This page has been archived and commenting is disabled.

Guest Post: The New Price Era Of Oil And Gold

Tyler Durden's picture


Submitted by Gregor Macdonalds of Chris

The New Price Era Of Oil And Gold

"If society consumed no energy, civilization would be worthless. It is only by consuming energy that civilization is able to maintain the activities that give it economic value. This means that if we ever start to run out of energy, then the value of civilization is going to fall and even collapse absent discovery of new energy sources."

~ Dr. Tim Garrett, University of Utah

The New Oil Cycle is Suffocating Economic Growth

There was a time when central bankers used to fight high oil prices with interest-rate hikes. But we are now in a different era with that equation, and central bankers are more likely to lament, as Ben Bernanke quipped in his spring 2011 press conference, that "the FED can’t print oil.” Yes, precisely. At the zero bound of interest rates and with debt saturation coursing through the private and public sector, the developed world faces not an inflationary restraint from oil prices, but rather an additional deflationary barrier. Welcome to the new oil cycle.

In the old oil cycle, new supply of petroleum was brought online to capture rising prices. In the new oil cycle, declines from existing fields neutralize this new supply, for a net global supply gain of zero. In the old oil cycle, recessions benefited large consumer countries like the United States as oil prices fell, giving a boost to the economy. In the new oil cycle, the price of oil falls only for a short time before resuming a higher swing. In the old oil cycle, the developed world set the oil price through swings in its demand. In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations.

Peak Autos

This week, JD Power and Associates released its 2012 sales outlook for the US light vehicle market. I’m quite thankful that Calculated Risk, the long-time blog on the US economy, keeps an updated chart series of this data, because it will help set the context for JD Power’s outlook and where we are in the current oil cycle. The forecast? For the annual rate of US automobile sales to reach 14 million by the second half of 2012. That would make for a healthy advance in auto sales from the current rate, around 13.25 million. Let’s take a look then at the multi-decade chart for light vehicle sales from 1967-2011.

Anyone familiar with a chart of the US stock market or US employment will immediately spot the long-arc trajectory here that begins in a very familiar place: 1982. That was the dark place, after twin recessions and a rude (but healthy) Volkering of inflation, from which the great bull market in stocks was born. This reflects current discussions of 1) how much the stock market could recover, 2) how much the employment market could recover, and 3) how much wages or real GDP could recover. The JD Power forecast for next year, if it comes to pass, would only restore vehicle sales to levels last seen in the 1990s.

I won’t digress (much) toward the enormous mistake the US has made in continuing to invest billions of dollars in public capital into the Auto-Highway Complex. But let’s at least disabuse ourselves of the notion that automobile transport has been a free-market phenomenon for nearly all developed nations. Both in Europe and in the US, automobile manufacturing has been a key part of the industrial (and political) structure for decades. And I am merely using this sector as a current example of a beloved and favored means to economic growth that no longer works for economies now that we’ve entered the new oil cycle.

In the old oil cycle, higher prices would have triggered new gains in MPG standards from the automobile industry, no doubt unleashing a new round of higher automobile sales. In the new oil cycle, sales of new autos are hampered as car owners hold on tight to existing vehicles. There isn’t enough growth in the wider economy to turn the fleet over. This is precisely the analytical mistake forecasters of future EV sales (electrical vehicles) continue to make when happily predicting broad adoption of electric power. Adoption is glacially slow because fleet turnover is slow. And fleet turnover is slow because the economy has been reduced to a much lower level of operation.

I recently showed data which quantifies the dramatic drop in oil consumption since the 2007 highs in the US economy. As usual, the correlation between economic growth and energy consumption is nearly perfect. The drop in European oil consumption has also been quite pronounced. I might add that in the case of Europe -- which enjoys broad coverage in electrified rail transport -- the reduced oil consumption is more notable. The United States entered the current decade with a lot of discretionary oil demand that was fated to come offline, but that was not the case in Europe. The continent has been weaned from casual oil use for decades, mostly through high taxes. But that did not prevent a new low in consumption post-2006, when prices began to soar -- with predictable effects. Stuart Staniford of the Early Warning blog presents the chart below with the latest data. It’s notable that Europe’s economy, the largest in the world, has shed a million barrels per day (mbpd), from 15.5 to 14.5 mbpd.

The Rescue Myth

Let’s pause here and be as frank as we can be about a rather widespread belief in the Western world shared among economists, policymakers, technologists, and corporations: The price of oil will eventually drop, and the global economy will also grow. Is that right? Well, unless you’ve been living in a cave, OECD countries are currently in the throes of a debt crisis, with at least 15% of the population unemployed or underemployed. Meanwhile, North American oil prices, as measured by the WTI benchmark, have just rejoined Brent at levels at/above $100 a barrel. And Western economies are now supposed to recover from this position? What price of oil are we to forecast, should the vast spare capacity and idle labor of the OECD come back online? I spoke to this issue back in 2009 in a post called Overhead Crush:

A concept that’s key to resource depletion is the higher volatility phase, in which both price and supply start to hit ceilings and floors in accelerated fashion. This tends to appear first during the actual peak supply period, or peak plateau period. The pattern has been seen in previous eras in such things as wood, fish, and whale oil. When the post-peak phase gets underway the price amplitude increases even further, playing havoc with supply and demand. As demand gets killed, and then finally collapses, it causes confusion about supply. But then, as demand returns, any questions about supply are soon answered as demand once again bumps up against the supply ceiling.

Visually, we can think of demand in this phenomenon as being in a kind of contracting triangle. Every time consumption resumes after a previous demand crash, it hits the ceiling at a lower level. This is the point where, if you find yourself living in the age of biomass and wood, you get rescued by coal. For example. This is also the point where, if you are living in the age of oil, it’s less likely you get rescued.

Normalcy Bias and the Problem of Growth

Normalcy bias, rampant in the West, leads most to conclude we’ll be rescued. Some magical combination of new technology, new policies, or miracle energy resources will soon arrive. Even on the conventional end of this spectrum, there is still a generalized belief in the inherent ability of the system to resume growth. In a recent paper from the New America Foundation, The Way Forward (Alpert, Hockett, Roubini), we find eminently reasonable solutions that target the system as it once was, but not the way it’s operating now. While the authors move beyond either purely Monetarist or Keynesian approaches in their solution set, their attention to energy inputs is far too moderate. Only a policy recommendation that foregrounded energy as the primary lever to apply to Western economies, rather than merely including it, would now have resonance. It is the energy-intensity of America in particular that must be confronted, not only in its domestic consumption but in the global energy inputs it commands through its outsourced production. Let's remember that oil, until it is eclipsed by coal, remains the primary energy source of the world, with a 33.56% share (2010, BP Statistical Review).

And now the question: If growth faces nearly insurmountable barriers, absent widespread debt writedowns or even a debt jubilee, then why are German Bunds or US Treasuries currently operating as safe havens? Do Germany and the US not occupy the same economic territory as broader Europe? A demand shock for Asian consumer goods, emanating from a collapsed Europe, would crush Asian demand for the infrastructure goods that Germany produces with such expertise. Global markets are therefore making an enormous mistake. In the midst of a sovereign debt crisis now hitting the developed world, they are pricing the risk as though this were like the 1980s crisis that hit countries in Latin America. But this is not a crisis in which banks in Boston, having lent billions to Brazil or Argentina, write down debt while engines of growth in Japan, Europe, and the US move forward. Rather, this is the endgame of post-war growth in the West.

And it would seem that even 'safe haven' bond markets have started to price in this reality. As Morgan Stanley shows in this chart of recent action in German Bunds, the price advance (and thus the yield decline) in bunds has started to slow as the recognition phase gets underway on system-wide EU debt. 

(chart courtesy of Joe Wiesenthal at the Business Insider)

The developments in Germany’s “safe-haven” status were addressed by Ambrose Evans-Pritchard on November 17:

Andrew Roberts, rates chief at Royal Bank of Scotland, said Asia's exodus marks a dangerous inflexion point in the unfolding drama. "Japanese and Asian investors are for the first time looking at the euro project and saying `I don't like what I see at all' and fleeing the whole region." The question on everybody's mind in the debt markets is whether it is time to get out Germany. The European Central Bank has a €2 trillion balance sheet and if the eurozone slides into the abyss, Germany is going to be left holding the baby."


The Vulnerability of Having Sovereign Debt As Your Core Asset

All across Europe, the sovereign debt of EU nations forms the core asset base of key institutions critical to systemic cohesion. This debt is a call option on future growth -- a call option that most assumed would never decline so catastrophically in value and that could presumably always be rolled over. In the old oil cycle, such sovereign debt problems were merely a function of profligacy. In the new oil cycle, a debt crisis is no longer solvable with growth. Devaluation or jubilee are the only options. The loss to society will be borne most directly by those who hold sovereign debt as their savings. But in our present situation, it will not be a sub-set of the West that bears the loss, but the entirety of the West. The time of Containment is over.

