DrumBeat: October 2, 2007
Posted by Leanan on October 2, 2007 - 9:03am
Topic: Miscellaneous
OPEC Withdraws Member Output Limits, Keeps Target Unchanged
The Organization of Petroleum Exporting Countries has withdrawn member states' new crude oil output quotas from its Web site after allegedly apologizing to Venezuela for mistakenly assigning it a sharply lower allocation.OPEC published the new output ceilings due to take effect on Nov. 1 on its site last week. The quotas appeared to be more closely in line with what countries have actually been producing in recent years, slashing Venezuela's, for example, by about 750,000 barrels a day.
However, those figures have been removed from OPEC's Web site, leaving in place only the group's new overall production target of 27.253 million barrels a day.
Angola would accept 2.5 mln bpd OPEC oil quota - official
Angola, the newest member of the Organisation of Petroleum Exporting Countries, would be satisfied with an oil production quota of 2.5 mln barrels per day in 2008, a top official at national oil company Sonangol said on Tuesday.
Venezuela sees no need for further OPEC output rise
OPEC should not increase oil production again after November, Venezuelan Energy Minister Rafael Ramirez said on Tuesday.OPEC agreed last month to a 500,000 barrels per day increase in output from Nov. 1.
Ramirez also told journalists at an energy conference in Lisbon that oil markets remained unstable and that prices are set to continue at current levels.
The realities and aftermath of Peak Oil: How concerned should consumers be?
As with any heated issue there are those who tend to be labeled optimists while others are pegged pessimists, each side having passionate arguments to support its claims. The discussion about Peak Oil and its effect on global energy is really no different. However, what is new and different is the emerging acceptance from both sides of the debate that Peak Oil is coming, which then begs the question: "Now what?"
Jeremy Leggett: Oil on the slide
"Peak oil informs everything," Zac Goldsmith said recently. "People ought to know about that, but they don't." He is right. A premature topping point in global oil production would wipe out most if not all economic and policy plans on offer at the party conferences. This is because the plans universally assume growing supplies of generally affordable oil. But as Goldsmith's quality of life report recently described, a surprised world could instead soon be facing rapidly falling supplies of increasingly unaffordable oil.
Byron King: Beached Whales and Economic Omens
Beached whales may have nothing to do with the world's exhaustible supply of crude oil...or inexhaustible supply of dollars. But I see a connection...an ominous connection.
Eye on Canadian Oil Sands Trust
The business proposition of an oil sands investment is fairly simple. The company owns an enormous supply of bitumen, perhaps 50 years worth or more — nobody knows for sure. As the price of crude oil rises, the profitability of mining and upgrading bitumen is propelled upwards on a leveraged basis, since the marginal return on an extra dollar of price is 100% less delta taxes. If you think (as I do) that over the long term the price of oil will increase substantially as we get closer to and finally pass the onset of Peak Oil, then oil sands plays are a way to profit from that trend. If you think, as most Wall Street analysts do, that the longer term price of oil will not move up dramatically then the value of an oil sands company is much reduced. In sum, it is all a matter of what the price of oil will be in the out years.
Prices have collapsed and stock prices have plummeted, but some say these are just normal kinks in an industry with a solid future.
Big plastic bags of bubbling green water hang from metal stands outside the Sunflower Electric Power Cooperative generating station. Growing in those bags is algae, a relative of the green, slimy muck often seen in ponds and streams. And it may be the key to revolutionizing the way America -- and the world -- looks at energy.
Kremlin threatens to cut off Ukraine's gas again this winter
The Kremlin reacted today to the prospect of Yuliya Tymoshenko becoming Prime Minister of Ukraine by threatening to reduce winter gas supplies.Gazprom, the state-controlled monopoly, issued a warning that deliveries would be cut unless Ukraine paid a $1.3 billion debt by the end of this month. It accused RosUkrEnergo, the Ukrainian company that receives Russian gas, of breaching the terms of a supply contract.
But the timing of the announcement raised immediate suspicions that Russia was using energy as a political weapon to punish Ukrainians for backing Ms Tymoshenko, its pro-Western adversary in the Orange revolution.
Raymond J. Learsy: Are We Ready For A Grain Growers OPEC Now That The OPEC Cartel Has Shown Us $80 Barrel Oil?
Prices for crude oil have rocketed near 800% in less than a decade, an almost unheard of leap for such a basic commodity. Many reasons and explanations for this massive increase in price have focused on the demand side (economic growth, China, India, and on). Yet it is on the supply side primarily, that has led to these incredibly vertiginous and manipulated prices. It is where the Organization of Petroleum Exporting Countries (OPEC) has played an especially nefarious role as the only player with meaningful and immediately available reserves and production capabilities able to meet world demand. Quite simply, over the last ten years OPEC has done all it could to control supply to squeeze every last penny out of the market.
