Into the Grey Zone

Watching Japan

2011-03-16T18:47:00.000-05:00

Japan puts us all in an interesting situation, even if you don't live in Japan. While everyone is focused on the nuclear accident, the true global forces at work here are economic. Once the nuclear situation is stabilized, and it will be eventually though the damage in the interim may be horrific, Japan is going to have to rebuild. And depending on the extent of that rebuilding, the entire world may undergo a seismic shift in trade patterns.

The problem that everyone is ignoring is that Japan will need more yen for the rebuilding effort at home. Thus they will have to repatriate yen from overseas in order to achieve this goal. But in order to repatriate (buy) yen, they are going to have to sell something else. And given the scope of this disaster, the most likely candidate becomes US Treasuries.

Now many of us are already aware that the Federal Reserve and US Treasury are flooding the existing market with US Treasuries. In fact, the Federal Reserve is having to buy more and more US Treasuries in order to keep interest rates low. If the Fed were not buying, interest rates would already have spiked upward, forcing the US to pay even more interest on its debt.

Into this market Japan is also going to be forced to sell. You can't assume they'll sell someone else's bonds. No, they don't have enough of anyone else's bonds to raise the money they need to rebuild. That number is already estimated at over $300 billion with higher end estimates as large as $1 trillion US dollars for rebuilding costs.

The only pool they can tap large enough to fund this rebuilding is their holdings of US Treasuries. Yet with the Obama administration's record deficits coupled with Japanese selling, we will begin to see upward pressure on US interest rates. As those interest rates rise, the money available to the US government for non-interest expenses will drop even further, forcing more borrowing and even higher interest rates. Eventually interest expenses can get so high that they bring this entire house of cards down.

Thus, Japan's disaster may become a trigger event leading to the eventual collapse of the US dollar and of the US government. It won't occur immediately, and indeed, in the short term the dollar may manage to make another good stand as a "flight to safety" investment. But it cannot last so long as the twin burdens of US deficit spending and Japanese rebuilding loom in front of the US dollar.

Keep an eye on this one. We may be on the verge of taking another significant step down the staircase of catabolic collapse.

The Poison that is Public Sector Unions

2011-02-19T10:38:00.000-06:00

"The process of collective bargaining, as usually understood, cannot be transplanted into the public service," President Franklin D. Roosevelt wrote in 1937 to the head of the National Federation of Federal Employees. In the private sector, organized employees and the employer meet across the bargaining table as (theoretical) equals. But in the public sector, said FDR, "the employer is the whole people, who speak by means of laws enacted by their representatives in Congress." Allowing public-employee unions to engage in collective bargaining would mean opening the door to the manipulation of government policy by a privileged private interest.

FDR was right. Collective bargaining has no place in the public sector. It inevitably leads to abuse. Favoritism, undue influence, lack of transparency, manipulation of government policy, the relentless mulcting of the taxpayer—this is the poisoned fruit of turning government agencies into union shops. It goes without saying that public employees ought to be as free as anyone else to join professional associations and affinity organizations. They are certainly entitled to all the protections of the civil rights laws and of a reasonable civil service system. But labor unions should have no right of exclusive representation in any government workplace and no right to negotiate wages and benefits with public officials who crave their votes and political support.

The above was written by someone other than myself but it sums up my views succinctly. There is more though. In 1943, a New York Supreme Court judge held:

To tolerate or recognize any combination of civil service employees of the government as a labor organization or union is not only incompatible with the spirit of democracy, but inconsistent with every principle upon which our government is founded. Nothing is more dangerous to public welfare than to admit that hired servants of the State can dictate to the government the hours, the wages and conditions under which they will carry on essential services vital to the welfare, safety, and security of the citizen. To admit as true that government employees have power to halt or check the functions of government unless their demands are satisfied, is to transfer to them all legislative, executive and judicial power. Nothing would be more ridiculous.

And look today at what has happened - an entrenched group of people, demanding your money, but who work for you threatening to shut off essential services to you and your children after deliberately conspiring with politicians whom they helped elect to avoid imposing fiscal sanity that you wanted done via your vote.

In short, the public sector unions are doing nothing more than acts of sedition and treason against their fellow citizens by their actions in Wisconsin. Further, the president of the United States is engaged in an act of sedition, which is impeachable, for his intervention in a sovereign state matter.

This is what the end of empire looks like - leeches sucking your blood and refusing to even let you remove the leech, all the while proclaiming (LIES!) that it is for the "good of the children" while their actions directly harm the very children they claim to protect. The stinking, foul, gross hypocrisy of the public sector unions and the Democrats in Wisconsin is further evidence of why this nation will go down in flames. And have no doubts whatsoever, the things the public unions are demanding in Wisconsin are mathematically impossible to support short of turning your children, your grandchildren, and their children all into perpetual slaves to debt. This is what the public sector unions really want - eternal debt slavery to anyone not in their union.

The line is drawn in the sand, folks. It's time to end public unions entirely.

It's called Catabolic Collapse

2011-01-05T14:38:00.000-06:00

In a recent discussion at zero hedge over a post titled Is The Collapse In FX Reserves Even More Dangerous Than The Plunge In Money Supply?, I saw someone saying he expected our society to fall in a staircase fashion. That led to the following post.

The term you are seeking is "catabolic collapse" (Warning: PDF!). John Michael Greer proposed this theory in 2005 building on the work of Professor Joseph Tainter, whose initial theory attempted to frame all societal collapses in terms of diminishing marginal returns against increasing complexity. Tainter's theory was arguably a first solid understanding of how societies collapse but it did not quite mesh with temporal observations. Greer's work is an effort to take Tainter's theory and further adapt it to the observed behavior of past civilizations that collapsed, in order to yield a theory with some predictive powers (basic science - observe, hypothesize, test with an objective of falsifying your own theory).

There have been many attempts to explain the increase in debt and money supply over the last 40 years, but the one that comes closest to addressing this was first mentioned (to my knowledge) by Nate Hagens, and proposes that the increases in debt and money supply are an effort, using fiat money, to continue the rates of growth that occurred when human population was lower and resources were far more abundant than now.

We have not yet quite reached the point of real resource constraints biting us but we are beginning to see this as it takes more and more real energy to draw on increasingly lower quality ores, petroleum, natural gas, etc. As we approach the point where energy cost of extracting resources like oil to be used as energy sources becomes 1:1, the cost implications for everything else in society rise in response. Now the last I checked, we were somewhere between 5:1 and 10:1 in terms of energy returned versus energy cost (EROEI - Energy Returned On Energy Invested) for coal, oil, and natural gas extracted. That doesn't sound too bad except when you realize that just 70 years ago the ratio was nearly 100:1. And the change is due directly to having to drill/dig deeper into harsher environments (Deep Horizon anyone?) which themselves have higher operational costs and significantly higher dangers.

Eventually, any energy "source" which falls to 1:1 or below no longer is worth extracting for energy. That's basic physics and economics can blow its non-scientific ass all it wants but physics will win that argument every time. The longer term problem facing our civilization is a need to transition off fossil fuels (not right this second) and to replace those energy sources with energy sources that have EROEIs that are higher, if possible. Down that road is going to lie a mix of nuclear fission, nuclear fusion (maybe), solar, wind, tidal, etc. And those energy sources require higher levels of technical complexity than fossil fuels required.

So the transition has to be upwards to a higher level of social and technical complexity or we get the alternative - collapse. And right now, the vampire squid and entities like it seem more interested in ensuring we do collapse than really addressing the problems and contributing to longer term solutions. Of course the fact that we give corporations "personhood" before the law, yet corporations are legally mandated to act in ways that would mark a living breathing human being as a sociopath probably contributes to our entire social schizophrenia.

This goes back to a position I've taken for years on the internet about our future. I firmly still believe that every technical problem we currently see in front of us can be solved. The real problem is whether we will have the political and individual willpower to force change before collapse occurs. Because if we wait until after collapse occurs, we may just fall far enough down the technology tree that we can't get back to where we want to go. Sir Frederic Hoyle once remarked that technological civilization is a one-shot affair. If we blow the initial endowment of easily accessible ores and fossil fuels, those won't be replenished for millions of years. We either get this right or our entire civilization takes a step down. And right now, in every government around the world, we are twiddling our thumbs trying to preserve the status quo. Right now, more than ever in my opinion, we need less government meddling in markets precisely so the markets can send honest price signals about everything. Subsidizing anything needs to stop, including subsidizing fossil fuels. If the market price of fossil fuels were fully realized, we'd all begin to change our lifestyles pretty quick and begin to look at alternatives at the same time. But as long as we try to preserve the status quo, the market is prevented from sending the real price signals that something is amiss and needs to change.

The Financial Crisis was NOT caused by Peak Oil

2011-01-05T14:34:00.000-06:00

Personally, I mark the "public" moment of this financial crisis to July 2007, when two Bear Stearns hedge funds were both completely wiped out. Neither had anything to do with oil or oil trades. Both were highly leveraged funds that were simply in way over their heads. And those funds were symptomatic of the entire financial industry at that time.

The signs of the impending collapse had been building for a while. A few people had been pointing to the "Greenspan bubble" as early as 2005. I freely admit that I missed those calls in the 2004-2005 period but I won't deny that some people did make them. And that was well before oil prices spiked. So the fix was in long before.

The Greenspan bubble (or the last Greenspan bubble) came in response to the dot-com bust which was caused by the prior Greenspan bubble. See a pattern here yet? That prior Greenspan bubble happened during the era of $10 oil. Peak oil didn't burst that bubble either. The bubble popped because all such bubbles pop. And the reason it popped was nothing to do with oil prices and everything to do with herding behaviors as the herd recognized in a very short time frame that they had been sold a bill of goods.

Likewise the current bubble burst as toxic mortgages began failing causing the MBS based on those securities to fail, leading to catastrophic losses, starting with (for example) some of those hedge funds I mentioned. Again, this had nothing to do with peak oil and everything to do with herding behavior, as the holders of MBS began to realize that these securities would never pay back the capital invested in them, let alone the interest promised. None of these people cared about peak oil or were formulating positions based on peak oil. They were simply interested in recouping their capital and hopefully their promised profits, but if not, at least their capital. Instead they suffered massive losses of capital and zero profits because the financial instruments involved were created deliberately as acts of fraud by the banks that created them.

Did Peak Oil cause the Great Depression? Did Peak Oil cause the dot-com bust? Did Peak Oil cause the Tulip mania? Did Peak Oil cause the large recession after the Civil War? If it did not (and it did not, trust me) then why should I believe that "this time it's different"? The onus of proof is on those making the extraordinary claim that Peak Oil caused this recession. Yet I have never seen real proof that this is so. Sure, you can point to some correlations between oil price and financial crisis, but I can point to correlations of oil price and prior financial crisis before oil peaked in North America. Correlation is not causation. To establish causation requires a whole lot more work than just plotting a graph showing correlation and then proclaiming "See!" And that, so far, is all that anyone has done.

Peak oil will place a hard cap on the scope of recovery of the global economy, since the global economy is based on fossil fuels (primarily oil). That hard cap will limit and frustrate all political responses to the financial crisis and in the end, peak oil may be part of the cause of the fall of some governments over the next few decades. The natural limits to growth that we are approaching are going to affect us. Those limits were already impacting businesses that deal with energy and will slowly creep out to impact all of society. But peak oil did not cause human greed to run rampant. And peak oil won't stop human greed from trying to run rampant yet again someday. Remember that.

Belief Systems

2011-01-05T14:32:00.002-06:00

One commenter over at The Automatic Earth was recently disparaging comments he read over at Zero Hedge. I began a reply but it became long enough that I felt it better placed here instead.

A general assumption made by many posters at TAE (but not by I&S as far as I can see) is that the old ways of thinking about things are inherently wrong, therefore any comment based upon that line of reasoning must be "stupid". Unfortunately, no one has demonstrated conclusively which old ways of thinking are wrong, nor has anyone demonstrated how they are wrong, which means these people are simply "assuming", and we all know what is said about assumptions, right?

I prefer personally to read the comments at ZH (or at any blog or forum) as an exploration of the lines of reasoning that result from certain ideologies. Socialism is not wholly wrong and neither is capitalism, but I can demonstrate failures of each ideology that, because these failures have never been addressed, must inevitably lead to the collapse of any culture based upon these ideologies. Indeed, if these failures were addresses, the new resulting ideology would no longer be capitalism or socialism.

One of the core problems gripping economics, and by extension politics, is that neither school adheres to the scientific method. There are all sorts of excuses made as to why this is so, but the consequence is that schools of economic thought and schools of political thought instead become belief systems, predicated on faith. For many people, their economic and political beliefs today are the replacement for the religious faith of 1000 years ago. After all, these political and economic beliefs bring home the bacon and therefore should be defended, right?

A good scientist, on the other hand, would be actively looking for ways to falsify his hypothesis. Krugman, for example, has been slapped repeatedly with data that, if he were really a scientist, would cause him to throw out his old thesis and begin formulating a new one that matches available data. Instead, he either excuses or attempts to twist the data as support for his never changing position.

The disparaging comments at TAE towards anyone who does not tow the general party line are themselves just as bad as the "Glenn Beck" comments over at ZH. These disparaging comments indicate to me that someone is not fully comfortable with their own "faith" and therefore must attack competing "faiths" with disparaging comments in order to bolster their own "faith".

This is what I find so refreshing about Stoneleigh and Ilargi - they approach the topic not from the perspective of belief systems but in the same mode as scientists trying to apply observation of human behavior to human societies. I often suspect that this is at the root of many of Ilargi's questions, trying to make someone think rather than just believe. Stoneleigh's focus on herding behavior is a refreshing perspective versus the circular logic of most modern economists.

In closing I suggest observing all sorts of groups of people, in an effort to learn where their belief systems map to real data and where their belief systems fail to map to real data. Understanding how someone's beliefs map to reality is the first step in learning to really talk to and listen to that person. And surviving the coming crisis means either killing your competitors for resources or learning to talk to them and working out a cooperative alternative. While I am armed and prepared to defend myself, I'd rather understand the fellow down the road, whether he voted for Sarah Palin or Barrack Obama, as understanding is the first step towards cooperation.

A Flaw in the Hyperinflationary Argument

2011-01-05T14:30:00.002-06:00

People assuming hyperinflation are assuming that the cash injected into the system will be spread equally or nearly equally, resulting in competitive bidding with more dollars for the current pool of goods and services. I believe this assumption to be in error.

It is my opinion that the cash being pumped into certain hands is being pumped deliberately into those hands in order to change the ratio of wealth in the country. In other words, it's being used purely as a wealth redistribution mechanism.

Imagine for a moment if there are 10 people in a room and each has $100 and there are a fixed amount of goods in the room held by each person. Prices will balance out between people at some level. If I give each person another $100 then prices will rise to reflect the decrease in the value of the currency.

But if I give $1000 to one person, prices are unlikely to rise much at all. If I raise prices on my goods, the other 8 people (aside from myself) won't be able to afford them. And I can't legally charge higher prices to the one person. That $1000 is inflationary but far far less inflationary than a roughly equal distribution of the same amount through the general population. Yet the person with the additional cash now can purchase more than the rest of us. In effect, he has become wealthier while we have become poorer.

This is what I believe is the intent of the current financial policies of the central banks today - to further entrench the wealthiest people at the top of the pyramid. This process can never be hyperinflationary unless the excess cash escapes into the general populace. And I doubt that it ever will. Instead it will be used to manipulate and buy the stocks and major resource flows of the world, placing the elite in even more control of our society.
And of course, this leaves the door open to mistakes by the ruling elite that can lead to a deflationary collapse. Unless Helicopter Ben actually gets in a helicopter and starts dropping $100 bills around the country, there cannot be a hyperinflationary blowoff under the current credit/debt conditions.

P.S. Note also that Ben can also lose the devaluation war if Japan and Asia choose to devalue faster than he does. And Ben is bound by practicality in that if he devalues too fast, he destroys himself and those he is trying to protect due to the reserve currency status of the dollar.

How do we fix it?

2011-01-05T14:29:00.000-06:00

How do we fix it? This is a question I hear over and over again. People want to know what regulatory reform to take, what laws to pass, what criminals to prosecute, all in order to "fix" the system. Another variant to this question is "How do we undo the damage done so far?" Each of these questions assumes that the system continues as-is, that is to say, broken, or that the system gets fixed. In posing the question, the biases of the questioner are exposed. I'm not suggesting malicious intent on the part of those asking these questions, but rather culturally imparted ignorance of the alternatives.

Here is wisdom for those who would listen - as far as the system goes, the nation, the culture around you, do nothing! The unspoken alternative that cultural conditioning tries to eradicate from our thinking is collapse. When we say collapse too many ignorant yahoos think Mad Max. Collapse, as defined by Tainter is the unplanned move from a higher level of complexity to a lower level of complexity. Tainter does note that very rarely throughout history there have been a few voluntary moves from higher complexity to lower complexity. But the reality is that most of the time humans will not willingly choose to lower the complexity of their cultures. Thus the most common historical occurrence is collapse.

What does collapse mean in practical terms? For an example of a nearly fully collapsed state, look at Somalia. You can also look at Argentina and several other nations that are partly collapsed. As Tainter notes, when there is a large polity whose vested interest is in maintaining the status quo, the other states in the polity that have not yet experienced collapse will not allow a neighboring state to collapse completely. Yet as the limits of complexity along one path of development are reached, the neighboring states find themselves unable to restore a partially collapsed neighbor to its former glory either. Thus we enter the discussion of catabolic collapse, a stair step process over some period of time where states collapse to slightly lower levels of complexity, stabilize for a period, then repeat, all the way down until they reach a truly stable condition.

So we come back to the question of "How do we fix it?" The answer is that we do not fix it. It's not fixable. There are ecological and resource based reasons that collapse is occurring and will continue to occur globally. This process will press onward until industrial civilization as we know it is gone. The only hope for industrial civilization is a move to even higher levels of complexity but technology is being rude to us and not delivering the promised manna that will save us. Thus the move to a higher level of complexity is unlikely to occur. It's not impossible, of course, but right now it looks highly improbable.

There is something else to take to your friends when they ask the question "How do we fix it?" That something else is to educate them on the willful blindness inherent in that question. It's a bad question. The proper question would be "What are the possible outcomes of the current situation?" When you phrase it like that it's no longer broken-business-as-usual versus fixing the broken system. Suddenly the possibilities broaden and the possibilities include an unlikely move to higher complexity preserving the existing system, continuation of the existing system as-is, and either a planned or unplanned move to lower complexity. It is important to get past the cultural blinders that our society attempts to bolt to the sides of your head. Once you do that, you can begin to think "out of the box" and assess issues in terms that relate to true survival.

Note that I am not arguing that you do nothing. No, I am not arguing that at all. What I am arguing is that you do nothing to try to fix the global system. Let it fall. Your task, the one that the evolution of homo sapiens places squarely on your shoulders, is to take care of yourself and your loved ones as best you can. If you want ideas on how to start, I suggest getting out of debt, acquiring practical skills, and storing food and tools for the future. If you are already at that point and want to think further, try studying the Afghan mud-and-straw qalat or the rammed earth Fujian Tulous. These are communal, defensible, high energy efficiency structures that can act as home, fortress, and workplace. My preference is the Fujian Tulous, but the qalat may be easier to build as society collapses around you. The lone ranch/farm idea will only go so far once we descend down the slopes of collapse. The structures mentioned above have been used for centuries to organize small communities and defend those communities as well.

Good luck! You're going to need it, especially when so many people are asking what you now know is the entirely wrong question.

Inflation - Making You Poorer, Day by Day

2011-01-05T14:27:00.000-06:00

Below is a chart that I lifted (with slight formatting changes) from Bill Downey's article The Day the Dollar Died - And the Day Gold was Reborn. The chart demonstrates the massive ongoing impoverishment of US taxpayers via the deliberate actions of the Federal Reserve, since it is the Federal Reserve itself that is the root of all inflation.

How Much things cost	On Aug 15th,1971	Today
Dow Jones Industrial Average	890 or 25 oz gold	9000 or 10 oz gold
Average Cost of new house	$25,250 or 721 oz gold	250k or 277 oz gold
Average Income per year	$10,600 or 302 oz gold	70K or 77 oz gold
Average Monthly Rent	$150.00 or 4.3 oz of gold	$824 or 1 oz of gold
Datsun 1200 Sports Coupe	$1,866 or 53 oz gold	$28,400 or 31 oz gold

Conclusion: If your money is dollars, you live in an inflationary world. If your money is denominated in gold, you live in a deflationary world. In other words if your purchasing power is dollar denominated, costs have exploded upward. But if you maintained your purchasing power in gold, costs have decreased by almost 2/3rds of their original price from 1971 !!!!!!!!!!!! Check out the table below. Using the price data from above lets construct a table measuring cost in percentage terms from 1971 to 2009.

ITEM	Dollar Inflation	Gold Deflation
Dow Jones	1000% increase	40% decrease
New House	1000% increase	26% decrease
Ave Income	660% increase	75% decrease
Ave Rent	475% increase	78% decrease
Dow Jones	1000% increase	40% decrease
Total gold needed	1105 oz to buy all	1971 vs 2009 oz's - 396 oz to buy all

Over time prices (denominated in a real asset, like gold) should go down due to advances in technology and productivity. And indeed, if we measure in terms of gold, the world has become a cheaper place. But we live in a world where fiat money is the backdrop, not gold, so everything costs more. What that chart screams is how much poorer we all are today than our parents and grandparents were. And it's not an accident. The Federal Reserve did this deliberately. You and your children are slowly being sold into eternal debt slavery.

Famous Economic Quotes From The First Great Depression

2011-01-05T14:18:00.001-06:00

There are a body of quotes from the Great Depression that should be required reading for anyone before they trust the words of Ben Bernanke, Timothy Geithner, Larry Summers, or any of the talking heads at CNBC. Hopefully these quotes will both amuse you and remind you that economic "authorities" have a horrible track record. It was horrible then and it's been horrible now. I strongly suggest you read these then compare them to the comments from our economic "experts" over the last two years. If you still want to believe the Bernankes, the Geithners, the Summers, and the CNBC talking heads, go right ahead but don't you dare say you were not warned.

"We will not have any more crashes in our time." - John Maynard Keynes in 1927
"I cannot help but raise a dissenting voice to statements that we are living in a fool's paradise, and that prosperity in this country must necessarily diminish and recede in the near future." - E. H. H. Simmons, President, New York Stock Exchange, January 12, 1928
"There will be no interruption of our permanent prosperity." - Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928
"No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. In the domestic field there is tranquility and contentment...and the highest record of years of prosperity. In the foreign field there is peace, the goodwill which comes from mutual understanding." - Calvin Coolidge December 4, 1928
"There may be a recession in stock prices, but not anything in the nature of a crash." - Irving Fisher, leading U.S. economist , New York Times, Sept. 5, 1929
"Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months." - Irving Fisher, Ph.D. in economics, Oct. 17, 1929
"This crash is not going to have much effect on business." - Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929
"There will be no repetition of the break of yesterday... I have no fear of another comparable decline." - Arthur W. Loasby (President of the Equitable Trust Company), quoted in NYT, Friday, October 25, 1929
"We feel that fundamentally Wall Street is sound, and that for people who can afford to pay for them outright, good stocks are cheap at these prices." - Goodbody and Company market-letter quoted in The New York Times, Friday, October 25, 1929
"This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan... that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years." - R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
"Buying of sound, seasoned issues now will not be regretted" - E. A. Pearce market letter quoted in the New York Herald Tribune, October 30, 1929
"Some pretty intelligent people are now buying stocks... Unless we are to have a panic -- which no one seriously believes, stocks have hit bottom." - R. W. McNeal, financial analyst in October 1929
"The decline is in paper values, not in tangible goods and services...America is now in the eighth year of prosperity as commercially defined. The former great periods of prosperity in America averaged eleven years. On this basis we now have three more years to go before the tailspin." - Stuart Chase (American economist and author), NY Herald Tribune, November 1, 1929
"Hysteria has now disappeared from Wall Street." - The Times of London, November 2, 1929
"The Wall Street crash doesn't mean that there will be any general or serious business depression... For six years American business has been diverting a substantial part of its attention, its energies and its resources on the speculative game... Now that irrelevant, alien and hazardous adventure is over. Business has come home again, back to its job, providentially unscathed, sound in wind and limb, financially stronger than ever before." - Business Week, November 2, 1929
"...despite its severity, we believe that the slump in stock prices will prove an intermediate movement and not the precursor of a business depression such as would entail prolonged further liquidation..." - Harvard Economic Society (HES), November 2, 1929
"... a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall." - HES, November 10, 1929
"The end of the decline of the Stock Market will probably not be long, only a few more days at most." - Irving Fisher, Professor of Economics at Yale University, November 14, 1929
"In most of the cities and towns of this country, this Wall Street panic will have no effect." - Paul Block (President of the Block newspaper chain), editorial, November 15, 1929
"Financial storm definitely passed." - Bernard Baruch, cablegram to Winston Churchill, November 15, 1929
"I see nothing in the present situation that is either menacing or warrants pessimism... I have every confidence that there will be a revival of activity in the spring, and that during this coming year the country will make steady progress." - Andrew W. Mellon, U.S. Secretary of the Treasury December 31, 1929
"I am convinced that through these measures we have reestablished confidence." - Herbert Hoover, December 1929
"[1930 will be] a splendid employment year." - U.S. Dept. of Labor, New Year's Forecast, December 1929
"For the immediate future, at least, the outlook (stocks) is bright." - Irving Fisher, Ph.D. in Economics, in early 1930
"...there are indications that the severest phase of the recession is over..." - Harvard Economic Society (HES) Jan 18, 1930
"There is nothing in the situation to be disturbed about." - Secretary of the Treasury Andrew Mellon, Feb 1930
"The spring of 1930 marks the end of a period of grave concern...American business is steadily coming back to a normal level of prosperity." - Julius Barnes, head of Hoover's National Business Survey Conference, Mar 16, 1930
"... the outlook continues favorable..." - HES Mar 29, 1930
"... the outlook is favorable..." - HES Apr 19, 1930
"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover. There has been no significant bank or industrial failure. That danger, too, is safely behind us." - Herbert Hoover, President of the United States, May 1, 1930
"...by May or June the spring recovery forecast in our letters of last December and November should clearly be apparent..." - HES May 17, 1930
"Gentleman, you have come sixty days too late. The depression is over." - Herbert Hoover, responding to a delegation requesting a public works program to help speed the recovery, June 1930
"... irregular and conflicting movements of business should soon give way to a sustained recovery..." - HES June 28, 1930
"... the present depression has about spent its force..." - HES, Aug 30, 1930
"We are now near the end of the declining phase of the depression." - HES Nov 15, 1930
"Stabilization at [present] levels is clearly possible." - HES Oct 31, 1931
"All safe deposit boxes in banks or financial institutions have been sealed... and may only be opened in the presence of an agent of the I.R.S." - President F.D. Roosevelt, 1933

Change we can believe in?