Gold's Critical Role at This Time

The recognition of dim, future growth has only now begun to unfold. In an earlier report, I explained that the framing of gold prices as insurance against future inflation was, at least for now, wrong. Instead, gold continues to trade along the contours of growth’s terminal phase and the unpayable debt now left in its wake. This impending instability, or discontinuity if you like, is what will drive the gold price over the next few years, along with policy maker’s response(s) to our decline.

In Part II: Understanding Where Gold & Silver Go From Here, I offer two distinct price pathways for gold, specifically in light of the great threshold that we’re now crossing in developed-world debt saturation and the end of growth. These two price pathways will be greatly influenced by how policy makers and central banks respond to this final phase of the crisis. In addition, I also offer a view as to silver’s relationship to gold along the two pathways I define. Timing is of the essence, because oil prices have just punctured the great reflationary recovery of 2009-2011.

Click here to access Part II of this report (free executive summary, enrollment required for full access).


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 11/21/2011 - 22:13 | 1901022 paarsons
paarsons's picture

I call bullshit.

Higher interest rates will crash commodities through the floor.

You can't keep the FED window at zero forever.

Mon, 11/21/2011 - 22:20 | 1901038 Bring the Gold
Bring the Gold's picture

I call bullshit on your constant pimping of your blog.

Mon, 11/21/2011 - 22:35 | 1901071 paarsons
paarsons's picture

Well, I call bullshit on your bullshit.

So there.

And fuck all you motherfuckers who keep giving me minus ones.

Mon, 11/21/2011 - 22:56 | 1901091 slewie the pi-rat
slewie the pi-rat's picture

a re-tooled celente troll like you doesn't get to call nothin on nobody, asswipe

in fairness, your original comment is not as bad as usual, imo...

Mon, 11/21/2011 - 23:30 | 1901234 TheSilverJournal
TheSilverJournal's picture

"New prices"..are we measuring in ounces yet?

Mon, 11/21/2011 - 23:48 | 1901289 The Monkey
The Monkey's picture

Keep on at it Tyler.  The 1970's bore "Energy Ant" - lessons for the Elementary school aged on alternative fuels - and articles and stats that showed world crude stocks depleted in 2000.  Here we are in 2011, another major commodity top.  After a decade boom in Houston, should we really expect another?  Seriously bro.


Mon, 11/21/2011 - 23:55 | 1901313 knukles
knukles's picture

Energy Ant.
Z'at like political Moon Cricket?

Tue, 11/22/2011 - 00:47 | 1901465 Snidley Whipsnae
Snidley Whipsnae's picture

I have a problem with this sentence... "In the old oil cycle, such sovereign debt problems were merely a function of profligacy. In the new oil cycle, a debt crisis is no longer solvable with growth."

Too many assumptions that have not been proven...

This same set of assumptions was plastered all over The Oil Drum site years ago... and if I went there today I would see the same.

'Oil depletion' is the answer to every wiggle in the price of crude? What about dollar devaluation and export of inflation to Saudi Arabia and other major oil exporters? What about major specs in oil futures? Oil and PMs are the two most manipulated commodity classes in the world.

When oil hit $147 per bbl, predictions were rampant that peak oil had been reached and that oil was headed above $300 per bbl. Meanwhile, tankers loaded with crude were sitting in the Persian Gulf with no buyers. I was short and made a few bucks while the major shorts made billions. Suddenly the longs posting on The Oil Drum disappeared. Go figure...

Tue, 11/22/2011 - 04:05 | 1901712 SRSrocco
SRSrocco's picture


Trying to forecast where a peak of production or what the price will be is just about impossible.  That is why we finally see the peak in the rear view mirror.  The world has gone from paying $10-$30 barrel oil from 1999-2004, to paying $80-$100 in the past 2-3 years.  Global production has been FLAT since 2005.

The natural decline rate from exisiting oil fields is 9%.  New fields are just keeping current production from falling.  The more TAR SANDS, DEEP SEA and SHALE OIL that comes online the lower EROI - energy returned on invested comes with it. 


DEEP SEA = 8-10/1

SHALE OIL = 4-5/1

TAR SANDS = 2-4/1

This sort of LOW GRADE OIL does not have the sort of EROI to allow our Advanced Economies to continue.  Sure, it adds supply and gives us the ILLUSION that we can continue living the SUBURBAN LEECH AND SPEND ECONOMY here in the USA forever, but we are closer to a collapse than few realize.

Interest rates are meaningless in the last stages of a FIAT CURRENCY FRACTIONAL RESERVE GLOBAL BANKING SYSTEM which controls the markets today.

Gold and Silver have been heading into an EXPONENTIAL TRAJECTORY due to the fact that the Fiat System is heading in the exact opposite direction.  Soon the price of these two precious metals will turn abruptly higher and head straight towards the moon.

Time to be in physical bullion unless you would like to get the MF GLOBAL ENEMA.


Tue, 11/22/2011 - 08:26 | 1901870 BigJim
BigJim's picture

Someone help me out here, please.

It seems pretty clear we've hit peak oil, and consequently, oil prices must go up. Even if you believe in abiotic oil, the production statistics show the supplies are not being replenished as quickly as we are using them up.

We need oil for a lot of things.. but we also use a lot of it in applications when other sources would do just as well. I know oil is a key ingredient for plastics and fertilizers, but Liquid Natural Gas is just fine for powering ground vehicles, for instance.

Now, I keep hearing about trillions of cubic meters of new Natural Gas deposits coming online through new drilling methods (fracking), and less dangerous nuclear technologies like Thorium. Can these not aleviate our problems, at least for several decades? Yes, we still need oil, and it will still eventually run out, but if a lot of our energy will be coming from alternate sources, won't that time be pushed way into the future? And I know the arguments about EROI values, but if it's possible to get energy more cheaply by one method (say NG) to extract energy in a more convenient form (ie crude), then does bad or even negative (within reason) EROI really matter? Yes, civilization requires cheap energy... but does it need cheap oil?

Someone has remarked here on ZH that a lot of the new 'trillions' of cubic meters produced by fracking are illusory, claims made by drilling companies hoping to get bought. I can't believe some serious research hasn't been done on this whole area - can anyone point me to some good sources for further reading?

Tue, 11/22/2011 - 09:48 | 1902100 GMadScientist
GMadScientist's picture

This is a solvable human behavioral problem, but so is trying to talk someone out of mainlining crank.

For many uses, oil has few substitutes. No solar-powered tractors or plastics made from natty gas on the horizon.


Tue, 11/22/2011 - 11:49 | 1902601 BigJim
BigJim's picture

I agree we need oil for a lot of uses... but that's not the same as saying that the bulk of oil is presently used for purposes only oil can fulfill. Though it might well be - my point is, I don't know. Is it?

Why couldn't we run tractors on LNG? It works for cars/trucks/busses, no?

Tue, 11/22/2011 - 10:33 | 1902255 Sean7k
Sean7k's picture

Your assuming a smooth transition to a new energy paradigm. In a present with extrordinary energy requirements, it is more reasonable to assume that the supply will be uneven and driven by large disruptions.

This is not a recipe for growth. Consequently, the author has a valid thesis. Will it remain so? I doubt it. 

Man did not crawl out of the primordial ooze to die from energy depletion when many alternatives exist- the biggest being the conservation and more efficient use of existing supplies coupled with new sources of energy being brought online. Thorium reactors are very interesting, but will require a sales job for the public after Fuckyoushima blows another gasket.

Tue, 11/22/2011 - 10:17 | 1902229 Sean7k
Sean7k's picture

You might want to revisit the supply/demand channel chart in the article.

Mon, 11/21/2011 - 23:37 | 1901253 topcallingtroll
topcallingtroll's picture


Bankers wont kill fiat in a hyperinflation. They would lose their source of power and control.

A mild deflationary bias is highly possible the next ten years. Or slow growth will feel like deflation.

Gold wont do great in that environment, but then norhing will.

Mon, 11/21/2011 - 23:43 | 1901266 TheSilverJournal
TheSilverJournal's picture

A miild deflationary bias isn't an option. The options are to allow depositors to lose their money or to keep the game going until hyperinflation. I don't think it's quite time yet, but it's certainly possibly the banks could break tomorrow. My guess is we have a few month at the least and a few years at the most until the banks break or until hyperinflation.

Tue, 11/22/2011 - 00:03 | 1901344 trav7777
trav7777's picture

jeez you act like if they killed the FRN they wouldn't be back the next day with FRN2

bankers don't care.

Tue, 11/22/2011 - 00:57 | 1901473 Snidley Whipsnae
Snidley Whipsnae's picture

Bingo! +1... They gotta fractionalize something Trav, else their franchise is dead... paper hanging azz holes...