ABN Amro manager drawn to oil, financials
Global fund manager Wouter Weijand isn't buying the idea that oil prices will fall precipitously."All these oil companies and all these analysts assume that oil prices will fall back to around $40-$50 (U.S.); that is in all the scenarios," he said.
However, oil prices have kept on climbing, through $70 a barrel and then $80, recently going above $80, said the senior manager of the ABN Amro High Income Equity Fund and its relatively new Canadian clone, the IA Clarington Global Dividend Fund.
Analysis: Cold War over North Pole?
What may turn into a Cold War-like resource conflict started quietly, with a vehicle called "Peace 1" some 2,500 miles below the North Pole. The Mir 1 miniature submarine, manned with three Russian scientists, on Aug. 2 planted a titanium capsule with a Russian flag into the seabed -- a symbol for Russia’s controversial claim of the vast resources that are believed to be stored below it.
High-speed rail in future for Alberta
If Alberta diverts more oil and gas revenue into a wise investment fund, my future-transforming idea for the earnings generated by this fund is to build a high-speed rail system that connects Alberta's medium-sized cities to the Edmonton-Calgary corridor.
La Niña winds expected to lift natural gas prices
Natural gas prices in the United States may get a boost in the fourth quarter from a deep cold snap produced by a La Niña weather pattern, the first in almost seven years.
One more big hurricane predicted by November
A prominent university research team on Tuesday predicted one more major Atlantic hurricane this year — as well as a slightly longer season due to La Nina ocean conditions.“We expect October-November to be very active,” said Phil Klotzbach, lead author of the Colorado State University team.
The Three Stooges of global climate change
These three conservative leaders, U.S. President George W. Bush, Canada's own Prime Minister Harper and Australian Prime Minister John Howard, were all strong opponents of the Kyoto Accord and have formed a political alliance to fight a strict successor regime to the Kyoto Accord in 2012, one that would include legal caps on greenhouse gas emissions.Bush, Howard and Harper have something else in common. They lead the three countries with the highest per capita emissions of greenhouse gases among major economies. Australia emits 26 tons of greenhouse gases per person, the United States and Canada 23 tons each. This compares to 5 tons per person in China and 2 tons in India. The European Union emits 10 tons per capita.
Wal-Mart sells 100 million energy-saver bulbs
Wal-Mart Stores Inc. reached an annual target of selling 100 million energy-efficient light bulbs ahead of schedule after heavily marketing them as a way for consumers to save money and fight global warming, the retailer said Tuesday.
Oil Could Spike to $100 Before Year-End
Oil could spike to $100 before the end of the year boosted by tight demand and supply, a weak U.S. dollar and a market structure that is a fertile ground for speculators, an energy fund manager said on Tuesday.Angelos Damaskos, chief of Sector Investment Managers, which runs two funds, including a hedge fund invested mainly in energy equities, said the oil market remained fundamentally undersupplied and that rather than pure speculation by hedge funds and financial speculators was driving oil prices higher.
Whereas countries like China would previously receive raw materials to produce goods cheaply largely for the Western world, now they are producing them for domestic consumption. "The dynamic is changing," says Richard Raymar, senior UK and Ireland analyst, quantitative asset management research, at Lipper, "Some of the goods are staying there. They are not just going in and coming out. It is about developing countries becoming developed. [These countries] are keeping resources, using them and enjoying them. It's not just for our enjoyment anymore."
Harsh working conditions mark production of Brazilian ethanol
"By the end of the day your entire body hurts so much you think you are going to die" says cane cutter Raimundo Gomes da Silva. "But it is all we know how to do, so we will continue doing the same thing, day after day, until we drop dead."Brazil's pioneering use of sugarcane-based ethanol, which fuels about 30 per cent of the country's automobiles, has made Latin America's largest country a global leader alternative energy.
Getting less attention is the squalid labour conditions of nearly half a million people who toil in the fields six days a week to supply the cane to the nation and a growing export market.
Archer Daniels Midland Eying Ethanol Plant Acquisitions
Archer Daniels Midland Co. (ADM) Chief Financial Officer Doug Schmalz said Tuesday the corn and soy bean processing giant would consider buying ethanol plants now that lower prices for the fuel have been preassuring production margins.
Proposed pipeline could bring cheaper gas
A Tulsa, Okla.-based pipeline operator has proposed a project that, theoretically, could save local residents money on their future natural gas bills.
Viet Nam: Gas prices at new high due to shortages
On Sunday, many domestic gas traders decided to raise the retail price of liquefied petroleum gas (LPG), following the global hike and a domestic shortage, according to independent market watchdogs.