2009-02-20T14:25:00.002-06:00

It's February and the market is down almost 25% since Obama was elected. The major financials have lost over 30% of their remaining value since Obama announced his non-plan to "save" the banks two weeks ago. We've got people like Rick Santelli on CNBC Thursday doing a major league rant about government subsidizing 'bad behavior' and calling for a "Chicago Tea Party". Meanwhile GM seems to have written off Saab and thrown it to the wolves/creditors. And today's market is just barely above its 2002 low of 7286. That's before adjusting for inflation. The volume of wealth that is being destroyed around us is monumental and we are not going to be able to pay for everything we think we deserve much longer. In fact, at the pace we're destroying wealth, the United States will be a very backward nation in a few more years.

At the same time, Russia has bought over 90 tonnes of gold so far in the last 2 years and now gold has breached $1000 per ounce again on fears that the only way out of this mess is all of the major governments performing hyperinflation (a suggestion actually made by a Japanese parliament member).

In California they finally have a budget with about $15 billion in spending cuts, $14 billion in tax increases, and $11 billion in bonds (borrowing... IF they can find anyone willing to loan them money at a rate they can afford to pay back). In practical terms for California this means 1 in 5 California Public Workers to be Fired.

Meanwhile unemployment increased again, giving us 4.99 million unemployed, as the government is quick to point out. But the news media aren't buying the decimal point spin baloney - Nearly 5 million are getting unemployment benefits. But that unemployment safety net has big holes in it these days with lots of people falling through the cracks. How many are really unemployed? No one really knows but the BLS does take a stab at a guess in table A-12, line item U-6 of their monthly report. The current guess is 13.9% of the economy, almost double the "official" unemployment figure.

The Big Three in Detroit are still in trouble. GM Bankruptcy Prospects Still Loom and Chrysler is begging or more government handouts while they remove every other lightbulb in their offices and cut the thermostat 4 degrees to try to save a few more pennies. I don't think that's going to save them.

Finally, Texas has joined the club of states telling Washington to shove it.

"WHEREAS, Today, in 2009, the states are demonstrably treated as agents of the federal government; and

WHEREAS, Many federal laws are directly in violation of the Tenth Amendment to the Constitution of the United States; and

WHEREAS, The Tenth Amendment assures that we, the people of the United States of America and each sovereign state in the Union of States, now have, and have always had, rights the federal government may not usurp; and

WHEREAS, Section 4, Article IV, of the Constitution says, "The United States shall guarantee to every State in this Union a Republican Form of Government," and the Ninth Amendment states that "The enumeration in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people"; and

WHEREAS, The United States Supreme Court has ruled in New York v. United States, 112 S. Ct. 2408 (1992), that congress may not simply commandeer the legislative and regulatory processes of the states; and

WHEREAS, A number of proposals from previous administrations and some now pending from the present administration and from congress may further violate the Constitution of the United States; now, therefore, be it

RESOLVED, That the 81st Legislature of the State of Texas hereby claim sovereignty under the Tenth Amendment to the Constitution of the United States over all powers not otherwise enumerated and granted to the federal government by the Constitution of the United States; and, be it further

RESOLVED, That this serve as notice and demand to the federal government, as our agent, to cease and desist, effective immediately, mandates that are beyond the scope of these constitutionally delegated powers; and, be it further

RESOLVED, That all compulsory federal legislation that directs states to comply under threat of civil or criminal penalties or sanctions or that requires states to pass legislation or lose federal funding be prohibited or repealed; and, be it further

RESOLVED, That the Texas secretary of state forward official copies of this resolution to the president of the United States, to the speaker of the house of representatives and the president of the senate of the United States Congress, and to all the members of the Texas delegation to the congress with the request that this resolution be officially entered in the Congressional Record as a memorial to the Congress of the United States of America."

Source

Pass the ammunition, boys. This may get interesting.

What Does a Likely Collapse Scenarios Look Like?

2009-02-13T11:00:00.003-06:00

The most likely short term collapse scenario that I can envision is similar to what was described in Lessons From Argentina's Economic Collapse (PDF). That would be a financial implosion so drastic that it basically either collapses central government or leaves central government so ineffective that it might as well not exist, at least in terms of providing services. The least likely short term collapse scenario that I can envision is global thermonuclear war. But saying it is the least likely doesn't mean you should ignore it. It simply means that an extraordinary number of conditions would have to line up in the short term for that to occur.

So let's talk about that financial implosion, which may be what is rolling around us right now. What would it look like? It would look like a long term deflationary or inflationary spiral, where wealth is sucked out of the middle class, and where financial ruin causes basic services to slowly fail. Infrastructure failures would not be immediate but would become progressively worse over time. Regions closest to the seats of power would most likely be the last to experience degradation of services, simply due to those in power opting to preserve those services closest to themselves. Regions furthest would experience degradation and eventual loss of services sooner.

Along the way you would see a collapse of the current economy. Part of that collapse would entail bankruptcies and foreclosures for many people, basically creating an entire new class of refugees inside the United States. What people are unwilling to face is that real unemployment levels in the United States could go beyond 20%. The real levels (recorded in Table A-12, column U-6 of the monthly employment report from the BLS) are already well into the teens. As of December 2008 the official number through the end of November was 7.2% but the real number (before "adjustments") was 13.5%. When the January numbers are announced, it will likely be even worse with no end in sight. So what you can count on in an economic collapse would be increasing numbers of the homeless. Update: The January numbers which now stand at 7.6% "adjusted" and 13.9% unadjusted.

However, one thing we can guess about the majority of homeless, is that they will congregate in shantytowns near urban areas. That's a historical trend that you can see over the last 100 years very clearly. Take a look at the shantytown photos of Central Park during the Great Depression or of other cities around the United States. Or examine shanty towns in third world nations. There is tremendous drive to be in or near cities since cities offer the highest probabilities of support services for the unemployed and homeless.

Another thing we can guess about a serious financial collapse scenario, based upon looking at recent financial collapses in other nations around the world, is at least a partial reversion to barter as a means of exchange. In a barter economy, money may hold less value than actual goods or services. This will be particularly true once serious inflation or hyperinflation kicks in but during a deflationary period, such as the current one, holding cash and dealing in cash (not credit) may be the best option. Another thing you will see arise is more black market activity, in order to escape heavy taxation. Barter, although it is supposed to be reported for taxation purposes, appears to rarely actually be reported. And cash transactions are also rarely reported, precisely because they are in cash and cannot easily be traced.

Also, because of the disruption of trade, you would likely find the availability of various goods and services to vary widely throughout the year. Facing high prices is one thing but facing a total inability to get certain goods when you need them could be life threatening.

A final key element you are likely to see in a financial collapse is a general increase in violence. This will come in three primary forms - increased random local violence, increased robbery and theft, and the possibility of very organized violence. An example of the latter is the level of organized violence taking place in Mexico's northern states due to its ongoing drug war. More Mexican police and soldiers have died in that war against criminal gangs than the US has lost in Iraq. Note that as of the date of my writing this article, the US has lost 4343 lives in Iraq, while Mexico lost 5612 lives in 2008 alone to its current drug war. Approximately 1 in 19000 Mexican citizens will die to the current drug war there, but since the drug war is mostly confined to the northern border states, the actual danger to citizens of the northern states is far higher than that national number implies.

This same sort of problem is likely to occur in the United States. Certain regions could become hotbeds of violence, either through the actions of organized crime or the actions of disgruntled citizens who choose to act against an unsupportive state.

Thus, my view of a "most likely" short term collapse scenario entails financial dislocation of possibly increasing levels,
economic instability, shortages of goods and services, and increasing levels of sporadic violence. Such a situation, like the one that Argentina faced, has a surreal quality to it - for much of the time things appear semi-normal, punctuated by serious breaks in which some other factor makes it clear that the situation is anything other than normal.

So what can someone do in response to this? I'll consider that question in another post, looking both at the ideal response and a minimal response.

What's Wrong with "Coming Chaos? Maybe Not"

2009-02-13T10:01:00.001-06:00

Preface: I recently decided to write about collapse scenarios in response to a really bad article over at TOD. But as I began working through how to present this problem, I realized that it was far too large for one article and might need several of its own. So watch for more articles on the general topic of collapse scenarios over the next few months. This first article addresses the flaws in the article that I recently read over at TOD.

One of the problems with the recent Coming Chaos? Maybe Not article at TOD began with horrendous assumptions. Among those assumptions is the time worn cliche that "doomers" are preparing for "Mad Max" and nobody can survive "Mad Max". Here's the opening statement from that article: "A sizable subset of what some on this site call “doomers” are convinced that the demise of the petroleum economy will bring social breakdown and a violent struggle of all against all." Such a blatant strawman should never have been put in any article by anyone seriously researching the "doomer" community, yet the Coming Chaos? Maybe Not article began with that assumption then attempted to disprove it when it wasn't even valid!

Instead the article tried to focus on "peace" as if peace were some natural condition of the red fanged ape known as homo sapiens. Peace is not at all a normal condition amongst humans but cooperation is, amongst subsets of humans. The average human being in industrial society today does not have a personal friends list much larger than that of his hunter gatherer ancestors. Tribes ranged in size from as low as a dozen to as high as several hundred. These tribes functioned as a unit and the evidence is very strong that there was usually "peace" within the tribe. But between tribes? Not at all! The murder rate amongst the hunter-gatherers was much higher than our current murder rate. So much for the idyllic neo-Romantic myths about primitive people!

Both homo sapiens and our ancestors before that have been competitors for resources in their local environments. Homo sapiens nearly died out, dropping perhaps as low as a few thousand members about 170,000 years ago before growing again. Along the way, homo sapiens drove homo neanderthalenthis into extinction as well as assisting in the extinction of other large mammalian species. During this time, both as hunter-gatherers societies and later as agrarian civilizations, we have engaged in larger scale violence. Amongst hunter gatherers this tends to be brief and decisive because the basic day-to-day needs tend to curtail professional soldiering. But as our agrarian civilizations grew, our propensity for violence crystallized in the form of professional armies that would then wage war against other agrarian societies.

So there is no basis for believing that homo sapiens is an inherently peaceful species. We cooperate when we believe it suits us and we fight when we believe it suits us. Those who think otherwise can go research the anthropology science themselves but that is the basic conclusion that they will find.

And this is born out by further examination of the historical record, clear to the present day. Any claim that we are suddenly different is a raw unsupported assertion that attempts to ignore evolution. Evolutiuon would not produce that large a change in human behavior in that short of a time. And further, one needs only look at Somalia, Yugoslavia, Argentina, Cambodia, and many other nations in just the last 50 years to see that we are what we have always been - violent primates, red in tooth and claw.

Thus, knowing this as a fact, one must incorporate this fact into any plans one makes to survive various collapse scenarios. If one fails to incorporate this fact into survival plans, then the plans are worthless from the moment of conception.

So knowing that the "Mad Max" scenarios are pure myth used as strawmen by people who should know better, and knowing that homo sapiens is completely capable of violence at a level that produces atrocities, what are the likely collapse scenarios? I'll discuss those another time.

P.S. For those of you looking for an interesting read from inside one recent short term collapse event, try reading Lessons From Argentina's Economic Collapse (PDF) and Despair In Once Proud Argentina. These are both first hand accounts of life in a nation experiencing a partial societal collapse. Argentina is a western nation, once prosperous, with values not so different from our own in the United States. These reports both chronicle very recent events in that nation. While we can all hope that the United States does not experience this sort of thing, failure to plan for it is flatly irresponsible and could even be categorized as suicidal and deranged.

Where is Texas Going

2009-01-22T15:15:00.005-06:00

Living in Texas and occasionally commenting about it, I get some Texas related responses now and then. Recently Speedy asked what I thought was in store for Texas over the next several years. I don't have a single scenario but rather look at a range of scenarios for Texas (or any other location for that matter).

My optimistic scenario says that the US will get its financial house in order, slowly but painfully, learn to live within its means, and stop acting like a global empire. Those changes would produce dramatic changes here at home, not the least of which would be a more local focus and stronger control of the US/Mexican border. Stronger control could work out well if Mexico gets its own house in order as well by allowing both nations to create a fully operational guest worker program that avoids the illegals problem while providing access to jobs in the US (and Mexico).

But my pessimistic scenario is far closer to what is currently unfolding around us. Mexico is sliding into collapse as the government loses more and more control of anything other than Mexico City, as oil revenues plunge, and as dollars from the US dry up. Meanwhile the US seems hellbent on finding the worst of all possible solutions to its own fiscal crisis. Downstream this will result in one of two options occurring. Either the US will become a fully fascist state (instead of a simply proto-fascist state) or the US will collapse entirely. A fully fascist US would be a bad thing for Mexico regardless. Either Mexico would get absorbed into a greater political entity to be controlled from Washington, or the border would be sealed and illegal immigrants rounded up and dealt with, one way or another. Neither of those are desirable outcomes but they are what might happen if things implode badly.

On the other hand, a collapse by the US might be the best thing to happen to Mexico. There is a high probability that Texas would form the nucleus of a new nation and that nation would have extensive ties to Mexico, in all probability. That nation could consist of any part of Texas, the states immediately surrounding Texas, plus possibly Alabama and Georgia.

In any event, the ongoing events thus far simply indicate that we're all going for a ride that no one in the US has ever been on before. Either we're going to find fiscal sanity, social insanity, or we're all going to part ways. None of those scenarios is "business as usual" for Mexico by dumping its social issues over the border, so Mexico ought to begin facing those problems right now. Of course, they won't do that, which will make the ensuing nightmare all the worse.

Hail to the Chief!

2009-01-20T14:03:00.005-06:00

First off, I welcome our new president. But in addition to that, I urge everyone else to immediately start scaling back your expectations. My own expectations are not terribly high. I expect Barack Obama to try to do what he believes is right, to make some good choices and make some bad choices, and that, because of his government centric mindset, some of those choices will turn out far worse than he expects. But many, many Americans believe Obama is the second coming of Kennedy-the-myth (not Kennedy-the-man). They are expecting Camelot all over again, magic wand waving and a restoration of prosperity with no real pain. It is these people who are going to become the most disappointed and most disillusioned of all.

Barack Obama, be he saint or devil, did not create this mess but he is surely going to be blamed for a large part of it as it unfolds. This is inherently unfair but it's how things work. Carter created the recession of 1979-1982 but Reagan got blamed.

While the media swoons over the Obama presidency, in the worst case scenario, he may be about to face multiple tests in the near term. The first and most immediate domestic test will be California suspending welfare payments on February 1, if they carry through with that threat. His other tests are likely to be external and involve the Middle East. Gaza remains a problem, as does our relationship to Iran, and our slowly souring relationship with Pakistan.

In the longer term, he is probably looking at several hundred thousand jobs lost per month over the first year of his presidency. The upper bound currently looks like it may be around 6 million jobs lost for 2009 but that's the upper bound. A more reasonable estimate might be in the 2.5-4 million range. Interestingly, that's the number of jobs he claims he can "create" in one year via government edict. Sorry, Mr. President, but I don't buy that line. It smacks too much of wishful thinking to me.

Additionally, several of our European neighbors are facing bankruptcy, or the practical effects of that even if they don't formally declare it. The British pound and the Euro are both falling hard lately, with the pound leading the way amid open discussions of British defaults. There is rioting in Iceland, Ireland, and Latvia over politicians and bankers and failing economies. Those losses and the civil unrest that accompanies them are not far from the front doors of North America. And yes, I include the smug Canadians in this. The proverbial crap is close to hitting the proverbial fan.

Time is already running out for a president just sworn in, through no fault of his own but rather because of the size of the mess bearing down upon him. Over at TAE, Ilargi yesterday suggested that Obama may be The Shortest President ever. Unstated by Ilargi is the corollary that Obama may be the last US president as this nation dissolves in financial ruin.

As for me and mine, I have gates to repair, garden plots to clean up, and seeds to begin sprouting for planting in 6-8 weeks. The world is not going to stop revolving but many human institutions may stop functioning. If you're still not prepared, I strongly urge you to wander over to SurvivalBlog. Begin reading the archives and implementing as many pieces as you can while you can. All of our choices are becoming more constrained with each passing day.

Inauguration Approaches

2009-01-12T13:34:00.003-06:00

So Obama's been elected and promptly declares the current economic crisis to be worse than he was originally led to believe. He plans the amazing-self-sizing fiscal stimulus package of roughly $800 billion dollars that, over the last 10 days, has promised to create 1.5, 2, 2.5, and now 4 million new jobs (all without the price tag changing at all). And have you noticed who is on his transition team, advising him on matters economic? Hmmm? People like Robert Rubin, disgraced chief of Citigroup who resigned over the weekend? And this is supposed to be the administration that will bring us "change". Uh, yeah, right. With friends like this, I fear the change that is coming.

For a little anecdote, the people of this country don't buy Obama's words much, from what I can read. Last week the BATF issued a notice to FFL holders allowing them to photocopy the existing form 4473, until more supplies could be made available. For those that don't know what a 4473 is, it is the form used to record the sale of a firearm from a dealer (Federal Firearms License - aka FFL holder) to a private citizen. In other words, firearms sales have been so brisk under the threat of an Obama administration that the BATF has run out of gun sale forms.

The price of oil hit a remarkable low today of $39 per barrel. This simply reinforces, to me, the scope of the economic collapse that is underway. Peak oil is real and oil supplies are definitely finite but economic collapse has been so swift and so widespread that it has reduced demand for oil below current supply levels. Thus far the data indicates that global demand has plummeted by over 3 million barrels per day in just the last few months of 2008. Given that further economic dislocation is a near certainty, we can expect further falls in global consumption. On the bright side, this leaves a bit more oil for use further in the future. I'm not going to hold my breath hoping that it's used wisely though. Homo sapiens doesn't seem to possess that trait.

Here at home I discovered something unusual. Crops in this part of the US are now growing through the nominal "winter" months. My strawberries, cauliflower, and brussel sprouts positively love the cooler temperatures compared to the heat of south Texas summers. We should have fresh cauliflower at the dinner table tonight, for example. It did get a wee bit too chilly for the pepper plants though so not everything is going to grow through December and January in south Texas.

Stoneleigh recently did a wonderful primer on The Special Relativity of Currencies. It's a must read piece and I highly recommend it. I don't have much more to say other than to answer one question I was asked, which was "Well, what does the beginning of a depression look like?" And my response was, "This is what the beginning of a depression looks like." The instant gratification generation apparently expects an instant depression. It won't work that way. The stock market crash in 1929 led to the bottom of the Great Depression in 1934 - five years later. We're only about 18 months into this mess right now and there's plenty more to come. So, as they used to say, "Don't touch that dial! There's more to come!"

So we voted for "change" and elected "hope"?

2008-11-06T10:00:00.006-06:00

I don't think so.

Within 24 hours of being named president-elect we have Obama... simply continuing Bush policies. He says he's going to continue the Iraq policies largely unchanged. He's prepping to nominate an "experienced money man" as Secretary of the Treasury. He's already asked the 13 former Goldman directors to stay on at Treasury. He's apparently considering keeping Gates as Secretary of Defense. He plans more banker bailouts and letting even more "experienced money men" lead the way. Hey Barrack, are these the same money men who gave you $500 million dollars that you swore you'd never take in the first place, just to get elected?

Hope? Change? What change? What hope?

And... the news stays exactly the same as it was before:

Jobless claims higher than expected
Wal-Mart's October Sales Rise as Consumers Cut Back (Update1)
Macy's, Target Monthly Sales Fall
Stocks head for lower open as economic woes mount
IMF now sees global recession in 2009
US Productivity Growth Slowed in Third Quarter (Update2)
Workers' hours slashed to keep productivity rising
Obama's top economic contenders
Rate Cut Fails to Lift Futures Higher
Stocks slide on recession fears

The market is now down 700 points since Obama was elected. It's not that this is his fault but rather that he cannot and will not do anything to rock the economic boat. Read who Obama's top economic contenders are - the very people who helped create this mess and who already got Bush to give away over a trillion dollars of your money. Change? What change? This is why I don't expect anything different regardless of all the campaign rhetoric. Obama has a $500 million dollar collar around his neck. He let the bankers put it there when he went back on his own word not to accept those kinds of campaign donations. Now they own him, just like they owned GW Bush. There's no difference here.

Ralph Nader said something very telling recently, asking publicly whether Obama was going to be Uncle Sam for the rest of us or Uncle Tom for the big corporations. I'll bet money it's Uncle Tom for the big corporations. In fact, if I had that money, I'd bet $499 million dollars on it.

Hope? Change? How about all the lies all the time. Those of you who expect miracles from Obama are about to be sorely disappointed. I strongly suggest you continue to prepare just as though Bush was still in office, because, trust me, for all practical purposes the people who pulled Bush's strings will continue to pull Obama's strings.

P.S. Let's see what happens over the weekend of November 15th and going into the second half of this month. I am expecting a "surprise" for the US of A.

Staring at the Abyss

2008-10-24T11:30:00.002-05:00

Russia has suspended trading until next Tuesday after seeing another 10% loss in value. Russian default risk tops Iceland as crisis deepens. Hungary, Ukraine and Belarus have sought emergency loans from the IMF. Chrysler is laying off 25% of its salaried workforce and a day earlier, Chrysler announced 825 job cuts at its Toledo plant and another 1,000 relating to the closure of the Newark plant. GM Suspends Matching Contributions to 401(k) Plans. AIG taps $90 billion government credit line, after having exhausted nearly $120 billion in bailout money in under one month! Japan Stocks Drop to Brink of 26-Year Low while a recession panic hits the Nikkei.Meanwhile the Hang Seng (Chinese stock market) crashes 8.3 percent to a four year low. Mike Shedlock notes that Job Losses Mount as Recession Deepens. There aren't any remaining consumers out there who can take on more debt or purchase more junk. As Mish also is fond of saying, the Shopping Center Economic Model Is History.

Is the picture above getting clear enough for you yet? For the last few weeks, after the last big decline, we've been in another trading range from about 8300 to 9500. We're still in that range although near the bottom. And the global financial problems may cause the market to panic out of that range towards a new low. That new low, for the next round, will likely be around 7000 but that's not the bottom yet either. The bottom is yet to come and will be somewhere south of 5000, with a reasonable chance of being south of 4000. The next downleg on the S&P will be in the 650 range, when it finally comes. There's no sunshine in this market yet. None at all.

This weekend my adult children will be meeting with myself and my wife to discuss what the possible scenarios are and how we can all prepare for those scenarios. I've been busy the last few years learning to garden, compost, learning a bit about vermiculture and building rich soils. We've set aside food and other consumables to see us through an extended emergency and now we're going to try to ensure that our children and grandchildren are cared for as well. We may or may not succeed but we don't have lots of time to spend worrying about strangers who have not prepared at all.

MSNBC recently ran Hard times have some flirting with survivalism--Economic angst has Americans stockpiling 'beans, bullets and Band-Aids’. SurvivalBlog.com, run by James Rawles, is a treasure trove of practical information about surviving catastrophes, ranging from Cat-5 hurricanes to Cat-5 financial storms. I advise bookmarking it and reading it regularly.

Most readers of this blog (the few that bother to read it) won't have the resources to really prepare. For people in that category, I suggest that you learn to pray. You're going to need it. Some small number though still have a chance to purchase rural land, even land without a house on it is better than no land at all. And I mean purchase it, not via a mortgage. Take that cash and get your hands on some productive land. In a pinch you can build a cabin, or even get fancy and go underground, as outlined in The $50 and Up Underground House Book. If things get as bad as I fear, we're all going to have plenty of time to work on things at home, so it's best to really own a home for that purpose. Additionally, being rural will get you out of the most immediately dangerous problem if society does go pear shaped - civil unrest, aka rioting and looting. Most won't be able to do this but if you can, your chances to actually take this step are drawing to a close.