Here is a good one from Bill Bonner...

"The bond holders want to know if the Euro-feds are going to bail them out…the Euro feds want to know if the Chinese are going to bail them out…and the taxpayers want to know how long their pension checks will keep coming.

Angela Merkel gave an answer yesterday.

“If politicians believe the ECB can solve the problem of the euro’s weakness, then they’re trying to convince themselves of something that won’t happen,” she said in a speech.

The question she was answering was when the ECB would step in to buy more bonds and bail out the bondholders. Apparently, that’s not a question worth asking, she says.

What the Germans really want to know is whether the Greeks and Italians can act like Germans. What the Greeks and Italians want to know is when the Germans are going to stop acting like Germans.

And what the French want to know is where to get a good piece of fois gras and a good bottle of Bordeaux."

Read more: More Questions Emerge as the Debt Crisis Continues

Tue, 11/22/2011 - 01:31 | 1901550 TheSilverJournal
TheSilverJournal's picture


1) The ECB's structure changes so they can issue Eurobonds and print in order to hold yields down.


2) Yields keep going up and eventually the countries default over the weight of high interest payments, causing the Euro to fail which would break all the banks in the western world. 

Option 1) will be chosen and Eurobonds and printing will commence because without printing, Germany and every other European country will suffer a significant devaluation returning to their old currencies because the debt that would have to be wiped off, the US banking system would break, and bankers and politicians would much of their control of the printing presses. They can stay in control longer by dragging the game out through hyperinflation.

On Wednesday, the European Commission will propose two laws that will lead the way to Eurobonds and infinite Euro printing.

Tue, 11/22/2011 - 08:09 | 1901849 BigJim
BigJim's picture

I'm inclined to qgree. TPTB seem to have a lot more to lose through immediate deflation and consequent rolling defaults across the entire planet. Ergo, they must print, even if that means hyperinflation will be the eventual result.

Having said that... our economies are now entirely dependent on how governments/central banks behave. Most people will lose their shirts, not because they're stupid, but because they don't have insider knowledge of what these entities will do. If you're an insider, you can make a killing either way, because you know what's coming, and hence whether to go short or go long. That, to me, is the key weakness in assuming the bastards will print.


Tue, 11/22/2011 - 09:58 | 1902151 trav7777
trav7777's picture

good time to be a chosen

Tue, 11/22/2011 - 04:12 | 1901722 vnguru
vnguru's picture

The Futures Crude, and gold prices going down at this time. I belive that they will continue decrease in next 2 week. the War in Libya has stoped. So, the price of crude oil will be stable in next time. However, I don't know how the gold prices can increase crazy like that. besides, the currency converter also has many change.

Tue, 11/22/2011 - 10:26 | 1902263 Sean7k
Sean7k's picture

Can you say gold backed Rentenmark? They sold it in 1923. Big con job- bigtime result.

Mon, 11/21/2011 - 22:59 | 1901143 FeralSerf
FeralSerf's picture

It's Tyler's fault.  He doesn't let us give anyone -2 or -100.

Mon, 11/21/2011 - 23:37 | 1901254 solgundy
solgundy's picture

here's another one , you MF'er

Mon, 11/21/2011 - 23:07 | 1901166 Freddie
Freddie's picture

Has the Tyler(s) allowed us to blog pimp here?  I have multiple blogs I would like to pimp if this is okay. 

Mon, 11/21/2011 - 23:39 | 1901258 topcallingtroll
topcallingtroll's picture


But blog pimps are even lower than trolls.

Dont debase yourself cutie.

Tue, 11/22/2011 - 09:50 | 1902112 GMadScientist
GMadScientist's picture

Depends on the blog. The Turd is a fine counter-example.

No one complains about the hot streetwalkers.

Mon, 11/21/2011 - 23:15 | 1901190 infinity8
infinity8's picture

I call bullshit on "if society doesn't consume energy, it's worthless". - huh?

Mon, 11/21/2011 - 23:26 | 1901217 infinity8
infinity8's picture

Sorry, "If society consumed no energy, civilization would be worthless." - still Wha? What the fuck planet am I on??

Mon, 11/21/2011 - 23:28 | 1901225 tmosley
tmosley's picture

Consumption of energy is a means to an end.  You could burn everything willy-nilly, and it wouldn't provide more "purpose".


Mon, 11/21/2011 - 23:42 | 1901270 topcallingtroll
topcallingtroll's picture

If you have no energy to use for purpose or waste then civilization will feel like it is over.

I dont want to go back to 1920's style per capita energy use. I like my energy slaves. They do a lot of work for me.

Mon, 11/21/2011 - 23:47 | 1901287 infinity8
infinity8's picture

Is it so hard to imagine energy used for a purpose now? Personal energy? Recyclable (we DO have the technology now)? No wonder the mess we're in. . .

Tue, 11/22/2011 - 09:51 | 1902118 GMadScientist
GMadScientist's picture

Row row row your generator...

Mon, 11/21/2011 - 23:43 | 1901271 jez
jez's picture

And what about uncivilized people like me? Are we not allowed to consume energy too? In consuming energy, do the uncivilized add or subtract from the sum total of "civilization"?

The nation demands an answer.

Tue, 11/22/2011 - 00:43 | 1901454 steve from virginia
steve from virginia's picture

Estimable Gregor Macdonald has excellent explanation, paints a nice sketch of world to come. Here is more detail:

- the economy must be able to afford to bring oil to market. Right now the price that the economy can afford is dropping while the cost of bringing new expensive crude is increasing. Why? Because the producers all wanna live like piggish Americans, as seen on television. The point where the two numbers are the same happens to be right where we are now! As economic price drops the available fuel will also drop.

Opec cutting production won't help, because this won't put dollars/yen/euros into anyone's pockets. The outcome is shortages. These will be:

a) permanent,

b) taking place in China right now. Don't say you weren't warned.

- Credit shortage is the consequence of high oil prices since peak oil took place in 1998!

"1998? That's crazy!"

- Not on this planet! Maximum oil available relative to paying demand was in 1998, real or relative price has risen since. The high price has been met/amplified by increased credit from banks and now sovereigns. Now, the credit lines have run out. Now what?

- Credit crisis is energy conservation by other means. The Eurozone is in the process of becoming car-free starting with Greece, Spain and Portugal. The EU will be joined over the next few years by the rest of the world.

The world has been wasting fuel for decades for zero return and has lied to itself about it quite convincingly. Now the 'stupid' party is over.

Car = target practice.

Tue, 11/22/2011 - 02:31 | 1901649 dark pools of soros
dark pools of soros's picture

lets just burn it faster and get to the next chapter

Tue, 11/22/2011 - 11:50 | 1902610 Seer
Seer's picture

"Right now the price that the economy can afford is dropping while the cost of bringing new expensive crude is increasing. Why? Because the producers all wanna live like piggish Americans, as seen on television. The point where the two numbers are the same happens to be right where we are now! As economic price drops the available fuel will also drop."

Economies of scale in reverse!

Ain't going to be pretty...

Tue, 11/22/2011 - 09:52 | 1902124 GMadScientist
GMadScientist's picture

Sure, have all the energy you want. but we get to pick the form...hint: it'll mostly be kinetic.

Mon, 11/21/2011 - 23:49 | 1901291 Melin
Melin's picture

"Society," or more precisely, individuals, cannot consume zero energy.  Every organism on the planet has to make a living (or parasitize those who do) and that takes energy. 

The level of specialization in a civilization depends on the availability of energy.  If you had to scrape two sticks together for warmth, you may find you've burned the only tool you had to dig the grubs for your evening meal.  If you discover, produce and utilize more efficient sources of energy, you get to spend time doing other, far more interesting things.  And (and this is the best part), you get to trade with other individuals who've also specialized producing interesting, useful things. 

Can you see how nice an non-energy-starved civilized society might be?

Mon, 11/21/2011 - 23:57 | 1901317 infinity8
infinity8's picture

Don't try to tell me that a civilization that has to procure their "energy" in more difficult/inconveniewnt ways than our modern-day world is "worthless". If anything, that energy is worth "more", because it's better appreciated. Snap out of it man. And, I would say that "discovering" more efficient sources of energy could be Quite interesting. /nerd

Tue, 11/22/2011 - 00:00 | 1901332 Melin
Melin's picture

I guess I misunderstood.  I thought you were suggesting civilization could survive without energy.

Tue, 11/22/2011 - 00:10 | 1901367 Melin
Melin's picture

For "a civilization that has to procure their "energy" in more difficult/inconvent ways...that energy is worth "more", because it's better appreciated."

It's not "worth more," it's more expensive. It takes more of everyone's time/labor to produce. That's why individuals within societies set about making it easier, and therefore cheaper, to obtain. Everyone gets a little freer with every btu produced.