UK: Fuel costs could force road haulage firms to shut down
SPIRALLING fuel costs may be the end of the road for many of the haulage firms that make up the key distribution sector in Peterborough.The warning comes after a two pence increase in fuel duty, which came into force yesterday, and may push diesel above the £1 a litre mark. It is also expected to nudge the average price of unleaded to 98 pence.
Six Mexican States Rated Attack-Risk
The Mexican states of Veracruz, Oaxaca, Guerrero, Tabasco, Campeche and Tamaulipas were mentioned Monday as most susceptible to attack by armed groups.El Universal daily reports this as a conclusion of government and security experts and federal legislators since those states host most of the 186 state-run strategic facilities.
Manufacture is a massive source of CO2 emissions. Keep a small car for a long time to be truly green.
Not so green computing: Is Windows an energy hog?
Many data centers are looking for energy efficient hardware. Mallory Forbes thinks they should be looking at the software too - and Windows in particular.
DOE: A 30-year-old adolescent maturing
The U.S. Department of Energy was not so much born on Oct. 1, 1977, as it was created out of parts of other agencies, almost as though Mary Shelley, the creator of "Frankenstein," had been a bureaucrat.The department's own archives like to hark back to the Manhattan Project and the great rush to discover (and employ) the destructive powers of the atom before the Nazis could do it.
Question of the Week: Solar Energy
Slowly but surely, however, people will begin to see the beauty of a wind turbine spinning idly in the breeze and the downright useful nature of turning that dreadful summer sun into a cool A/C. Slowly but surely things will change. At least, that's the hope. If things do not change gradually, things will be forced to change abruptly when the planet runs out of petrol. That will be, in a word, cataclysmic.
Mazda unveils new hydrogen hybrid
Mazda unveiled a new kind of hybrid vehicle on Tuesday that runs on hydrogen fuel powering an electric motor. The Japanese automaker said it will be available for leasing in Japan next year.The Mazda Premacy Hydrogen RE Hybrid, shown to reporters ahead of its debut at the Tokyo Motor Show later this month, operates on a rotary engine, which has a reputation for being quiet because it doesn't have pistons like standard engines.
Once Again, NPC Expects Too Much From EOR
In their 400+ page report “Facing the Hard Truths About Energy” (July 2007), the National Petroleum Council (NPC) projects that enhanced oil recovery (EOR) will contribute an enormous increment of total global supply of petroleum liquids. By any reasonable analysis, NPC’s projection of EOR production rates is unachievable.
However, some analysts believe that falling US crude reserves might not halt the current oil price slide."The oil market has turned the corner," said Base Commodities trader Christopher Bellew.
"It looks like the long run-up from August is now over, and as seasonal refinery work begins and weather threats ease we should see it come down."
$80 Oil Helps Some but Not All Service Companies
Higher oil prices have led to record highs for the oilfield services stock index, but it's not boom times for all companies in the sector.In the past, higher prices for crude futures have lifted all the index's components, but this time around, some are seeing shallower gains or even falling stock prices.
The increasing demand for water in the Western United States in an era of diminishing supply has put America’s highly efficient agricultural system in jeopardy. At the same time, our nation’s energy demands have led President Bush and Congressional leaders from both parties to call for more domestic production of biofuels like corn ethanol. Some agricultural experts fear that the country does not have enough water and land to both replace the declining agricultural production in the arid West and expand the production of biofuels.There is, however, a sustainable solution: a return to using the land and water of the East, which dominated agriculture in the United States into the 20th century.
Sick of single-family solitude? Craving an antidote to urban isolation? The new era of tribal living has arrived.
Mass Market for Green Homes Coming?
They built, overnight, a 725-square foot house on the lawn of San Francisco's elegant city hall that demonstrates the potential for manufactured housing to tackle a variety of urgent concerns: affordable housing, global warming, peak oil, water shortages, healthy living and much more.
Surging oil prices give oil-related studies new life
The University of Texas and Texas A&M will graduate 8 percent more petroleum engineers in 2008. This year 213 students are expected to finish their coursework. Both students and faculty suggest surging oil prices have given oil-related studies renewed life.
Project Green: The Power of the Sun
With oil prices near record highs and more companies concerned about their carbon footprints, workers are finding job opportunities in the emerging green economy. Companies are hiring scientists to work on renewable-energy technology and business people to market earth-friendly products. Even if some of these nascent companies falter, there's widespread conviction that this sector will become one of the country's hottest employers. "This is the challenge of the 21st century ... and it's not going away," says Kevin Doyle, founder of the consulting firm Green Economy.
