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226 comments on DrumBeat: October 3, 2008
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226 comments on DrumBeat: October 3, 2008
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I think there is a tendency toward linear thinking. The reality is usually much messier.
Many peak oilers seem to see the current economic crisis as the end. We'll crash, there will be no funding for renewable energy or new oil projects, and we'll quickly spiral into a dark age.
I suspect that, just as with the price of oil, there will be economic recoveries. The government may have to nationalize the banks. If that doesn't work, they'll nationalize the oil companies and renewable energy companies, too. We'll stagger along, with repeated collapses and recoveries, for quite awhile.
I have long held a somewhat conflicting view with what you expressed, Leanan. I see this economic mess as having the potential to give us time for some of the deepwater projects to come to fruition - Jack # 2, for instance, and Tupi as well. If we can hold off for a bit, and not lose the momentum toward renewable source energy, the transition can be made without being a horrible disaster. Of course we are going to have to change our lifestyles, and the price of energy is going to soar. Those will necessarily happen under any scenario I can imagine. But... with a few years of high prices and some of the much touted efficiency and lifestyle changes, and hopefully practical development of battery technology and all kinds of mass transit, we can reduce our "demand" / comsumption of all types of energy and make the transition without a final collapse into chaos. Then, we can all go visit Rainwater, et al on a friendly basis at their respective compounds.
I still wouldn't go out and buy any stock in cruise lines myself, however.
I think it's going to be messier than that. Jack 2 and Tupi might never happen, for the reasons Tom Whipple laid out in his column yesterday. Demand will be so much lower due to the bad economy, and capital will be in such short supply it will be difficult to develop the new technology needed to extract the oil.
An Apollo-type program to pump oil from Jack 2 might work...but the government might have other things to spend their resources on.
"and capital will be in such short supply it will be difficult to develop the new technology needed to extract the oil"
Possibly one can look at it another way. This so called capital that is vanishing is merely digital money (perhaps some paper too)
As this capital ultimately represents real assets (land, gold, silver, energy etc.), in one form or another, the real capital is still there. Expressed in $ it may be shrinking(housing bubble), but the assets are still there.
I'm not saying this is how it is or that it will play out more or less like it, just trying to broaden my view
I'm not suggesting that all capital will disappear. Merely that people may have other uses for it, that will seem more compelling than extracting oil of questionable EROEI.
Energy and land being the far more important of those real assets. And of course, 'they're not making any more' - in fact, we're rapidly destroying it via erosion, salinization, paving over...). As for energy, the net energy available for us to do things with our other natural capital is in (rapid?) decline. You're absolutely right that digits and paper are merely 'so called capital'. We shall be forced to learn what real capital is all about in the coming years. It matters not one whit how many dollars we 'have' in any form. All that matters is how much net energy is available to us, and how much clean air, water, soil, other species etc.
I agree. Thanks for responding.
Looks like this nasty EROEI thing will really mess up things big time.
Capital - in the form of money - is a measure of the ability to marshall resources of all sorts. I suggest that the assets are not still there, and that is in part why the financial system is crashing. From today's top links - 400 dead zones now and doubling each decade. [Which is only a count and says nothing of the proportion of the environmental systems destroyed.] The dish is full and the systems are overstressed; all around us we are seeing the destruction of real physical capital.
I'm not discounting other reasons - the 1/2 degree of separation, racketeering and straight up theft.
cfm in Gray, ME
In addition to others' responses, I would add that suburban mcmansion lots, what with their removed topsoil, pesticide-soaked lawns, and soon-to-be decomposing cardboard houses, may be at best worth nothing, and possibly even a liability.
The following supports Leanan's position:
Out West, the huge drop in prices, coupled with lines of credit drying up, mean difficult times for junior oil and gas companies whose growth relies on spending cash raised through the debt or equity markets.
The lower prices may push some juniors, particularly those focused on gas drilling in Alberta, close to the point where they will find it hard to service their debts, making new spending impossible and stymieing growth, said Jeffery Tonken, chief executive of Calgary-based junior Birchcliff Energy Ltd.
"It's a difficult market, for sure. Commodity prices have fallen so quickly that some companies will be getting close to their credit limits," he said. "And most companies won't grow if they're just using their cash flow ... they'll have to sell assets, raise equity somehow or sell up."
http://www.theglobeandmail.com/servlet/story/RTGAM.20081003.wrbankscanad...
