Monday, June 29, 2009

Savoir-Faire (and Hot Air) is Everywhere!

Mike Shedlock had this to say about U.S. Federal Reserve Chairman Ben Bernake
Bernanke is a disingenuous liar with a memory problem. He is also an economic dunce who does not understand the cause of great depression nor could he spot a housing/credit bubble visible to nearly every blogger in the country. However, like his mentor Greenspan, Bernanke believes that every problem can be cured by throwing money at it. Finally, he is a creative, political power grabbing hack who gives memorable speeches about throwing money out of helicopters.
I could say that about everyone working in the government's economic and data reporting system. Still, Bernake will, and should be, reappointed. He has done exactly what was asked of him.

"Savoir-Faire is Everywhere!" Klondike Kat


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I have no faith in the data coming from the government, World Bank, or IMF. Not that I think they are trying to deceive us. I don't. Nor do I think that the world stock markets will bang through to new lows this year - there is simply too much stimulus cash sloshing around. But stimulus cash won't solve the state and local tax revenue declines (or that of the Federal Government). I have laid out the declines of Oil supplies to the importing nations over the next 5 years, and I do not see any of the big data aggregators taking that into consideration. That does not mean that markets cannot surprise to the upside in any given year, and any such surprise would likely come in the next year or 2.


I see the possibility of some kind of systemic shock in the Muni Bond market as EXTREMELY high. Not that I know what it is going to look like... it won't be as simple as what we are all expecting (California to default) - things are never that simple - yet California WILL default, and so will a number of other Muni bond issuers.


If I am correct in this, money will come flying out of the Muni bond market. Where will it go? THAT, is the $64 question. How ironic would it be if the money fleeing Munis went into Treasuries who then turn around and bailout the state and local governments. Delicious!!

"Savoir-Faire is Everywhere!!"

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The Oil import numbers I covered in my recent post "A Review of the Data", along with media reports and manipulations, agricultural data, and the body politic have left me with a rather unpeaceful, uneasy feeling (from the unEagles).

I will be covering this over the next several posts, as I want to speak with my brain trust, but I will touch on it here.

The numbers I laid out in the Review of the Data post could easily have a lull (flatlining rather than declining supplies), but they could also have a downdraft (black swan, war, whatever/what may). Donal Lang pointed out to me recently that rarely is the the problem outright/absolute shortages of Ag products - the problem is an inability to pay for them (lack of money). That rang true with me. I have been conducting independent research into self sufficiency over the past 4 years. At first I thought, "hey, this is doable"... but the more I think about it, it is only doable IF you have significant means (the ability to own the small holding with no mortgage and furnish the homestead with all of the tools, implements, and equipment needed without borrowed money), are incredably motivated, are in excellent shape (relative to today's average obese person), and have the support of your wife and family. As a statistical repreresentation of the populace, this number is NIL.

So that ain't gonna work on a macro level.

The media comes into play here with their reports of assumptions from the economist community. "Green shoots", an economy that is "leveling out", etc... might even be true, BUT, the economist community is assuming that the Oil will be there to support growth - and the data says otherwise.

How can I be so sure of the Oil supply data? "Sure" is not a word we use in probility mining. We are looking for the most likely outcomes - not what we "want" to happen nor "wish" would happen - but that which is most likely to happen.

The Peak Oil Community, in my humble opinion, has been worried about the wrong thing(s) (at least for the next 10 years): "The 3,000 mile ceaser salad", lack of fuel for farm equipment due to fuel shortages, transportation costs for food... while these energy inputs are a significant protion of the industry's energy footprint - when compared to the larger economy that become quite manageable (at least for 10 years).

SO..... here comes the body politic's contribution to the "fine mess we are in"...

It seems to me that we have become a nation of James Carville's (Bill Clinton's BRILLIANT operative)... running a personal war/quick response media room to spin every issue that comes up: Our guy/group f*cked up here (Obama and Iran)... so we are going to counter with XYZ and 123 (he's a wonderful family man!) - but we are not going to fix our error. No, that would require us to admit the error in the first place... we can't do that! That would be, well.... UNAMERICAN!!