Who Runs the World and Why You Need to Know Immediately
In case you haven't noticed, this "gradual collapse of the U.S. economy" is no longer gradual, and what Estulin is asserting confirms a great deal of the assertions made by Catherine Austin Fitts that the current housing bubble explosion/credit crunch/mortgage meltdown has its roots in the 1980s. James Howard Kunstler has also written recently in his blog entitled "Shock and Awe" that the great American yard sale has begun. In other words, as an engineered economic meltdown drives hundreds of thousands and eventually millions of businesses and individuals into bankruptcy, key players in the Big Three ruling elite organizations can buy up the train wreck left behind for pennies on the dollar - a brilliant fast-track strategy for owning the world.
Market sees new Opec price plan
International banks and analysts have hinted at the possibility that Opec will switch the pricing of oil from the dollar to a basket of currencies as the greenback sank to a record low against the euro yesterday."If the dollar were to lose its lustre as a reserve currency this could prove disruptive to the global financial system. In the Middle East the market has become concerned that more countries would drop the dollar peg with Opec potentially changing the oil price to a currency basket rather than the dollar," Merrill Lynch said in a note yesterday.
Saudi foreign assets slump to $248bn
Saudi Arabia's official reserves excluding gold declined and net foreign assets held by its central bank showed a rare drop in August as the world's largest oil exporter battles the repercussions of the dollar's fall.
Iran slashes oil transactions in dollars
Iran has slashed the use of the dollar in payment for its oil exports to 15 percent, an official said on Tuesday, amid growing pressure from arch-foe the United States on its financial system.The vast majority of transactions for oil from OPEC's number two producer are now being carried out in euros, said Mohammad-Ali Khatibi, deputy head of the National Iranian Oil Company in charge of marketing.
Russia oil exports soar in Sept, output edges down
Russian oil exports via major ports and pipelines soared in September, despite lower output, as oil firms rushed to export crude before the introduction of higher oil export duty, energy ministry data showed on Tuesday.
Support for Big Oil wanes in Alberta
Big Oil has always quietly accepted that, much like the tobacco or war industry, having a poor image is a cost of doing business.One exception, of course, was Alberta. With about a third of the provincial economy riding on its fortunes, its residents could usually be counted on to be sympathetic, particularly during big fights with the federal government.
That reservoir of goodwill seems to have vanished.
"The big projects are getting pushed back more and more," says Frank Kuijlaars, head of oil and gas at ABN Amro, a leading lender in Russia's oil and gas sector, in particular to Rosneft.Even the oil men most loyal to the Kremlin are warning against the state's growing role. Last week, Vladimir Bogdanov, president of Russia's number 4 oil major Surgutneftegaz, warned "monopolism" by the state would lead to a fall in production, while Lukoil president Vagit Alekperov earlier expressed his concern at the state' growing might.
A new world energy order is in the making, with Asia as a driving force. Mega projects are on the drawing board, affecting India as well. Among these are projects for transnational pipelines to bring natural gas to a growing Indian energy market. With the centre of gravity shifting towards Asia, India stands centre stage in Asian and global energy endeavours.
Why US is the largest Oil consumer
The U.S. market is a very regional one, and subject to its own dynamics, like hurricanes and pipeline problems. However, because of the U.S.’s large “market share” of oil consumption, severe supply disruptions, like those we saw from hurricanes Katrina and Rita, result in a draw from other oil markets, which inevitably raises prices in those markets.
LUKoil to boost production rates in 2007
LUKoil is set to exceed its projected growth rate in hydrocarbon output in 2007, the Russian oil giant's President Vagit Alekperov told journalists at a Russian Union of Industrialists and Entrepreneurs meeting today.
Belgium reopens Myanmar humanity crimes probe against oil giant Total
French oil giant Total on Tuesday faced a renewed Belgian probe into its alleged support of Myanmar's military regime as authorities reopened an investigation into the firm.
Scientists see dramatic drop in Arctic sea ice
Arctic sea ice declined this year to the lowest levels registered since satellite assessments started in the 1970s, extending a trend fueled by human-caused global warming, scientists said on Monday.
Australian Temperatures to Rise With Gas Emissions
Temperatures will be more extreme with "substantially" more days over 35 degrees Celsius (95 Fahrenheit), the Bureau of Meteorology and the CSIRO said today in a joint report. Rainfall will decrease and droughts and high fire-danger weather become more frequent under the "high-emissions" scenario, it said.
Tourism set to suffer from the climate change it generates: UN
A booming worldwide tourism industry could prove its own worst enemy by contributing to the global warming that threatens some of the planet's most prized destinations, UN agencies warned Monday.
Climate Change May Sink us This Century: Maldives
Unless the world starts taking climate change seriously and cuts greenhouse emissions, the Maldives could become uninhabitable this century, the president of the Indian Ocean archipelago says.