Not sure the $50 per bbl price is credible. Should it be reached most of the tar sands would be uneconomic, there would be a level of financial distress in Alberta which would exceed anything seen under the NEP in the 1980's and we would likely see serious social unrest in KSA and other middle east quasi-states.
Cheap oil could wreck the world economy as easily as expensive oil.
This is not just a lifetyle change... This is a radical re-ordering of society.
Here's what I'm hearing...
1) Increased unemployment
2) Decreased FF production
3) Decreased consumer, government and business spending due to decreased credit available
4) Increased cost and scarcity of food
5) Increased climate change
6) Decreased real incomes for Americans
7) Decreased net worth of Americans, due to decreased Stock Market values and decreased Real Estate/Home Values
8) Increasing government debt, resulting in some/all of the following: Increased inflation; Increased taxes; Decreased government spending
9) Increased economic threat to America due to the addiction to foreign infusions of money to the tune of $Billions per day.
10) Increased security threat to America and it's allies due to rogue nations (Venezuela, North Korea, Iran) and due to rogue international organizations (Al Quaeda, Hezbollah)
11) Increased energy dependence of America and it's allies to unstable or hostile nations of the world (Venezuela, Iran, Iraq, Nigeria)
This isn't a lifestyle change issue... It's the collapse of a nation; the collapse on an empire.
And sadly, America is really the only one to blame.
Thoughts come to mind of the French Revolution. The same conditions will exist in 10, 20 years as existed in France in 1789... Or that existed in Germany in 1933. We know how both of those situations worked themselves out...
@10)
The increased security threat is due to the US's foreign policies, not rogue nations (like Venezuela? if that were so you wouldn't get a drop of oil from them). Ignoring International laws and treaties like the US is doing, as well as their unjust interference in other nations (Iran ring a bell?), makes the US the sole most dangerous rogue nation in the world. And after all these years I still have to see proof that the organisation Al Quada exists. It can be touted by officials and media as often as you like, many people will take it for granted, many groups can claim they are alligned to it(it will get attention), but I still haven't seen proof. I don't take ANYTHING for granted.
Couldn't resist :-)
While all of these are true, we are still looking at PEAK oil, and competing for it, which I think we will be able to do. This whole thing is going to be painful, but most will survive in some different situations. Like, we are going to see decreased demand caused by the economy, while at the same time, we will see declining production. If some of the problems are worked out, society will be able to maintain some semblance of order. Without a severe recession or depression, hopefully not rivaling the 20's/30's in severity, we will have expensive energy available. We will not be relegated to caves, IMHO.
And, there will be opportunists, as there always have been. Life will be almost unbearable, until we figure out the way to adapt as a society. Meantime, WT's ELP pronouncements will be for the fortunate and those who planned ahead. Since I was one of those planning ahead, even before I saw the ELP proposal, I have somewhat of a head start, but everyone else should get busy catching up.
You might want to remember where you live, if indeed it is the states. Russia, Venezuela and Iran have nothing but ill wishes for us now. The time to change things would have been from the 90s and early 00s, but hey both Bush and Clinton blew it. Bipartisanship at its finest. Since we can't change the past policies, its better to atleast be consistent so when the negotiations start everyone knows where we stand. Oh, I forgot.....Obama and his buddy Biden from the CFR are going to fix everything in 10minutes.
I still haven't seen proof of global warming either, but that doesn't mean that I don't trust others opinions on the subject. What to do about it is a whole different subject. BTW, "US the sole most dangerous rogue nation in the world"...feel free to leave.
Germans are not born monsters, but their country became the most dangerous rogue nation in the world. If they had been less industrious and less educated that could never have happened. Do you think that all the Germans who recognized the evil should have just caved in to blind patriotism and fled without debate?
If we must shut down any debate about the idea that America could be seduced by power into acts of evil, that guarantees that it will eventually occur, since opportunists always look for the path of least resistance.
jrc9596 Do you feel unappreciated? At odds with your peer group? Feel persecuted by your "elite" friends?
Here is a site where you're guaranteed to win friends and influence people:
http://www.rushlimbaugh.com/home/today.guest.html
On a related matter:
http://www.foxnews.com/story/0,2933,397625,00.html
You gotta love freedom!
And so I did...
Why is it when it comes to honest dissent and opposing opinions in the U.S., the ignorant resort to the "just leave then"? I remember using that argument in Grade 7.