The chickens are coming home to roost on decades of fiscal irresponsibility and we're all going to pay. The only question is how much?

That Flushing Sound is the Global Economy

2008-10-12T23:01:00.009-05:00

The press is reporting that the Royal Bank of Scotland and the Holding Bank of Scotland PLC (HBOS PLC) are both being seized and nationalized by the British government tonight. As Mish notes in his Royal Bank of Scotland, HBOS Nationalized, these actions do nothing to correct the underlying problems - insolvent financial institutions. As I write this, Asian markets for Monday October 14th, are showing some gains. But US institutions are closed tomorrow and Europe may involuntarily close their markets in an effort to calm the situation. I'm not sure what they expect that to do because that also doesn't address the underlying problem. However, reviewing the October 1929 crash, there was a multi-phase collapse. The biggest part occurred on October 29, 1929 but there were serious precursor drops and rallies along the way as well.

Because of this and because of various other observations, many people are expecting a short term rally in the market at this point. People really do want to believe that governments globally can solve this, whether they really can solve it or not. That belief will help fuel some form of rally, perhaps into the 10,000 range. Trying to outguess the crowds when we don't have any sort of reasonably accurate model is a difficult thing to do but my best guess is that this rally will last somewhere between a few days to a few months, ending not later than sometime in January of 2009.

A key point to take home from all these "rescue" attempts is to ask whether the action in question actually helps resolve the underlying problem of insolvency for a particular financial institution. If the answer is no, then it cannot succeed longer term. Given that zero actions thus far have addressed underlying insolvency issues, that means that somewhere ahead of us is a further fall downwards, perhaps below 5000 and perhaps even much lower. If we get very far below 5000 though, I fully expect the wheels to come off industrial society in Europe and the United States. Whether you do anything about preparing for that eventuality is your choice. But if you choose to not prepare, please don't knock on my door because I did choose to prepare.

It just keeps getting worse, doesn't it?

2008-10-02T11:36:00.003-05:00

It's hard to believe that our government could have done as many boneheaded things as it has done since I wrote my last entry. Yet the infamy of September 7, 2008 may now be lost amid the early days of what could become the Greater Depression.

Yes, you read that right. I want anyone reading this to realize that right now credit lines are being closed for major corporations. Given that most major corporations and most small ones operate from their credit, the closure of credit lines is starting to suffocate the economy. GMAC shut down the credit line of Bill Heard Chevrolet dealerships, the largest Chevrolet dealer in the United States with annual sales over $2 billion and dealership locations across the US south. This credit line was shut down in August. In September, the Heard family shut their doors on every dealership they have. That's about 3000 people out of work right there. That's $2 billion in annual sales lost to GM via one of their oldest dealers. Bill Heard was founded in 1919, lasted through the Great Depression but was done in by this oncoming Greater Depression.

Other corporations either have been confirmed to have lost their credit lines, such as McDonald's, or rumored to have lost their credit lines, such as HEB grocers.

Those of you who think that the 451 page boondoggle that the Senate passed last night will change anything significant are believing in unicorns. I won't argue with someone who is that economically illiterate but the Senate bill does nothing other than allow Paulson to make his friends whole again at US taxpayer expense, right before the entire global economy goes to hell.

There are lots of issues at stake here and other people, ranging from Mike Shedlock's Global Economic Analysis blog to The Automatic Earth cover these issues better than I do. But I want to ask you something very direct, personal, and not abstract at all. What are you going to do if HEB, Kroger, and other major grocery chains shut down due to lack of credit? Oh yeah, the government will send in the National Guard and distribute emergency foods. Do you like that stuff that FEMA hands out? Have you ever tried most of it? It's... not that good and I am being generous here.

If you do not have at least 60-90 days of canned and dried goods on hand, then you are probably in trouble. And all that 60-90 days will get you is through the initial turmoil to where you become a ward of the government, possibly for years to come. But hey, that's the choice that you made. Of course not having 60-90 days of food supplies may mean you lose some pounds in the 1-4 weeks before government relief shows up in your area. Maybe you lose lots of pounds. Maybe you starve?

Likewise, are you going to have a job if credit shuts down? Will you even get paid? Will your bank allow you access to your funds or not? You are still going to owe money to people and have bills to pay. Wouldn't it suck to have money in the bank that you cannot reach while you are foreclosed and thrown out of your home? Think it can't happen? It already did in the 1980s in Texas and the US south during the S&L crisis and this is thousands of times bigger than the S&L crisis.

In short, your preparation options right now, today, are very narrow but you still do have the choice of doing something as opposed to nothing. So, are you going to do something or are you going to see how long you can fast? Better make your mind up soon. Credit lines continue to lockup worse and worse for the fourth straight day. At this rate, in another week it will be shut down altogether.

Another Day of Infamy

2008-09-09T16:03:00.005-05:00

December 7, 1941 has gone down in history as a "day of infamy" due to the attack on Pearl Harbor by Japan. I believe that September 7,2008 will go down in history as another "day of infamy", due to the clear abandonment of any pretense of free markets in the United States.

Anyone who still thought there was anything approaching a true "free market" in the United States certainly ought to be re-evaluating that position in light of the latest government bailout of certain corporate sweethearts (in this case Fannie Mae and Freddie Mac). While this may surprise some folks, this is about what you would expect in a truly totalitarian globe-spanning empire and now you've got it. All pretenses are off - the US government is trying to convince the world that it and it alone is capable of saving the entire global financial system.

September 7 will be the day that marks the beginning of that process. This last week has seen the process accelerate drastically. Remember those alerts from this summer about a possible stock market crash for this autumn?

RBS Offers global stock and credit crash alert.

Morgan Stanley warns of a 'catastrophic event'.

In a recent quarterly report, the Bank for International Settlements (BIS) warns that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.

Paulson & Co. Says Writedowns May Reach $1.3 Trillion

All of the above articles were prominently displayed by sources like Bloomberg, Yahoo, etc., earlier this summer. These warnings were issued by major players, not by me.

Look at what has happened this week:

Russian Markets Halted as Emergency Funding Fails to Halt Rout
The US market is down almost 800 points in 3 days.
Lehman declares bankruptcy.
The US government steps in and nationalizes AIG to the tune of $85 BILLION dollars.

There is panic in the streets (Wall Street). So far we are down nearly 1000 points from recent highs and almost 4000 points from 10 months ago. Think about that.

"Lehman Brothers Holdings has gone bankrupt. Here is a firm that was founded in 1850. It survived the Civil War and the Great Depression. It did not survive the current breakdown. Anyone who thinks this crisis is some minor affair is not paying attention." - Dr. Gary North

Now please attend to me what is happening.

1. Lehman has declared bankruptcy. Lehman therefore must be liquidated by the courts. Lehman's "assets" (CDOs, derivatives, etc.) have a nominal value of about $640 BILLION dollars. To be liquidated, these assets MUST BE SOLD. But who is going to pay full price for these $640 billion worth of fake assets? Nobody! Ergo, the assets will be sold at firesale prices. Expectations are that the court will get 5-40 cents on each dollar. In other words the court will find that the assets have lost between 60-95% of their claimed value!

2. Because of #1, the assets of every other financial institution will finally have to be marked to market. When this happens, every other financial institution will find itself officially under-capitalized and selling more assets to get capital.

3. But no one is buying! No one is buying these assets! Ergo the price will fall even further.

No human being can say with complete assurance that this is the end of the line but right now, today, global civilization stands at the precipice looking down towards its own death.

Now why does this matter to you? Because your job is with a business that has a 99+% certainty of being with a company that operates on debt alone. Imagine this scenario - banks cannot lend so they don't lend money to the oil companies who then cannot refine petroleum which results in total loss of fuel from the marketplace keeping all workers home from their jobs. There are dozens of other scenarios in which loss of credit destroys companies that are fundamental to the existing economy. What happens if the grocery chains cannot get credit to buy food to stock their shelves? There are dozens of other ways in which the collapse of credit can mean the end of many if not nearly all jobs in the global economy. What then? Do you think that Uncle Sam will come cuddle you? If you do, you deserve whatever happens to you.

Riding the Roller Coaster

2008-08-03T12:33:00.002-05:00

We've been falling in stages since last November. Chart it and look at it. We take a fall, then regain half to two thirds of the fall. This establishes a new trading range where things sit for some period of time ranging from days to a few months. The trading range is the new recovered high down to the low in the current fall.

Then we take another fall, regain half to two thirds of that and establish another trading range. This has happened about 5 times from what I can see. The current trading range appears to be about 10,900 to 11,800 or maybe as high as 12,000 since we've not really tested it yet.

My advice to people is to ignore the trading range. Every rally inside that range is just "noise" and every fall inside that range is more "noise". What would mark a significant departure? Either 5 straight days above the cap of the trading range that also involves increasing values each day (almost impossible at this point) or 2 straight days of falling values below the current floor.

The falls are the most likely things, nearly 100% certain at this point. The problem is trying to guess the timing of them.

Over at TAE, poster "Snuffy" asked, "How do the rest of you see the next few months...say till Christmas will play out? Will some event shake the public to full awareness of our true state? Or will we stumble along,sleepwalking into chaos?"

My reply to Snuffy is that you are asking a very hard question. So far as is publicly known, there is nothing like the fictional Hari Seldon's "psychohistory" science that could predict mass reactions to events so we're just left to guessing.

At some point we're going to be left with the awareness that it's over and there's no going back but countering that is natural human optimism. We are, by evolution, largely selected to be optimistic about the short term (probably because we could not function well if we were too pessimistic). Even doomers tend to be optimists, at least about their own short term future even if they think most of everyone else is screwed.

So given that desire to hope for a better tomorrow, we cling to illusions like fractional reserve lending and "off book" accounting because we really really really want to believe in get rich quick schemes, unicorns, and fairies. So when will the moment of mass awareness arrive? Who knows? But when it does, you are likely to see a stampede for the exits.

The bulk of the modern populace is so poorly educated about modern finance that they will be willing to believe fairy tales from Uncle Sam rather than face reality, if believing in such fairy tales allows them to go on for even one more day without facing the awfulness of reality. Thus I fear that there are a few more steps on this ladder going down before reality sets in. Uncle Sam knows this too, and will try every trick in his book to get the majority of us to keep on believing. At some point this will all fail but trying to predict it is a fool's game, because our species is a fool's species.

Mid-Summer Odds and Ends

2008-07-17T13:54:00.002-05:00

I've been doing some reading and I don't think that I'm going to lick the corn dwarfism problem that I am seeing in my garden. It appears that the culprit is a virus that also lives in Johnsongrass, an invasive species from Europe that has spread world-wide now. Given that there is lots of Johnsongrass near where I live and that I cannot possibly eradicate it alone, I'm going to investigate other grains next year.

Given that this is the southern US, I am preparing a second planting of many things. The cucumbers did ok this year but have largely died off early. I am not sure if it was the heat or soil issues yet. The squash did its usual thing - bloom hard and hardy for several weeks then die off regardless of what I did. I may try to plant a second squash crop too. The strawberries are doing well enough, with the exception that my family hasn't seen any. The birds and squirrels keep snapping them up before they are really ripe enough. Of course if the squirrels keep that up, they may be what's for dinner instead.

I notice that the financial wizards continue to rig the markets ever more blantantly in favor of their own core group. The latest round of protections for Fannie Mae and Freddie Mac includes select financial institutions. You can consider that these are the "bad guys" of the world scene since they made billions shorting other companies but now have begged the SEC to place them beyond such responses. That list includes:

BNP Paribas Securities Corp
Bank of America Corp
Barclays PLC
Citigroup Inc
Credit Suisse Group
Daiwa Securities Group Inc
Deutsche Bank Group AG
Allianz SE
Goldman Sachs Group Inc
Royal Bank ADS
HSBC Holdings Plc ADS
JPMorgan Chase & Co
Lehman Brothers Holdings Inc
Merrill Lynch & Co Inc
Mizuho Financial Group Inc
Morgan Stanley
UBS AG
Freddie Mac
Fannie Mae

As Mike Shedlock notes, it's also interesting who is not on this list. Since this list was supposed to protect financial companies from shorts, why not protect those financial companies getting shorted the hardest, like this list:

Washington Mutual
Wachovia
Corus Bank
Bank United
National City Corporation

Those guys are getting clobbered by shorts but they are not protected! Wonder why? Because they are not part of the global elite. These companies are being sacrificed while the elite get to keep their ill-gotten gains and continue raping the planet for more ill-gotten gains, all at the expense of the rest of us. Lovely game, isn't it? The only winning move for you is not to play, to paraphrase WOPPER, the War Games computer.

I also note that, despite constant claims of imminent collapse, that the global economy is still hanging on. Now, I will be the first to say that given the numbers I have seen that fast economic collapse actually makes the most sense to me. But it's not occurring despite what I and many others think. I saw this before, in the 1979-1982 recession. People kept expecting financial armageddon and it never really arrived, at least in the form of a singular event. I also suspect that many of us equate 1929 with the Great Depression but the Depression actually took several years to get into full swing (just like this one appears to be trying to do). So one thing I would warn of is to be prepared for a longer, more extended fall than you might have expected. And it's probably going to be slower too.

Now having said that, I think the markets have settled into another trading range. This range looks to be approximately 10,800 to 12,000 on the DOW. It may last from several days to several months. The last trading range lasted from March until very recently. Some of the earlier ranges lasted far shorter. But given the gloomy financial picture, another move downward will come and if it holds true to form, we can probably expect a lower bound around 9,800 or 9,900 and a new upper bound around 11,000. However, just because other forces appear to be at work, I am going to guess that the next downward move won't really start until close to the end of the Olympics or shortly thereafter. But that's purely a guess. We just have to wait and see what triggers then next downward wave.

As for what is happening in the world, there are rumors that the major banks have all colluded to stop all mortgage renegotiations, effective somewhere around Monday, July 14. I have been unable to confirm this rumor so take it with a gigantic grain of salt but I have heard it. However, the word is out that the new mode of operation is "foreclose on anything you can" and that all the major banks are working together on this. Note that IndyMac bank, recently seized by the Feds, is still renegotiating, since that is one action that the government has urged anyway, over and over again.

In other news, global oil exports continue to decline, even though it appears we may have a new all-liquids peak date but the new value is only a tiny bit higher than the old value. (Crude and condensate remains on the same plateau it has been on for 4 years. The new liquids are NGLs, tar sands, biofuels, etc.)

Pressures continue to build around food and fertilizers. Rolling blackouts and brownouts are affecting more and more of the planet. Ammunition shortages continue but are not completely critical yet. Machine tools remain available but prices are climbing and may skyrocket as soaring steel costs percolate through the economy.

The summer drags on and the slow motion collapse continues. The blessing of a slow motion collapse is that it gives those seeking to prepare yet a bit more time. Now I need to get back to my garden and my tools. I can only hope that your focus is on you and those you care for immediately around you.

The Ugly Truth About Inflation

2008-06-10T20:58:00.003-05:00

So here is the ugly truth about inflation. This is not some 5 year aberration. This is not some minor statistical blip. This is a 41 year picture of the lie of generalized investment as a means to retirement comfort. (Click to see enlarged version.)

The chart to the left here shows two plots. The blue-green plot is the unadjusted DJIA from January 1967 to April 2008. The orange-red line is the inflation adjusted DJIA over the same period.

The scale on the left Y axis covers the actual values obtained by the DJIA. The scale on the right Y axis is the inflation adjusted value. There are lots of interesting observations in this chart.

First, note that $1000 invested in January 1967 would have taken until sometime in mid-1995 to even recover its base value after adjusting for inflation. Second, note that the unadjusted chart implies that new highs have been reached in the last few years, yet after adjustment we see that we have not yet regained the high point of January 2000. The third thing to note is that the only real growth in the DJIA over 41+ years was the five year period from 1995 to 2000.

This chart exposes the lie of generalized investing. The promise is that you invest and it will all even out. Yeah, really, sure. The truth is that real opportunities to get ahead come around once in a lifetime and then are gone until the next generation gets a shot at some random point in the future. A 41 year time chart does not lie. This chart covers someone who graduated high school to today and who has trusted the market all along. There are 36 years of losses or no gains in that market versus 5 years of real gains.

People who are going to invest and who trust "financial advisors" are being taken to the cleaners by liars and shills. Only by really understanding your target market and working it like a real job can you have any hope of getting ahead by investing. This is why the common man and woman was long better served by simple saving rather than complex investment schemes. However, the banks were not content to let all those savings sit at rest and have created fractional reserve lending and participated directly in a sustained multi-generational program of deceit via inflation to rob the common man and woman of their savings.

And they have succeeded. They have succeeded because you (and you and you and you) have allowed them to do so. Only one man has dared to stand up and run for president while at the same time declaring the true solution to our financial woes - Ron Paul. If you support anyone other than Ron Paul you are voting for a liar, a shill, and someone who is complicit in this multi-generational program to rob you blind. If you vote for anyone other than Ron Paul, you deserve whatever fate befalls you.

Is a Deflationary Collapse Guaranteed?

2008-04-28T11:00:00.004-05:00

Over at The Automatic Earth, I was having a conversation with some folks about the price of oil in the April 27th Debt Rattle thread. My concern is that we are not facing a traditional recession/depression at all but rather are facing the leading edge of oncoming waves of scarcity driven by serious overpopulation. Because of that, I felt compelled to expand upon that dialog and it got large enough that I decided to do it here rather than as a reply there. Before I proceed further, if you don't understand the difference between prices rising due to scarcity and prices rising due to monetary inflation then please do not read further. I'm not going to answer basic questions about such things that you can get from multiple other sources on the net.

Now, to continue that conversation from TAE, let's take a look at what is really happening around the globe. At te current time, grain prices are through the roof. Some of this is due to speculation, some to trade barriers being erected (due to food security concerns), but a large fraction of this is due to shortage. We know that UG-99 is causing havoc with wheat in Africa and now the Middle East and it is expected to move into Asia proper this year. The planet has consumed more grains than it has produced for 7 of the last 8 years, reducing the 2000 grain surplus of 110 days global food supply to under 57 days global food supply. Regardless of deflationary pressures, this is going to produce upward pressure on prices (NOT inflation!!) due to shortages until shortages are alleviated.

Likewise, consider the price of gold, which has fallen by roughly 10% (slightly more) into the $890-$900 range. Gold is money and since the global monetary situation is deflationary, gold is sliding somewhat with it. This however will vary over time as people move from fiat currencies back into gold and silver. Which way will these two precious metals go? Beats me! The combined problems of deflation coupled with flight from fiat currency (upward pressure on gold prices) look completely unpredictable to me at this time thus I have zero interest in playing the gold market in any speculative manner.

However, look at oil. Oil remains on an upward trajectory. So long as any global technological civilization exists AND that civilization does not go to war with itself (regions against regions) then energy must continue to flow at some rate. Unless and until rationing sets in, so long as any open market in oil exists AND the global production continues to fall below growing demand we will see rising prices, even in a deflationary scenario.

To alter this we either need increased supply (which is not going to occur) or decreased demand. And despite the observations of the deflation watchers like Mish and others, there has as of yet been no deflationary crash. In other words, so long as the markets continue to ignore the crackup in the financial sector, oil cannot do anything but continue its general upward trend.

Now I agree that in the event of a 1929 style deflationary collapse we would see massive decrease in demand. But are we going to get that? Or are we going to muddle along for the next several years in some financial no-man's land?

Here's a point for people to ponder. The 2001 tech stock crackup was supposed to be "the big one" but the powers that be managed to hide that with a convenient "war on terror" and yet another bubble. Everyone betting on a deflationary collapse now is making the same assumptions but TPTB have proven remarkably resilient in their abilities to rape the planet and its population. Why do you think they won't get away with this again? We had already passed into the realm of fairy tale numbers back in the 2001 crash. This crash is just more fairy tale numbers. And they have a ready proxy waiting in the wings for the next bubble - carbon credits. Note that I am not a global warming denier, much to the contrary, I am quite a believer in global warming. But I don't think that these sorts of policies and actions are actually going to solve anything. Rather, these policies, like carbon credits are more akin to exploiting a legitimate crisis for gain by the elites.

Likewise, given that $750 trillion in derivatives debt was preposterous to begin with, yet we had it, I can clearly see the existing population buying into an even bigger bubble based on something else. Now I am not predicting this will occur but I am warning many of you that betting on a purely deflationary fast collapse ala 1929 is not a guaranteed bet. I fully intend to speculate in oil futures so long as it seems viable to me. And that is the decision that you must make - does such a speculative action seem viable to you at this time? No one can answer that for you except you. Right now global civilization is in no-man's land. Rational thought was abandoned long ago in favor of rationalizing thought. All that matters now is the race to some illusory goal and right before people reach it, the goalposts will be moved again. This technique has worked for a long time for the established families at the top of the world order and they won't abandon it now even in the face of global catastrophe.

As we continue to sink...

2008-04-21T13:48:00.005-05:00

It's been a busy spring for me, both in watching the news and in my own preparations. I've added extensively to my raised bed gardens this year, to the point that we should have major harvests of several vegetables for the remainder of this year. We may be looking at canning as a result. Part of this is prompted by the huge run up in commodities prices, particularly grains, coupled with the many stories of grain producing nations beginning to cut exports and in some cases to halt exports entirely. The problem is spreading even to the US as the NY Sun reports Food Rationing Confronts Breadbasket of the World. One cheap thing you can do is begin buying extra bags of rice, beans, etc., and storing them inside a larger plastic bag and then that inside a sealable container. There are numerous articles on the net about such processes, along with advice about using dry ice or other methods to drive oxygen out of your containers before sealing it. Be sure to mark and date such containers and either use them or donate them to a food bank before the expiration date. Consider also tossing some hard-to-get items in that container as well, such as toilet paper, matches, sugar, coffee, tea, etc. If you build an inventory of such containers at a rate of 1 or 2 per month, in 6 months time you will have a respectable store of staples.

I am not going to go further into the many details of such activities but as I said previously, there are numerous sites on the web documenting such self-storage processes. You might also consider the Latter Day Saints church as a source, since they have advocated such levels of preparedness for members for decades. And no, I am not a member of the LDS, just noting that they represent one source for such things already vacuum packaged if you wish to go that way. You can also go the freeze-dried route with Mountain House, Nitro-Pak, and other such vendors.

The global oil situation continues in its roughly flat plateau of the last 4 years. A technical new C&C high was reached in February of this year, barely eclipsing the May 2005 high, but keen observers noted that this new high includes tar sands, which are in no way, shape, or form to be considered "crude" oil. So technically the old 2005 high still stands but even with this addition the difference is a mere 137,000 barrels per day. And given the error rate of these reports, a subsequent report may revise that back down anyway. Regardless, the oil plateau continues despite oil moving from $38 per barrel at the start of the plateau to $117 per barrel now. You would think a full trebling of price might get some demand response? But no, no demand response here! So much for abstract economics. Hello economics? Meet reality.

Another alarming trend is that of A Storehouse of Greenhouse Gases Is Opening in Siberia. Read that carefully. If you have not Googled hydrates then I suggest you do that. In the meanwhile let me describe oceanic hydrates as containing more estimated hydrocarbons than maybe 10 times the total conventional oil and natural gas deposits. And further, almost all of it is methane, a greenhouse gas (GHG) that is 20 times more potent at trapping heat than CO2. There have been events recorded in geologic history that strongly suggest prior mass extinctions are tied to massive releases of hydrates, which then basically toast the planet rapidly. Hydrate releases are not in the "predicted" warming scenarios even in this century, yet they are beginning now. Everything you read from the UN's IPCC report is watered down, deliberately so, in order to get approval of all the governments involved, especially the United States which has never really been honest about climate change. We can only guess at the reality of how bad it truly is since most of that information gets deliberately suppressed.

And of course there is the economic mess. Do not let the recent rally fool you. This was even predictable as the market, made up of humans, can only take so much bad news before they want to believe anything even remotely positive. However the bad news continues and will continue until all of this bad debt is written off, and that's going to take lots more pain and a few more years at least.

So here we are, 2008, facing gasoline over $3.50 per gallon at the very least, oil at $117, grains at record prices with even some nations halting exports so they can feed themselves, and the US still embroiled in a pointless, expensive war that is just going to lead to even more trouble. If you think things are bad now, you ain't seen nothin' yet.

Financial Race to the Bottom?

2008-03-04T12:52:00.001-06:00

Writing today, Mike Shedlock notes upcoming prime interest rate cuts by various central banks. Of particular interest is the why of cutting rates. Canada cut because their exports to the US are falling and US exports are a large part of their income. The Eurozone is considering a cut because of the same pressures, with many European employers now threatening to layoff people and move jobs outside the Eurozone. Even Japan, with an interest rate of 0.5% is threatening to cut... to what, zero? Why? Because economic growth is slowing in Japan and Japan exports lots of products to the US.

This raises the question of whether the various economic powers of the world are now prepared to race to the bottom in an effort to support their own economies at the expense of everyone else's economy? It certainly is starting to look that way at this time. But what happens during massive contractions? Certainly not building new infrastructure or large scale capital spending on new and unproven technologies.