Tue, 11/22/2011 - 00:17 | 1901385 infinity8
infinity8's picture

It's more expensive to people who won't /can't use their own bare hands to do anything. It's more satiisfying and valuable to those who are not helpless. Are you a "park shark" who circles forever wasting fuel until you find a spot right next to the closest handicap space?

Tue, 11/22/2011 - 00:30 | 1901424 Melin
Melin's picture

It's not an inability to use your own hands.  It's how do you want to spend your time and how well have the individuals within your society developed their own skills so that you can trade with them for mutual gain, mutual benefit.

I can fell trees, chop firewood, fish, plant, harvest and build serviceable handmade tools.  I can also manage a database for an international company.  It isn't stupidity or laziness that keeps others from learning to sharpen a chainsaw (or hatchet as I'd guess you'd prefer), it's the fact that our society has advanced enough so that they don't have to spend all their time merely surviving. They get to pursue their happiness and learn anything they wish and put their knowledge to work trading with other like-minded, civilized individuals.

Tue, 11/22/2011 - 00:39 | 1901445 infinity8
infinity8's picture

First, fuck off with the hatchet remark. Next, it IS stupidity and laziness that keeps people from learning righty tighty. Lastly, why can one not pursue their happiness and learn anything they wish if they also have to chop some fucking wood?

Tue, 11/22/2011 - 00:59 | 1901489 steve from virginia
steve from virginia's picture

We Americans and our wannabes don't have a civilization, there is nothing civil about what we endure, a 'pop culture'.

Why are Obama/Krugman/Merkel/Japgov/Bernanke/etc. failures? They aren't real, they are actors reading from a script. None of the economists alive to day 'makin' policy' could carry Keynes' jock strap. Obama is to Churchill as the eagle is to a tsetse fly. We turn our back on 'competence' we want people who fit the 'Central Casting' idea of celebrity politicians and money managers.

Our economy destroys value. It substitutes score keeping -- currency/money -- for value. The axle around which all this turns is the automobile. Look around you and ask yourself why everything sucks, particularly 'new' things? Because these things are substitutes for all the capital that has been destroyed, for the value that has been lost. Part of that capital is energy.

We've run out of value to destroy, we are in the (short) cannibalism phase. No other civilization has ever had our waste, they were too smart ...

The West had a well-developed civilization but WWI put an end to it, the first war of humans versus machines and their 'owners'. Not surprising if you think about it: Federal Reserve, Income tax, Gilded Age all happened @ the same time an entire European generation was annihilated.

Some value ... right?

Tue, 11/22/2011 - 01:18 | 1901524 Husk-Erzulie
Husk-Erzulie's picture

Great comment man.

Reminds me of (I think it was HPD) who pointed out that WW2 lobotomized, or rather it was the final thrust of the ice pick, the two most advanced cultures on the planet, Germany and Japan.  These fucking wars have cost the human race much more than we know.  As a civilization we are way behind where we should be and losing ground across the board.

Tue, 11/22/2011 - 10:07 | 1902192 trav7777
trav7777's picture

yes, the aftermath has empowered a lot of people whose ethos should have been destroyed.

For it is the love of money that is the root of all evil.  This is a 2000 year old observation and you'll have to recall the region of the world he was evangelizing in.

Tue, 11/22/2011 - 02:01 | 1901598 Melin
Melin's picture

Do you object to individuals whose lives never require them to chop some wood?  You seem to view it as a moral achievement to have to do so or to want to do so or simply to have done so. 

Are you saying that people should know how to live as if our civilazation were far less advanced?  Why?

Tue, 11/22/2011 - 11:07 | 1902415 Kidrobot
Kidrobot's picture


Basic is driven by necessity to survive.  Back in the days where chopping wood and growing his own food was necessary he had no time for anything else.  Once technology advanced to where an individual did not need to chop and grow, only then can he dedicate his time towards 'basic skills' of today like arithmetic.  Chopping wood is a thing of the past, and thankfully so as I now have time to advance myself as I see fit and pursue the things I deem worthwhile. I wouldn't be as well rounded today if I had to live in your stupid little archaic world, and its not because I couldn't lift a hatchet.

Tue, 11/22/2011 - 12:11 | 1902677 Seer
Seer's picture

I'm not sure if people are getting it or not, but this is NOT about wanting society to live a certain way so much as it is about how society WON'T be operating.  Again, it's the Messenger and Message thing.

As long as there are people there will be civilizations.  Those that exceed carrying capacity, however, will not perpetuate.

Conservation of energy, it's not just for the heck of it, it's the law.  And, know your fundamentals: Food, Shelter and Water.

"Chopping wood is a thing of the past, and thankfully so as I now have time to advance myself as I see fit and pursue the things I deem worthwhile."

Well, good luck when you lose electricity, such as what occurred at my home today: fortunately my wife can cut wood and stoke that archaic wood stove, not to mention also cook food on it.

Tue, 11/22/2011 - 16:51 | 1904069 Kidrobot
Kidrobot's picture

To make claim how society will or will not be operating is fortune telling, and sorry there is no crystal ball. So no, I don't fully follow your first statement. That's not to say one shouldn't plan, obviously.  But to imply 'good luck' towards me simply because I am thankful that I do not have to cut wood is disingenuous.  Believe me, if/when the time comes my problem will not be whether I can figure out how to split wood and start a fire, but how to get out of town to an area I can fall back on.

It seems according to you, I should this very moment uproot my family and move to the woods simply because of a hunch that the world will end in the near future. Oh hi Simon Black, thanks for your head in the clouds, real life solutions! 

Believe me, I know you are right, that one day it will all fall apart.  But to sit on the sidelines and silently cheer the collapse by stating the obvious is sick, and a trait of people who have nothing to look forward to in their lives other than to say 'HA! I told you so'  I see it all too often in my very own father, and its just tiresom to be around.

Mon, 11/21/2011 - 23:57 | 1901319 knukles
knukles's picture

Planet of the Worthless Energy Moon Crickets.

Tue, 11/22/2011 - 00:01 | 1901338 infinity8
infinity8's picture

Knucks, help me out here, man.

Tue, 11/22/2011 - 04:55 | 1901741 Belarusian Bull
Belarusian Bull's picture

“When you're born you get a ticket to the freak show. When you're born in America, you get a front row seat.”

(c) George Carlin 

Mon, 11/21/2011 - 22:39 | 1901084 CPL
CPL's picture

Learn to SEO and let the search engines do the work.  Enough of the spam already.

Mon, 11/21/2011 - 22:40 | 1901088 Uber Vandal
Uber Vandal's picture

I wonder what else would crash through the floor with higher interest rates when one considers the interest just to service the public debt at today's artificially low interest levels?

Housing, CRE, and pretty much everything else, perhaps?


Tue, 11/22/2011 - 09:54 | 1902130 GMadScientist
GMadScientist's picture

Bond bubble ba-boom baby.

Tue, 11/22/2011 - 12:19 | 1902702 Seer
Seer's picture

If velocity of money is THE key then I'm not thinking that interest rates are going to go up.  The money flow is now primarily controlled by big corporations and big hedge funds.  It'll all slosh back and forth, shaking things all over the place- a race to the bottom.

It's an issue of affordability.  Can't push on a string.

What we're seeing is a shift away from energy intensive shit.  Hummers (oil), McMansions (maintenance nightmares) etc, all the stuff that laughed at the notion of conservation of energy, it's all contracting.  As these were the "carrots" leading everyone on.  People will no longer see the incentive and will wander off, away from these things, and away from fiat.  The System will collapse: matters little whether it explodes or implodes, it's going to end.


Mon, 11/21/2011 - 22:55 | 1901127 Coke and Hookers
Coke and Hookers's picture

Since we're all talking about bullshit: "In the old oil cycle, the developed world set the oil price through swings in its demand."

Really? Demand controlled prices in the past? Hahahahahaha! Go online and do some research. You will find indications that:

- there's no clear correlation between demand and prices

- there is correlation between demand and supply but neither correlates with prices

- there is positive correlation between prices and proven reserves (more reserves=higher prices)

- there is negative correlation between prices and the value of the dollar (less value=higher prices)

This would be fun to enter into a stat program plus a bunch of other economic variables and do a multiple regression analysis (maybe I'll do it over christmas) but it's clear that nothing physical or 'real' has been controlling oil prices. My bet would be dollar decline and manipulation and pretty much nothing else. I just have to find a way to enter manipulation into the program as a variable. :-)


Mon, 11/21/2011 - 23:04 | 1901158 slewie the pi-rat
slewie the pi-rat's picture

the old big oil propaganda bullshit changeth...