Talk is cheap. Programs and agencies are expensive. What, exactly, has the department of energy done that is worth its $28 BILLION budget? What have they done that is worth a $1 BILLION budget? And where, exactly, does the money come from for the $28 Billion? Do you have any idea how many of these worthless programs we have? But that ain't the bad part... The bad part is we have TENS of MILLIONS of people that have been so addicted to certain social programs and policies (this includes the pensions and disability payment for people that worked for these worthless programs... in addition to the usual suspects). These people have little to no idea how to do anything for themselves, and the policiy response has been non-existant, and when you bring that fact up... the James Carville wannabee's come out of the woodwork and bring up all of the ghosts of administration's past.

It looks to me that the U.S. will lose about 25% of its total daily Oil supply into the system between the end of 2007 and the beginning of 2013. That's 25% over 5 years, and we are a third of the way through those 5 years. Now throw in a $2 TRILLION budget per year deficit that just isn't going away, at a time when the unemployment rate is 10% (and the U6 number is 16%) and climbing, savings are at a historical low (so the idea that folks can go out and buy the equipment - fencing, tools, amendments, seeds, livestock, etc... - they would need to become more self-sufficient just is NOT GOING TO HAPPEN)... Where are the resources going to come from for the transition? After all, as Donal so correctly (IMHO) pointed out, the problem will be an inability to PAY for it all.

This would have to be the most impressive balancing act EVER.

Mentatt

31 comments:

Jacob Gittes said...

Greg,
Seems like your more of a pessimist today than you were the other day (regarding the idea that lots of gardening will save the USA).

I am concerned about the same things, and unfortunately, I don't personally have the resources to become self-sufficient. My family does, well one of them, my brother, but he doesn't believe in Peak Oil or anything that does not have a smiley face on it! I am working the basics right now - gardening, supplies, etc. I hope to be able to at least allow my family to survive, if not thrive...

A Quaker in a Strange Land said...

I am having a hard time with the data. There are many, many potential outcomes. Funny thing is, I think having money might be more important than having a garden, given the choice.

I know this flies in the face of doomer common knowledge... but I think Donal Lang's excellent point is valid:

Most food crisis' are not of food per se, but of money.

The Mad Scientist, with whom I need to bounce a few things off, is not as dire as I am at the moment.

Please keep in mind that I will change my mind if the data changes, and there are many, many data points in all of this.

Anonymous said...

I agree that on the surface of it, there should be enough energy resources for a while to keep US agriculture going. If somehow, we were to divert or prioritize oil and nat. gas to agriculture, we could keep it going even longer.

That said, I have a good-sized garden and in fact, have been developing gardens and orchards at the local residential treatment school that I work at. (They have ~165 acres.) The reason I'm doing this is because I simply don't feel assured that I'll always have the $$$ to buy food with (and, despite my occupation, I am quite comfortable $$$-wise now, fortunately.) Too many things could go wrong with one's ability to purchase food as Sharon Astyk has written in many posts. When tough, impoverished times come, we shouldn't be so bold as to assume that we will be among the few left with excess cash, buying power. In many parts of the world today where hunger reigns, there is, in fact, plenty of food to be purchased if one has the means, but few do have those means.

I agree, going forward, cash is important, but so is access to land and the direct means to do something with it, should economic dislocation prove otherwise debilitating, agriculturally.

Stephen B.

Anonymous said...

This is your best post ever. A complete re-evaluation of the consequences and contributors.

Personally, I'm too old to become a subsistence farmer. Hard for twenty-somethings, not possible to start for fifty somethings. Especially if you have to follow a horse-drawn plow and throw hay with a pitch fork because there is no diesel fuel. I'm still in good shape, but it is backbreaking even when you are young.

I'm still hopeful for "other liquids new supply" plus conservation to lessen the blow. Net imports are dropping and internal supplies, at the moment, are rising. Still, the problems are not going to go away.

