Kunstler: Economy Deathwatch

The great debate among those of us on the Economy Deathwatch seems to be whether the debacle we observe around us will resolve as a crash or a slow-motion financial train wreck. It seems to me that at every layer of the system, we're susceptible to both.... Some things are crashing as I write.

The dollar is losing about a cent every three weeks against other currencies. A penny doesn't seem like much, but keep that pace up for another year and the world's "reserve currency" becomes the world's reserve toilet paper....

Of course the government's consumer price inflation figures and employment numbers are dismissed broadly as lacking credence. But anybody who has bought a bag of onions and a jar of jam lately knows that things are way up in the supermarket aisles, and so many illegal Mexican migrants were employed in the Sunbelt housing boom, that their absence in the bust won't register on any chart.

...the very real realm of poor choices, fiscal and fiduciary irresponsibility, deliberately deceptive policy, criminal malfeasance, and the broad abandonment of standards in acceptable behavior by people in authority. A lot of observers attribute this to the Gordon Gecko ethos -- the discovery back in the 1980s that "greed is good," which was meant to trump a previous ethos that life is tragic.

... it is hard to imagine we will get through the month of December without some major trauma in the markets. In fact, I'd go so far as to predict a thousand-point drop (or more) in the Dow just in this week after Thanksgiving. Real wealth "out there" is evaporating like popsicles...

... My own hunch is that average Americans are so maxed out on debt that they don't know whether to shit or go blind. Perhaps lots of them are willing to take a last step into fatal insolvency in order to put a plasma TV screen under the Christmas tree and appear as heroes to their families. If that's the case, it would only imply a greater bloodbath in credit card default thundering through the system in February and March, which would only deepen the carnage in collateralized debt instruments further up the food chain.

...The rise in price is only the mildest symptom of growing instability for the system that allocates the world's most critical resource. Even in the face of "demand destruction," weird changes are occurring in the way that the oil producers do business. The decline in export rates and the new spirit of "oil nationalism" will take center stage now, even if the US economy seizes up. These phenomena will represent a new cycle in world affairs: the global contest for remaining fossil fuel resources.

Sooner rather than later, the next symptom will appear: spot shortages around the US and hoarding behavior. This is what will finally wake the American public out of its long sleepwalk (and Matthew Simmons said this first, by the way) -- when the lines form at the gas stations and the tempers flare and the handguns come out of the glove compartments.

NVDL: In a high level meeting between the Chinese oke who bought a massive stake in Standard Bank, question were put to a power broker from Goldman Sachs about the long term future of world energy. He was somewhat dismissive (others would say sensible) in saying: if the US and China can reach the levels of efficiency that Japan now has, no one is going to have a problem.
Simple. All the bankers Ja'd and went 'Amen'.

Problem is, Japan is one of the smallest countries in the world (in terms of landmass), China and the US are amongst the largest. Even if they start building train stations in backyards across the country, the pinch has already started. I'm going to give some very counterintuitive advice: Start Partying! Party like there is no tomorrow, 'cos guess, what, tomorrow ever after just got cancelled.

Kunstler: Peak "Money"

The multi-dimensional meltdown underway in the finance sector illustrates perfectly how the complex systems we depend on start to wobble and fail as soon as peak oil establishes itself as a fact in the public imagination.

Mainly what it shows is that we don't have to run out of oil -- or even come close to that -- before the trouble starts. Just going over the peak and heading down the slippery slope of depletion is enough. Peak oil, it turns out, is also peak money. Or should we say, peak "money?"

First of all, what is finance exactly? I'd bet that a lot of people these days don't know, including many working in the financial "industry," as it has taken to calling itself. Finance, until very recently, was the means by which investment was raised for useful economic activities and productive ventures -- in other words, the deployment of capital, which is to say accumulated wealth. Historically, this accumulated wealth was pretty meager. There wasn't a whole lot to deploy and the deployment was controlled by a tiny handful of people statistically greater only than the number of Martians in the general population. They operated as families or clans, and everybody knew who they were: the Medici, the Rothschilds.

Even the Roman Empire was a kind of financial Flintstones operation compared to what we see on CNBC these days...

...The innovation of mutant financial "products" is a symptom of the "crack-up boom" that characterizes society's response to peak oil. The main implication of peak oil for an industrial economy is that the 200-odd-year-long expectation for continued regular growth in combined energy-activity-and-productivity at roughly 3 to 7 percent a year under "normal" conditions -- that expectation is now toast. Under the new regime of peak oil and its aftermath, regular energy depletion, society can expect no further industrial growth but only contraction, and all the certificates, instruments, and operations associated with the expectation for further industrial growth lose their legitimacy.

Seen in this light, one can then understand the temporary value of these mutant financial derivatives. They allowed participants to conceal the fact that these "investments' were not directed at productive enterprise. They also provided a cohort of sharpies with "vehicles" for converting the leftovers of the industrial economy into assets for themselves -- a form of looting, really. Hence, the employees of Bear Stearns, Goldman Sachs, and Merrill Lynch gave themselves $50-million Christmas bonuses for trafficking in these inscrutable non-productive financial gimmicks, and were able to acquire fifty-room East hampton houses, Gulfstream jets, and impressionist paintings.