Contrary to a narrow popular opinion, the U.S. is not the greatest nation on earth. The only great thing about it is the myth - kind of like the Great Pumpkin. I could go on ad nauseum, but let it be said I lived there for 10 years, know some great people, my wife is American and we are getting the hell out of Dodge.
So I think it's safe to say you took the blue pill?
not to mention when translated into popular Arabic means 'little toilet'. almost as funny as the whole. 'i am a doughnut' speech by Kennedy.
THE END OF ARROGANCE
I believe there is plenty of "blame" to go around -- most everyone is trapped in this in one way or another. "America" is only part of a much larger problem.
The way I look at it, human activity will be reduced, and that will be good for forests, fish, air, birds, turtles, whales....
Maybe the planet can breathe again, and quite possibly this is the only way that modern industrial society can show any concern for the seventh generation
"...the seventh generation" What's that?
http://en.wikipedia.org/wiki/Seven_generation_sustainability
There's a native american viewpoint that decisions should be made considering their impact on up to the next seven generations (ie, just because something's good for the current generation, say non-sustainable deforestation, if it causes fatal problems for future generations it shouldn't be done). Seven generations was apparently about 100 years in that culture.
One basic link is:
http://www.des4rev.org.uk/mollisondes4rev.htm
And the apparent reality is that the Native Americans lived pretty well, at least along the Columbia River, for about 20,000 years, and when the Europeans arrived, the forests were abundant and productive and the river and oceans were full of fish.
In about 250 years "we" (European descendants) have nearly succeeded in turning the place into a wasteland.
I would venture that this is a lot more than "American" arrogance, however.
It is generally assumed that native Americans lived rather a harsh lifestyle and very barbaric at that.
Well most of this is historic bullshit.
I suggest a read of Alan Eckart and his very well researched books. Such as "That Dark and Bloody River" and the latest about Tecumseh.
In this narrative he paints a entirely different picture of the life of out native Americans.
One that most are completely unaware of. In fact when prisoner exchanges were demanded by the US government most of the white captives refused to go back to the white way of life. Most preferred the better life with , in this case , the Shawnee and also other tribes.
In fact the US government played the role of terrorism against the indians. They were the ones who always prompted the battles and in many cases did not win eventually due to strategy but instead to sacra ficing more and more lives of their soldiers.
The whites simply defied the treaties and consumed the land without any degree of concern whatsoever, killing the natives as they felt led.
Its all hidden neatly away or expunged.
Airdale
Susan Faludi's [author of "Backlash" and "Stiffed"] lastest, "The Terror Dream", gets into that too. A large number of the white women didn't want to go back to the white settlements. Faludi is writing about women, american myth and how it plays into "terrorism" in "The Terror Dream", so don't expect a full book about it; it's only a largish chapter.
Yes, the winners write the history books. But I suspect the historical revisionists might be back in force. The reality is creeping out of the dark corners, especially as the European Model is shown to be fundamentally flawed.
The Puritans also had trouble keeping their young men home.
It is generally assumed that native Americans lived rather a harsh lifestyle and very barbaric at that.
Well most of this is historic bullshit."
Airdale I suggest you read up on the history of the Arizona tribes.I don’t know too much about Eastern Indian tribes but there sure was a lot of blood letting between the tribes that inhabited much of what is now Arizona, New Mexico, and surrounding areas. The Apache occupied the Gila River area in Arizona and basically overrunning any of Arizona’s tribes that got in their way. Arizona’s Pima Indians are thought to be the descendants of the Hohokam who were killed or enslaved by other tribes. The Maricopa got their butts kicked by the Mohave and the Quenchan. When they were not at war with them they were fighting the Yavapai. As I recall there was quite a bit of tribal warfare among the various tribes. Some were quite peaceful while others, like the Apache frequently made life miserable for the peaceful tribes. I don't know about BS, but be careful you don't step in one of your cow pies.
Certainly the cliff-dwellers, who lived in holes in the cliffs that must have been exceedingly difficult to supply, must have been afraid of something, or they'd have lived on the valley floor, wouldn't they?
He was discussing quality of life; you are discussing culture. Saying a group had a high quality of life is not necessarily mutually exclusive to being warlike. Depends on the values.
Also, I'd hazard a guess that you'd find the warfare was largely resource-related and helped keep the populations sustainable.