Thus, it appears that we are adding another positive feedback loop to the existing ones working against mankind right now. The others are natural cycles altered by man - resource depletion, climate change, topsoil erosion, water table depletion, overpopulation, etc. This new one is a man-made system (economics) again altered by man himself with simple greed and corruption, destroying trust in the underlying financial system at precisely the moment in history when the financial system is most needed to counter the other positive feedback loops.

Financial House of Cards Continues to Tumble

2008-03-03T11:58:00.007-06:00

1. Margin calls started in mid-February against Thornburg Mortgage. Now it appears that Thornburg Mortgage is about to miss the next series of margin calls as their collateral continues to rapidly decline in value.

UPDATE 3/4/08: Thornburg in default; fails to meet margin calls.

2. The Bank of Montreal has missed margin calls as well. As a result Bank of Montreal's trust funds were downgraded to junk status.

3. Focus Capital, a large US hedge fund, is rapidly dumping assets to raise cash to meet collateral requirements or will face margin calls. UPDATE 3/5/08: Focus Capital collapses against margin calls.

4. Peloton Funds in Britain was wiped out over the weekend as margin calls were made against loans they had taken out. But the collateral had fallen in value. Unable to meet collateral requirements they had to sell assets to come up with the cash. With no buyers in the market, they were forced into firesale mode ultimately liquidating the entire fund for pennies on the dollar. Anyone invested in that fund lost everything that was invested.

5. What is happening right now is that the largest banks lack capital themselves. As a consequence they are starting to squeeze anyone who has an upside down loan, starting with businesses first. The banks need capital, either cash or hard assets. These funds all took out positions based on expectations of further growth at the same time the economy was beginning to slow and now is starting to actually contract. Everyone globally is short cash but the banks are in the best position to squeeze others. However, even the banks are facing trouble. The FDIC is apparently expecting 100-200 bank failures in the next 24 months. This compares to zero failures from 2005-2007.

6. The cash problem is also affecting the bond markets where muni bond sales have collapsed almost completely. Consequently cities and states are being forced to cut services.

Sacramento is cutting their entire workforce 10%. Vallejo, CA is on the verge of bankruptcy. El Dorado county, CA is cutting budget.

The entire state of Arizona is in trouble. (Warning! PDF!)
Quoting from the PDF:

Total January General Fund revenue collections were $849.3 million, or (16.1)% below January of last year. This amount was $(226.2) million below the forecast based on the June enacted state budget.

For the first 7 months of FY 2008, General Fund collections are down (3.5)% when compared to last year, and are $(619.2) million less than the enacted forecast. When factoring in Urban Revenue Sharing, year-to-date collections are (5.1)% below last year.

The January decrease represents the largest percentage year over year decline since April 2002. The dramatic drop in January revenues was across the board in all 3 main revenue categories:

* Sales tax collections were down (7.5)% compared to January 2007, and were $(71.9) million short of the monthly forecast. This is the largest percentage year over year decrease since at least FY 1991.
* Individual income tax collections were down (11.9)%, which was $(98.7) million below forecast.
* Corporate income tax collections were (138.9)% below last year, and $(35.7) million below the forecast.

7. Last month, William Poole, the President of the Federal Reserve Bank of St. Louis, wrote about the problems of "moral hazard" that are showing up right now.

This is all part of the problem that Bernanke is trying to address. The Fed providing liquidity is not helping because liquidity is not the problem. The core problem is that the financial institutions themselves don't even trust each other right now. Bernanke has to solve that problem. How does he solve that? I don't know and it's going to be hard but if he doesn't the entire banking system comes down. Meanwhile, as the Fed does provide more liquidity this causes worsening inflation and further collapses in the dollar. In January 2007, it tool $1.39 to buy 1.00 Euros. Today it takes $1.52 to buy 1.00 Euros. The dollar is collapsing in value globally at a 10% annual rate because we are holding interest rates too low. Meanwhile this is still not helping the banks or other financial institutions because liquidity is not the problem - moral hazard is.

If I were a betting man, I'd be betting on a really bad recession right now. And things could even get worse than that. Why is this important? Because the horsemen of the apocalypse are still riding our direction. Peak oil is not taking a break. Global grain reserves are about to reach the lowest level since 1947. Climate change is accelerating. And now our economic system is coming apart right when we need social and economic stability to confront multiple global problems. If you can't see where this is going, then you shouldn't be reading this blog.

Economists Admit Recession is Here

2008-02-05T17:34:00.000-06:00

The Institute for Supply Management threw cold water on the assumption that we've reached bottom in this mess. In the ISM's January 2008 report they show the economy contracting at an amazing clip. This comes on top of the endless news about the monoline insurers slowly slipping beneath the waves of insolvency. And now the Financial Times warns about commercial real estate property defaults rising. Well, duh, of course businesses are going to go under if they lay off employees who then don't have money to spend. This is a downward spiral and the Fed has already blown a couple of their biggest shots at trying to halt it, without much success. Now if you want detailed info on all this, I suggest that you hop on over to The Automatic Earth and listen to what Stoneleigh and ilargi have to tell you. I'll mention the ongoing financial disaster here as I get around to writing but they cover it daily and are an excellent source of information about the ongoing collapse of the credit markets.

For those of you not paying attention, the climate news remains bad and the crude oil supply remains roughly flat with a tiny uptick at the end of 2007 but already predicted to fall again and OPEC saying they need to cut production. Huh? Wasn't OPEC the one promising to raise production if prices stayed over $70 per barrel and keep it there until it came down? I guess that was just more PR, like the eternal Saudi promise to expand production to 12 mbpd, which failed to materialize in 2004 and then in 2005 and then in 2006 and most recently in 2007.

So basically the oil plateau remains with us at the current time, the climate is growing worse, and the corruption of the American political process continues apace. Nothing new here, aside from the rapidly imploding credit collapse.

The End of Finances?

2008-01-18T15:11:00.000-06:00

So, we have a frightened government and power structure now running around like chickens with their collective heads cut off. We have the far right screaming that "A $3 Trillion Bankruptcy Will Start to Emerge" while the far left shouts "From Sound to Slush: The Stimulus and the Meltdown". Heck, we even have Business Week crying about the "$850 Billion Home Equity Crisis Dead Ahead". While the numbers vary wildly, one thing is consistent - everyone expects even larger losses than those already reported by Wall Street.

What's the reaction on Pennsylvania Avenue to this? Talk of "Bush Considers $800 Tax Rebate For Every Filer" dominates the news while rumors abound that Helicopter Ben and the Federal Reserve will throw caution to the winds and cut the prime rate by a full 100 basis points (a full 1%) either soon or at the next regular meeting at the end of January.

Why are they frightened? Ambac just lost their rating. What does this mean? There is a good chance, not certainty, but good chance that the next 180 days may see financial Armageddon for the entire planet. Right now the insurers for all this debt have been uncovered as bankrupt themselves. Ambac is just the leading edge of this second wave of the financial mess. If you don't understand what this means, then you need to try to educate yourself. But think of it this way - the insurers have certain ratings and they transfer their rating to a financial instrument in exchange for an insurance fee. In normal times when these financial instruments are properly valued and rated, they are properly insured and usually don't default anyway. But now everything is contracting. The insurers are broke and their ratings are being downgraded, which means every single dollar of debt they insured is going to drop in ratings as well, causing a cascading failure of revaluations across the board. So even the $3 trillion headline above is wrong. This could run into the tens or hundreds of trillions of do

In other words, we may be looking at the entire global dollar based fractional reserve banking system resetting to zero. To make matters worse, we are facing the early wave of effects from climate change plus the planetary cries from resource depletion. Like many others I thought we had a bit more time but the collapse of the insurers is going to shake the entire financial foundation. Note that the government may try, as a last ditch effort, to use its own "credit" as backing for the insurers. If this occurs, expect government debt to skyrocket, perhaps as high as 20% for the base rate and all other rates being somewhere above that. Such an attempt would collapse within weeks to months at best and perhaps days at worst. Such an action would be an admission of financial collapse.

We are talking about the potential end of the dollar as a currency. A dollar may shortly be as interesting as a Confederate note - historically interesting but worthless. And into that gaping chasm, the entire human race is running, while at the same time running out of core resources.

The Chinese are said to have a curse, "May you live in interesting times!" It certainly appears that these are going to be interesting times.

90 Days Later

2007-12-25T09:17:00.001-06:00

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.

Why?

2007-10-18T19:00:00.000-05:00

Why am I a doomer? The key question facing humanity post-peak oil is "What is the decline rate going to look like?" Right now nobody has a good answer to that because we're still arguing about whether we've even peaked or not. But ignoring that problem for a moment, whenever peak does arrive, the decline rate question becomes the big one.

The key problem becomes adaptation rate of alternative technologies versus the decline rate of fossil fuels (because natural gas appears to be at or near peak also and coal is not really that far off). If we can adapt as fast or faster than we decline then we may even experience a "boom" of sorts. If we cannot adapt as fast or faster than the decline rate, then we have problems. The exact nature and scope of the problems are not clear and it is not even clear that worse declines would lead to worse problems. Worse declines might trigger an emergency mindset sooner, thus saving us from ourselves, for example.

The problem that most "doomers" see is that historically, no energy shift in the history of industrial society has occurred in less than 50 years, or about 1.5%-2% change annually. Decline rates are already posited to be likely larger than this with the lower bound on decline rates most frequently expected to be around 4% and even industry experts seeing the possibility of 8% declines. Clearly, society has never faced this sort of problem before and therefore this problem is very likely going to require extraordinary measures rather than "business as usual" methods. So far, there has been no "crisis" mindset adopted by any nation in the world and therefore we remain in the "business as usual" mindset. This is what gives many "doomers" concern.

It is important to note that we have the technology to solve these problems but that using the technology we have would result in a society that looks different than the one we have today. Solving the energy crisis would mean denser housing, more transit oriented development, electrification of transportation, and a vast array of other effects that would fall out from those primary changes. Such a society would not necessarily be a bad place to live, just different than the "happy motoring suburbia" we have today, and maybe even better.

The negativity often expressed here is an outgrowth of the lack of response by national governments coupled with the awareness that the problem is already expected to be larger than normal modes of operation can handle. Also, note that many here refuse to accept that we also have massive concurrent problems with climate change, loss of arable soils, fresh water depletion, loss of biodiversity, and overpopulation. These problems are compounded by the extraordinary nature of the projected decline in fossil fuels. It is my belief that all of these problems are technically solvable but technology alone never solved anything by itself. Problem solutions involve politics, i.e. human interaction. If a political solution is not forthcoming then there will not be a solution, regardless of whether technology offers us such a solution or not. So what we need and are not yet getting is a crisis mindset on the political landscape to deal with these sorts of problems. Even in the European nations the notion is "business as usual".

Now, I will say up front that I cannot prove that the "business as usual" methods will definitely fail but, based on history, I can find no example where these business as usual methods have solved problems like these ever before. So by not adopting a crisis mindset througout our entire society, we are taking a gigantic gamble and it is a gamble that history suggests we are going to lose. I am not aware of a single prior civilization that continued to do things the same way and which faced one or more of these kinds of problems that did not collapse. Those civilizations cited by Tainter and Diamond that did survive serious crises, did so by changing urgently. Thus, until I see our society deliberately choosing to succeed, I must assume, based on the historical record, that we will fail (and therefore collapse). Given that many population biologists are of the opinion that we are in serious population overshoot only enabled by our civilization's existence (and dependence on fossil fuels), the loss of that civilization must be presumed to be accompanied by serious loss of life and disintegration of the social structure, as has happened repeatedly throughout history.

Let's watch the next 90 days

2007-09-17T09:24:00.000-05:00

There are longer term trends emerging in the biosphere and we'll just have to wait on mother nature to reveal those to us when she is ready. She's not going to be rushed or held back by us. But closer to home I am watching the frantic economic hokum try to play out. Of interest was last week's run on Northern Rock, one of Britain's largest banks. That run caused a 31% drop in value and today it dropped another 30% as Britons withdrew billions of pounds from the troubled financial institution. This comes on top of a run on Countrywide bank in the United States last month by Hollywood's own stars and moguls, some of whom withdrew millions. One starts to wonder if bank runs will begin to spread and what the official reaction will be if they do spread. Have YOU got enough cash on hand if there is a bank holiday declared? No? Well tough cookies if your bank closes due to a "bank holiday" and you cannot cash a check or even do check based or electronic transactions!

Meanwhile today the Federal Reserve has (so far) injected $16.75 billion into the markets. Not too long ago we used to see one or two Fed actions per week, totaling $2 to $5 billion for the week. Now we see actions like that every day with at least once per week going into double digits, and sometimes even more often. If you check the Temporary Open Market Actions record for the Fed, and view the historical data, you can see a steady increase in Fed intervention over the last 18 months to where we are today, with near daily injections of credit. You'll also note that the market tends to be soft all week until Thursday when, on most weeks, the Fed does a double digit injection. Since they just did a double digit injection today, will they do another Thursday? And has anyone accounted for all these digi-dollars and what they are going to do to inflation globally?

So all this comes down to watching the next 90 days with some interest, because, if humans are capable of anything, it is upstaging mother nature. And we may be about to enter a period where we try to do just that, at least for a little while. The Taiwan situation is heating up a little bit. George Bush began beating the drums of war against Iran right on predicted schedule after Labor Day. Even France is now warning of war with Iran while the Bush administration continues to leak larger and larger target lists inside Iran. The current count is up to 2000 targets, and remember that Bush wants to use B61 "bunker buster" nuclear warheads which have dialable yields from 0.5 KT to 170 KT of TNT equivalent explosives. For reference, the Hiroshima and Nagasaki weapons were in the 15-20KT range so these are "city destroyers" if dialed high enough.

NATO and Russia continue to not see eye-to-eye over deployment of nuclear weapons with Russia recently threatening to deploy nuclear weapons in a very dangerous location - Kalingrad. And, of course, the economic house of cards is trying to fall apart. And oh! Did you see Alan Greenspan taking Bush to task by publicly stating that Iraq was always mainly about oil?

Meanwhile, back in the real world, Rembrandt Koppelear's Monthly Oil Watch Report for September is out and documents the continuing decline of global oil production. That's right, people. Despite record high prices, oil production is continuing to decline. This is the exact opposite of what economic "theory" tells you should happen, unless the resource is, indeed, finite and constrained and past its peak of production. Daily production was 84.60 million b/d in August 2007 compared to 85.454 million b/d in August 2006. And worse, we are down 1.53 million b/d from the July 2006 all-liquids peak of 86.13 million b/d. Note also that plain old Crude and Condensate (which excludes natural gas liquids, biofuels, and other non-petroleum liquids), peaked in May 2005 and has been lower than that in every month since and showing a generally declining trend.

And oh yeah! The arctic ice sheet is still out there, isn't it? Well thank goodness that it appears to have stopped melting, right? I mean, after all, establishing a new record low of 2.92 million square kilometers of ice, more than 1 million square kilometers lower than the previous record, is just an anomaly, right? Nothing to worry your little head about here. Move along! Move along! But do you want to get really weird? See the September 12th comments at Cryosphere Today - ice mass in the Antarctic is setting record highs!

I think we are starting to see the beginnings of extremely harsh and violent climate shifts beginning, while at the same time the current mythology of homo sapiens (growth economics) is about to blow up in our collective faces, and further, we have a madman in the White House who is prepared to risk starting World War III.

"May you live in interesting times," goes the old Chinese curse. I think we're there, don't you? If we get through the next 90 days without some major problems, I will probably breathe a great big sigh of relief, at least for the short term. Oh... and let's hope we get lucky and have another warm winter in the US and Europe this year. Might as well hope for all the fairy tales to come true at once, right?

Random Thoughts

2007-09-05T15:45:00.000-05:00

This is just a collection of random thoughts and observations.

Just the other day I was debating a retired professor of economics. Like so many others who believe in economics, he cannot even see that there is no real science there, just theology. We went roundabout on the topic of changes to statistical gathering methods made by the government since the 1970s intended to paint a better picture than actually exists but even after finally admitting that he could not compare 1970s data to 2007 data, he wanted me to bet him whether the 2007 data for the fourth quarter would be "positive" or not... using the government's own statistics to settle the bet, of course. The sheer hypocrisy and ignorance that he demonstrated throughout that discussion should give great pause to any of you who still think that homo sapiens is a "rational" animal and that this rationality is leading somewhere sensible.

I've also noticed that the arctic meltdown has entered the mainstream media, at least briefly. I don't expect it to displace Hollywood stars though. After all, this culture has to focus on what's really important, not piddling things like destroying the planet, right? Nonetheless, we are establishing new record lows for Arctic sea ice, more than a million square kilometers below the old record of just 2 years ago. Has this turned exponential? You can't say for sure based on one year's data but my gut feel is that it has.

And the naysayers are out in force now that it is September. They are picking on Matthew Simmons who said IF we have a bad combination of circumstances that global oil and especially gasoline tightness could result in much unpleasantness here at home. Well so far it happens that the US of A has managed to escape any unpleasantness this summer. Hurricanes have luckily steered south and there's been no huge need for a surge of gasoline in any one week. Lucky for us but there are the cornucopians claiming Simmons said something he did not say and then trying to crucify him for it.

Meanwhile, the credit crunch continues with some extraordinary borrowing in the last two weeks from the Fed to customers. Certain Fed customers are getting loans (via repos) at 0% to 1%!! Check out the temporary open market actions by the NY Federal Reserve, which is the branch of the Fed that does this if you want to see what I mean. Look at the late August period for examples. (You can always get that from the historical series even if it falls off the most recent 25 actions list.) So who is getting the sweet deals with very cheap money exactly when the Fed says money should not be getting cheaper? Methinks Bernanke speaks with a forked tongue.

Worse, on Thursday, September 6, the Fed injected a near record $31.25 billion dollars into the economy. (Look for the September 6, 2007 data in the above Temporary Open Market Actions link.) Unfortunately, it's not going anywhere from all accounts. The inner circle of "credit worthy" banks to whom the Fed has restricted its lending does not seem to be lending this money back out except at exorbitant rates so no one is borrowing. (You can see this rate discrepancy in the T-Bill/LIBOR difference.)

At the same time there is no letup in what is happening out in the real world. Mortgage foreclosures are at record highs and not turning downward it seems. Unemployment is far worse than the BLS is letting on as they revise prior months and try to put the best face on the current month. So far today (September 7th), the DOW is down over 200 points though it looks like the PPT is just trying to run a holding action and keep it from utterly crashing while the Fed figures out their next move since the inter-bank lending has apparently all but dried up.

Meanwhile oil is testing its old highs as demand remains stiff and OPEC refuses to budge. The prior drops in oil were directly attributed to market players trying to raise cash to protect other positions. Now that wave of selling has ended and oil has popped right back up near $80 per barrel. Then add in Israeli overflights of Syria to which Syria responded with anti-aircraft fire and we have the makings of a reintroduction of the $15 "fear premium".

And then there are the curious military activities over the next month, roughly. We have (a) an Air Force stand down action (which they did right before and during 9/11), (b) an Army exercise aimed at simulating the declaration of martial law throughout a large portion of the United States, and (c) a Homeland Security exercise aimed at simulating the detonation of "dirty" radioactive bombs in Guam, Phoenix, and Portland (recalling the locations from memory so don't quote me on those). We also just had the "accidental" overflight of a B-52 carrying nukes through the center of the United States, which is not supposed to happen. Except that it landed at Barksdale Air Force base and Barksdale is from where we ran the last set of Middle Eastern B-52 and B-2 attack flights at the start of the Iraq war. Curious, no?

Finally we have the massive anonymous short positions against the European and US stock markets that expire before the end of September, all betting that both markets will decline by 30% from their record highs.

This is all just so surreal that I can't believe I am seeing it happen. If we get a real event on US soil in the next two months and if it is radiological in nature, I will be firmly convinced that we will be witnessing a false flag operation by the Bush administration to further consolidate domestic power and to incite public reaction against Iran to allow for war.

But I am going to keep telling myself that this is all just coincidence - unless the radiological event really happens. Then look for the market crash and the US to hit Iran with a massive nuclear strike. And if that happens, all bets are off as to where we go then.

The Arctic Crisis Worsens

2007-08-30T11:10:00.000-05:00

Remember when I told you that We've Crossed a Threshold...? Well, have you been paying attention? I strongly suggest you visit The Cryosphere Today and read the entries for August 9, 2007 then the entry for August 28, 2007. I'll wait while you go do that.

Ok, read those entries? Has it sunk in yet? Sea ice reached a record low on August 9 of 3.98 million square kilometers. That is an all-time record with 6 weeks roughly left to go in the melt season. Now please pay attention. The sea ice minimum in the 1970s was 5.5 million square kilometers. Then in the 1980s it was 5.0 million square kilometers. Then in the 1990s it reached 4.5 million square kilometers. Then by 2005 we touched 4.01 million square kilometers as the prior record.

Then comes 2007. Oh my, does 2007 come roaring by! On August 9, 2007 we set a new record low of 3.98 million square kilometers! But just 19 days later we set a new minimum of 2.99 million square kilometers.

Did you get that yet? We lost one million square kilometers of sea ice in 19 days. People told me in email that I was nuts for projecting a sea ice free arctic by 2010 but guess who is laughing now? The jackasses out there still refuse to acknowledge that we are in a positive feedback loop. The change in sea ice level is definitely not linear yet the IPCC still refuses to model it any way except linear! And all of that open water is dark color and absorbs yet more heat rather than white and reflecting it away. What is this doing to the Greenland ice sheet? Anyone care to speculate? It sure is not going to make that ice sheet colder or more stable!

And yet the world continues to plod along, sleepwalking straight into the jaws of hell, throwing away all we have accomplished by being faithful to myths, superstitions, and lies. Our culture is showing that it is more important to continue the illusion of "business as usual" than to react to the multiple crises around us. Our culture is demonstrating its collective insanity.

I want to urge each of you to read Jared Diamond's Collapse: How Societies Choose to Fail or Succeed. You need to understand that when there is harsh environmental mismanagement that any society's response to the damage it has inflicted becomes the ultimate arbiter of that society's ability to succeed. You need to understand that we are literally destroying our environment around us on a scale and with speed never before experienced in human history. You need to understand that "destruction of natural habitats (mainly through deforestation); reduction of wild foods; loss of biodiversity; erosion of soil; depletion of natural resources; pollution of freshwater; maximizing of natural photosynthetic resources; introduction by humans of toxins and alien species; artificially induced climate change; and, finally, overpopulation and its impact" are a combination of problems that no human civilization has faced all at once ever before. You need to realize that we are doing this on a global scale. And finally, you need to realize that you are destroying yourself as well as any future descendants.

Of course, no one will react to this. Some of you will read it and shrug. A few will read it and feel "concern" but actually change your lifestyle? Not a bloody chance. No, this is Chaco Canyon on a global scale and you are all going to be the players in this horror story. And when it comes to you eating your neighbor and whining about it, will any of you think that you could have done something to avoid that fate?

The mind simply boggles at the ignorance

2007-08-14T15:08:00.000-05:00

Reading TOD these days has become an exercise in self-discipline, enforcing a "do not reply" zone around the idiots, morons, and scientific illiterates that populate the place. So there I am reading a comment in Drumbeats and the responses just get me laughing til I cannot stop. One each theantidoomer is raving like a lunatic about electric charging stations and how "easy" it will be to put these everywhere. Then Twilight dutifully takes him to task, walking him through the insane math of the situation, showing why such charging stations simply cannot exist, at least not easily nor quickly. And then the ignorant replies begin, starting with theantidoomer himself who simply dismisses the physics of the problems with a wave of his hand and then asks why not (on charging stations)?

Is it any wonder why these morons who believe in magical technology are considered scientifically illiterate dreamers? Replies like this just leave you shaking your head. Of course we might be able to build the recharging stations to do this but as Twilight points out, it is one massive hellacious engineering problem! It is non-trivial in the extreme and it shows why we need to move to electrified mass transit rather than more cars. Yet there are the defenders of the suburban craziness inventing even more nonsense out of thin air to defend their non-sustainable way of life.

Meanwhile, right there on TOD, Rembrandt has published Oil Watch Monthly - August 2007 and the data sits there, ignored by the cornucopians. Global exports are down by nearly 5% year over year. That's 5% in the second year post-peak if May 2005 was the actual peak. This is when all the happy faced people insisted that decline would be so small as to not be noticeable yet we have 1.6% decline in actual C&C production and over 5% decline in exports. It sure looks like Jeffrey Brown's "Export Land Model" (ELM) is kicking in to me!

And then the massive ignorance of the financial system that surrounds us and controls us! Capital is just not written off to the tune of tens of trillions of dollars. It cannot be. It has been invested and the world is relying on those investments producing more real products that can then be reinvested downstream. If those products never come forth there can never be a conversion to alternatives. If we cannot amortize the costs already invested, we cannot get our money out to reinvest! This means we go broke and have no capital with which to invest. But hey, the techno-geeks just gloss over this too and assume that where there is a will there must be a way. Yet if a doomer decries the capitalist system, these same people who shrug off the limits of that system arise immediately to defend it. It's absurd comedy. You couldn't make this stuff up and our survivors descended from us won't even be able to understand the depths of this insanity.