...yielding place to new


Mon, 11/21/2011 - 23:20 | 1901202 Coke and Hookers
Coke and Hookers's picture

Running this analysis is going to be complicated. I was just looking into production costs as a variable. Seems cost increases are more correlated with the declines of the respective currencies than actual increased effort in finding and pumping up the crude - although that has obviously increased too. There's a lot of confounded variables and including all the relevant variables in the model will be a problem. Maybe I'll give up and just assume something like economists do when they are analysing stuff.

Mon, 11/21/2011 - 23:29 | 1901229 rosex229
rosex229's picture

Coke and Hookers (or should I say Mr. Blankfein) you hit the nail on the head. There are dozens of variables all interacting with each other, so to attribute any one event to a single variable is ignorant at best.

However, its important to keep in mind that currencies are being devalued due to harsh economic circumstances that were partly caused themselves by the highest oil prices in recorded history ($147 per barrel in 2008 was nealy 50% higher than the inflation adjusted price in 1980 of $95... and clearly lead to a far worse recession).

Another factor is, of course, the sub prime mortgage crisis in 2008, but again one must look at hte big picture. Had the mortgage market been better regulated (and thus more stable) oil prices would have continued to rise until the weakest link of the world economy ran into problems.

You can see this in Europe right now. Oil prices rose and rose until the weakest link in the chain began to crack. Most people blame 2008 on mortgages, and most people will blame 2011-2012 on European debt, but the key is that a stagnant oil supply and rising demand in both cases caused prices to rise until a breaking point was reached.

Mon, 11/21/2011 - 23:50 | 1901296 Coke and Hookers
Coke and Hookers's picture

Yes, analysing this without including the big economic picture doesn't make sense. The biggest problems appear to be interactions between variables, causal relationships and human intervention. These things are simply not fully known and therefore hard to quantify. As an example, let's look at "harsh economic circumstances". The economy is tanking but what's the cause? Oil prices, mortages, debt in general? Perhaps human decisions and policies are the root cause. Let's look at a possible sequence of causal factors:

Globalist ideology > trade barriers removed > outsourcing to Asia > gutting of real economy > political panic > decision to compensate for real economy gutting by debt > fake economy > fake prosperity > more debt necessary to maintain illusion > economy goes virtual instead of real > financial instruments invented > speculation and manipulation replaces production as means to make money > commodities become part of virtual economy > price discovery fully controlled by virtual economy instead of fundamentals > more debt > crash > repeat

A sequence (or model) like that may be needed to explain things and there's a lot of stuff there that can't be quantified. Human beliefs, decisions, the intermingling of real and fake. A complex problem indeed.

Mon, 11/21/2011 - 23:57 | 1901323 rosex229
rosex229's picture

I think were in agreement. Anyone can spin any arguement depending on where in history they choose to start. I personally feel that our current woes aren't simply due to stagnant oil supplies, but an inability to prepare for a peaking oil supply over a decade ago (a product of lobbying and politics). So to take it back a few years further it was political ineptitude and corporate influence that caused our current circumstances.

Tue, 11/22/2011 - 00:04 | 1901347 Coke and Hookers
Coke and Hookers's picture

Good point. A conspiracy theorist would even suggest that not preparing for peak oil was intentional since oil was to be used as a tool to manipulate the economy. :-)

Mon, 11/21/2011 - 23:52 | 1901307 BandGap
BandGap's picture

Weight your variables accordingly. Set up a matrix and correlate which fall out at say <.90 correlation with the trend (output) you desire to measure.  You can almost always get 3-5 principle components that will give you a >.95 predictability for your model.

People get all jiggly with too many variables.   

Tue, 11/22/2011 - 00:32 | 1901427 DoChenRollingBearing
DoChenRollingBearing's picture

Just what I was going to suggest: either principal companents analysis or factor analysis, two similar statistical techniques that REDUCE the number of variables by a complicated procedure based on linear algebra.  You typically would get about the square root number of factors (components) that would be significant.  Almost always "Factor 1" accounts for a LARGE & explanatory part.

3 - 5 components is about right.  I have run a Factor Analysis on our bearing sales in Peru vs. our customers over a 2 1/2 year period (as the structure of our sales has been consistent in that time period, same brands, etc.).  I picked out our top 30 bearings (as variables) and our top 300 customers (as cases) and got 5 factors that all made sense.  It's been a few months since I did this, but my best guess is that this model would represent about 80% - 85% of the variability.  ALL of the factors made sense (in that the bearings (variables) correlated well for cars in Peru, size of vehicle, etc.).

Even our Factor 1 made sense, did not have to make a general BS reason to explain it (like a good economy made it easier to sell our stuff).  Factor 1 represented just ONE car model for us (VERY IMPORTANT for our business is that little car...).

Tue, 11/22/2011 - 00:22 | 1901401 whoisjohngalt11
whoisjohngalt11's picture

Well atleast some of us get it...

Tue, 11/22/2011 - 12:30 | 1902737 Seer
Seer's picture

Numbers are basically meaningless.  What matters is affordability.  Clearly things aren't becoming more affordable.

I see demand destruction happening.  This in turn will push hard on operating costs as it starts reversing economies of scale: plant utilization decreases, unit cost ratios go up*, producing more downward pressure on consumption, which in turn...

* The affordability of various distillates will decrease as less is made due to an overall decrease in gasoline production.  This will be tough on trucking (diesel).

Slinky down the staircase.

Tue, 11/22/2011 - 00:09 | 1901361 trav7777
trav7777's picture

yeah, anything to not have to admit that production is in decline, eh?

When there was abundant slack capacity, we were in a different pricing regime.  commodities prices are set at the margin according to slack supply

Mon, 11/21/2011 - 23:41 | 1901265 opencircle
opencircle's picture

Ethanol contributes to 10% of US gasoline usage since 2010.  This should account for 10% drop in gasoline usage. A more apt statistic is to map the cummulative usage of gasoline and ethanol and then deduce conclusions.


It is possible to move away from Oil, if Brazil can do it so can US. Yes, there will be lots of long term planning and unintended consequences on feedstock but it can be managed well.

Mon, 11/21/2011 - 23:54 | 1901310 BandGap
BandGap's picture

All gasoline is formulated with 10% ethanol? I don't think so.

Mon, 11/21/2011 - 23:58 | 1901326 knukles
knukles's picture

Not.  Ethanol is an energy sink.

Tue, 11/22/2011 - 00:09 | 1901362 trav7777
trav7777's picture

corn ethanol is...sugarcane ethanol isn't.  But, we can't grow that here

Tue, 11/22/2011 - 00:35 | 1901435 DoChenRollingBearing
DoChenRollingBearing's picture

But we CAN import Brazilian ethanol at much cheaper than corn ethanol.

Tue, 11/22/2011 - 01:37 | 1901561 FeralSerf
FeralSerf's picture

You can't import it cheaper with the current tax on it!

Ethanol is a scam to transfer  wealth from the proletariat to Wall St. financiers and corn farmers. 

Tue, 11/22/2011 - 12:42 | 1902774 Seer
Seer's picture

Some years back one of the US energy giants was trying to team up with a big agricultural business in Mexico to prduce, yup, ethanol.

Could there be any clearer demonstration that food IS energy?  Unfortunately people feel that it's better to feed machines than themselves...

Tue, 11/22/2011 - 00:01 | 1901334 rosex229
rosex229's picture

Don't forget that a gallon of ethanol has less energy than a gallon of gasoline. In other words, a gallon of 90% gas 10% ethanol gets lower mileage than a gallon of 100% gas. This is actually a strange aspect of how the EIA and IEA count energy supplies. Instead of counting the amount of Joules a fuel supplies they count the volume, which is truly absurd because 1 million gallons of gasoline has vastly more energythan 1 million gallons of ethanol.

Tue, 11/22/2011 - 00:15 | 1901381 Joe Sixpack
Joe Sixpack's picture

ethanol has about 70% of the energy content of gasoline (and is higher octane).


Ethanol from sugar cane works pretty well (spent a lot of time in Brazil the last couple of years). Ethanol from corn is more difficult. From what I I saw in a study, corn has the highest per acre yield of ethanol, but at higher energy input costs, because you have to break down the complex carbs. to sugar with heat. I suspect ADM and others have figured out a way to work this through existing processes, and reap rewards (maybe corn sugar production, which makes sense).

Tue, 11/22/2011 - 00:22 | 1901400 rosex229
rosex229's picture

Call me a guy looking at the world through a lens, but I'd suspect that Brazil's stability and recent credit rating upgrade (yep that still happens in some places) is indirectly and unintentionally due to Brazil's domestic production of energy supplies. This reduces their trade deficit, increases exports, and frees Brazil from putting itself in compromising situations to maintain imports of energy. Not to mention it also means cheaper energy for every person in Brazil leaving Brazilians with more discretionary income to spend.

Tue, 11/22/2011 - 01:16 | 1901504 Joe Sixpack
Joe Sixpack's picture

Not to mention possible deep water petroleum reserves (though potentially very expensive and difficult to extract).


