D,

The MSM people are really in a fix. A financial columnist for the Dallas Morning News (Danielle DiMartino) last year wrote a series of columns warning about a housing collapse, and she occasionally referenced future oil supply problems. I can only imagine the angry e-mails that the Morning News was getting from real estate related advertisers. Result? She was fired in September of last year: http://housingdoom.com/2006/09/15/dimartino-goodbye/

From her next to last columan:

"Goodbye

In the past several months I’ve received numerous e-mails asking why I haven’t written an ‘I told you so’ column on housing. My answer has always been that there’s nothing to celebrate.

To the contrary, a huge amount of work will be required in the coming years to address the fallout of the largest financial bubble in history. The ramifications extend far beyond the realm of residential real estate.

To that end, I will write one last column tomorrow and take my leave. My hope is that I can do more by saying less as a member of the private sector and soldier on the front lines of the economic battlefield.

I will be forever humbled by the tremendous outpouring of support readers have provided over the years. You were the very thing that made being the voice of the minority bearable."

In any case, the net result is that the message being conveyed to the average Joe Consumer by the Iron Triangle is that high energy prices, high food prices and slumping real estate prices are temporary problems.

Your right I noted this also and almost wrote about it their is a bit of a double counting issue going on with oil exporters which are also big importers which is basically all the export countries. The problem is oil is intrinsic to all economies and price inflation of oil effects everyone not just the importers. Also understand a lot of the oil wealth is itself reinvested in exporting nations. This is one factor in the strong US stock market despite fundamentals.

To back up a bit and look at the monetary side we are conditioned to place a large amount of faith in "real" money thats in a bank account but in a fiat currency regime the ability to borrow money as as real as any bank balance and you can print as much money as people are willing to borrow.

So the oil exporters with their hard currency are competing with people willing to borrow and with fractional banking as the export nations inject hard currency back into the banking system you get even more debt creation since banks can lend money to anyone based on the hard money deposits.

We have discussed this before but I think you can see that the concentration of oil wealth initially causes the global economy to go into overdrive as the fiat currencies and debt creation causes massive monetary inflation until you effectively have a meltdown of the fiat system since its not sustainable vs the the real barter economy i.e goods for oil that is driving it.

Your right about the double counting but its a lot worse than that its more like 10 fold as the velocity of debt creation outstrips the real economy.

At some point we cannot grow since real inputs of commodities such as oil are decreasing and then we can no longer service our debt. Exporting nations will desperately buy hard assets a lot of them will be in importing nations and the importing nations will happily nationalize these assets in time just as these nations nationalize the oil assets.

The intrinsic problem is that with fiat currencies and concentration of wealth you get a lot more debt creation and this leads to rampant inflation when the real economies can no longer grow because of lack of commodities. As far as assets go I think initially you see price inflation in assets but I think this reverses as people are no longer able to buy common assets such as homes land and small businesses. You will see a continued inflation in higher end assets such as larger companies and infrastructure as the holders of concentrated wealth try to convert their fiat holding both borrowed and real into hard assets.

Since this is whats happening now I can't call it a prediction except to say expect the prices for higher end but common durable goods and fixed assets to continue to fall even as commodity prices increase as people have to spend more and more on non durable goods and esp commodities. So wealth will be focused increasingly into the hands of commodity producers who will in turn invest in "big" durable goods for a time as the attempt to solidify their gains.

As you can see the world's economy naturally converts back to traditional stores of wealth which are commodities and the means of production for critical goods and services.

So from this perspective you can again see that it will take some time for the economy to unwind and falter from this fake prosperity caused by high oil prices. Its tightly tied to when people begin to fail to service their debt on a large scale. I think we still have time but the fiat system will itself begin to unwind in 2008. I think that the maintainers of the fiat currency systems can actually stave off collapse for a time but 2009 onwards will be very dicey since real economic contraction will ensure a eventual collapse.

What I think will happen is a move to some sort of commodity based currency i.e glorified barter with effectively no fractional banking. So post collapse we will have a lot less money but it will be a very deflationary world with stores of wealth not debt being the focus. Debt will only be available for the creation of real goods and services with obvious benefits and backed by notes on real assets. In effect your only allowed to borrow a million dollars if you put up a million dollars in collateral. Needless to say this is a lot less money than we have in circulation today.
As people note we can continue to grow our wealth without increasing our energy usage but its a far slower business than today.

Jeff, I am wondering, how prevalent in Nigeria
are guns (AK-47s, other guns?). I noted one
analyst wrote that it was and is the culture
of Iraq that almost all households process
at least one gun --which makes violence much
more likely.

Jeff, (one more question) much of the work in Nigeria is offshore -- so for example if the oil platform is 50 miles in the sea off the coast can the violence really affect the oil production that much?

I'll give my two cents event though you asked WT I want to compare. I actually think that things will play out slower than we expect initially. At least in the US their is room for a lot of demand destruction via simple changes in lifestyle such as car pooling. In general all that has to happen is employers become somewhat flexible with employees getting to work. Short term it looks like we will have a refining capacity induced shortages soon. Next year it will be oil supply driven. Overall I think we will make it through 2008-2009 with a worsening oil shock like effect similar to the 70's. This puts the big one so to speak possible in late 2009 early 2010. Next we theoretically have 20mbd of new production coming online over the next few years I doubt we will see most of it but it will help. And we can drain the SPR to play with prices.