At the end of it all you don't know whether to laugh or to cry, the replies become so absurd, like Roger Connor building straw men to knock down to dismiss the doomers. Hey Roger! Have a clue - it does not matter how many straw men you knock down! When mother nature comes to call for you, she is still going to haul away your ass to the fertilizer pile somewhere. Be afraid, Roger. Be very afraid, because the future is looking to feed on people just like you.

We've crossed a threshold...

2007-08-08T17:56:00.000-05:00

This is important, really important. In the summer of 2007 we have crossed some threshold, what others have called a tipping point. Something dramatic has occurred in the Arctic.

If you watch the following animation (credit to BostonGeologist at TOD) it shows the extent of melting for August 7, 2006 versus August 7, 2007. The melt rate has been increasing at a constant rate since 2000 when then last change occurred. But this change is even larger than the last change. There is a good chance that the old minimum ice extent may be broken by 25% or more before the melt season is done. The rate of ice melt has turned up sharply. This has implications for both the Arctic ice sheet and the Greenland ice mass as well. Further, this has implications for the thermohaline circulation.

What is now occurring may have crossed the line into the unstoppable. Dr. James Hansen's belief that we had 10 more years to stop global warming may be 10 years too wrong. And Hansen is derided as an extremist! People need to look around at what is occurring!

Very clearly we have crossed a threshold where the positive feedback forces are growing stronger at an exponential rate. The summer Arctic ice sheet may have less than five years left at this rate, maybe as little as three years. And the Greenland ice sheet just became a terrible unknown, whose melt rate has always exceeded prediction after prediction and now it may jump upward yet again.

There are two possibilities for the future here. The first, and most likely insofar as our limited understanding can discern, is runaway warming resulting in a much hotter planet, rapid desertification, loss of agricultural land, loss of fresh water supplies, and destruction of civilization. The less likely is just as bad with the climate being pushed into a warming event that ends the current warm period and thrusts us into another ice age. Both of these consequences can occur suddenly. Climate shifts have been recorded that happened in as little as five years and the typical climate shift is a few decades max.

And note that our civilization collectively refuses to do anything about climate change. We won't act until it is too late. I am now officially expecting something dramatic on the climate front this fall. I hope I am wrong but let's see what we get. It's almost too late now to prepare if you haven't been preparing already but you still have a tiny window. Remember, you were warned. Don't cry to me about your situation if your world suddenly changes for the worse.

Ace's Updated Forecasts

2007-08-06T12:15:00.000-05:00

Ace updated his bottom-up analysis over at The Oil Drum recently. The were only two pieces of good news in there. The first was that there should be a roughly 1.5 million barrel per day increase in the production of NGLs beginning in the middle of next year and peaking by the fall. Unfortunately, that NGL peak tails off as soon as it is reached, basically sitting on a very slowly declining plateau thereafter. The second was that we should see global growth in ethanol by another 1.5mbpd but again, it hits a plateau and stops. And worse, ethanol takes from 2007 to 2012 to gain that 1.5 mbpd while C&C declines by 9mbpd over the same period.

Unfortunately global C&C production has already declined by 1% from last year. That 1% decline more than offset any other gains so far and with another 1% decline next year, this will mean that the NGLs and initial ethanol coming onstream will barely replace the prior two years of decline in production. After that it is all downhill, and rapidly, with decline rates forecast for about 4% annually. And this is a 4% decline with the ethanol and NGLs factored in which leaves us dropping from 86 mbpd to about 76 mbpd by late 2012. If we assume anything remotely approaching a similar economic response to the last time such a large drop in production occurred, then oil should triple to quadruple in price. That's right - we're talking about $200 per barrel oil by 2012.

The economic impact of this will be unlike anything most people living today can possibly understand. What's happening now in the credit markets is only the tip of the iceberg. Most of the baby boomers were either in college or young adults or older teens at the time the last such decline occurred and it happened quickly, was over quickly, and was only 5% of production. This time it is forever, with production falling endlessly until we approach bottom. I am going to recommend something that most of you will not do but I'll recommend it anyway. Go visit Survival Acres and order 6 months of stored food. Yeah, I know you don't really believe this is happening or that the government will take care of you. Too bad. I even recommend this for people living on farms and such, unless they already have 6 months or more of food stored anyway.

For those of you expecting an intelligent response to the looming energy crisis, I suggest reading Robert Rapier's Pure Venom article. Robert has a track record of telling it as he sees it, regardless of whether it's good or bad for his industry. I've disagreed with Robert in the past but I respect his positions because they are well-researched and intelligently thought out just about every time. You might also consider the words of Professor Ken Deffeyes about the recent National Petroleum Council report. (Note: I will try to update that to a more permanent link once he puts it in his archives.)

None of the babble coming from the vast majority of politicians these days looks very realistic. Most of it is noise wrapped around vote buying bills that assume that these converging crises are not real and will pass away so that the good times can roll again. Too bad that Ponzi schemes have to always come to an end, eh?

Have we entered the downslope?

2007-07-31T02:13:00.000-05:00

Over at The Oil Drum recently, Ace, one of their contributors, made the following comment:

"According to IEA, current Peak Oil (total liquids) is potentially 86.13 mbd on Jul 2006. One year later, production in Jun 2007 was 84.3 mbd, which is a drop of 1.83 mbd or just over 2%/yr. This is a bigger drop than I have forecast! I hope that Jun 2007 was just an unusual month."

This is a shocking observation! While the world twiddles its collective thumbs, while the dark recesses of the human brain scream that what is happening cannot be happening, here we have this odd little fact sticking out at us.

Ace again raised this issue near the bottom of the July 30th Drumbeat section. It was again met with either raw silence or incredulity from those that saw it. Hopefully Ace will be posting more soon on his bottom up analysis which now points to peak liquids as possibly having passed by already.

This is fairly serious because if the decline rate now, at the very beginning of the downslope is 2% when it is supposed to be at its mildest, just how bad is it going to get? If 2005 was peak C&C, and if 2006 was peak liquids, and if 2% is the current decline rate at the start of the downslope, then all bets are off people. The peak decline rate may soar into the double digits somewhere, perhaps 10% to even 20%. Right now it's all a rather large crapshoot but the preliminary data do not support the happy faced crowd at all.

This fall is looking more and more like a period of initial shock and awe as nature may begin to assert real limits against a rapacious humanity. And if that happens, there is no telling what reactions will be like around the world. The race may be on for the remaining global resources and that race will not be a free market race at all. Instead it will be a military race with all that this implies.

They are Angry! Very very Angry!

2007-07-23T15:30:00.001-05:00

The Oil Drum is getting amusing lately. I opened up TOD and the techno-cornucopians are going nuts over anything that does not promote or espouse their agenda. The poster named Asebius, reveals himself to be a self-proclaimed "centrist" who wants to automatically tar and feather anyone associated with TOD as "terrorists", maybe so that his fedgov homeboys can come along and shut down that blog. In fact, Asebius is quite full of himself but he's not the only one. The esteemed (not) luisdias is in that group too as well as a few others. Now I just recently wrote about this in They Took The Blue Pill and in Techno Geek Optimism but this latest outburst looks positively silly.

After the Asebius incident, in which Professor Goose finally had to give him a public warning for being disruptive, we followed that up with more of the same the following day. Oilmanbob and others kept running off the end of the proverbial fishing pier rather than showing any reasonableness at all. Of course this was all one sided and aimed at anyone who possessed an opinion that things would turn out less than perfectly according to the particular poster's own utopian visions. Such venom was never aimed at anyone who suggested things might turn out better than the positivists expected. No, those espousing positive views had to be "debated" and respected. All quite absurd. Oilmanbob even tried the very typical ploy of playing psychoanalyst online and recommending that I take Prozac for my "depression". It was quite the laugh, especially when he revealed that he is the one that is clinically depressed and taking various drugs yet projecting his own problems on everyone else.

And further, Professor Goose at TOD also ran an article titled A Request to Our Readers about how TOD is being blacklisted by Reddit and Digg. Then he had another post, titled Peak Oil Media Redux (Or "The Course of Our Lives WILL Be Determined by the First Derivative of a Function, Redux), in which he praised certain basic materials useful for understanding peak oil, such as Dr. Albert Bartlett's presentation amongst others. Both of these articles generated much heat and little light. The techno geeks were there in full force actively shouting down any opposing viewpoint and making it very clear that for them there is no other future other than success. No planning for a rainy day from that crowd, let alone planning for a massive disruption.

Matt Savinar asked Professor Goose if he was ready yet to accept the notion that he cannot change the world, that neither he nor the rest of the TOD staff would receive positions of high importance in some new world energy order, and if they would instead decide to focus on some form of preparation for what he views as inevitable. There has been no reply yet from the good professor but I fully expect him to continue tilting at windmills because that is what he's chosen to do. In the case of Professor Goose, I suspect that it is a conscious decision and that he realizes the consequences of being wrong much as Alan Drake realizes it. But most of those at TOD who keep calling any position more negative than their own "extreme" don't realize that according to the rest of the world they are extremists too.

Most of these people don't realize that anyone who argues against the current planetary religion (infinite growth economics) is viewed as a heretic and even a bit insane. Any position that does not allow for sustained growth is viewed as unacceptable. Oh, if you challenge the average man in the street he says he realizes that growth cannot continue forever and he may even say something like "Besides, we're just going to continue growing throughout my life and my children's lives. Surely some brilliant human being will solve this problem for us before it becomes acute, right?"

It's never the responsibility of someone today to change that pattern of behavior. It's always assumed that someone tomorrow will provide a solution that stops growth yet avoids all the negative fallout from that.

And then there is population - the 800 pound pink gorilla in the room that everyone ignores. Even if we solve peak oil, we still have huge numbers of problems facing us, any single one of which could destroy our civilization. What is worse is that most people do not realize that these problems are all intertwined and they are not all arriving at close to the same time by chance but because they feed on each other.

The optimistic silliness is pretty deep at TOD lately. I am not talking about people discussing specific technical approaches to particular problems, even when I don't fully agree with them. The key posts by Professor Goose and all the other contributors and editors at TOD remain top notch and interesting to read. It's in the comments section that it has become looney toons time, with those who choose to shout down any idea they dislike as "doomer porn" demonstrating the deep seated fears in the dark corners of the human brain.

People will undoubtedly again accuse me of wanting civilization to fail. I've said before that I do not want this to happen. I just see it as a sad yet inevitable outcome due to our collective desire to ignore the problems until they become too large to address. Other people will accuse me of various other things without even knowing me personally. They will also accuse anyone else who sees collapse as strongly possible. This is exactly the sort of reaction that will stifle further debate, that will push consideration of the worst case scenarios off the table, and allow the business-as-usual crowd to urge no action on any of these issues at all. In fact, this is exactly what the business-as-usual crowd wants - to see any other perspective marginalized so that it does not threaten business-as-usual. It's when you realize that and then realize we are seeing this happen before our very eyes that you come to the conclusion that things may be worse than people think, precisely because of the human interactions (politics) and human state of mind (psychology).

Afraid of Extremes

2007-07-17T14:02:00.001-05:00

Scientists are often critical of businessmen for expecting things to stay the same rather than change. Yet scientists exhibit the exact same reluctance to consider change as well even when faced with it clearly. The Big Thaw, a National Geographic article about global melting ice and its consequences, treads fearfully around the topic of ice melt. The article cautiously quotes the International Panel on Climate Change (IPCC) about sea level rise claiming we might see a foot by 2100. Then it gets braver and talks about 3 feet of rise by 2100. These scientists are terrified of being seen as extremists if they say anything more yet the geologic history tells us to be terrified.

Dr. James Hansen, the most outspoken and well known of the climatologists concerned with global warming, has recently published a paper titled Climate Change and Trace Gases. The paper was presented in the British Journal Philosophic Transactions of the Royal Society. In this paper, Dr. Hansen notes that in prior warming periods the ice did not melt slowly after the temperature warmed. Indeed, the ice melted rapidly while it warmed. Further, Dr. Hansen shows that the last time the earth was this warm and then warmed another 3 degrees centigrade that the ocean levels did not rise 30 cm (about 1 foot) at all. No, indeed the ocean levels rose more than 25 meters. Worse, as Hansen demonstrates, the bulk of the sea level rise comes during the temperature rise. This means if we see 3 degrees celsius rise in temperatures, that we logically should not expect a 30 cm rise in sea levels at all. In other words, Hansen is warning that sea levels may rise by 25 meters between now and 2100!

Think about this. Even if we divide the rise unevenly and ascribe 80% of the sea level rise to a time after 2050, that still means we would likely see 5 meters (16 feet) of rise before 2050. That's a foot every 3 years or 4 feet in 12 years. And if the rise is more even? Then it would be more like a meter (3+ feet) every 4 years, or 12 feet every 12 years. We're talking about a 82+ foot sea level rise in a century and no, it won't all wait til after you are dead to happen.

That is the real data from paleoclimatology sources about what happened before. It wasn't a linear relationship at all which is what the IPCC assumes. It was an exponential relationship with positive feedback loops built into it. We know that. These climate scientists know that. They've read the papers. They've studied these specific topics in school and professionally. And yet despite factual evidence, none of these scientists in the National Geographic article is willing to admit the possibility that we might see similar melts as past evidence tells us. Instead they try to believe that tomorrow is going to be just like today or so little different that it does not matter.

I bring this up not because of the sea level rise issue, which is important in itself, but because it demonstrates the powerful human tendency to want to believe that tomorrow will be similar to today and to deny facts about tomorrow when those facts get in the way of this belief. This is happening with climatologists who have been trained to think critically, examine facts, and consider impacts on the future yet they still tend towards the human norm of expecting tomorrow to be like today.

Given this sort of behavior by even those with clear training otherwise amongst us, why would our leaders, the politicians of the world, ever be expected to consider anything except "business as usual" for what is coming?

Now go on and couple this sort of mental attitude amongst trained scientists with the sort of outlook that covers up problems such as those found at Kashawazaki nuclear power plant after the earthquake. These are the trained professionals whom the rest of us rely upon for clearheaded thinking. The entire world is refusing to consider the radical impact of resource scarcity (peak oil included) and climate change. At most it is simply an excuse to party or get rich in the current business climate by trading carbon credits.

These are the people who are supposed to be leading us through the wilderness of these difficult times. These are the people in whose judgments we entrust our futures and our children's futures. Are you getting a sense yet that our culture is sick? Are you getting a sense yet that our culture is in denial?

They took the blue pill

2007-07-13T20:18:00.000-05:00

So I open up The Oil Drum and what do I see? It's a thread to discuss The NPC Report. And immediately I see many people very upset that a hand picked council headed by Lee Raymond (former CEO of Exxon) comes to the conclusion that no peak in oil is imminent and that all is pretty much ok, with a few tiny caveats. There is yelling, screaming, and a great deal of incredulous shock that anyone could say this in the face of the evidence of the last several years. There is great cries calling for more activism, more publicity, more, more, more... well more something, anything to change the minds of those that refuse to accept what is happening.

I dissented, which got a rather poor reception. I told them that the general public has taken the blue pill and they don't want to be bothered with reality. In my opinion, the optimal course now is assisting some group (maybe an entire town) as it transitions to the post-peak age. Concentrate on the local with an eye towards utter and total disaster and hope that things don't get that bad. But certainly do have a plan in case they do get that bad. Odds are very high against you and yours getting through the coming bottleneck but that's what you should worry about, not the other 6.5 billion people on the planet. They've chosen the path they are on and they don't want off. They don't want to even hear of getting off. So focus on saving yourself and those close to you. Do whatever you can to maximize your chances no matter how small. Any edge you give yourself is an edge that those who die will not have. And trust me, as the ecosystem goes to crap, and as the resource game advances, there will be plenty of opportunity for the unprepared to rejoin the ecosystem as fertilizer.

Someone suggested I get more specific. There's no point in having that discussion at TOD, none at all. The TOD staff don't even like to admit that anything other than a happy ending can occur to all this. They just want credit for being the ones to warn humanity and "save" it from itself.

Well I have a question for those peak oil activists - when is it time to do something different? What is your cutoff when you say no more, I can't help, I have to focus on myself because the rest of you chose to be dead? I'll bet that most of the TOD activists, who believe peak oil is bad but that everything can somehow still be saved, have never even considered those questions. They just have faith that if they proselytize long enough that everything will turn out fine.

I wish them all the luck in the world and then some, because, believe me, they will need it.

And no, I am not planning to rescue your ass when things go south. I'll be too busy trying to rescue mine and those dear to me.

Techno Geek Optimism

2007-07-03T11:44:00.001-05:00

It never ceases to amaze me when otherwise bright people assume that just because something is technically doable that it must automatically happen and be doable. This happens constantly, probably because over the last few centuries there have been more cases of success than failures. In the 1860s, machine labor was clearly already superior to slave labor yet technology did not inevitably supplant slavery without fighting a very destructive and very human civil war.

The latest bit of techno euphoria is from Euan Mearns over at The Oil Drum in a piece entitled "Crisis? What energy crisis?" and which appears to put forth the notion that all will be well because all must be well. Further down in the comments section, Euan actually admits to worries about certain things so even the techno euphoria isn't enough to fully cloud the brain about looming issues.

I've stated this to other people and I've never gotten a satisfactory answer but if technology is the be-all and end-all of every human decision then why isn't New Orleans rebuilt yet? It's only been two years. Surely in two years we could have mustered the technological prowess in the most powerful, richest nation on the planet to rebuild one single rather smallish city that was hit by a hurricane? And yet the city remains far from rebuilt, not because of technology but because of the human factor, because of politics.

I told Euan that it is not technology that I fear. I fear Bush, Putin, Blair, Clinton (both of them), and others. Anyone who believes that these people will willingly give up power to preserve some kind of civilization has far more faith in our leaders than I do. As a counterpoint, I can think of exactly one leader in the last 50 years who would do exactly that, step aside to allow civilization to reorganize and change and that man was Jimmy Carter. I didn't always agree with Jimmy then nor do I always agree with him now, but I do greatly respect him. I don't know many ex-presidents or ex-prime ministers who go out and build houses for the poor on a regular basis.

Juggling Balls

2007-06-09T10:54:00.001-05:00

So now we have NASA reporting that the interior of Antarctica is showing early signs of melting, an event that should not even have occurred in this century if current warming models are correct. Then along comes news that Greenland's ice sheet is melting faster than previously thought, which is amusing because every time they measure it, the melt is getting faster. And the Bush administration continues to dawdle along, not taking any action at all to change CO2 emissions because it might hurt the economy.

Well, how is the economy doing? According to the government's own stats, it's not so hot. The number that normally gets reported in the media is the "core" Consumer Price Index (CPI), which does not include important things like energy or food. How they can realistically calculate inflation while excluding energy or food begs the imagination but that is what they do. However, there are additional numbers that the news media simply normally do not report that tell us what is really happening. So let's look at this chart:

Year	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec	Annual	HALF1	HALF2

1967	98.6	98.7	98.9	99.1	99.4	99.7	100.2	100.5	100.7	101.0	101.3	101.6	100.0
1968	102.0	102.3	102.8	103.1	103.4	104.0	104.5	104.8	105.1	105.7	106.1	106.4	104.2
1969	106.7	107.1	108.0	108.7	109.0	109.7	110.2	110.7	111.2	111.6	112.2	112.9	109.8
1970	113.3	113.9	114.5	115.2	115.7	116.3	116.7	116.9	117.5	118.1	118.5	119.1	116.3
1971	119.2	119.4	119.8	120.2	120.8	121.5	121.8	122.1	122.2	122.4	122.6	123.1	121.3
1972	123.2	123.8	124.0	124.3	124.7	125.0	125.5	125.7	126.2	126.6	126.9	127.3	125.3
1973	127.7	128.6	129.8	130.7	131.5	132.4	132.7	135.1	135.5	136.6	137.6	138.5	133.1
1974	139.7	141.5	143.1	143.9	145.5	146.9	148.0	149.9	151.7	153.0	154.3	155.4	147.7
1975	156.1	157.2	157.8	158.6	159.3	160.6	162.3	162.8	163.6	164.6	165.6	166.3	161.2
1976	166.7	167.1	167.5	168.2	169.2	170.1	171.1	171.9	172.6	173.3	173.8	174.3	170.5
1977	175.3	177.1	178.2	179.6	180.6	181.8	182.6	183.3	184.0	184.5	185.4	186.1	181.5
1978	187.2	188.4	189.8	191.5	193.3	195.3	196.7	197.8	199.3	200.9	202.0	202.9	195.4
1979	204.7	207.1	209.1	211.5	214.1	216.6	218.9	221.1	223.4	225.4	227.5	229.9	217.4
1980	233.2	236.4	239.8	242.5	244.9	247.6	247.8	249.4	251.7	253.9	256.2	258.4	246.8
1981	260.5	263.2	265.1	266.8	269.0	271.3	274.4	276.5	279.3	279.9	280.7	281.5	272.4
1982	282.5	283.4	283.1	284.3	287.1	290.6	292.2	292.8	293.3	294.1	293.6	292.4	289.1
1983	293.1	293.2	293.4	295.5	297.1	298.1	299.3	300.3	301.8	302.6	303.1	303.5	298.4
1984	305.2	306.6	307.3	308.8	309.7	310.7	311.7	313.0	314.5	315.3	315.3	315.5	311.1	308.1	314.2
1985	316.1	317.4	318.8	320.1	321.3	322.3	322.8	323.5	324.5	325.5	326.6	327.4	322.2	319.3	325.1
1986	328.4	327.5	326.0	325.3	326.3	327.9	328.0	328.6	330.2	330.5	330.8	331.1	328.4	326.9	329.9
1987	333.1	334.4	335.9	337.7	338.7	340.1	340.8	342.7	344.4	345.3	345.8	345.7	340.4	336.7	344.1
1988	346.7	347.4	349.0	350.8	352.0	353.5	354.9	356.6	358.9	360.1	360.5	360.9	354.3	349.9	358.7
1989	362.7	364.1	366.2	368.8	370.8	371.7	372.7	373.1	374.6	376.2	377.0	377.6	371.3	367.4	375.2
1990	381.5	383.3	385.5	386.2	386.9	389.1	390.7	394.1	397.5	400.0	400.7	400.9	391.4	385.4	397.3
1991	403.1	403.8	404.3	405.1	406.3	407.3	408.0	409.2	411.1	411.5	412.7	413.0	408.0	405.0	410.9
1992	413.8	415.2	417.2	417.9	418.6	419.9	420.8	422.0	423.2	424.7	425.3	425.2	420.3	417.1	423.5
1993	427.0	428.7	430.1	431.2	432.0	432.4	432.6	433.9	434.7	436.4	436.9	436.8	432.7	430.2	435.2
1994	437.8	439.3	441.1	441.4	441.9	443.3	444.4	446.4	447.5	448.0	448.6	448.4	444.0	440.8	447.2
1995	450.3	452.0	453.5	455.0	455.8	456.7	457.0	458.0	459.0	460.3	460.1	459.9	456.5	453.9	459.1
1996	462.5	464.2	466.5	468.2	469.0	469.5	470.4	471.1	472.7	474.1	475.0	475.0	469.9	466.7	473.1
1997	476.7	478.2	479.3	479.7	479.6	480.2	480.7	481.6	483.0	484.1	483.9	483.2	480.8	479.0	482.8
1998	484.2	484.9	485.8	486.8	487.7	488.2	488.8	489.6	490.1	491.3	491.3	491.0	488.3	486.3	490.4
1999	492.3	492.9	494.4	497.8	497.7	497.9	499.2	500.7	502.9	503.9	504.1	504.1	499.0	495.5	502.5
2000	505.8	508.7	512.8	513.2	513.6	516.5	517.5	517.6	520.3	521.2	521.5	521.1	515.8	511.8	519.9
2001	524.5	526.7	528.0	529.9	532.2	533.3	531.6	531.8	534.0	532.2	531.3	529.2	530.4	529.1	531.7
2002	530.6	532.7	535.5	538.6	538.5	538.9	539.5	541.2	542.1	543.2	543.1	541.9	538.8	535.8	541.8
2003	544.2	548.5	551.8	550.5	549.7	550.4	550.9	553.0	554.7	554.3	552.7	552.1	551.1	549.2	553.0
2004	554.9	557.9	561.5	563.2	566.4	568.2	567.5	567.6	568.7	571.9	572.2	570.1	565.8	562.0	569.7
2005	571.2	574.5	579.0	582.9	582.4	582.6	585.2	588.2	595.4	596.7	592.0	589.4	585.0	578.8	591.2
2006	593.9	595.2	598.6	603.5	606.5	607.8	609.6	610.9	607.9	604.6	603.6	604.5	603.9	600.9	606.9
2007	606.348	609.594	615.145	619.140

These numbers are provided by the BLS themselves via a Java applet. You have the option, on this web page, to report against the original CPI base of 100 in 1967. I chose that option and then selected 1967 as my start year. So what is really happening in the world of inflation? Good question.