Weird things down there. I went to a mall. They name brand sports shoes for $200-400 US. They offered them to suckers people on lay away. The Brazilians are into a real "fitness bubble" and blowing noney they do not have. It was insane.


My thought was with all the beef (and quite good I might add), they should have more than enough leather to make all the domestic shoes they need. They must be going after the image thing. Smart people in some ways, not in others.

Tue, 11/22/2011 - 10:12 | 1902209 trav7777
trav7777's picture

having been there a couple of times and having more brazilian contacts than I can count, I concur with your assessment.

Even in 2 trips separated by 6 months I could easily spot the increase in expenditures just by the sudden abundance of higher end cars on the roads.  Even so, the mall cashiers seemed to marvel at my ability to buy shit without layaway.  Stuff is NOT cheap there.

However, even the regular everyday things that they buy have gotten jacked up.  My BJJ instructor is from Rio and was just there during the summer and was complaining about how the food and cocoa water is no longer cheap like it used to be.  It was always that cars and clothes were pricey, but you could get a meal and stuff like that for a low price.  No longer

Tue, 11/22/2011 - 00:32 | 1901428 adr
adr's picture

Ethanol replaced MTBE as a gas addtive. You never got 100% gasoline in your tank. To say that Ethanol reduced gasoline consumption isn't correct. People are driving far less and the average economy of cars on the road has risen over the past 15 years. Yes a 1985 Honda gt 35mpg easily but most cars on the road at the time got less than 20. Many people were still driving 10mpg V8 1970s boats. The world is using less oil today than it was ten years ago, yet the price is four times higher.

Tue, 11/22/2011 - 12:55 | 1902819 Seer
Seer's picture

"It is possible to move away from Oil, if Brazil can do it so can US."

Do you care to wager on this?

Sorry to break your bubble, but Brazil's ethanol use is but about 9% of their total liquid fuels consumption.  IT'S A FUCKING MYTH! (I know, I did a bunch of research for a presentation on biofuels.)  Brazil undertook ethanol production because of the effects of the 70s oil embargo.  They ramped up ethanol production, BUT, they NEVER were independent from oil!  Also take note that Brazilians use, on average, 1/4 of the energy the folks in the US do.

And keep in mind that sugarcane is more energy dense (as well as being less nitrogen hungry) than corn.

Oh, as to why the Brazilians are energy independent?


Brazil is the second largest producer of ethanol in the world behind the United States. In 2009, Brazil produced 450,000 bbl/d of ethanol, down from 467,000 in 2008. Despite this decline, the Brazilian Sugarcane Industry Association (UNICA) expects production to rise again following a successful 2010-2011 harvest season

Now then, can you fork over the wager?

Mon, 11/21/2011 - 22:22 | 1901043 FutureShock
FutureShock's picture

I love Chris Martenson's blog and crash proog but Natural Gas and more undiscovered oil and less EPA bullshit and I think things change a bit. He is way above me in facts and data but just sayin'  Would love to see the rest of this on Gold can I pay $5.00 for one article? Chirs? Gregor? add that to the cart?


Mon, 11/21/2011 - 22:37 | 1901078 Barefooted_Tramp
Barefooted_Tramp's picture

"In the new oil cycle, the developing world, with its much lower sensitivity to high prices now sets the floor on oil. Most of all, the new oil cycle caps growth in the developed world. The new oil cycle kills the economies of the OECD nations."

In Kerala (South India) they regularly shut down the whole economy if fuel prices rise even for 1 Rupee (US$ 0.02).

So what does this guy know about the developing world and its lower sensitivity to high oil prices?


Tue, 11/22/2011 - 00:03 | 1901345 knukles
knukles's picture

No, sorry Tramp.
The correct answer is; "What is: No, that's Bullshit".
And what did you wager Tramp?
Your credibility! 
Aw, I'm sorry Tramp, but you've lost all your credibility.

Wed, 11/23/2011 - 00:34 | 1905082 Barefooted_Tramp
Barefooted_Tramp's picture

Huh..lost my Credibility?

Smallberry Blues Smallberry Blues, If you ain't got no shoes you ain't got nothin' to lose.

Listen, I know what I see, so peddle your credibility stuff elsewhere. Don't need it.

I am a Barefooted_Tramp.

Mon, 11/21/2011 - 23:11 | 1901180 slewie the pi-rat
slewie the pi-rat's picture

ok.  just send me the 5 bucks

i'll clear it for you

Tue, 11/22/2011 - 00:01 | 1901339 CrashisOptimistic
CrashisOptimistic's picture


Look up the physics of natural gas vs oil.  One barrel of volume of nat gas is 1/1000th the energy of oil, at room temperature.  Use up some energy to freeze natgas down to liquid and you get to about 55% of the BTUs of a barrel of oil.

This is why the Honda Civic nat gas car has no trunk.  It's all fuel tank.  Even doing that, and even compressing it, they can't get what oil can do.

This is not rocket science.  Engines run on oil because it's the best stuff for them to run on.  Now that you have to use something else, it's going to be less powerful.  When you have 7 billion people dependent on the power that USED TO BE in engines, and now tell them they can't have that . . . . a good chunk of them die.

Tue, 11/22/2011 - 00:19 | 1901392 Joe Sixpack
Joe Sixpack's picture

"One barrel of volume of nat gas is 1/1000th the energy of oil, at room temperature."


Is that liquefiied or gaseous. If gaseous, it is not a fair comparison. Hydrogen has low energy content, but I think natural gas is ok. Back to my comments on Brazil, natural gas is another alternative there. You go to some gas stations and they have gasoline, diesel, ethanol and natural gas. Most of the time people I drove with ran ethanol.

Strangely they do not permit diesel for passenger cars.

Tue, 11/22/2011 - 00:40 | 1901448 DoChenRollingBearing
DoChenRollingBearing's picture

In Lima, Peru a high percentage of their small-car taxi fleet runs on NatGas.  And Peru is POOR!  If they can do it there, then we can do it here, at least low-hanging fruit like city delivery trucks, bus fleets, over the highway Class 8 trucks.

Tue, 11/22/2011 - 08:09 | 1901851 Ghordius
Ghordius's picture

I agree

there is no reason why the big trucks and buses can't switch to NatGas, it is a low hanging fruit

meanwhile I have to think back about the times where I was driving around in Greece in the Eighties and calculated that the taxes on gasoline were seven times more than the cost of producing it... I learned how to switch off the motor when going downhill like everybody else...

America has been blessed for decades with comparably incredibly cheap gasoline prices.

Tue, 11/22/2011 - 12:59 | 1902835 Seer
Seer's picture

Hm.. If Peru is poor, then who is actually paying?

Just because there is a select few who can afford something doesn't mean that it's widespread or cheap.

Mon, 11/21/2011 - 22:28 | 1901055 fonzanoon
fonzanoon's picture

I would agree with your bullshit call if we raised interest rates intentionally. But I don't think we will. If rates shoot up like they are in Italy etc. because of panic selling I think people pile into hard assets in response. That being said I think deflationary pressures will push commodities down in the short term. I also picked the Giants to cover last night.

Mon, 11/21/2011 - 22:39 | 1901081 Backspin
Backspin's picture

Thanks for that.  I've been thinking that for a while: there are two types of interest rate increases.  The Fed raising rates is very different from our foreign creditors raising rates.  In the first case, it might be considered a step toward getting our house in order.   In the second, it would be our creditors punishing us for not having our house in order.

Mon, 11/21/2011 - 22:43 | 1901097 fonzanoon
fonzanoon's picture

I think the big difference also is if people started dumping treasuries Ben would be right there to take em back, unlike the ECB. We just proved today that so far the ratings agencies are going to let us be. Ben so far has a free pass to print and buy those treasuries back to keep rates down.

Mon, 11/21/2011 - 23:53 | 1901308 The Monkey
The Monkey's picture

Treasuries are killing PMs my friend.

Tue, 11/22/2011 - 19:05 | 1904584 akak
akak's picture

You are insane.

You are also an idiot.


Go look at a ten-year chart of gold & silver & platinum, and then compare those against a ten-year chart of any US Treasury of your chosen maturity, and THEN tell me just who is killing whom.

Mon, 11/21/2011 - 23:54 | 1901312 Raynja
Raynja's picture

every bond the bernank buys back is another dollar going back into circulation.  those dollars will go somewhere.

Mon, 11/21/2011 - 22:29 | 1901057 RobotTrader
RobotTrader's picture

Peak Oil

Will go down as one of the greatest investment theme failures of all time

Just look at the price of coal, natural gas, gasoline, uranium etc. vs. the prices in 2006 - 2008.

We were supposed to be in an "Energy Crisis" right now, with gas lines, rationing, etc.

Instead, giddy consumers are lining up at BBY freezing in the cold, just to be first in line for Black Friday shopping deals.