Arctic ice island breaks in half
The giant Ayles Ice Island drifting off Canada's northern shores has broken in two - far earlier than expected.In a season of record summer melting in the region, the two chunks have moved rapidly through the water - one of them covering 98km (61 miles) in a week.
Their progress has been tracked amid fears they could edge west towards oil and gas installations off Alaska.
A new Finance Round-Up has been posted at TOD:Canada. An Energy and Environment Round-Up will follow in a day or two.
An inflationary future is becoming conventional wisdom, but, as consensus takes time to develop, the stronger the consensus, the later it is in the trend. A consensus is a backward-looking phenomenon of little use - except as a general contrarian indicator - in detecting the inevitable discontinuities that can abruptly and painfully invalidate all one's assumptions.
We have lived through a long period of inflationary credit expansion, and regard it as normal, but credit expansion is a self-limiting condition. Credit bubbles are merely the rediscovery by a new generation of the powers of leverage (see for instance A Short History of Financial Euphoria by Galbraith, Manias, Panics and Crashes by Kindleberger or Financial Armageddon by Michael Panzner). Every credit bubble that ever existed has eventually deflated, and this one will be no different.
We have essentially already reached the limit of debt serviceability that brings an expansion to an end. We are already seeing the tightening of credit standards, the refusal of banks to lend to one another, the frozen commercial paper, the bank runs, the redefinition of what constitutes a store of value, the rejection of financial alchemy, the debt defaults that reduce the money supply, the falling prices in the housing market, the lack of confidence - which together unmistakably herald deflation. Central banks can do nothing more than paper over the cracks for a short time, at the cost of aggravating the eventual impact of deflation.
Time to Aim High?
Stone: Interesting article but I question the endless comparisons of the USA and Japan. The USA has nothing in common with Japan at all-the USA is more like a large, powerful, rich Mexico or Argentina. Japan's deflation was directly tied to its powerful currency and huge trade surplus. I am not aware of any examples of long lasting deflation occurring in any country with an extremely weak currency and a huge trade deficit. The USA of 2007 is not the USA of 1929 (in 1929 the USA was an industrial powerhouse).
I always have to laugh at the deflation arguments. It has been more than half a century in which US trade deficit, all US wars even US corporate growth has been financed by exporting inflation to greenback holders.
The idea this could spontaneously be reversed and the FED will just stand by when credit collapses strikes me as laughable. I'd rather expect them just handing bags of freshly printed paper to everyone willing to take it, than allowing this to happen.
There is another idea about what causes deflation, or possibly better, a deflationary spiral - if there are simply too many factories producing a good, the result in the marketplace leads to murderous price wars, which result in workers losing their job, meaning less customers for the factories, and the spiral continues.
Considering that a number of regions have heavily invested in roughly the same markets, the conditions for this style of deflation, which could be considered its own form of last man standing, are somewhat given.
The Chinese are unlikely to stop simply employing a few hundred million people because the market for mass consumer goods is shrinking - instead, they will try to get ahead of the curve by forcing others workers to loss their jobs.
This style of deflation is quite likely, in my eyes - there are a lot of economies reliant on the same basic system.
Expat: Yes, Chinese goods can get cheaper. Right now the ave US family who pays for health insurance is paying $12000 a year. Does anyone foresee this bill "deflating" to $4000 a year? How about taxes in general? Are grocery bills going to deflate, along with energy costs? In Japan, it wasn't just a property and equity collapse, the actual living expenses decreased. Is this going to happen with the use of the American peso?
Sure, I can imagine a large number of Americans having their health care costs sink way below the level that is considered customary today - how much health care did many of the workers building houses over the last five years receive? And these were literally millions of workers and their families, who just happened to be illegal. Didn't stop them from making an economic contribution, and to an extent, their being willing to work for less, not only their wages but in terms of legal rights or health care, meant that many Americans had to compete at the same level.
As for food - that is a kicker, I'll admit. For the first time in human history, we are actually burning food intentionally, instead of eating it. Hard to tell whether we are willing to starve the poor to death to keep driving to the mall (regardless of how many die, it won't keep the suburbs humming), but the question of demand destruction is at least as open as the question of supply destruction. Add in climate change, and the picture is grim. I think there is little question that the percentage of income devoted to food will rise towards its historical average - for a round number, let's use 5 times more expensive than today. Which means that a lot of other economic activity will be pushed aside, as food is a basic good. The competition for that remaining income will be fierce, to put it mildly.
Deflationary spirals are arguably not measured in monetary terms, but instead in social terms - are the number of jobs shrinking, is the wage being paid less able to maintain an accustomed lifestyle, do people start living differently because there is less available?