So this puts us at about 2010-2011 for TSHTF as far as I can tell 2012 for sure at the latest. Economic downturns and simple conservation measures will buy us a bit of time and it simply takes time for the market to adjust and oil reserves to be drained. So even though the fuse will be lit I think in 2008 the world economy is large enough that it will simply take time for the real effects to manifest themselves. The models are right but I think it will take longer then most people realize on this board for the world to wake up to the fact that things won't get better and the problems are not temporary. At least I hope this is true.

Now with that said the factors are primed starting 2008 so depending on events we could readily fall into problems starting in 2008.

I'm personally still working on my plan A but I did my plan B already ( Move back with mom and dad on the farm :)

Since I don't own property and am not a millionaire I am gambling a bit waiting for the housing bubble to collapse massively in 2008/2009 which will send land prices downward.
I wish I had more money but I need to wait till this bubble blows off to maximize the amount of land I can buy right now prices are still ridiculous but I expect land prices to plummet in 2008. This is personal and it is a gamble but since I have a good plan B I'm willing to take a chance and see if I can pick up a lot more land for the same amount of money.

As far as housing goes if I don't get a place with a good house I have no problem using a double wide trailer as temporary housing and building my own home either a existing one or a new one. A lot of properties have trailers on them.

Plan C for me is to move into a city that has a chance of making it post peak Portland Oregon is my top choice and land in Northern California Oregon Washington State as plan A. The pacific northwest seems to be a region that in general will weather peak oil/global warming reasonably well outside of the Seattle/Vancouver area which is over populated.

A bit personal but I think that expressing my private plans might be useful for people. I'm pretty doomerish I think but also hopefully making the right balanced decisions. I certainly don't see us having more than 2-3 years at most before things get obviously and permanently bad.

WT ?

Memmel has a solid response, but in regard to how bad/how fast, I think that the big variable is Russia, but as I have said before, IMO, net export capacity--the lifeblood of the world industrial economy--is draining away in front of our very eyes.

It is kind of interesting that the North Sea has two Export Land extremes, Norway, with a net export decline of 3.5% per year and the UK, with a net export decline of 60% per year. Of course, this is primarily related to the population difference between Norway and the UK. If there were ever a country that ought to curtail net oil exports it is Norway.

The top five net exporters (half of net exports in 2006) showed an annual rate of increase in net exports of 2.6% per year from 2000 to 2005. The decline from 2005 to 2006 was 3.3%. The average monthly Brent crude price in the 20 months prior to 5/05 was $38 per barrel. The average monthly Brent price after 5/05 was about $62, within a range of $54 to $74.

If we assume a 5% rate of decline in production by the top five and a 5% rate of increase in consumption, I estimate that their net exports will decline by about 22% per year. The 2006 stats (relative to 2005) were a 1.3% rate of decline in production and a 5.5% rate of increase in consumption--resulting in a 3.3% decline in net exports.

In any case, the math on this export situation was clear to me in early 2006. By and large, we are highly dependent on some large exporters at advanced stages of depletion, with fast growing domestic consumption.

It will start in about 2 months after a big hurricane hits the gulff. We will have no spare cap and the imports won't be there. This will really shake up the public and Bush will have carte blanche to invade whoever for oil.

Well, all I'm saying is that as world production starts to dip off and the rate of depletion outstrips the rate of global production increases, many oil-exporting countries may drastically cutback on exports, or shutdown exports altogether, due to domestic pandemonium. Then the interesting question militarily is how desperate are foreign parties for access to the worlds dwindling oil base?

If production does end up decreasing because above ground issues then the implication is that means more sustained oil production for that "developing" nation. Or in this context perhaps devolving would be a more appropriate term. Who knows how things will pan out in each oil exporting country... I'm sure it will vary. Most will probably go through a very difficult period.

As to being doomed... It is all semantics. The word "doomer", for me, always evokes laughter. Just the fact that we are alive right now, overrides any doom that has or will ever occur. I think our species will survive PO intact, but will have to go through a lot of self-inflicted harm... But that goes without saying.

Ignorance is bliss!

Esp. when people realize that shortage is perm and going to get worse, much worse over the years then we have a problem. People will scream for oil, no matter the cost. Govts will listen and will try to obtain said oil, no matter the cost. Its like musical chairs for oil. Someone is going to get left out.

The US will most likely lock up what it needs by military might. China will use money and some military inffluence to lock up its needs. Maybe chinese troops in Africa? Europe and Russia will come to some kind of deal. South America will limp along as always. Africa will be toast. India/SE Asia will be toast. Japan will do what???? They are in a bad position IMHO.

So Africa and India/SE Asia are the canaries so to speak. We already see PAkistan and Several African countries having big problems and next will be India.

When its gets to China's turn they will have to act, maybe sooner. They already have a relationship with Iran. Watch a desperate India/SE Asia, Japan, and Africa align with China to take the Persian Gulf. It will be a bloodbath but in the end 2.5 billion people will not be denied. They will have the ME oil.