Cheers
In a related vein... the trend of the US government to employ private contractors for just about everything has a long and illustrious history. The forced resettlement of the Southeastern tribes -- Creeks, Choctaw, Cherokee -- was overseen by private contractors who went all out to cut corners. Who would care if a few thousand redskins died of exposure or starvation?
From Howard Zinn's 'People's History of the USA'
chief rogue nation on the planet is the US
You could argue that the dot-com crash was the first down-cycle in the long decline, at the foot-hills of the mountains and valleys in the crash to come. Certainly even within each crash/recovery cycle there will be commodity cycles as well. It seems that volatility is increasing overall, making investments hard to quantify.
I think it's interesting that many talk about the current stock market drops of 1000 points as almost a crash, when we're still far above the troughs of the dot.com implosion. The stock market was at 7600 as recently as 2002. Things were tight in some sectors but not really bad in the early years of this century.
As easy credit gives way and bubbles deflate, it doesn't seem unreasonable to see the DOW down to 7500 again, or less, without even a systemic failure of any sort. Just a modest recession would seem to take us there, with much lower possible if a real systemic fault kicks in.
"...The stock market was at 7600 as recently as 2002."
If you consider a nominal inflation rate of 5% (6 to 9% would be more accurate)we would be exactly where we are now. If we slide to 7500 that might really be the end of the world.
I read a story about a miser who didn't trust banks and kept his money in a vault and only he had the key. When he died they opened the vault and found the rats has consumed the money. The dollar as an international rate of exchange may soon be an anachronism. We might just discover that the rats have eaten it and little of value is left.
I however was fortunate enough to invest in a commercial development project about four years ago and when the market crashed the project failed. I had so much invested in the project that I lost almost 80% of my net worth. Imagine if I still had all of the imagined wealth...when the crash comes I might have been devastated. Now it's like Dmitry Orlov said in Reinventing Collapse: "...when things crash it will be like falling out of a ground floor window."
Good point on the inflation aspect that I had neglected, but only if you use 'real' inflation versus the published CPI. Many interlocking and self-supporting inaccuracies in the "official" positions.
Really inflation would be the rats in your story.
If the Alternative Minimum Tax were indexed to inflation you could bet donuts to dollars the CPI would overstate inflation. Things of little benefit to the rich like Social Security and veterans benefits are indexed to the artificially low CPI.
The AMT affects many who are not rich, and like every tax it should be CPI indexed else it is regressive over time.
Of course, all entitlements are CPI indexed, but with an understatement of the rate they have to exist on less, but at least that's reducing and expense.
Hmmm.....taking more in, paying less out -- that's a pretty good racket!
The AMT had a really sneeaky feature which could trap unsuspecting employees with incentive stock options. Basically, if you exercise options, the paper gain (market price minus option price) counts towards the AMT. If you happen to hold onto the shares until the next calender year, any gain from the sale, is also a taxable, gain -and you get no credit for the previous years AMT. In the worst cases, the employee would hang onto the shares, which then crash. He then has a loss on the shares, but a big tax bill. I've heard of people going broke, but still owing a huge tax bill commiting suicide.
But the main issue today, is that for moderate income people, with high deductions, can end up paying substantial AMT bills. The AMT was meant to insure that wealthy people have to pay a fair share, but the lack of indexing has brought many who are not rich into its reach.
As we expanded our use of energy the economy primarily expanded, with occasional recessions. As the energy available declines, we can expect the economy to primarily contract, with occasional expansions.
"We'll stagger along, with repeated collapses and recoveries, for quite awhile."
I agree. Imagine someone who's had way too much to drink at a party and is passed out under the kitchen table. When he comes to, he starts getting up, hits his head on the table and passes out again. You can imagine this continuing until his inebriated state is past.
I believe this is exactly what will happen with the economy. We'll manage to revive it for one more go, and then BOOM, we hit the limit due to resource constraints and it will come crashing down again. This can happen as many times as it takes to wise up.
Dan
"repeated collapses and recoveries"---but each recovery failing to bring the economic activity level up to the point it was at before the previous collapse...
like a ball bouncing before it comes to a stop.
I guess in both cases energy is being dissipated.
Since there will be less and less noisy cement-and-oil economic activity (already I'm seeing a LOT less here!!) there will be more room for nature, and we'll have to act in accordance with nature more, so yay actually!
There may be "recoveries", but none will get us back up to where we are now in terms of real GDP. Not until peak oil is mostly mitigated, which will take decades.
I would say "never."