Mon, 11/21/2011 - 22:48 | 1901107 CrashisOptimistic
CrashisOptimistic's picture

You have been told numerous times that oil is not about trading.  Geology doesn't care if you trade NYMEX or not.

It's about dying.  Not trading.  Spend just five minutes and study two words.  Porosity and Permeability.  Then spend another five thinking about those two words.

Neither word has any involvement or interest in moving averages or bollinger bands.  Oil is not economics.  It's physics.  And death.  And there's not anything anyone can do about it.

Tue, 11/22/2011 - 00:21 | 1901397 Joe Sixpack
Joe Sixpack's picture

How about one word- abiotic?


Not likely, and depending on your two words, may make no difference anyway (unless we drill real deep like the gulf and the Russians).

Tue, 11/22/2011 - 13:03 | 1902855 Seer
Seer's picture


Tue, 11/22/2011 - 00:32 | 1901422 shutdown
shutdown's picture

Most excellent explanation, CIO.

Peak oil will cause, and a fast economic crash will deliver, the required population drop.

Sooner than later.  

Tue, 11/22/2011 - 02:02 | 1901607 BailoutBandit
BailoutBandit's picture

Physics makes us all bitchez. 

Mon, 11/21/2011 - 22:48 | 1901108 rosex229
rosex229's picture

We are currently experiencing an oil crisis. The reason there are no gas lines (aka the reason its not a 1970s oil crisis) is because production is stagnating naturally at a small percentage per year basis. In the 1970s supply was taken offline literally overnight.


In case you haven't noticed the world economy has stubborn;ly refused to grow at a robust pace ever since oil prices went past $85 per barrel. 11 of the last 12 U.S. recessions were preceeded by a rise in oil prices, and the severity of the ensuing recessions were directly correlated to the longesvity and severity of the oil price rises. In fact, the 3 worst recessions since the Great Depression were in 1974, 1980, and 2008. The 3 worst oil spikes were in 1973, 1979, and 2008. 


Energy is not just another resource, it is the master resource. Without energy nothing happens, nor is all eneryg made equal. The infrastructure that we have in place came about slowly over the period of a century. It will take enormous amounts of energy to build a new infrastructure based around another fuel, and there's clearly not even the political discussion muich less political will to make it happen.



Mon, 11/21/2011 - 23:29 | 1901228 Coke and Hookers
Coke and Hookers's picture

What if oil prices rise as a result of the same factors that cause the recessions and the relationship between oil prices and economic growth is just correlation and not causal relationship? What about boom and bust cycles preceeding recessions and their relationship with money printing, increase in debt, dollar devaluation, inflation etc? Might not oil be controlled by money supply and debt just like economic ups and downs seem to be?

Mon, 11/21/2011 - 23:44 | 1901275 rosex229
rosex229's picture

Those factors have an influence, and in many circumstances throughout history have been the primary cause of economic troubles, but I've come to see the world of economics as primarily a vestige of the natural world. An advanced economy made up of billions of people and trillions of interactions is not much different from a multicellur organism managing its own "economy." Its certainly not much different from a hive of bees or termites.


The point is that we like to blame politicians and bankers for our problems (although I certainly believe they excaccerbate them), but humans are just as subject to the laws of physics, thermodyanmics, and chemistry as all things in this universe. You can't have infinite growth on a finite planet; the only question is at which point that enforces itself. In chemsitry Lieberg's Law of the Minimum is generally the most simple way of examining any complex system. In any growing system, be it a population, economy, organism, chemical reaction, etc., there will at some point be a limiting factor. In nature this is usually a specific nutrient, element, or energy. For our global economy it could have one day been fresh water, phosphates, soil, energy, or something else. I don't want to diminish the substitution effect, so I should mention that organisms have evolved natural buffers. When a nutrient is in short supply certain enzymes that require said butrient will reduce their activity while other enzymjes will be simulateously produced that can compensate for the reduced metabolic capacity (the reason the substituted enzymes aren't always produced is because they require more energy, and are thus less efficient). Our economic system unknowlingly replicates this behavior since the substitution effect is simply replacing a low cost product with a relatively higher cost product. 

Mon, 11/21/2011 - 23:56 | 1901315 Coke and Hookers
Coke and Hookers's picture

What if the limiting factor in the current situation is 'real wealth creation' because of policy rather than physical restraints - like oil shortage/prices? Shouldn't human beliefs and actions (political opinions expressed as policy) be included in the system too as possible limiting factors?

Tue, 11/22/2011 - 00:05 | 1901349 rosex229
rosex229's picture

Again, great thinking. In the analogy I should have included the fact that many organisms are hardwired for a certain set of behavioral responses to specific situations, and these instinctual reactions can themslves be the limiting factor preventing a species or population from overcoming obstacles. You are completely correct, and I must reiterate that in our current situation that is an ever more present factor (supercomittee anyone?)

Tue, 11/22/2011 - 00:13 | 1901374 trav7777
trav7777's picture


Oil wells peaked and declined, entire fields did too, LONG BEFORE any of this dollar devaluation shit was an issue.

Do you 'tards GET that we were ON the BW gold standard when the USA hit peak in 1970?  Or are you just fkin obtuse?

Mon, 11/21/2011 - 23:44 | 1901274 johnnynaps
johnnynaps's picture

Finally, someone that understands the effect of energy! Doesn't matter, the governments have become so efficient at spin tactics. The GDP growth model is so flawed that anyone can spin it positive over time. Example; GDP all of a sudden crumbles 12%. The next quarter we see a 2.5% growth followed by 3 quarters of 1% growth, are we out of recession? SPIN

Mon, 11/21/2011 - 23:02 | 1901151 augmister
augmister's picture

Peak Oil = The Easy to Engineer Oil   .... and it is gone!   It is going to be more expensive to extract the next batch of oil and this is where NatGas comes into play, not so much coal, because all of the cleaner NatGas available in the US.

The recent discovery of NatGas in PA will provide a steady flow for decades, once the engineering hurdles are conquered.  And with the Easy Light Sweet Crude going away, this becomes economical viable.   This will prove easier than dealing with the Reg idiots in Washington, who have kissed the asses of the towel heads for the last 50 years.  That will also be an engineering feat, extracting Congressional heads out of the asses of camels.

Tue, 11/22/2011 - 00:23 | 1901404 Joe Sixpack
Joe Sixpack's picture

Coal will be used too. Once people realize what is at stake we will have "clean" coal, and nukes as far as the eye can see.

Tue, 11/22/2011 - 00:31 | 1901423 rosex229
rosex229's picture

Once people realize what is happening markets will crash, credit will freeze, and governments will go bankrupt. Besides, clean coal has had billions invested in it, and has been found to be far more expensive than was anticipated. Not to mention that clean coal only works if carbon is taxed, which it clearly will never be in the U.S.

Tue, 11/22/2011 - 13:24 | 1902988 Seer
Seer's picture

Coal IS being used, to the tune of about 50% for the production of US electrical requirements.

While there may be such a things as "clean coal" in the consumption end of things, there is no such thing when it comes to the extraction of it: mountain-top removal isn't pretty, nor the downstream affects.

Increasing coal use will only step up the point in time that the deposits no longer put out (in quantities to support the growth meme).  The same rule applies to everything: use more of it and you use it up faster.

Again, without specifying a growth rate in consumption any talk of "oodles" of something is meaningless.

Mon, 11/21/2011 - 23:44 | 1901276 Aguadulce
Aguadulce's picture

Guess what that blu ray player was made from???
Peak plastic....bitchez!

Mon, 11/21/2011 - 22:28 | 1901058 Hacked Economy
Hacked Economy's picture

I'm no politically correct tree-hugger, but I sure do enjoy the freedom of living only a couple of miles from my job.  The twice-a-week bike ride (or even the walk) to and from reminds me that in the worst case scenario, I can still get to work.

Then again...if worse comes to worst, I can only assume I'll still HAVE a job.  :)

Mon, 11/21/2011 - 22:50 | 1901113 CrashisOptimistic
CrashisOptimistic's picture

Of course you won't have a job.

This is just like the "preparers" who work out a way to get to the convenience store on bicycle to pick up food if there is no gasoline.

Hello?  Why and how would/could the convenience store stay in business if there is no gasoline?

Mon, 11/21/2011 - 23:10 | 1901178 Piranhanoia
Piranhanoia's picture

Might have a job because he can get to work. 

Mon, 11/21/2011 - 23:32 | 1901242 Quentin Daniels
Quentin Daniels's picture

He'll have half a dozen jobs if none of his co-workers can get to work.

Tue, 11/22/2011 - 00:09 | 1901359 knukles
knukles's picture

My Humongoliod Government Motors 3 mpg 28 passenger SUV runs just fine on Iraqi oil and if that runs out, we'll just kill some brown people and steal more for ourselves.