I still lean towards deflation, if only because it has been so long since it last occurred in America. But I don't think it will be well measured in terms of dollars, and that stagflation is almost as equally likely. What deflation means in this view is that one is demonstrably poorer in material terms, as are the other people around one.
Of course, poverty is relative - I buy things which last, generally reparable, thus lasting even longer, instead of always buying items that are trashed after a brief period. If I understand current American norms, this means I'm strange, if not a social outcast. And that this way of life is to be avoided, since it is a sign of failure, compared to buying ever more stuff to be stored in ever larger homes by ever larger consumers with ever larger debt.
Bankrupt means not buying anything, regardless of price, and I think Americans have essentially bankrupted themselves. Not all Americans, of course, but the vast majority, have been actively involved in an ever growing cycle of consumption and debt, one which is likely to end, and when it ends, it will be defensible to consider it as 'deflation.' The process hasn't started yet, though possibly, the first glimpses of how it will play out can be imagined.
Expat-I think what you are predicting is a depression. You might be right.
Expat as always your words are gold.
Yes, you are very Anti-American in your buying and living habits.
Not as Anti-American as I am though, as I have, in trying to "do the right thing" and keep my biz going, only going into greater and greater debt, flamed out. I am buying very little these days, and living very simply. My bankruptcy, which will be done soon, will "destroy" about $100k dollars, which I'm sure have been sliced, diced, renamed, relabeled, and are parts of peoples' stocks and bonds and funds and so on. I feel really bad about this huge amount of money which will disappear, since if I could have only gone on longer, I'm sure I could finally flame out a few years from now and destroy 2X-3X as much! Oh well, nothing in America is worth doing so much as overdoing, and I've overdone all I could.
Yes we are just beginning to see the mass bankruptcies, not only of homedebtors but of small biz's and of students, who are ending up in as much debt as the average mortgage holder. The homedebtors run out of "greater fools", the small biz people find out the suddenly pinched or destitute make poor customers, and the students, worse of all (because their debt is nondischarable) find there are no jobs.
This will be the real surprise to the powers that be, that there's so much STUFF in America's storage units and mcmansions and garages and thrift stores, that the American public can simply not buy anything beyond bare essential foodstuffs etc for a period of years, if their worldview will only change. And change it will.
welcome back
I think you miss the distinction between nominal and real prices. In a deflation, nominal price will fall, but that does not necessarily imply that things become more affordable. Real prices are adjusted for changes in the money supply (ie inflation/deflation, which are monetary phenomena). If the money supply is falling faster than nominal prices, then prices will increase in real terms and $4000 a year for health care then may be far less affordable than $12000 is now. I would expect a similar dynamic in real estate - I think house prices will come down by 90% before a deflationary depression ends, but the remaining 10% would be less affordable than 100% is now under conditions of severe economic hardship and little or no access to credit.
The same thing is likely to happen across the board when money is scarce and hard to come by. Nominal prices will be low because there will be little money and essentially no credit, and many assets will be offered for sale at once by people trying to raise money. Most people simply won't be in a position to take advantage of low nominal prices (an opportunity is an opportunity precisely because so few are in a position to take advantage of it). It's the converse of the easy money circumstances we've enjoyed for years, where increases in the money supply have led to increasing asset prices (while downward pressure on wages and prices due to global trade and wage arbitrage kept those low).
The Fed doesn't actually give money out; it LOANS it, at interest. That is the key to understanding how deflation can occur.
Really, our current fractional reserve banking system is inherently deflationary. When I borrow, say, $100,000US to buy a house, that money is created out of nothing. When I pay back the loan, the money is destroyed. However, I don't just have to pay back 100K. I have to pay back that (the principal), plus interest. In the case of a 30-year loan, that interest will be something like $170,000US. That 170K doesn't exist, and it won't exist until someone borrows it.
The system is almost a Ponzi scheme. If the money supply fails to grow fast enough to provide money to pay back previous loans, the previous loans default, and the system collapses.
The system has a peculiar danger, which is runaway borrowing. If the rate of borrowing gets high enough, you have to constantly expand the size of the loans & the pool of people you are loaning to. Eventually you exhaust the ability to accelerate debt. The Fed can encourage debt, but it cannot force banks to loan nor borrowers to borrow.
The fact that we have moved down to sub-prime borrowers in the US is a sign that we're near the end. What would be next? Loans to the unemployed and homeless?
Most Americans are near the end of their ability to service more debt. When a critical mass of people cannot take on new debt, the money supply will cease to expand fast enough to create the money needed to pay the interest on old debts, so old debts will start to default. That will destroy money, shrinking the money supply even faster. Voila, you have a deflationary spiral caused solely by the inability of people to take on debt fast enough.
