Tuesday, December 25, 2007

90 Days Later

Merry Christmas, as Ambrose Evans-Pritchard warns the entire world that the banking problems "could make 1929 look like a walk in the park." The global financial system has thankfully not imploded - yet. But as Richards notes, "lenders are hoarding the cash, shunning peers as if all were sub-prime lepers." The more that the central banks pump into the system, the more cash the largest banks are holding, refusing to lend to anyone else except at extreme rates. Basically the largest banks, with access to central bank lending windows in various countries, are holding on to cash to protect themselves. In other words, the largest banks do not believe what Bernanke and his European central bank friends are saying - that liquidity is the problem. Liquidity is not the problem here. The real problem is that we still do not know who is insolvent and who is not. Bernanke and friends are covering up bad business practices but some of these banks must go out of business due to being insolvent from bad business practices.

Meanwhile the economists are also fighting inflation, citing unusual rises in energy and food prices. There appears to be no awareness that non-monetary issues may be at play here. So they believe they are facing two opposing forces - inflation and deflation. They fear deflation the most but must pay lip service to fighting inflation or everyone will see the central bank scam for what it is, a cartel that enriches its members by constantly inflating the money supply. But this cosmetic necessity, paying lip service to fighting inflation, is preventing the central banks from lowering interest rates further. Thus they are in a box canyon of their own choosing, which may now destroy them and take down the modern economy with it. The full quote from Pritchard's article actually comes from York professor Peter Spencer, chief economist for the ITEM Club. "The central banks are rapidly losing control. By not cutting interest rates nearly far enough or fast enough, they are allowing the money markets to dictate policy. We are long past worrying about moral hazard," Spencer said.

On the climate front, we have seen more urgent calls regarding climate change, yet at the same time the deniers continue to deny that the climate is even changing or have begun to change their tune to saying that it's not humanity's fault. Gee, the deniers were wrong before so why should I believe their new stance is right now? Same old deniers, new song. Go review the history of the most vocal deniers. These are the same people who were funded by large corporations hostile to climate change legislation and who claimed there was no warming occurring. Their revised stance is now that warming is occurring but that it is natural. One sees this sort of denial and one hopes there really is a hell, just so that there can be a special place for liars who place their own financial gain ahead of the lives and safety of hundreds of millions of people.

Even so we continue to see weird effects beginning to pile up. Again, fortunately, nothing major occurred this fall but the ripple effects continue to mount, especially effecting global grain production. Shortfalls this year, largely due to climate change in Australia, and "bad weather" elsewhere are leading to lower than normal grain harvests while consumption continues to rise due to population growing.

Petroleum continues to behave fairly predictably. Robert Rapier appears poised to win his bet that oil would not hit $100 this year but it was close, closer than he wanted to see. And Robert won't go near that bet for next year. He knows, like all of us, that we are in a supply crisis. Robert still believes peak is a few years away while I still believe that peak C&C was May 2005 but the difference is not going to be much in the long run. The world is still on plateau though the last few months saw new preliminary "all liquids" totals. Matthew Simmons believes this is the result of gas caps being blown off world wide as the production of NGLs is up significantly over that time. If Simmons is correct, then the forecast made by Ace looks more and more reasonable, with serious declines beginning by 2009 and becoming obvious to all by 2011.

We again face a winter hanging in the balance. Odds are good that this winter won't be excessively cold but you never know. Climate change is primarily about change, driven by the overall warming but that doesn't mean that specific regions can't experience colder weather for part of the year. The larger than normal snowfalls of recent years have been due to more water vapor in the atmosphere, a direct side effect of warming. My personal expectations, which could be very wrong, of course, are for lower US demand after Christmas going into 2008 allowing global prices to stabilize or even decline slightly. If the last few years are any guide, we'll see the bottom of the oil price curve in mid to late spring followed by a relentless climb back up. Next August through October should see us well above $100 per barrel barring economic collapse.

Personally, I will be buying oil futures in the spring with an eye towards the late summer and early fall price increases. This has been a fairly safe and consistent play for the last few years and I have no reason to expect it to be otherwise this year, unless Bernanke and friends cannot hold their game together. And if that happens, all bets are off anyway. I've accomplished some additional preparations for myself and my family over the last 90 days but there is always more to do. January is right around the corner and I will need to be getting my seed orders placed and seedlings started for March/April plantings here in Texas. This year when my seedlings go into the ground, they'll be 4-8 weeks closer to maturity than last year. I also have decided to add 3 additional raised beds to my current set. That's a good bit of labor but my youngest son has volunteered to come over and help me with that task.

Again, I urge each of you to do what you can to be as prepared as possible for problems. The world is on a collision course with population growth and the effects of population growth. Climate change, peak oil, other resource scarcity, loss of arable farm land, depletion of water tables... these are all symptoms of the real problem. Add in that our false economic system is trying to implode under these pressures as well and things do not look good.

I wish each of you a happy holiday season. Enjoy the company of friends and family but do not delay. Time may be running out on us even as we celebrate.