It's all good for jobs, the economy, America and freedom.

Tue, 11/22/2011 - 01:26 | 1901544 FeralSerf
FeralSerf's picture

If those brown people are fat enough, it should be possible to burn them too if you have a diesel.  Just another engineering problem.  Hitler was so wasteful.

"It's all good for jobs, the economy, America and freedom."   They hate us for our freedom.

Tue, 11/22/2011 - 13:29 | 1903020 Seer
Seer's picture

As much as I hate these fucking things, one must apply the correct metrics.  It's People Miles Per Gallon.

If you load up a Hummer getting 10 mpg with 6 people then you're getting 60 pmpg.  A Prius with only 1 person is only getting 45 (or so) pmpg.  Of course, most of the Hummers you see driving around won't be loaded.  Given time...

Tue, 12/20/2011 - 04:56 | 1996956 omniversling
omniversling's picture

In Tehran?


Mon, 11/21/2011 - 23:51 | 1901302 topcallingtroll
topcallingtroll's picture

Small community stores existed everywhere in america even before the car.

Fruit and meat used to go by rail alongg with oranges, coffee.

Of course things were more expensive then in comparison to per capita income.

Tue, 11/22/2011 - 00:25 | 1901410 Joe Sixpack
Joe Sixpack's picture

But we weren't dying and a lot more of us had jobs. In fact we were doing so well that people from all over the world swarmed here to be part of it.

Tue, 11/22/2011 - 00:39 | 1901444 rosex229
rosex229's picture

As my opinions on the implications of peak oil have evolved I've come to see John Michael Greer's description of "The Long Descent" as an accurate account of what will unfold. There will be periods of profound upheaval and change, followed by periods of relative calm, even growth. The U.S., even with its unprecedented requirements of imported oil, will remain a strong international player. The U.S., due to its size, is also sparsely populated, and has large amounts of resources. What I'm getting at is that even in a worst case scenario I would envision martial law, empty super markets, food and aid from the govt/ organizations, etc. Greece is looking pretty terrible, and will get worse, but it isn't the rapture. 

Our standard of living will decrease significantly, and social unrest will explode, but when it comes ot starving... being someone who knows about botany I can say that there are dozens of edible "weeds" growing within a block of your residence. The population crash is likely decades away in the U.S. (we throw away 1/3 of our food!). Those who are unprepared will bitch and moan, and many will become violent, but if you've taken the appropriate actions you'll survive, maybe even flourish while others wilt.

Tue, 11/22/2011 - 13:38 | 1903067 Seer
Seer's picture

"There will be periods of profound upheaval and change, followed by periods of relative calm, even growth."

In different places, at different times.

But, the general rule will be that there could be a radical alteration to the existing status quo, perhaps violently so, in which case people should be prepared to hunker down, and then this will pass, in which case people should be prepared to come out of their C-ration, supplied bunkers and get on with producing stuff for their community.

NOTE: I'm getting old, too old to stay up hours on end waiting to pick off intruders.  Rather than hiding out I'll opt to get a head start on the future by trying to concentrating more on the future than on the possibility of being overrun (which may prove to be ineffective, or to have been over-preparedness (which would remove capital from my other actions).  If it means I die prematurely, then that's the way it'll be: better to die living than die hiding in a cave...

Mon, 11/21/2011 - 23:50 | 1901297 Mr. Lucky
Mr. Lucky's picture

Ride a bike to work?  I am the bread winner and I surround myself with 3000 pounds of automobile to keep it that way.

Tue, 11/22/2011 - 00:18 | 1901387 trav7777
trav7777's picture

mine is 5200lbs

Tue, 11/22/2011 - 13:41 | 1903089 Seer
Seer's picture

It's my opinion/theory that it takes two to make an "accident."

I spent 5 straight years biking to/from work.  Enabled me to save up so that I could buy property.  Sigh... now I have to burn oil to go to/from work.  Straddling two different worlds is tough.

Mon, 11/21/2011 - 22:30 | 1901061 Seize Mars
Seize Mars's picture

I call bullshit on "Peak Anything." Sorry, I don't believe it. If you allow market prices to reflect supply and demand, the commodity will make itself expensive enough to warrant alternative investments, as supply wanes.

Don't make me call Shenanigans.

Mon, 11/21/2011 - 22:36 | 1901073 malek
malek's picture

Yes, with the only exception being "Peak Stupidity" - some day it's gonna top out, question is only if within my lifetime.

Mon, 11/21/2011 - 23:11 | 1901175 Bring the Gold
Bring the Gold's picture

So remind us all again what has the energy density and usefulness of form that will replace oil again? Peak oil by the way in fact means the end not of oil but rather the end of the CHEAP to acquire oil.

Mon, 11/21/2011 - 23:55 | 1901314 dwdollar
dwdollar's picture

In a free market capitalism, the economy would adapt, but we don't have those anymore. High energy costs might encourage decentralization and a rejuvenation of small town America. Is that so bad?

Mon, 11/21/2011 - 23:57 | 1901318 topcallingtroll
topcallingtroll's picture

Cold fusion
Zero point energy.
The gas coming out of all the burping cows can be bagged.

Catch lightning in giant capacitors.

Tie small turbines to a rope and attach them to large sea mammals.

And turdpower. There are lots of free turds around just about anywhere.

Tue, 11/22/2011 - 00:01 | 1901340 Toxicosis
Toxicosis's picture

So you must think we can magically invent resources.  Right?  If we just think about having more oil, water, nutrient rich soil, it will just appear.  This is not the "SECRET" here, nor some new age philosophical bullshit that you seem to be spouting about the market making everything better.  Nature is indifferent as to whether you believe something or not, and there is no economy without the energy or the ecology to sustain it.

Tue, 11/22/2011 - 00:18 | 1901390 trav7777
trav7777's picture

sure, if we just hold hands and wish hard enough, reality will do us the favor of conforming itself to our demands.  got it

Tue, 11/22/2011 - 14:11 | 1903227 Seer
Seer's picture

OK, so you're not prepared.  I think I hear Darwin calling out your name...

I really hate labels and such because they often fail to communicate the real intent behind what they're trying to represent.  In the case of Peak Oil it's Peak Affordability, it's Peak Production (production is affected by changes in demand- if consumers can't afford oil, because they're unemployed, then that places pressure in the positive affects of economies of scale [reverses them]).

When your entire world is centered around a key energy resource such as oil, a resource, which like all other resources is limited (the sun is even limited, though that's something that's not much of an issue for right now).

One dominant energy source is in decline, ramping up to use another one requires an even further pull-down in the dominant source.  The existing source will have to pull from existing operational activities: personal use as well as manufacturing.  Oh, and all this is supposed to happen while faced with a massive debt load?

Deniers are also likely the same folks who champion the constant campaigns for war, never understanding that wars ARE about resources and that the current slate of wars all have one theme in common: oil (energy).

This is serious stuff.  And so say the United States Joint Forces Command in their JOE reports (see 2010 report:

Mon, 11/21/2011 - 22:31 | 1901062 RobotTrader
RobotTrader's picture

Notice how any stock that was "energy related" virtually crashed the last few days

Retail stocks were pretty much unfazed.

Where is the "energy shortage?"

Mon, 11/21/2011 - 22:35 | 1901072 fonzanoon
fonzanoon's picture

I just did a 5 day chart of lulu vs the xle and eny and it does not agree with you.

Mon, 11/21/2011 - 22:54 | 1901123 CrashisOptimistic
CrashisOptimistic's picture

There is no energy crisis.

There is an oil crisis.  They are not synonomous words.

And price is not informative.  It would be like reducing the oxygen level to a human being and declaring "there's still oxygen here; why is this person dying?"  The amount of oxygen is non zero, but they still die.  Price of oil does not tell you if there's enough or not.

Oil is everything.  Trading is nothing.  The party is over.

You want that amount of oxygen to be enough, better make the human smaller.  You want the oil flow to be enough, better drop the population.

Mon, 11/21/2011 - 22:59 | 1901137 dolph9
dolph9's picture

The important point being that high oil prices reduce demand, which makes itself apparent in faltering credit markets.  You never actually see the lines at the gas station, because nobody is buying it, they are staying at home watching Jersey Shore or playing Call of Duty.

The peak oil armageddon "head for the hills" or oil to $500 a barrel types were wrong.  But that doesn't make the concept of peak oil itself wrong.  The effects so far have been very different from what everybody thought.

Peak oil basically means endless stagflationary depression.

Mon, 11/21/2011 - 23:06 | 1901162 CrashisOptimistic
CrashisOptimistic's picture

You're almost right.

You neglected to factor in rising population and rising car count in China.

Both turn stagflation depression into a downward sloping sawtooth pattern of . . . life.

Do NOT follow this link or you will be banned from the site!