Now, it is always possible that American financiers can find enough suckers overseas to keep the Ponzi scheme going for a while longer, or maybe they really will start loaning money to the homeless.
In any case, the only way for the scheme to keep going is for there to be real economic growth at a flat rate into infinity. Peak oil, runaway debt creation, climate change, wars, as well as several other things mean the system cannot grow into infinity. The monetary system will collapse into deflation at some point. It is just a question of when & what will be the trigger.
Shargash: You are correct. My original point is that comparisons with Japan are useless. Japan had a long period of deflation with low unemployment and a very minor to nil drop in standard of living at the median. Japan had a classic "deflation" as opposed to a depression caused by the USA Ponzi scheme collapsing, which is what you are predicting. IMHO, any economy-wide deflation in the USA will be accompanied by massive unemployment, unlike in Japan.
The Fed doesn't actually give money out; it LOANS it, at interest.
True, this is what the FED does under normal circumstances.
I am simply asserting that if/when this is not enough, they will start the printing press and simply buy back whatever assets are perceived to be endangered with money created from thin air... and in the information era you don't even need a printing press - just a tiny bit of software creating electronic records for deposits which came from nowhere.
They can do it, they have the legal right to do it and they will do it if they think it is necessary. Isn't this what Milton Friedman (whose faithful follower is our Ben) said about the Great Depression? If they simply printed the money when the panic began the depression would have been averted.
Aptera is (almost) go.
http://www.autobloggreen.com/2007/09/28/aptera-is-now-accepting-orders-f...
Saw that this morning Substrate. Great stuff. Damn I want one.
There are two ways you can try to build an electric car: short and long.
Short means a phone booth on wheels. This is very logical from an urban conveyance standpoint, but Americans are not at all logical about transportation or cities. A phone booth suffers from:
large frontal area
poor drag coefficient
short crush spaces
But most electric car prototypes are built this way because lead-acid batteries make it hard to go over 30 mph no matter the aerodynamics, and it's easy to do with a crude frame & body construction.
Long means that you're going to try to make a car fast enough to get on the highway. This is absolutely essential for Americans but technically challenging. If you can get the frontal area X drag coefficient down enough you can go 60 mph for maybe under 100 wh/mile. If that makes the car longer, it creates more crush space. If you use a composite body to reduce weight so that you also use less power in the city, then you might make something that can pass a crash test. But then the price goes way up.
The GM EV1 was a composite-bodied long. So was the superior Solectria Sunrise 4-door. These attempted to carry out the long agenda with lead-acid and NiMH batteries, but composite construction was not cheap then.
I think we've got the right technology to put it over the top this time. The Aptera costs less as an electric ($27000) than a hybrid ($30000), which means it must be using very cheap batteries. But it's really more of a long, enclosed motorcycle for insurance and regulatory purposes. If GM or the Chinese can get ahold of lithium batteries at under 30 cents a watt-hour then we can get a 4-seat, 4-wheel car in the $30000 range - basically an electric Loremo with about a 10-15kwh pack. Once Americans actually get to test-drive a car like that a lot of them will find that they like electrics for their own sakes.
We really need a way to pair up the best battery license with the best composite-bodied aerodynamic 4-seater, but it's risky for undercapitalized high-tech firms to rely on each other. If, for instance, EEstor fails to deliver on its fantastic capacitor technology, it takes ZENN down with it.
I'm waiting for the Aptera specs, especially the battery.
Nice post.
I think if the economy keeps functioning and the US$ hangs in there we'll get to $.30/wh pretty soon. I think we're already at the point where a li-ion pack is a better investment over the long term than filling a car with gas. Most of these batteries now last over 5000 cycles which should take you past 15 years. How much will a tank of gas cost in 2022?
Everspring's Thundersky and PHET's LiFePO4 are already very close to your price point. I've heard as low as $.43/wh. Even at $.80/wh I think it is a very smart investment.
It does suck how the only affordable options are manufactured and shipped from China/Asia. I'm keeping my fingers crossed for some organic silver bullet to energy storage to save the day. Maybe these guys can come through on their paper/carbon nanofiber battery?
Cheap, decentralized, renewable energy storage could solve A LOT of problems.
BTW, you know about Miles Automotive's Javalon, right? 4 seats, 4 wheels, 150 mile range (probably around 25kWh), for UNDER $30,000.
If all goes as planned, should be available early 2009.
I have my fingers crossed on that one - it looks more real than Bricklin's Chinese project, and better. I went into my electric car mania with this goal in mind:
An electric with the room and performance of a 3-series BMW sedan.