Of course, the aftermath might not be so pretty for these guys, since the next thing they may acquire could be long prison sentences. If they flee prosecution in their Gulfstream jets, they will not be able to take their Hamptons estates aboard with them. Those who remain my live to see mobs with flaming torches outside their windows, as in the "Frankenstein" movies of their suburban childhoods. But this has yet to play out.

For the moment it appears that we have entered the climax of the crack-up. The slick and inscrutable derivative vehicles infesting the ledgers of the investment banks, are now being systematically revealed as frauds of one kind or another, and, self-evidently lacking in worth. The process now underway is gruesome. The sheer dollar losses involved are almost as incomprehensible as the phony operations and instruments that they are derived from -- twelve billion here, nine billion there. As the late Senator Everett Dirkson once quipped, "sooner or later you're talking about real money...." Or are we? Is it money or "money." And if it's "money," what will become of it? And of us? How will it allow us to live?

ALERT: Oil now $87

AFP
Published:Oct 17, 2007

Oil prices eased slightly in Asia on Wednesday but remained above 87 dollars a barrel in a market focussed on a potential Turkish incursion into northern Iraq.

While expressing concern at the price rise, the chief of the Opec oil cartel said the world oil market remains well supplied. [NVDL: Re-he-he-heaaaaallly.]

New York’s main oil futures contract, light sweet crude for delivery in November, was 14 cents lower in late morning trade at 87.47 dollars a barrel.

In US trading on Tuesday, oil struck a record intra-day high of 88.20 dollars before dropping back to settle above 87 dollars for the first time, at 87.61 dollars a barrel.
On Monday it jumped more than two dollars.

The price of Brent North Sea crude was not immediately available. In London trade on Tuesday, Brent for November delivery advanced 1.41 dollars to settle at 84.16 dollars, after earlier hitting an all-time high of 84.49 during the session.

For the rest of this article from The Times, click here.

NVDL: The amazing thing is you still have to hunt for this information. It should be blasting across news headlines. People should at least hesitate about the idea of driving to work tomorrow. Meanwhile OPEC (aka The Bullshitters) would have us know this is all under control, all part of their scheme, and never mind, they'll open the taps in November. 2 weeks to go.

The Crucial* Gamble (or the Cruciatus Curse)

The world has based all its systems, all its processes, indeed its entire homeostasis - to use the biological term - on a gradual energy slide, a slow dipping in the energy supply curve. Even the eventuality of a dip is a serious dilemma, but a steep decline will certaintly propel our species into the darkest period in its history. War, but also what Cheney has called, The Infinite War.

There are ways to ameliorate whatever the future holds. We can begin to adapt and make changes now - before we HAVE to. I don't expect people to do this of course. People tend to make those inconvenient changes only when FORCED to (not through deduction or intelligent reasoning).

Of course I'm also aware that the world is designed to function around basic concepts such as motoring and suburbia. While we can't pretend these systems don't exist, we can begin to exercise choices and use options now, not to CONTINUE TO DELUDE ourselves, not to perpetuate our investment in these systems. Of course, for this to be a sane and rational course of action, you really do have to believe that suburbia, the world's highway systems, the Wal-Marts, Pick 'n Pays, the shipping lanes and fast food courts, don't have a future. Until you truly believe that, you're one of those sleepwalking into a future that gets worse by the day.

The irony is this: it may make sense to ignore, and pretend away the future until the last possible moment. To party until the last drop. Why? Because what happens after that is difficult to contemplate, and few of us do. I can't say I blame them.

From The Oil Drum:

1)If the global decline rate of existing production of 4.5% continues, oil production is likely to plateau at a level of 90 million barrels per day around 2010 until the end of the next decade, after which a moderate to sharp decline sets in.

2)If the global decline rate of existing production of 4.5% slows down to 2%, thanks to the addition of 500 billion barrels due to reserve growth, production will likely increase with some bumps towards 95 million barrels per day at the end of the next decade, after which a slow to moderate decline sets in.

3)If the global decline rate of existing production of 4.5% increases to 8%, due to the effect that the end of the era of giant oil fields and declining deepwater production has, production will likely peak around 2010 at 88 million barrels per day, declining slightly to 80 million barrels per day at the end of the next decade, after which a sharp decline sets in.

Discussion

Presently there is a converging agreement that we are going to enter a period in which supply can no longer meet demand, giving way to sustained high oil prices. Either because of the expectation of a long production plateau for one to several decades, or a peak after which a sharp decline sets in.

My scenario exercise supports mainly the view of a peak with a sharp decline. As to what is the most likely scenario, I expect that the increase towards a higher decline rate, as shown in figure 8, is going to occur.

Crucial:
1a. Extremely significant or important: a crucial problem.
1b. Vital to the resolution of a crisis; decisive: a crucial election. See Synonyms at decisive.
2. Archaic Having the form of a cross; cross-shaped.