the ‘added trauma’ Mr. Hirsch is referring to.   War can be a very effective way to jump-start the economy, mobilize the populace and also thin out the number mouths to feed somewhat.  Our modern forms of warfare are particularly effective at this.

I have no desire to see the globe plunged into another cycle of global warfare if it can be avoided.  I usually limit my peak oil screeds to this site and a few other online fora… so I’ll just continue to do that.  There will be plenty of time for illuminating others down the road.

HT:  Energy Bulletin

IEA Publishes World Energy Outlook 2008

The IEA has put out their World Energy Outlook for 2008.  The whole document can be had for about 150 Euros if you like, or there will be plenty of in-depth analysis at places like The Oil Drum and elsewhere.

Here are a few key points to ponder…

Per excerpts from the Guardian:

The agency says there is enough oil to support rising demand and output, with proven reserves of up to 1.3tn barrels – or enough for 40 years – and potential reserves of as much as 3.5tn barrels. But it says the increased output “hinges on adequate and timely investment”.

I’m sure that will be no big deal in our current financial dilemma…

And another:

Up to 64m barrels a day of extra gross capacity – the equivalent to almost six times that of Saudi Arabia today – needs to come on stream between 2007 and 2030. Almost half of that is required by 2015, with an extra 7m barrels a day over current plans approved within the next two years “to avoid a fall in spare capacity towards the middle of the next decade”.

(emphasis mine)

Say what?   We are jumping up and down when we find fields capable of punching out 100,000 barrels per day, but to keep up we will need to find multiple fields capable of putting out over one million barrels of high-quality (read: relatively light & sweet crude) per day?   How is this possible?  Does anyone truly believe that the outer US continental shelf or the Arctic will produce enough oil to meet this expected demand?

Burn ‘Em if You Got ‘Em

As you may have heard, Circuit City declared bankruptcy today… they are not the first retailer to have issues this year (see: Linens ‘n’ Things, Sharper Image, among others).   I doubt they will be the last either.

Here’s some free advice:  don’t buy gift cards as gifts, and if you have some on hand, use them now.   One of the first things that happens when a retailer goes bankrupt is that gift cards usually become worthless.

Circuit City is still honoring cards for now, though how long that practice lasts is anyone’s guess.   As the linked article indicates, the retailer will have to get approval from the bankruptcy court sooner or later, and since gift cards are considered unsecured debt, they will probably be close to the top of the list of things that gets axed.