So you can see why I'd like the Javlon with a 100 kw motor. But the Chinese must deliver the batteries cheaply and safely. I figure that eventually one of the Chinese lithium battery manufacturers will simply design a car from scratch around its product's limitations, while the Javlon looks to be a conversion, probably weighing close to 3000 lbs. Other than the batteries it's probably not more advanced than the Honda Civic conversion that AC Propulsion built in the mid 1990s, which had fantastic range with lead-acid batteries.
In the 1960s, Japan had a special tax bracket for microcars, which had a ripple effect of making it possible for new companies like Mazda and Honda to get started. The big payoff came when all the technologies developed for those cars began to spread to bigger Japanese cars that were imported to the US during the Energy Crisis. The Chinese government is crazy if it thinks its industry can make conventional 3000 lb cars for a living and get a foothold overseas. China needs a subsidized niche like Japan had that can redefine Chinese cars in foreign eyes as something distinctive. Obviously we would all be better off if that were to be electric cars than if it were any other kind of car at all.
Note that the first Japanese cars imported to the US in 1958 were unmitigated disasters. It took them 5 years to get their acts together. By the time Chinese factories can make good cars, America may be facing $5 a gallon or more.
$$$$$The problem with battery electric cars is that the cost of the battery has to be paid up front. It's like asking the buyer of an ICE car to pay for 1/2 the fuel he will ever consume at the time of purchase.
I drive a GEM (Global Electric Motor) car which uses lead acid batteries. These are only good for about 500 cycles or about 9,000 miles. I could buy Lithiums (Valence Technology) which would last for 90,000 miles but they would cost $15,300. The per mileage price would be about the same. Would I keep the machine for 90,000 miles?
I can understand why GM is considering leasing the battery pack for the Volt car.
You can always take out the battery pack and put it in your next vehicle...
Wouldn't that be nice. I suspect that in real life, the battery pack would be of different sizes and even voltages for different vehicles. Unless someone can point me to a UL/IEEE standard?
Nonetheless, it is probably theoretically possible for manufacturers to standardize on a single specific battery size which might be shared among manufacturers. Any specification, even a bad one, would probably be better than no spec at all.
HankF,
How many Watt-hours does that battery pack contain? Valence sucks rocks, they're belligerent to individuals (quote exorbitant prices) and I don't know why.
One of the more interesting suppliers seems to be Yesa which does LiFePO4.
http://www.yesa.com.cn/
They will build you custom packs, and they seem to run around $1/watt-hour (sometimes less) WITH BMS and charger.
I think this ebay seller "missbattery" is associated with them somehow: http://search.ebay.com/_W0QQsassZmissbattery
The strange thing about the LiFePO4 over the PbA is that many people say that you only need about half to three-quarters of the battery capacity as you do for PbA in high draw applications(like an EV). This is because PbA drops off considerably at high draw and only gives you a fraction of the standard 20 hour rating that a battery's amp-hour rating is calculated from. In high draw applications, deep cycle PbA apparently also rarely lasts its purported 500 cycles.
If it sold for the price of a motorcycle, and if there were no large cars, SUVs or trucks in existance, it would be cool.
Any pilots out there that have experience in tail-draggers? The Aperta is a tail-dragger, without wings, ready to do a ground loop! This auto will swap ends in a hurry because of the one rear wheel, the weight distribution, and less traction on the rear than the front that goes with the design...And, what about performance in downpours with standing water on the highway? No thanks, my Harleys with their soft compound Dunlops will handle hundred of miles of downpours and standing water without hydroplaning becoming excessive. If it has less than four wheels, it needs to lean in corners. Four wheels or two, take your druthers.
"If it has less than four wheels, it needs to lean in corners.
http://www.go-t-rex.com/
Tell that to the Formula 1 engineer that designed the TRex.
Performance: 0-60 mph: 4.1 sec.
Top speed: 140 mph.
Lateral acceleration: over 1 g.
And over on Metafilter:
http://www.metafilter.com/65210/Adding-up-US-subsidies-for-auto-travel-w...
The most galling subsidy is city streets and rural roads, typically paid for with property taxes.
Suburban commuters pay zero towards city streets (perhaps indirectly via their offices) while city residents that use and need lower traffic volumes pay for widening, maintenance, street lighting, policing, etc, The most abused are TOD owners and renters that either do not own cars or use them minimally, yet have high property values.
Raise gas taxes and lower property taxes and pay for all aspects of street operation (including street lighting & policing) with higher gas taxes.
Best Hopes for stopping Suburban Subsidies,
Alan
Alan,
Sounds great. Any luck getting that implemented in Louisiana? Are there any lobbying powerhouses pushing for such a change? I'd call my State Rep and Senator, but I'd probably be laughed off the phone.
Garth