The media continues to report inflation rates like 0.4%. First of all that number is relative to the total for the prior month. Since the total is always increasing, the rate of inflation always appears to be going down. But that is also only the inflation rate for that single month. You can annualize it by multiplying it by 12 to see what that month's inflation would look like for the entire year (relative to the prior month). But what happens if we measure inflation against a constant base so that every month can be compared to every other month? Then January of 2007 to February of 2007 saw a change in the rate from 606.348 to 609.594. Against a constant base this was 6% inflation in a single month!! Furthermore, unless you are making 6 times what your counterpart made in 1967, your standard of living has fallen over the last generation. So, if a counterpart to yourself made $15,000 in 1967, you'd need to make over $90,000 in 2007 to be even comparable. Note also what happened between those two months - a 6 base point rise in prices, which annualized, becomes about 60 points, and against a 600 point starting base is about 10% inflation. Keep that number in mind for a moment as you think about the government reporting 2% inflation.

Now let's step away from the government statistics for a while and check out what John William's Government Shadow Stats has to tell us. What John does is "unwind" the yearly manipulations of government statistics so that you can actually compare year to year. The US government does not hide these manipulations. Indeed, they are clearly documented in the appendices to each annual report. But cumulatively these changes constantly attempt to make the current situation look better than it really is. By unwinding these changes to get a common base set of stats, John gets to see what is really going on.

First we get a look at the annual inflation rate:

John clearly shows us that the real inflation rate is vastly higher than the reported rate, something that we detected ourselves when we got the 10% inflation number, which agrees very well with John's own 10% number.

But let's go further and examine the annual GDP for the United States. Bush claims the economy is in better shape than every but is it? What has happened since the dot-com bubble burst?

What we see here is the result of understating inflation and overstating production - the US has been in a depression since 2001 with only a few months of even a fraction of a percent growth back in 2004 and everything else in a slow contraction. So what has kept the apparent bubble going? The housing bubble, which is now beginning to burst, has been the driver to mask the lack of any other growth in the entire economy over this time period. With the housing bubble bursting, this shows clearly that the ongoing depression cannot be hidden much longer unless the Federal Reserve resorts to even higher rates of inflation. Will they do that? That's not for us mere mortals to say but if they do continue to inflate without raising the interest rates, there will be a larger and larger gap between the value of a dollar and borrowing against that dollar. This also explains why so many other nations have, in the last 12 months, begun to unpeg their own currencies from the US dollar. They don't want to be hit when the house of cards collapses. This also explains why China is using its dollar holdings to buy oil and other natural resource deals from Africa. China clearly believes those resources are more valuable than the dollars they are trading.

So we have the climate getting worse and we have the economy actually worse than reported. What else could go wrong? How about our hollow Army? How about dangerously increasing levels of antibiotic resistant versions of old diseases? How about the ongoing problems with Russia rebuilding its arsenal as we try to ram a missile defense shield down their throats after having taken away all the nations that acted as buffer between Russia and a hostile Europe?

There are a whole bunch of dangerous balls in the air right now, folks, and dropping any one of them would be a disaster in itself but what if multiple balls dropped at once? Try to imagine that. And after you imagine that, think about where you are, what you can do to help and protect yourself versus what you have actually done so far.

Facing the Music

2007-05-18T10:05:00.001-05:00

Previously I wrote about broad issues that must be tackled to mitigate the oncoming crises. No mitigation effort that serious has ever taken place in the history of mankind nor do I expect it to happen this time. Instead, we are about to face the music for our collective foolishness and these trials may begin as soon as this summer.

GliderGuider over at TOD Canada has authored a new piece called Peak Oil, Carrying Capacity and Overshoot: Population, the Elephant in the Room. This is one of those rare pieces outside the Dieoff website that dares to try to grapple with the elephant in the room. Unfortunately, as the responses demonstrate, there are still people who believe this problem can be solved and proceed to act in that manner. This was followed by Ecological Footprint, Energy Consumption, and the Looming Collapse by Professor Francois Cellier. Both posts were attacked with absolutely no useful quantitative rebuttals and only emotional rhetoric hinged upon faith-based solutions.

Today we are seeing the crisis a bit closer to home. According to a televised NBC report, barges carrying finished gasoline or gasoline components have been diverted from the east coast to the south to avert spot shortages. And Memorial Day driving has not even begun yet. A government report states that the Minimum Operating Level (MOL) for the gasoline system in the US is 185 million barrels. To understand the MOL, imagine a pipeline 1000 feet long. If you put a gallon of gasoline in one end, it's not going to come out the other end. It will just sit in the pipeline. Instead, the pipeline must be pressurized and filled with gasoline. The pipe might contain 1000 gallons of gasoline, so that when you push one gallon in one end, one gallon can come out the other end. But there is still 1000 gallons in between. That 1000 gallons is the MOL for that pipeline.

Now jump from this hypothetical example to the real world where we have thousands of miles of pipelines crisscrossing the entire country. We need 185 million barrels of gasoline as MOL to keep the national pipeline system pressurized and working. But the MOL gets counted as part of national inventories even though you cannot directly use it without shutting down the pipeline and draining it by hand. This is why the current inventory number of 195 million barrels is worrisome - 185 million of that is MOL, and that leaves just 10 million barrels as real cushion in the system. And how much do we use daily? Well, according to the EIA, for the week ending May 11, 2007, we used 9.4 million barrels per day of gasoline. This means that after we take out MOL, that the US has barely one day's worth of spare supply on hand just as we enter the main driving season. And most people have no clue about what is going on, so consequently they think this will pass shortly and will go off on their annual vacations. This summer may get interesting. All it will take is one single hurricane approaching US landfall to spur a massive auto-based evacuation and then people will find they don't have the fuel to evacuate. The oil companies are in for a gigantic nightmare if motorists are stranded on the highway as a Cat 4 or Cat 5 storm zeroes in on them. And if people die because of this, the public anger is going to be amazing to behold, even if it is misplaced.

Finally, we see another poor nation begin to slide out of the modern age, out of the petroleum age, and into some form of the past. Senegal is experiencing severe shortages of diesel and may have to impose "unprecedented power cuts" (i.e. blackouts). Note that Senegal already has 10 hours of blackout time per day anyway so what could be worse than this? Try maybe no power at all.

As Jeffrey Brown is fond of noting, forced energy conservation is moving up the wealth chain. It started with the poorest nations but it is coming to a neighborhood near you, and perhaps sooner than you think. Or, as Matt Savinar is fond of saying, "The future is here now. It's just not widespread yet."

We're about out of time, people. If you haven't made some preparations by now, things could get very ugly very fast. And even if we muddle through this summer, there is no guarantee that things are going to get better next fall or next year.

Mitigating the Crisis

2007-05-02T10:20:00.001-05:00

Aniya over at TOD has frequently prodded me to write about what a society might look like that successfully mitigates the oncoming horsemen of the apocalypse. I've given this a great deal of thought and I actually can see several such societies. None of them are like our current society though and that is the key differentiator. So as I thought about this, I thought I would first point out what must be done in order to mitigate successfully.

The core problem driving everything else is overpopulation. Those that argue that population is a side effect are missing the point entirely. So the first successful mitigation strategy must be controlling the birth rate. More importantly, the birth rate must fall low enough to produce a contracting population. I can see lots of ways to do this, from police state tactics to more market oriented type solutions. The police state tactics are obvious - look at China. But how about market oriented solutions? One thing the market has always had trouble with is defining the costs to the commons that any activity generates. These are "hidden" costs and economists constantly attempt to debate them. So one solution might be to allow couples to have one child at zero cost. The next child would impose a commons cost tax of 1 x the commons cost of one human life (value - TBD). The third child would impose a commons cost tax of 10 x the commons cost of one human life. Simply keep raising the cost of each subsequent child by one order of magnitude and very shortly people will opt to not have more than one child generally or maybe two. The exact tax numbers here are open to debate. The exact number of children is open to debate. One child? Two? Maybe the second child only invokes a fraction of the commons tax such that most people will have 2 children, a large subset have one and another large subset have zero? The exact values would depend on the rate of decline in population that you would want to achieve.

Further, you can allow couples to trade their zero cost child allowance. Say a couple decides to not have children at all. They could trade that allowance for some fair market value. How much? It depends on the family having the children. For a second or third child, they might pay very dearly for that license. But this still brings us back to what do you do about people who violate the law? Most people focus on the fetus alone but that's not the problem - it's the irresponsible parents. If a couple violates the law, they could be forcibly sterilized and still fined the tax plus punitive amounts on top of that. Further, their existing children might be taken from them as they are not adequate role models.

This all sounds rather horrific to some people and it is but this is the cost of successfully mitigating overpopulation. The population growth must be halted and it must be reversed. Now the exact rate of reversal and towards what target are open to some debate but let's assume that we have a century of time left and a target of 2 billion. This is a roughly 1.2% decline rate per year.

Then there is the general topic of sustainability. Either what we produce must be biodegradable and there must be few enough of us that it properly can biodegrade or it must be completely recycled. There is no in between. Take the Pacific Ocean's subtropical gyre, a region of ocean lacking nutrients to support much ocean life but because of currents has accumulated a surface trash layer of plastic roughly the size of Texas. That area is an example of the ecological impact problem of large numbers of homo sapiens. So the problem is not just our carbon footprint. It's larger than that and we must live within the boundaries of the existing global environment without damaging it.

Again, this could be accomplished via multiple means, including a police state and enforced living at primitive poverty agricultural levels but that's not very attractive, is it? And again there are alternatives on how to motivate people to make sustainable decisions over non-sustainable ones.

But this leads to a discussion of economics and that leads to discussions like sustainable economics, which is a new way of looking at economics that tries to account for the physical world. Gilman is by no means the only writer in the sustainable economics field but it is growing rapidly. And interestingly, it is attempting to tackle those issues that traditional economics has failed to embrace. Sustainable economics is a rather new field, sort of the quantum mechanics of economics compared to classical economics being Newtonian physics.

However, the key point I would make to Aniya and others is that the scope of the chance required is staggering. We cannot piecemeal this. We cannot pretend that infinite growth is an allowable option anymore. Whatever form a civilization takes that successfully mitigates the problems of overpopulation and general resource depletion, it most definitely will bear no resemblance to what we have now. And that's the rub, isn't it? That's precisely why I have a view that civilization will collapse, because civilizations are problem solving entities that arise to address specific problems and which have a notoriously poor track record at adapting to different problems than those which gave them birth.

Bumping Up Against the Walls of the Petri Dish

2007-04-19T09:28:00.001-05:00

George Ure recently used the phrase "bumping up against the walls of the petri dish" to describe many of the resource issues that are becoming steadily more visible. These issues have been ongoing for a few decades but in very slow motion. Now, in the last few years, we seem to have picked up steam.

Tom Whipple over at the Falls Church News astutely asks The Peak Oil Crisis: Have the Troubles Begun? Tom dives into the current situation frequently and eloquently and all I can do is urge you to read his comments. The currently developing gasoline situation is not critical yet but we're running out of time to build summer inventories. Guess what happens if the inventories are insufficient? Also, as Tom noted, "Two weeks ago, as a number of observers pointed out, refinery utilization increased while gasoline production dropped. This may be a one-time glitch, or it could mean that sufficient quantities of light, sweet crude, that are optimal for making gasoline, are becoming difficult to find. If this is indeed the case, then the US has a problem of major proportions."

Meanwhile, more resource issues rear their ugly heads. In the state of Punjab, India they have been experiencing water table declines of 5o cm per year, which has increased to 74 cm per year in 2005. We are talking about 2-3 feet of lost water table per year. That's water that is not coming back for thousands of years, if ever. And there are over a billion people in India dependent on these waters.

In Australia the drought has reached crisis levels. They are now considering cutting irrigation to farm fields - the land that produces their food. Australia's cotton crop has crashed by 2/3rds, its grape crop has dropped by 30%, and it may not have a rice crop at all this year. Rice production had already plummeted in prior drought years from 1.6 million tons per year to 106,000 tons per year, a 90% loss. Australia is counting on the rest of the world to feed them while they hope to have enough water for basic human consumption.

Here at home the devastation due to the weird cold snap continues. In Arkansas, Governor Beebe declared 34 counties disaster areas because of crop loss due to last week's freezing temps. Almost every agricultural state has declared serious crop losses. Many states are rushing to replant but some crops cannot be replanted, such as fruits and nuts. And even with replanting, total production looks to be seriously down for vegetables and grains. Expect food prices to rise dramatically.

And drought in the US continues. Rather than talk about it, let's look at the map from the US Drought Monitor for April 17th (click to enlarge):

The US drought continues to worsen. Florida is getting into severe trouble as issues arise with Lake Okeechobee. It's probably worth pointing out that the geologic record strongly suggests that most of the central US is normally a desert. It is a cold dry desert during ice ages, up to the edge of the glaciation mass which typically stretches from San Francisco to Washington, DC. And it is a hot dry desert when global temperatures and CO2 levels are higher, as they were for much of the last 65 million years. We've constructed our entire national culture on weather patterns that exist for a few thousand years out of every million. Let's hope this is not presaging a return to "normalcy" in the weather, ok? In fact, the IPCC thinks this is the direction we are headed now, with Hotter climate ramifications 'faster, larger' than expected.

Oh, by the way, on the financial front the inflation rate news is bad, despite reports from the mass media. All the mass media report is the "core" rate, which ignores food, fuel, and other essentials. In effect, it is an absurd abstraction used to calm idiots in the markets. But the government does track other inflation numbers that are more realistic.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent in March, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 205.352 (1982-84=100) was 2.8 percent higher than in March 2006.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 1.0 percent in March, prior to seasonal adjustment. The March level of 200.612 (1982-84=100) was 2.7 percent higher than in March 2006.

The Chained Consumer Price Index for All Urban Consumers (C-CPI-U) increased 0.8 percent in March on a not seasonally adjusted basis. The March level of 118.953 (December 1999=100) was 2.5 percent higher than in March 2006. Please note that the indexes for the post-2005 period are subject to revision.

When you look at those numbers and annualize them you see something horrific - double digit inflation. The all urban consumer index is inflating at 10.8% annually. The index for urban wage earners and clerical workers is inflating at 12% annually. The index for all urban consumers is inflating at 9.6% annually.

These are truly horrific numbers yet they get ignored by the press. This is the heart of stagflation - declining production, declining or stagnant wages, and inflating prices. And things have not even gotten really bad yet.

George Ure's phraseology - "bumping up against the walls of the petri dish" - is apt for yeast. As Bob Shaw is fond of asking, "Are humans smarter than yeast?" So far the answer is a resounding "NO!" If you are not ready now for what is coming, this may be your last real chance to do anything at all. Do what you can, even if it is just buying excess food and storing it in your apartment. This summer and the other side of this summer might turn ugly if the world cannot significantly increase the oil supply. You may not use that food store this year, but if you regularly rotate it as the Mormons are urged to do, then you will be ahead of the game when troubles start. And if you can do more, then there's no time like the present, is there?

One Possible Scenario

2007-04-18T14:56:00.001-05:00

I've been asked to write about what a society successfully mitigating against the multiple horsemen of the apocalypse might look like but I'm not quite ready to do that. However, I am going to give one possible view on where the US may be headed between now and 2010. In this discussion I am assuming that we will have a decline rate approximating Baktiari's decline rate down to 55 mbd by 2020. This works out to a fairly modest 3.3% annual decline rate over the next 13 years. Note that my prognosis for the rest of the world is far grimmer due to various other issues. I am also assuming that the positive feedback loops in climate change are aggressive and manifest in ways that few scientists are yet willing to admit. Some, like Lovelock, already are talking about this but most seem to fear going too far out on the limb that is cracking beneath us.

Given the above scenario, it would seem likely that gas shortages will begin to appear this summer. We will not pass to Baktiari's psychological shock phase in the industrialized nations or particularly the US yet though, because we collectively will rely on our historical memory of prior oil shocks. In other words, we will believe this is temporary and will blow over eventually. These shortages will turn into economic problems as price shoots up or into more serious shortages if rationing is imposed. However, I do not expect rationing yet in the US as of this summer. Recession should begin by the late year even in the government's own manipulated economic data. (Recession appears to already be present in data closer to reality.) Recession will bring job losses and further foreclosures. There will be capital flight from most stocks towards blue chips and bonds. This will give the illusion of a rising stock market but as has been discussed elsewhere, the DOW rising is purely an illusion unless measured in constantly inflating dollars. In short, all the normal responses to a typical recessionary environment will come into play.

However, if the production scenario continues as postulated above, then 2007 will show the first real decline from 2006 peak liquids (and 2005 peak C&C). This will set the stage for further economic contraction as the current generation gets a good dose of what happened in the 1970s. Inflation should rise dramatically outside of the absurd "core" rate and hit consumers very hard. But throughout 2007 things will remain largely peaceful because people will believe this is a short downturn before resuming our endless growth march.

Crop losses may be higher than expected due to the freakish weather, resulting in further inflation outside the "core" rate. Don't expect people to go hungry in the US but the first serious signs of hunger overseas will appear. Global grain stocks will be drawn down yet again for the 7th year of the last 8 (so far it has been 6 out of the last 7, reducing total surplus stocks from over 600 million tons to under 300 million tons). Given demand for grain-for-fuel, expect grain stock draws to be dramatic, perhaps above the roughly 60 million tons last year, maybe as high as 90 million tons, leaving us with barely 200 million tons of grain globally. And despite the drawdowns, the death rate due to starvation and disease enabled by poor nutrition will begin to rise overseas.

As 2008 rolls around the nation will be mired in recession and the stock market will take a hard fall in the first half of 2008 as people see the blue chips unable to produce value or restore economic growth either. The flight from the dollar will continue, with a collapse of the petrodollar being possible after such an event occurs. Unemployment will continue to mount with calls for massive federal programs to cover the unemployed. However, being unable to fund these directly, the government will resort to direct inflation to try to keep things afloat.

In 2008 we can expect to see widespread rolling blackouts/brownouts as attempts are made to keep people reasonably comfortable with the fuel available. Prices will either be in the $5-$6 range or price controls and rationing will have entered the picture by this time. Crime generally will be up, but especially petty thefts, robberies, and other acts involving taking material goods. Expect to see loss of connectivity begin in the electronic world as copper cable becomes a desirable and stolen commodity. Likewise with aluminum and steel, as people steal any public fixtures they can in order to earn a bit of cash, etc. Alcoholism and drug abuse will shoot up dramatically as well. The country will experience a hard turn to the left politically but this won't change anything. Expect to elect a Democrat as president with a Democrat controlled Congress as well. Promising to restore our future, they will sweep into office on the heels of Republican failures but will be unable to effect real change themselves. By the time 2008 draws to a close expect to see oil production fall to between 82.7 and 79.4 mbpd. The world will be experiencing a serious shortfall of 3-6 mbpd from prior peak production, nevermind any increasing demand.

As 2009 dawns the psychological shock begins to set in as oil production continues to fall, unemployment is officially acknowledged in double digits (and in reality is even higher) and inflation outside the core is in double digits. Factories are closing because people are just not buying goods. Violence begins as people are forced into temporary housing. Apartment owners are incensed as their properties are essentially confiscated by the government to house unemployed (and unpaying) tenants. Foreclosures continue to mount as more jobs are lost. Rural land is not buyable at any reasonable price. There is violence as protests against government inaction mount and police/protesters directly collide. The National Guard is called out in some cases but is unavailable in others as significant US National Guard assets are deployed overseas. FEMA declares certain areas disaster areas and imposes what amounts to essentially "martial" law. Private contractor forces are hired to maintain order, which leads to significant abuses within the system.

By early 2010, the US government admits that a depression is at hand and recommends "public works" projects to try to help jump start the economy, since it seemed to work last time. There remains widespread denial of peak oil even though there is clear evidence and production has fallen nearly 10% since it's former peak. "Above ground factors" is the excuse most commonly given, though most people no longer care and are simply living in fear for their jobs and homes. The economy tries to stabilize at this lower level of activity and the free fall slows down but does not stop. The mass media is now under presidential control so as not to disseminate stories that might scare the populace further. Public works projects begin but only a fraction of them get off the ground due to shortages of materials across the board. Another series of crop problems arises after 2 years of decent harvests, this time being a combination of weather and further honey bee CCD. Crop losses are high enough to trigger embargoes of shipping food overseas at all, while prices skyrocket. Food gets added to the ration list. Restrictions on travel are imposed. Mercenary police forces are granted wider powers. Health care is almost non-existent except for simple injuries or for the very wealthy.

At this point we are only 3 years into the post-peak decline. Between here and 2020, we lose another 20 mbpd of oil production globally. Global hunger becomes an acute issue but in the breadbaskets of the world - the Ukraine, the US, and Australia - people can still be fed, even if the diet is not particularly to their liking. Asia with its teeming masses of over 3 billion people starts to experience severe dieoff. Chinese and Indian populations begin to contract massively. Middle Eastern populations begin to rebel openly, seizing control and installing "religiously correct" governments, though this doesn't stop the continued decline. World population declines from 6.6 billion to 5.5 billion by 2020 between wars and resource contraints. By 2020, the US ceases to exist as an effective nation as various regions secede and form regional governments. The federal government, broke and unable to finance any actions anyway, is seen as a paper tiger. US forces are brought back home but the US military is so hollowed out that all that remains is the National Guard and Reserves, who are sympathetic to their regional governments. Lacking the money or the military force to preclude secession, the federal government essentially collapses. President Hillary Clinton steps down as the last president of the United States.

In this entire scenario I don't see oil as cracking $100 per barrel either or $200 per barrel in constant dollars by 2020. Demand destruction is offset by supply contraction leaving us with oil that slowly creeps forward in price as the have-nots simply do without. This begins to include large numbers of US citizens.

Now note that this is all hypothetical and presumes specific decline rates and a global peak of 2006. A later peak, different decline rates, and of course real events will play out differently. For instance, if vancomycin/methicillin resistant staph bacteria get loose, things will be far, far worse. And that's not a far fetched thought either. This scenario also presumes no further military action by anyone, which is also unlikely, so in that sense it's rather optimistic.

But for those that wondered, this is one possible view of the near future, if we have indeed peaked and the other horsemen of the apocalypse (drought, climate change, aquifer depletion, erosion, antibiotic resistant bacterial evolution, etc.) are at the door as well. Note that the end of this scenario does not necessarily mean things turn around as well. Further collapse can be expected due to ecological and energy issues.

The Population Bomb

2007-04-16T16:40:00.001-05:00

I was reading The Oil Drum the other day and could not believe the delusional ignorance that was sitting in front of my face. People were all decrying the global oil production rates and any growth in them yet no one even raised one word about population, the underlying driver of all these issues.

You can check the numbers yourself. People believe the spew put out by the government about future population yet from 1980 to 2000 the growth rate was a 1.74%. From 1960 to 2007 it was a steady 1.66%. To reach 9 billion population by 2050, the governments of the world somehow assume that the growth rate of the population will magically shrink from 1.6% steady growth to almost down to replacement near 0.49% on a global scale no less! The US Census bureau postulates global growth rates as low as 0.5%, all of which flies in the face of the steady 1.6% growth we have actually seen.

Global population:
1960 - 3,040,617,514 -
1980 - 4,447,068,714 - 1.92% growth rate from 1960.
2000 - 6,073,265,234 - 1.74% growth from 1960!
2007 - 6,605,046,992 - 1.66% growth rate from 1960.

In 47 years we've seen the growth rate slow by 0.26%. If I slow the growth rate another 0.26% over the next 43 years (to 2050), we end up with a growth rate of 1.4% from 1960 to 2050 and that translates into 10.6 billion people on the planet. In order to achieve even the modest goals that the US census bureau suggests, we must cut the growth rate by more than a whole percentage point in less than 40 years, something that has never occurred in modern history.

Where do you think you are going to put 4,000,000,000 new people (in addition to the 6,500,000,000 already running around)? How are you going to feed them? Where are you going to get fresh water? Adequate housing? Where are you going to flush the sewage? Bury the trash?

This is positively delusional yet here most people sit thinking solely about peak oil, which you freely admit cannot grow much higher, yet you blithely ignore the population bomb ticking on planet earth.

The total casualties caused by WWII were roughly 72 million people, yet population grew over the intervening period from 1930 to 1950 from an estimated 2 billion to 2.5 billion. Even the horrors of the worst world war could not stop a 25% increase in population over the 20 year period encompassing the war.

Yet somehow, without war, without massive education (which is not happening), without police state tactics, global population growth is going to sink to near zero by 2050. And what happens if it doesn't drop to 1.4%? What if it stays near 1.6%? Well, we end up with over 12.6 billion people, that's what!

However, the delusion lives on. People ignore population growth as if it will go away of its own accord. But it won't. It won't go away til we achieve horrors that make WWII look like child's play. And it will go away. You can count on that, even if you refuse to prepare for that. Global population will begin to fall sometime within the next 40 years. I want you to try to imagine falling population. If WWII could not stop population growth, I want you to really try to imagine falling population, what that means globally, and what it might mean to you. Now, do you understand the predicament we are in yet?

What was Hubbert Trying to Do?

2007-04-11T18:15:00.001-05:00

One thing we must remember in assessing Hubbert's original predictions is that they were not made in a vacuum. Alongside those predictions, Hubbert had data that indicated the maximum estimated URR (he used at least two values - 150 GB low and 200 GB high), the average annual rate of growth of consumption, and the total oil consumed by the date from which he was writing. Now what Hubbert did was extremely simple. He applied that rate of growth continuously to our oil consumption until the sum of prior oil consumed plus growing consumption equaled approximately half of the estimated URR. Using that date, he then predicted peak production in the US based upon that date. He repeated this exercise for a low URR estimate and a high URR estimate, giving him a bracket and then he made his prediction.

This is fairly simple stuff when you have an initial URR estimate and an average rate of growth that you do not expect to change drastically.

But what about Hubbert Linearization, as it is sometimes called? Well, this appears to be the result of a misunderstanding by Professor Deffeyes as to what Hubbert was trying to accomplish as well as what he actually did accomplish. Hubbert did not try to predict URR. Deffeyes does. This is one of Deffeyes' errors. An HL plot is not useful until it falls within the range of predicted high/low estimated URR. Thus, the URR estimate from an HL plot is not useful unless you have an estimated URR to bound the plot. In other words, it is my belief that all that an HL plot can do is confirm a prior estimate but it can't act predictively by itself.

Further, as Robert Rapier demonstrated, an HL plot can give lots of false positives, even if it is in the bounded range for URR. One thing that an HL plot does appear to do is confirm peak after the fact. HL gives hints about possible peaks, but by itself I don't consider it definitive. For instance, there are lots of people who believe we are at peak right now or very close (within a few years). Almost none of those people rely solely on an HL plot to arrive at that conclusion. Instead there is a large body of evidence, of which the global HL plot is just one piece. None of the pieces in isolation is "proof" and the entire body of evidence is circumstantial. But it is very strong. We are seeing Jeffrey Brown's "export land" model play out before our very eyes. Global discovery data is in a hard 40 year down trend. Reserve growth is starting to become reserve shrinkage as major reserves are reevaluated and restated, usually downwards. Despite record prices, production remains flat for nearly three years now, and indeed, peak C&C production was 23 months ago in May 2005. There is much much more as well and it all points to us being at peak or very very close, within a few million barrels per day tops.

So why is all of this important? Many of us believe it is important because so few people realize how integrated oil is into modern life and what a declining oil supply means. Those of us who do believe in peak oil also believe that our best chance to mitigate the bad effects is right now, not later. In short, many of us now speaking out do not want "mad max". No, we want to avoid it. But if society keeps its head buried in the sand, we may get mad max and even more.

The Saudi Arabia Story Continues

2007-04-09T11:28:00.001-05:00

Stuart has been busy over at TOD lately, continuing to build up his picture of the state of KSA. Most recently there has been Water in the Gas Tank, then Further Saudi Arabia Discussions, and finally The Status of North Ghawar. What we have developing here is a picture of KSA dangerously depleted and facing significant declines, if not immediately then in the next few years. The old saying is that, as KSA goes, so goes the world and I believe that to be true.

It is important to remember that the 20 largest oil fields, out of roughly 50,000 total worldwide, produce over 20% of the total petroleum. Remember also that the 1% largest oil fields (507 total) produce over 60% of the total petroleum. All of the top 20 are in decline if Ghawar is now. Almost all of the top 507 are in decline. This means that 49,500 other fields produce 40% of the oil. To replace the top fields means we must find another 74,250 small oil fields to replace the top 507 oil fields. And that assumes no decline in any of the existing 49.500 fields, which is preposterous. If we posit that this replacement must take place over the next 20 years and that we must replace basically all of the remaining fields to even have no growth, then we need 123,750 new small oil fields. This means that we must find and bring on-stream 16 new oil fields per day, which is also absurd. Pretty clearly, we are going to have to turn elsewhere for our energy needs or they are not going to be met.

Meanwhile, oil prices are still acting weird. I'd even say they look manipulated, or at least WTI looks that way. When you notice that Saudi Arabia, Libya, and Gulf producers raising their crude price formulas then clearly KSA raising it the most just for the US, then KSA has realized that the spread is too wide too and are charging the US for it separately to bring us back into line. This also suggests that WTI is losing meaning as a benchmark crude oil price globally. But why would this happen short of deliberate manipulation by our own government to try to deceive the American consumer that nothing is seriously wrong?

All of this brings me to a slowly blooming fear - that we're finally on the front edge of troubled times and that problems are going to begin cropping up. I've said before that while I hope global civilization will survive, I certainly do not expect it and this may be the leading edge of the collapse in sight. We've got severe economic pressures, spurred by resource issues and which are now manifesting themselves in our housing bubble collapse (which is itself a desperate measure by Greenspan to prop up the market after it flopped on its belly post-9/11). It feels like we've got less than 24 months before trouble seriously bites us in the rear end. It could be as early as this summer if we see rationing and shortages. Pretty clearly I need to accelerate a few plans, though it's going to be hard to do.

If we're lucky, the decline rate of the oil fields will be modest enough that we can ride this out, at least theoretically. But if the decline rate is too high, then all bets are off.

P.S. Ace added Further Evidence of Saudi Arabia's Oil Production Decline as fuel for Stuart's KSA fire. I guess the question now is whether the decline rate post-peak will ultimately end up looking like Stuart expects, slow and steady, or whether Yibal is the model for most of the major oil fields produced with Enhanced Oil Recovery (EOR) techniques.

The End of the Beginning and the Beginning of the End

2007-03-09T10:44:00.001-06:00

Stuart Staniford recently wrote two articles at The Oil Drum that are, in my opinion, watershed pieces in the ongoing discussion of resource depletion. Because of the nature of that blog, they are about oil, of course, and specifically about the grandmother of all oil fields in the world - Ghawar. Stuart's first piece was titled "Saudi Arabian Oil Declines 8% in 2006" and gave his explanation for why, using statistical data, he believes that Saudi Arabia is no longer the world's swing producer for oil and is now entering terminal decline of oil production. There was much consternation in response to this article, especially from the staff at The Oil Drum itself, which is more than a bit amusing, considering who was complaining. In response to many of these criticisms, Stuart replied with "A Nosedive into the Desert ...or Why the Decline in Saudi Oil Production is not Voluntary" but again was met with many criticisms, none of which stood up as well under scrutiny as Stuart's own scenario.

Even scientists like Euan Mearns went grasping after ridiculous straws trying to line up various strawmen in an effort to dismiss Stuart's assessment, but as Stuart asked Euan at one point, "Why don't you go ahead and calculate the R^2 of those two series :-)"? Obviously Euan had done no such thing and still has not. Neither have many of the others. Yet Stuart has and has found strong correlations between various factors. Where there is correlation there is often fire, to borrow a phrase, something that the staff of The Oil Drum seem terrified to confront.

But after wading through all the fig leaves the naysayers try to stitch together, you are left with the stunning realization that, if Stuart is correct, then the world has very probably just entered decline in oil production. The "long undulating plateau" that CERA often speaks of lasted just 2 years before we turned south, with the world's largest oil producer, KSA, leading the way. The initial turning does not look to be that much but as another poster who has been accurate thus far in predicting production trends notes, by 2011 the world is going to be experiencing a 7 million barrel per day gap between potential demand and actual production.

We are at the end of the age of cheap oil and we are at the beginning of the end of the age of oil. Now before you really grasp what this means, I want you to look around you where you sit right now as you read this and tell me how much of what surrounds you was dependent on oil to be produced or is even made of oil products like plastics. If you think this portends just an increase of prices at the gas pump then you are missing the point entirely. Already we are desperately trying to find alternatives and these searches are having impacts of their own. Egg prices are up in grocery stores. Why? Because egg producers cannot get enough feed for their chickens, who eat corn, which is being bid up by ethanol manufacturers to put in your car's fuel tank. Corn growers are saying they need to increase corn yields by 25% in one year just to meet current fuel demand plus normal food demand. But have we ever increased corn production by 25% in one year? Can we do it year after year for decades as oil production winds down?

Yes, we are already trading food for fuel. The corn needed to fill up a 25 gallon fuel tanks of an SUV just one time is approximately equal to all the carbohydrates necessary for one human being for one year. Worse, if the US converted every square acre of arable land in the country to producing corn for fuel, we would satisfy less than 16% of our liquid fuel needs (and have nothing to eat at all). The ethanol scam is just one politically perverted response to the overall problem of globally peaking oil production.

So far our civilization has done everything except consider powering down to a lower energy lifestyle. And we still have multiple other options on the table, including several thousand nuclear warheads that could be used in a desperate grab for remaining global oil reservoirs. We've already demonstrated that we're willing to go to war for oil. Iraq is clear proof of this, from the smoking gun map of Iraq being divided up by US oil companies as part of Dick Cheney's "Energy Task Force" which met before the Iraq war even began, to the current attempts to change Iraqi law to give US oil companies ultimate control of Iraqi oil production. How much farther are those in power willing to go? How many strangers half a world away are they willing to kill? How many of our own sons and daughters are they willing to expend to get what they want?

You need to ask yourself these questions and you need to ask them right now. You need to ask these questions of political candidates who suggest that we need more ethanol to continue the American way of life (Hillary Clinton, Barrack Obama, and other Democrats) or who say that the American way of life is "non-negotiable" (Dick Cheney, George Bush, and other Republicans). Both of those views clearly are not grounded in fact or real science and both of those views must be rejected if we are to move towards a sustainable society.

But I am a realist. When I see the sort of nonsense that politicians do in response to simple problems, I have no hopes whatsoever that any of them will ever react responsibly in a complex, rapidly deteriorating scenario that threatens the very survival of our species. In fact, I expect that watching the response of politicians to multiple real global crises will be sad comedy rather than real statesmanship. Yes, the roller coaster has just reached the top of the climb, folks. Hang on tight because the ride down is just getting ready to start.

Even Kurt Cobb Fools Himself

2006-11-20T12:20:00.001-06:00

Kurt Cobb's recent Attitude adjustment: Facing our ecological predicament piece is irrational denial of his own. Here is a classic example of this irrational insistence that humans are somehow magically special and exempt from the consequences of things like our own population growth.

That curve cannot be refuted and for anyone to expect the results of that curve to be anything other than what has happened with every other group of mammals to overshoot in the same way is simply irrational. Thus the logical conclusion is that global civilization as we currently know it is doomed. However, once you get past that tidbit, you are still left with a realization that civilization itself, at least on more local terms, does not have to be doomed. In most places the probability is death on a wide scale but some locations might actually manage to implement a working "ELP" renaissance that can act as the lynchpin for local civilization to continue in some form.

Quite honestly, mainly due to lower population density than many other continents, North America would seem to have a good shot at pulling this off on a large scale. Australia is constrained by too many environmental factors. South America is going to be hit hard both by current poverty, which will slow any chance at mitigating such problems and by population density. Europe is stuck in the midst of a cultural tsunami that will largely wash away Western civilization as we know it while at the same time raising birth rates to levels that will make the already tired continent even less sustainable. Plus Europe is directly physically connected to Asia, which also means physically connected to Africa. Asia is far too densely populated and will suffer accordingly from that. And Africa is already dying. We are already seeing people trying to flee Africa for Europe. If a dieoff really begins there will be a migration of homo sapiens as never before envisioned.

So if I had to rank continents as a whole with the best chances of sustaining some form of civilization after a crash, it would be North America first and probably South America second. Europe would be a distant third largely because of the presence of land routes to Asia and Africa. Now I do not mean to suggest that North America has a good chance of pulling this off. Quite the contrary. I think North America's chances are extremely poor, just that the other continents are in even worse condition.

Cobb's problem is that he does not accept the above overshoot population curve. In his mind some combination of actions still must exist that can save all those still living, if we all just agree to a somewhat (undefined) lower standard of living.

We Fool Ourselves

2006-11-16T13:50:00.002-06:00

Many people today still believe we can mitigate the impact of the biological overshoot event going on around us. I do not. Africa is already a dead continent. Bangladesh is already a dead nation. Not driving your SUV now won't change that. What not driving the SUV now might do is save North America from ending up a dead continent.

In 1500 the world's population was 600-700 million, total. 430 years later, in 1930, the world's population was 2.0 billion. Now, a mere 76 years later, world population is closing on 7 billion, more than a 350% increase in the span of one human life. You are living inside the context of a massive biological overshoot event. That's why this doesn't seem odd to you naturally. This is all you have ever known. Likewise, homo sapiens evolved inside the context of an extinction event that began about 3 million years ago with the rise of the Central American isthmus due to volcanic activity. Biologists have commented that we, today, would be overwhelmed by the density and diversity of biological activity before the Central American isthmus rose from the sea floor. Likewise, we, today, would be overwhelmed at how utterly "wild" the world would have seemed a mere 500 years ago, even in Europe or China which were both at fairly high populations for that time. For us, the current situation is "normal" but is it really "normal" for our species? Is growing up in war-torn Lebanon in the 1975-1995 period normal? No, yet children grew to adulthood there taking with the severely skewed views into their adult mindset. Likewise, because we have all been born and grown up inside the context of an overshoot event, we can't see it unless we deliberately step back and assess it in the light of cold, hard factual data.

Look really hard at the graph to the right. That's a case of classic biological exponential growth way past the limits of the surrounding environment, way into overshoot. People who argue that maybe we can support 5 billion or 2 billion people don't "get it" at all. Our biosphere was degrading when population was a mere half billion.

So we're into overshoot by a country mile. All of the rest of the resource issues are side effects from this root cause that no one wants to discuss seriously. No one wants to even discuss the side effects seriously, such as oil depletion, freshwater aquifer depletion, topsoil erosion, fishery collapse, etc. If we can't even approach the side effects seriously, how can we be expected to address the core issue?

And the answer to that is obvious but painfully traumatic - we cannot and will not address any of this in a manner that helps until it is too late. This is why major figures in various sciences related to the biosphere have looked around and simply given up. They've retired from public debate because they realize they cannot save the bulk of homo sapiens.

I say the above in light of absurd pronouncements like Cambridge Energy Research Associates latest release: Why the "Peak Oil" Theory Falls Down — Myths, Legends and the Future of Oil Resources by Peter M. Jackson. In this piece of pseudo scientific hogwash they posit a future of nearly limitless oil supplies running to nearly the end of this century. They do this with degrees in, for example, English, while serious geologists and physicists who disagree with this nonsense are dismissed as cultists.

I am not personally wealthy enough to drive such a project but somewhere I do hope that someone is building a "lifeboat" that will carry some fragment of what is good about our current civilization through to the future. I hope that scientific information can be transcribed to a form that will withstand the passage of thousands of years and a variable environment. And hopefully someone will be left alive to read those transcriptions to perhaps build a better and saner society than we've done. What makes this truly sad is that this outcome is probably the best that we can hope for given human nature and our obsession with the extremely short term perspective.

We're Orcs So Of Course We Chose Saruman

2006-07-10T10:17:00.001-05:00

In his wonderful essay titled "A Hobbit's Choice: Saruman or Sam", Alex Macsporan argues that we have a choice to make at this point in our history. However, the more I think about it, the more I am certain the choice was made years ago, when Tolkien was writing or even before, and that choice was Saruman because we are orcs, not elves. We have multiplied relentlessly, thrown morality to the winds, destroyed any and all that stood in our paths, and now act surprised as we come to the edge of a world staring at its own death. What exactly should orcs have expected from orcish behavior anyway?

And mind you, we're not done yet either. When things get really bad, our really bad side will come out for all to see. Homo sapiens will slay homo sapiens. I daresay we might even hear of cannibalism as our species makes its last mad dash for superstitious nonsense like "infinite growth" as presented by economists. Of course, I do credit Macsporan with identifying the modern day Grima Wormtongues of our own era - growth-centric economists who glibly go on assuming that the pseudo-science they constructed out of whole cloth will continue uninterrupted even as it attempts to violate the laws of physics.

However, Macsporan's call for a "different way" falls on mostly deaf ears. It does so because that is just not what we are, nor how nature selected us to be. We are prolific killer-scavengers (hunter-gatherers by another name) and we will continue killing and scavenging because that is our nature. We are neither the dwarves nor the elves of Tolkien's Middle Earth. We are not even the hobbits, but rather, we are the orcs - those ugly, greedy, selfish, murderous thugs of beings who focus solely on their immediate self-interest to the exclusion of all else.

I occasionally see damnedfools thinking we will all become hunter-gatherers and return to an Eden-like existence. But as Jared Diamond and others have documented, the life of the primitive hunter-gatherer is not the peaceful, idyllic existence assumed by so many romanticists. While we decry the death rates in our own societies, the violent death rates amongst primitive hunter-gatherers were orders of magnitude higher, ranging from several dozen per hundred thousand population to literally hundreds per hundred thousand population on an annual basis.

And despite the romantic wishful thinking of the would-be hunter-gatherers over at sites like Anthropik, every time hunter-gatherers have come up against agrarian cultures, they have lost. It doesn't matter that most of the arable land today is trashed - there is still some small fraction more to be trashed after the coming crash and that means more agrarian societies. Further, in the interim, it is likely that some of the arable areas will recover ecologically, again spurring further agrarian societies. Our future is unlikely to be wandering tribes of hunter-gatherers, though some such tribes may exist. No, our future is more likely to be a few feudal lords with most of the rest of us as agrarian serfs eternally bound to the land over which we will slave, and die. A lucky few might be born as children of craftsman or other specialists supported by the agrarian masses.

No, there is no way out of this mess by hoping and wishing for a pseudo-elvish lifestyle to suddenly become the goal of most humans. It's not going to happen. So what can we do? We could begin to deliberately plan for the agrarian era to come, creating the modern equivalent of the monasteries of the Dark Ages that carried some fraction of the knowledge of Rome and Greece forward to another era. Yes, the only viable strategy is to begin building "arks" or survival compounds intended to house both knowledge and the personnel necessary to carry that knowledge forward as well as the personnel and equipment necessary to defend that knowledge from destruction. I don't expect us (homo sapiens) to do this on any wide scale because it's an open admission of defeat. But perhaps some wise and wealthy benefactor will take this notion under his or her wing and nurture it, with an eye towards the coming collapse and what must inevitably come afterwards.

A Status Report for June, 2006

2006-06-23T14:02:00.001-05:00

So consider where we stand in June, 2006.

First, realize that the major international oil companies (IOCs) have finally admitted that there are not many new reserves left to find. They try to obscure what this means by claiming they are going to develop existing unconventional sources but the cost of doing this is far from trivial, both economically and environmentally. Just wait til you Canadians see the disaster that tar sands are going to make of your country.

Elsewhere, Stuart Staniford has been tracking the current plateau of world oil production that started in July 2004. His latest update covers recently released figures and shows how recent releases have had to be subsequently downgraded later. So every time the world thinks it has hit 85 million barrels per day of production, a month or two later the admission comes out that, oops, guess we didn't. As Stuart notes, while there have been peaks before in world production, each prior peak was preceded by a decrease in demand due to other factors. This time there has been no drop in demand only inability to meet demand with more oil. This is the first time ever in the history of human oil production and consumption that this has occurred. And it's occurring in exactly the time frame predicted by Dr. M. King Hubbert more than half a century ago.

At the same time we see that oil now hovers near $70 per barrel give or take a dollar or two depending on geopolitical factors. It is now generally acknowledged that oil will never drop significantly without a major global economic recession or depression to reduce demand on such a scale that there is a (temporary) surplus. We also see that Toyota has had to increase Prius production multiple times and has passed 500,000 Priuses sold worldwide so far. And that car just gets better and better with a rumored 94mpg turbocharged optional plug-in hybrid version coming in the next few years.

Meanwhile we have firm denial from the IOCs about peak oil still, this time in the form of Lord Brown, of British Petroleum, ascribing the entire price increase from $20 per barrel to around $70 per barrel now to military and geopolitical issues. Not one word admitting that his company has been unable to replace existing oil reserves as fast as they are being used. Not one word that other companies are in the same bind. Yes, he plays the "it's the Ay-Rabs fault!" card rather than discussing geologic realities. He doesn't say it directly but he comes close enough and he totally dodges the geologic issues. Unfortunately, while Lord Brown might fool some of the people some of the time, he's not going to fool mother nature ever.

When I look at where we stand certain facts stand out:
1. Despite steadily rising prices, production has remained flat.
2. The IOCs have been dead wrong on every major oil field in the world as to when it would peak.
3. The Hubbert Linearization approach to field analysis has been right almost every time about when a field would peak.
4. The Hubbert Linearization method says the world is near the 50% mark of production.
5. The Hubbert Linearization method says Saudi Arabia is at 58% of production and should begin declining.
6. Saudi Arabian production declined yet again this last month continuing several consecutive months of falling production.
7. Global production remains basically flat for the last 23 months, despite increasing demand.

When I see these data items, plus the complete refusal to address these items by mainstream media or even the president of the US, I see no reason to alter my fundamental pessimism about the future of industrial civilization as it currently exists.

And just for grins, here are more news headlines recently that can give one something to ponder:

Ford admits they may not return to profitability before 2008.

GM slips further into junk status as they are downgraded yet again.

Relevant (and interesting) quote from the above:

More major American auto plants are closing and set to close over 2006-08, than in the previous three decades.

My reply to that is: "Welcome to globalization. Kiss your middle class lifestyle goodbye, America."

Stuart Staniford shreds the EIA's piss poor oil forecasts and shows the underlying false political assumptions that drive such blatantly false estimates.

A long technical explanation about why tar sands in Canada are NOT going to save our backsides. (But you Canadians still get a destroyed environment as they rape the area anyway trying to squeeze every last ounce of profit from the sands.)

Dick Durbin (D-IL), Dianne Feinstein (D-CA), Olympia Snowe (R-ME) and Lincoln Chafee (R-RI) are pushing the Ten-in-Ten Fuel Economy Act, which will raise the CAFE standards from 25 mpg to 35 mpg by 2017.

Public transit use is rising with poor people being the worst hit first (of course).

Google provides seed money for the construction of the world's largest solar cell factory. Interestingly, someone noted that this factory will use more than half of all the galium currently mined in the entire world. (The thin film is Copper-Indium-Galium-diSelenide alloy.) I hope these investors have considered from where the galium is coming, or this may be a short-lived investment.

Weekly EIA Petroleum Supply Report

Of relevance:

Total Net Imports are UP 3.6%
Domestic Production is DOWN -7.1%
Total Prod Supplied is UP 0.2% at 20.887 Mbpd

Saudi ambassador warns oil prices could triple if Bush uses military force against Iran. Just stop and try to imagine the economic catastrophe that 6 months of $210 per barrel oil would cause. You'd get a first hand look at what a "great depression" looks like and it would be years recovering from it, if we ever did (we almost didn't recover from the last one).

Oil prices are making road repairs too costly to carry out so someone tell me why we are driving cars again?

Someone tackles the truth about ethanol - no, ethanol is not going to save us, Virginia.

Russia moves to strengthen government control over all oil, gas, and minerals. Think the Russians see the multinational corporations for what they really are?

And, when you get past peak oil, you see people really talking about The Most Powerful Force on Earth, and what it is doing to all of us and how it will ultimately destroy everything we hold dear.

Like I said above, my pessimism remains intact if this is how humanity is reacting while it has the resources available. I can only cringe at how it will behave when the resources are not available.

The Peak Oil Plateau Continues

2006-04-03T13:04:00.001-05:00

Nervousness about the dollar's stability is spreading to east Asia. Meanwhile the price of oil climbs slowly back towards last year's peak of $70 without any external driver like hurricanes. And the actual production numbers are not good either as the IEA revised February production down yet again from 84.6 mbpd to 84.1 mbpd, which means that the bumpy plateau since July 2004 continues unabated. Meawhile, Venezuela threatens to boot ExxonMobil out of the country if they don't share like nice boys and girls while Iran seems to have delayed the opening of the Iranian Oil Bourse for several months at least and possibly a year or more. GM continues to flirt with bankruptcy on a scale unimagineable in our lifetimes and the Congress demonstrates just how clueless they are about both peak oil and economics in general. But the talking heads try to make it seem as though our energy future has never been brighter or more secure. Talk about disconnects from reality!

At the same time though, we're getting more and more bad climate news and it's getting worse faster and faster than expected. There is now solid evidence of serious and unexpected warming in Antarctica while sea ice has failed to form during winter for the second consecutive year in the arctic.

All that comes as backdrop to the US facing unprecedented balance of trade issues, deliberately masked inflation that is twice the official reported rate, unemployment that is over 12.5% but masked via statistical juggling, and a federal deficit that apparently is far larger than even the monster being reported by the government. Is it no wonder that gold has hit 25 year highs, last matched during the stagflationary disaster of the Carter era?

At the other end are those who say we have no chance at all and have to actively begin killing off other human beings right now in large numbers. Eric Pianka, a professor at University of Texas, advocates killing 90% of humanity with the ebola virus as a way to alleviate population pressures. My suggestion to Professor Pianka is to show us the way and do yourself in first.

As I watch all this unfold, I see little realization of peak oil and its impact in the mainstream yet. Instead I see efforts to demonize oil producing nations for various reasons, efforts which I fear are prelude to using military force to get what we want. The United States as empire is not behaving very well facing its first serious resource crisis. And the crisis shows no signs of getting better, only worse. I guess we're living in "interesting times", as the Chinese curse goes.

Something wicked this way comes

2006-02-24T12:50:00.001-06:00

January and February didn't show much improvement in the world's energy situation. In fact, it got worse, with serious winter weather in Europe, natural gas shortages, violence in Nigeria cutting global oil production, and looming war with Iran. People are also examining Saudi Arabia's future ability to continue oil exports against rising population and concluding that their export total will drop dramatically, even faster than their decline rate. Then add to the mix the violent reaction of Muslims worldwide to offensive cartoons of Muhammed (some fabricated by Islamic extremists), coupled with the bombing of a sacred mosque in Iraq, and we have the makings of an ugly spring coming. Oil hovers between $60-$65 per barrel lately, afraid to go lower on near daily negative news but not churning higher just yet either.

Then we start adding in the wonderful news of positive feedback loops in global warming effects coupled with 80% krill dieoff rates and things look just peachy, don't they? We've also learned that the upper half mile of ocean water around the world has warmed dramatically in the last 40 years. This is more bad news on warming, as it portends significant climate change. We've even got climatologists and metoerologists warning that the hotter Atlantic may portend a new "dust bowl" in the central US as prairie land turns to desert. Note that scientists also just discovered that greenhouse gas emissions are now accelerating due to widespread melting of previously frozen tundras at rates nearly 30 times previously expected.

And water? It's in short supply in China, creating concern over availability in the United Kingdom, and already in short supply in the US great plains, which as we saw earlier are now facing long term dust bowl potential conditions. There have even been reports from some petroleum engineers that they are having to suspend further oil drilling in Oklahoma and Texas due to lack of water to pump into the fields - water which is used to achieve enough pressure to extract the measly remaining oil. (Water cuts in Texas can be as high as 99% these days in some places.)

Into this messy mix we have rising inflation, weak employment (Addison Wiggins was quoted as saying under the old unemployment system it would be 12.5%), a soft dollar, massive federal deficits, massive trade deficits, and negative savings by US consumers. President Bush has suggested that the US is "addicted" to oil, but has made no real proposals to do anything about it, and even is letting the NREL cut staff at the very time when we should be ramping up research into energy alternatives. We even have the unthinkable - declining family incomes in America - and this is even after taking into account inflation! Add inflation to the mix and the declines are worse.

Something wicked this way comes, and I don't think we'll be waiting much longer for it to arrive.

Slip-Sliding Away!

2006-01-05T11:04:00.001-06:00

It's been an interesting week for peak oil watchers. Russia has played its energy card against the Ukraine and impacted Western Europe in the process. Forbes trumpets the goodness of consolidation in the energy industry while From The Wilderness predicts gloom from the same events and Truthout.org decries the deregulation of the electric grid (with good historical reason, I might add).

Meanwhile we have Stuart Staniford over at The Oil Drum pondering the plateau in world oil production since July 2004. He's followed that up with an assessment of the IEA's "corrected" production numbers. Then he dismantled Freddy Hutter's suggestion that it was a refinery bottleneck that has caused this plateau. And today he went further and examined the year over year changes in refining capacity over the last 40 years to see if the last few years represent much of an aberration or not. His conclusion is that they were not that much of an aberration, and further, they can be explained only one of two ways - either a global oil cartel (which does not fit all the facts) or the imminent peak of global oil production. The evidence comes down nicely in favor or the global peak, despite Freddy's insistence otherwise.

Energy prices across the board are also spiking and generally showing high volatility, something to expect as we approach peak as previously predicted by Professor Kenneth Deffeyes.

So where do we stand as we enter 2006? We see a Europe in fear of its future because lack of energy means no future. We see catastrophic production decline rates in many major oil fields worldwide. And we still see the major governments of the world focusing on getting more oil even when the last 18 months have sent the economic message that there's not much more to get. This all makes me considered "Agric's Law", which was the observation that, for 2001-2005, the average price of oil for any year was within 5% of the peak price of the previous year. If this holds true for 2006, then the average price should be between $67 and $75 per barrel this year. And indeed, as we watch oil prices spike up towards $63 per barrel already early in the year, this might come to pass. It certainly seems unlikely that the constant predictions of oil returning to $30 per barrel will happen anytime soon.

Meanwhile the US stock market was flat for all of 2005, ending at roughly the same point it began the year. Add inflation to that mix, and the stock market was a general loss, though some stocks did gain, obviously. Add in the softening housing market, the huge current levels of consumer credit, the balance of trade deficits, and the federal deficit, and you have the makings of a less than healthy economy. What happens when that economy gets bludgeoned by $70 per barrel oil for a year?

It doesn't look like 2006 is going to be a good year. I think we're going to continue to slide in a generally downward direction and that Richard Duncan may yet have the last laugh.

Why Does CO2 Matter?

2005-12-08T14:56:00.001-06:00

I've been asked that question before and I recently wrote a long reply about it. Then I realized that I'd like to save that reply for posterity here on my blog.

To understand why the CO2 level is critical nowadays, please start by going here and play with the Pangea breakup animation. Yes, the CO2 level was higher in the past. So was the oxygen level, significantly, which is part of what enabled those massive dinosaurs to exist. That CO2 helped maintain the global tropical/sub-tropical/hot desert climate that was so dominant on earth for hundreds of millions of years but there was another factor too.

As you watch the Pangea breakup animation, you'll note that for a long time (hundreds of millions of years) that North America and South America were completely separate landmasses. You will also note that there were clear lines of oceanic circulation between all the major continents. This circulation was equatorial. Consequently, the entire planet had a much more tropical/sub-tropical climate even into the farther northern reaches. (This animation is not the best one but many of the animations fail to account for sea level and instead just focus on the underlying plate movements.)

However, just a few million years ago, note that the Central American isthmus rose from the sea. Also note that the Mediterranean/Red Sea linkage was broken as well. At that point in time the "normal" global equatorial circulation was broken and the earth started experiencing intermittent ice age/warm age cycles. This also caused a new circulation pattern, often called the Thermohaline Circulation to come into existence. This pattern attempts to redistribute heat but does not do so as evenly as the prior circulation patterns did. The result is the ice age/warm age cycles we've experienced for the past few million years.

Now what's critical here is that each prior warm age appears to have ended with a global warming event. Those events took thousands of years to unfold normally but in the end they changed the Atlantic circulation (the Thermohaline) and caused it to shift dramatically south. Each time this happened, the northern reaches of the world became vastly colder in short order. What caused this shift in the Thermohaline Circulation? All the initial evidence points to high ice melt rates from the Greenland ice cap plus high ice melt rates flowing into the Arctic Ocean from Canadian and Siberian permafrost melt. Note also that these cycles are positive feedback loops because once the permafrost melts even more CO2 and methane is released into the atmosphere further warming things, resulting in more melt, til the Thermohaline shuts down. At least that is the current theory and it is consistent with the newly uncovered data on abrupt climate change. The existing Thermohaline Circulation is highly dependent on properties of subfreezing temperature highly saline water, which due to its coldness and density, can rapidly sink into the depths of the Atlantic to continue the circulation cycle back through the South Atlantic into the Pacific then back around to the Atlantic again on the surface after it warms. The melting cycle dillutes that water with fresh water, preventing it from achieving densities high enough to sink and continue the circulation pattern.

So the danger here, with the current tectonic plate arrangement is that further warming appears to actually act as the trigger for another ice age. Current CO2 levels have risen rapidly and are higher now than any time in the last 650,000 years and worse, appear to be rising at a rate far higher than previous increases.

Interestingly, instead of tackling the CO2 problem another suggestion that's been made is a huge engineering effort to re-open the Central American isthmus and the Mediterranean/Red Sea linkages again. This does not mean a system of locks like today but a huge, free-flowing ocean channel where massive ocean currents like the Gulf Stream can freely flow around the equator. One problem with this is that it will definitely alter earth's global climate but in ways that we cannot easily predict. Plus it will have further effects on existing ecosystems just as they are highly stressed by human overpopulation. The problem with either change (ice age or opening the isthmus and restoring ancient circulation patterns) is that the world is highly dependent on food production from temperate areas of the globe such as the US/Canadian breadbasket, the Ukraine breadbasket, and the Australian breadbasket areas. Any major climate shift could destroy those areas as viable farming areas and result in global famine and death in the hundreds of millions or even billions. So we, as a species, need more time to both bring our own population under control and gain a better understanding of what we are doing to the climate.

If an ice age started tomorrow, even without human action, it would be disastrous for mankind. That that we appear to be actively accelerating the arrival of the next ice age when we have no mechanisms in place to mitigate its impact is the height of irresponsibility.

Of course, to make matters even worse, we are now beginning to see evidence that the power of hurricanes is growing in the Atlantic tropics due to global warming before we even get to the beginning of an ice age. And the fact is that this power factor change appears closely related to the shutdown of the Atlantic current. So even before we get to catastrophic climate shifts, we're already seeing damage accrue in the Atlantic tropics and subtropic regions due to global warming. This damage is extensive enough that major insurers like Lloyds of London will be forced to dramatically raise insurance rates for operating in the Gulf of Mexico.

So yeah, CO2 matters, especially when CO2 is higher now than any time in the last 650,000 years and it is entirely our own fault.

Jumping Off The Fence

2005-11-16T14:42:00.001-06:00

There's a huge psychological tipping point that many people fear to cross when discussing peak oil. That point comes when you realize that, if you are going to plan for a future of any kind, you must choose between believing that the "system" (good and bad, all of it) will survive or not survive. When I say "system", I do not mean anything necessarily derogatory but rather that our entire modern world is a system that must function in order for us to live within its boundaries, to reap its benefits, and to suffer its limitations whatever they may be. If you believe that this system will survive the coming of peak oil and remain mostly intact, any plans you make would be colored by this assumption. But if you believed the system would not survive, your plans would undoubtedly be different.

Personally, I don't believe the system will make it yet paradoxically, I hope that it does. Technological society saved my life, cured my cancer, and has allowed me many more years than I would have otherwise had. I don't find it all bad and actually find it mostly pleasant. But my personal experiences with people, both inside and outside the United States, leads me to believe that not enough of them will react to the problem until it's too late to change the ultimate outcome.

And we really are a "global" system these days, international borders notwithstanding. A recent discussion on Yahoo looked at how fragile microprocessor production actually is and the Financial Times of London talked about how many single points of failure now exist in the global economy. These are just small bits of the overall picture of a global system that is increasingly fragile and subject to both natural and man-made interruptions. Things like this are why I insist that the system has to survive as a whole, around the entire planet, or else we'll see a collapse. Collapse does not necessarily mean a "mad max" world, either, despite the impressions that some movie goers may have. Collapse in this context means movement from a higher level of organization using higher energy levels to a lower level of organization using lower energy levels.

One way to improve energy usage, and to get more from even lower levels of energy, is to live in higher density locations. The negative side of this would be trending towards a cyberpunk world of megacities consisting of tens of millions of people each. But maybe we don't need to go that far and just need to improve energy density to a level somewhat better than the diffuse suburban situation and more like traditional urban areas. No one has really examined that problem in detail so it's very hard to say what we need. What we know is that the current suburban lifestyle cannot continue.

And yes, I know about biodiesel. But it's not scalable, at least not yet. Right now the most common biodiesel plants are soybeans, which produce 40 to 50 gallons per US acre, and rapeseed, which produce 110 to 145 gallons per US acre. The highest yield biodiesel actually being produced is from palm oil, at 650 gallons per US acre (15.5 barrels). Let's assume for a moment that we could plant the entire 400,000,000 acres of United States arable land and harvest palm oil from all of it. (This assumes we don't eat but ignore that little problem for a moment and bear with me.) In one year we could get 6,200,000,000 barrels of biodiesel from the entirety of US arable farm land. That sounds big until you realize that we use over 7,665,000,000 barrels of oil in the US per year right now. And then you realize that we've grown no food at all either, which is impossible to sustain. The real production of biodiesel, short of finding another plant more than an order of magnitude more efficient, means that we need to cut oil use by 90% or more. So biodiesel is useful but not useful for continuing the current way we live.

And that is part of the crux of the psychological aspects of the problem - the unwillingness of the American people to consider living a different way, such as in higher concentration urban settings. Political leaders have loudly proclaimed that our way of life is "non-negotiable" without considering that the universe doesn't negotiate anyway. You live within the constraints the universe establishes or you die. It's this observation, the unwillingness of Americans to do anything but want more of the same that makes me believe we are headed towards a social collapse.

We've had the technical know-how to migrate to a sustainable culture for decades. It's not the technical question that stops us. It's ourselves.

Say It Ain't So!

2005-11-03T17:59:00.001-06:00

Peak oil is a difficult issue psychologically for many people. Basically we're being told that everything we ever knew may go away and the life that comes after this will be very, very different. It could be very, very different in a good way or very, very different in a bad way but there's not much now to tell us how it will all turn out. There's a natural desire to reject notions like that, even when there is a great deal of science behind them. It was that rejection factor that drove the bulk of the nation to reject both the Club of Rome's Limits to Growth report as well as Jimmy Carter's call to the citizens of the United States that it was time to chart a new course. The US didn't want a new course. We were high on success and wealth from the 1950s and 1960s and believed that anything was possible. We didn't want to accept the notion of limits to anything. So we didn't and on we charged as a nation.

We tried to recreate the 1950s in the 1980s but failed in distinct ways. We, as a nation, tried to attribute these to various factors but nobody paid attention to the fact that 1979 was the per capita peak in expenditure of energy worldwide. We've produced more energy since then but we've produced people at a faster rate than energy. So down we've spiraled. Part of this is the unease that many people have about the world around them. Peggy Noonan, former speechwriter to Ronald Reagan, recently lamented that we've all made A Separate Peace, aware that the system is broken but are unable to fix it and resigned to whatever fate awaits us. She, and others, sense that something is very wrong compared to yesterday and all our attempts to restore yesterday have gone for naught.

That's happening still today even as the entire global petrochemical industry on which our very lives depend starts to experience upheaval. People don't want to accept the notion that we may face decades or centuries of economic (and biological) contraction. Yet respected scientists are concluding exactly that and making predictions such as lower birth rates based on lower energy availability.

Despite all this the first reaction of most people is rejection. They don't want to be told that The Party's Over or that their dreams of wealth, power, and self-indulgence may have to give way to austerity, humbleness, and even poverty. All this is natural and arguing with such people will simply serve to anger them further. Human beings are stubborn cusses and trying to tell them much of anything doesn't usually work well, especially when it's a negative message. Remember the old adage about shooting the messenger!

However, if someone hears this message and then starts to evaluate it, even if they reject it at first, often their position will begin to change. Slowly, you may find people accepting the idea yet they still may not be willing to do anything about it. Often they will proclaim that some undiscovered technology will save us. Sure, it might, but can we count on that? Or they will agree with the idea but conclude that your timing is wrong and it's not their problem. This is passing it off on their own children or grandchildren but that's better (for the rejecter) than facing the issue directly.

Even further along the line, people begin to accept and realize they need to do something for both themselves and those they love. Often though, fate ties hands and one person may recognize the issue but the other rejects it. This can result in paralysis of decision. If you find yourself in such a situation, rather than argue about it, see if you can negotiate some concessions. Maybe you can negotiate a preparedness budget in exchange for not bringing up such gloomy topics at the dinner table. Yes, I jest, sort of, but the idea of negotiating with a significant other in a way that allows you to begin preparing is not crazy. It lets you get started. And if your significant other sees you are really serious about the issue, then they may decide to pitch in as well. At that point your battle is mostly won.

So, if, after all this mental vacillation, you are finally ready to do something to prepare, just what is it that you can do? You can start by preparing yourself physically and mentally. This is common advice and I just reiterate it here because it's true - good health and a well informed mind are the two best tools when you are forced to survive on your own.

Beyond that you have to consider where you live. If you live in the typical suburban area, your first thought might be to start a garden. That's a good thought - except that many suburbs are divided up with loads and loads of pressure treated lumber to build fences and decks, lumber that has been treated with arsenic. Getting clear facts about arsenic leaching can be difficult but generally, unless your entire backyard was fertilized with chromated copper arsenate (CCA) based sawdust, you won't have many issues. Just be observant and if worried, consider having your soil tested. Also, be sure to plant several inches away from the pressure treated lumber. Leaching that does occur appears to be minimal and stays near the wood.

Getting a garden started is good but then you have to provide water for it and tend to it. Tending to it might not be hard if your company no longer exists but then you begin to wonder how long the banks will let you stay in that house too unless you own it outright. These sorts of issues have led me personally to consider searching for and acquiring a few to several (2 to maybe 20) acres of arable land within a few hours of the city where I live. If I can find and obtain such land for typical agricultural land prices ($600-$1800 per acre) then I can have a personal place not subject to seizure by a foreclosing bank. Locating and acquiring such a block of land thus becomes my first personal concern. I'd like a bit more land because ideally I'd like to be able to support not just myself and my wife, but my children, their spouses and children, and some of my friends as well.

Once acquired though, you're still without shelter. My recommendation here is acquiring a good tent for starters. Again, you can buy it outright so that it can't be taken away from you. You can even buy a couple if need be. These would only be temporary shelter but at least it's something. But with what do you replace temporary shelter? Permanent shelter, of course! Our problem in a collapse/depression scenario is that we're not likely to have the finances to build a traditional structure. So what can you do?

The best solution may be to start studying earthships and their design. Earthships are intended to be self-contained living units that need no external connections to an outside power, water, or sewage network to function. Earthships recycle all waste and have extensive natural lighting via their greenhouses, which can provide the bulk of your food when tended properly. I've seen a few examples of earthships such as this one built near Durango, Colorado and this one in San Juan County, Colorado as well.

Earthships are built using recycled tires, bottles, aluminum cans, and even straw bales. There are also other homes built with straw bales and such materials but earthships seem, to me at least, to be the most complete designs I've encountered so far for living "off the grid", so to speak. And that leads to my next decision - after acquiring the land I want, I plan to begin the process of building a small earthship or similar structure fully targeted to be off the grid.

These decisions are not excessively expensive for me and I can begin to move in this direction right now. It will still take me a few years and if we somehow muddle through peak oil and find a new energy source plus replace all the surrounding infrastructure, I will have lost nothing but still gained a rural retreat and even a possible retirement home someday.

You too can find a way to do something for yourself. All it takes is the decision to do so.

That Pesky Peak Oil Problem

2005-10-29T22:24:00.001-05:00

Peak oil is just not going to go away. I was playing with some numbers from the Oil and Gas Journal as my starting point and built up a spreadsheet inspired by another one I'd seen elsewhere lately. I kept things simple and I gave every benefit of the doubt to the cornucopians (people who think oil will always be plentiful for the foreseeable future). I used a depletion rate of 6.9% which is industry average even though most fields are beginning to deplete faster. I used that same depletion rate on new fields, even though new fields seem to deplete closer to 15% annually and last no more than 6-7 years. I even allowed new fields to stay online 15 years instead of 6-7 years and I limited world growth demand to just 2% annually for new oil.

The line going down from 2004 with the blue boxes is annual production. The line going up is the annual demand. The really thorny problem is that it seems that the bulk of existing fields are in decline, not just a few. And as all these old fields go into decline, the industry's promise to bring 3-4 million barrels per day of new production online each year is just not going to cut it. Heck, I even doubled the industry projection to 6 million barrels per day of new production each year and it just delays the decline by about 3 more years tops and we go negative (demand exceeds supply) in 2009 instead of 2006. What people don't realize is that the entire world production today of roughly 84 million barrels will fall to less than 16 million barrels by 2030. This means that to support growth, we not only have to find enough new oil for the growing demand of India and China, but we also have to replace 68 million barrels per day of production by then. This is close to 130 million barrels of all new production when we haven't even reached that in the first 150 years of production. Geometric growth curves are evil things, including when applied to geometrically growing human populations and demand.

Dr. Kenneth Deffeyes is calling peak this year. Ali Morteza Samsam Bakhtiari, senior expert at the National Iranian Oil Company, is calling peak this year. Multiple other geologists are calling peak this year. Who opposes them? Economists, people with no formal training in physics, chemistry, earth sciences, geology, and particularly petroleum geology. The same economists who can't figure out what inflation is going to be next month are telling us that the geologists are wrong, despite those same geologists having been right time and time again, since Dr. M. King Hubbert first made his prediction of an oil peak oil for the US back in the 1950s (which happened on schedule in 1970) and then made his world oil peak prediction in the 1960s for the early 20th century.

Who do I trust? The geologists, of course. What does peak oil mean to people in the first world? Not much at first except rising prices across the board. The poorer nations will be cut off first, by lack of cash to buy oil. It's already happened in places like Zimbabwe, Somalia, Nicaragua, and Tibet. It will happen more. And as the gap between supply and demand grows larger and larger, the price will generally escalate, though swings will occur largely due to irrational human psyches trying to wish it down. Later, peak oil will affect everyone negatively, unless you cut your oil addiction now. If I was independently wealthy, I'd get off the grid, go completely solar power, earth sheltered passive heating and cooling, on my own property at least 2 hours from any major city and in or near a small town. Since I am not, I'll have to cope as I can.

If you want to know how to handle peak oil, talk to your grandparents or great-grandparents if they lived through the depression. Collect their thoughts and ideas now. Learn to grow a garden. Begin walking as much as you can because if things really go south, soon you won't have much choice. And don't bother asking your representatives to bail you out because it's too late. This is going to hurt and it's going to hurt all of us. The best we can do now is grit our teeth and bear it.

Oil is a finite resource. Higher prices can only produce so much oil and eventually it will be all gone. But on the way down to empty on the gas tank we can expect wars over remaining oil, economic stagnation and recession, and perhaps ultimately extreme depression. And the only way out of this is something other than oil. Got seeds and hand garden tools? Maybe you should.

Hello, Mainstream Media? Anyone Home?

2005-10-25T15:26:00.001-05:00

For every problem we humans face, there seems to be something wonderful as well. All of this continues to ensure that the future remains a blurry grey zone. One of the positives I've been following for a few years is the concept of quantum nucleonic reactors. These reactors are not "nuclear" at all so don't confuse the term "nucleonic" with nuclear, as I've seen many others do. In fact, if you want to understand a little bit of the physics involved, you ought to read this paper from the University of Texas at Dallas that describes The Essential Fundamentals of Quantum Nucleonics.

Apparently the United States Air Force is considering building a quantum nucleonic powered aircraft to be used for various purposes. The most immediate thought is of drone planes hovering over enemy territory. But I wonder how such a power source might be used outside of military applications. Would quantum nucleonic reactor powered aircraft provide financial stability to the airline industry? Can quantum nucleonic powered trains become the backbone of a cleaner and less oil-dependent transportation network?

Technology like this provides us with a way to both reduce dependence on oil, thus extending the lifespan of available oil supplies, and to reduce total greenhouse emissions, basically killing two birds with one stone. Such reactors might also be useful in powering ships as well as aircraft or trains.

Humanity stands at a crossroads. We've reached a point where we can and are making indelible and dangerous impacts on the world in which we live. We must make choices and soon. The choices we make will decide whether we move forward to a brighter tomorrow or backwards towards the Olduvai Gorge from whence we came.

Quantum Nucleonic Reactors and Our Future

2005-10-20T14:35:00.001-05:00

By Fire or By Ice?

2005-10-19T19:51:00.002-05:00

Today I had the opportunity to read The Heat Death of American Dreams. It's an interesting post and like many about global warming tries to make the case for the seriousness of what is happening. Yet amidst all the noise and thunder, the author simply fails to note that the models upon which he bases his expectations have already seriously failed. In other words, the models are highly flawed, yet he bases his sense of urgency on those very flaws.

Now I happen to agree with him that there is a hugely pressing environmental problem staring at us, but in choosing what we can or even if we can do anything about it, it's important for us to get as accurate of a picture about what is going to occur as we can. But since the models used for these predictions are heavily flawed with events occurring now that were not expected for another 90+ years, we need to look elsewhere in order to have some basis for what may occur.

Fortunately, aside from these flawed models used by the UN's Intergovernmental Panel on Climate Change, we also have the historical record to consult. And also, perhaps fortuitously for the human race, paleo-climatology has begun to actually unravel what has happened to this planet's climate in the more recent past as opposed to the remote past quoted in the article.

In the last 20 years large breakthroughs have been made in understanding The Science of Abrupt Climate Change. Articles about Rapid Climage Change at places like the American Institute of Physics, or The History of Climate Change, or The Discovery of Rapid Climate Change all contribute to the understanding of what happened in the past on this blue planet. And the geologic record is breathtaking.

What we discover as we venture down this avenue of study is that climate has changed suddenly and frequently over the last several hundred thousand years. The changes have occurred within the span of potential human lifetimes and some have been confirmed to have completed whole state changes from warm age to ice age in under 5 years time. So why is this important to us in relation to the fears of heat death on earth due to global warming? Because the evidence is steadily growing that many, if not most of the rapid transitions to ice occurred in relationship to warming events, and further, that those warming events show evidence of high amounts of greenhouse gases.

That is our real problem, based on the evidence. Not death by fire but death by ice. Death by mile thick glaciers extending as far south as Oregon and Ohio. Death by desertification of the central US as it turns to a cold, dry wasteland, destroying our arable farmlands. And what is incredible is that related events, like the weakening of the Gulf current in the Atlantic, the breakup of Antarctic ice shelves, and the melting of the northern polar cap and Greenland are happening at rates that validate the geologic record and not the UN IPCC's model.

Either result, if it occurs, would be catastrophic for mankind. But for me the evidence points to ice, not fire, and that will color my thoughts and decisions going forward into tomorrow.

The Changes on the Horizon

2005-10-19T19:03:00.000-05:00

The human race is on the edge of a wave of changes that will remake our world and our way of life. Those changes may give us a far better world or something far worse. Those choices are up to us, now, today. In this blog, my goal is to discuss these changes and the choices we face, for both better and worse.