Of all places, North America is still one of the best. Relatively low population density, still have reserves in the ground of oil, coal, gas, metals.
We will adjust if our political systems don't fail.

The short term problem will be staying employed and maintaining your wealth when the dollar loses value.

The real danger is the civil unrest that may come when the entitled masses can no longer be housed and fed. This unrest, and the radical government that may follow it worry me most. We could end up with some strong man savior of the masses or some strong man to control the masses. The result will be terrible, and about the same either way.

Regards,

Coal Guy

Donal Lang said...

It seems to me there's two ways of looking at the 'Problem':
The first, its all a 'top down' Problem for the government to fix; banking, taxes, investment, borrowing, personal debt, property crash, etc, etc. The govt has to invest in the post-oil economy, starting now, or else everyone will suffer, and so on.

For the US to catch up in the post-oil economy with, say, Europe, the US govt would have to invest in nuclear, railways, canals, local ports, and reform agriculture away from large agri companies to local ownership, e.g. land reform. The problem is it would have to do it fast and with borrowed money, whereas Europe has already paid for all this and it's operating today. Also the US Govt is moving in the opposite direction, trying to fix the banks etc.leaving no money for investment in the post-oil economy. Bad news!

The second way to fix the Problem is a 'bottom up' approach, where those people who recognise the problem aquire the skills and land to fix it for themselves, and don't wait for the govt to do anything. In the UK we have Transition Towns, Permaculture and many other initiatives which are locally driven, self funded and making a difference now.

So I'd suggest that it IS possible for people to get off their fat arses and DO something useful, if they want to. If they'd rather wait for Obama to appear on TV to tell them what to do next, well ....!

P.S. To Coal Guy; I'm 55 and the day you here me say I'm too old to go grow some veg, you'd better look out that black tie!
I met a guy on a yacht last week who'd just returned from sailing in the Mediterranean for 6 years - he's 91 and he's not given up sailing yet; he just wants to see more of his great-grandchildren!

bureaucrat said...

When I picked up the Kunstler "Long Emergency" book, it was the beginning of 2006, and he obviously wrote the book before that, maybe 2004-2005. We are halfway thru 2009, at least five years later, and the oil "peak" happened in either 2005, 2007 or 2008, or maybe not at all, depending on who you believe. There are just as many people starving around the world now as before, we are swimming in oil and natural gas, there is gobs of overcapacity in just about everything (the food stores are overloaded with chicken, cheese, pizzas and beer -- what else do you need?), and I think Jeffers and Scientist will be long dead by the time they ever have to worry about feeding themselves and the neighbors. ;)

Jacob Gittes said...

Wow - Bureaucrat's screen name is really fitting. I realize this is an ad hominem attack, but really - aren't "bureaucrats" at least supposed to read and use statistics to back up their claims?

There are morepeople starving today then 5 years ago. There is less oil.

Furthermore, if you study ecology, which may be a better science to understand what is transpiring, it is easy to see that populations peak and then crash. You don't have any indication from the numbers themselves that a crash is coming:it just comes suddenly, due to the exponential function and limited resources.

I suspect Bureaucrat may be as complacent as he is for the standard reasons: humans have a hard time believing that the future will not be like the past. This is a good rule to follow for the majority of history, until it isn't.

The coincidence of very real oil depletion, possibly bad climate change (and lack of water, etc.), along with the exponential growth of the human population adds up to: nothing, if you believe the assumptions of classical economics that posits no limits to growth or resources; or, more likely, suffering for a significant portion of humanity. Whether or not the average American will escape unscathed is yet to be seen, but doubtful.

The Mad Scientist said...

He (bureaucrat) is not complacent. He will take the opposite side of any argument just for fun.

A Quaker in a Strange Land said...

Hey M.S.:

Please expand just a bit on our conversation today...
or you could post at your site...

either way, I will be posting on it shortly but I think your perspective would be appreciated.

A Quaker in a Strange Land said...

Stephan B:

I understand your position, and I think Sharon's pitch to be the right approach for people that do not have the capacity or the opportunity to make more money.

I am a huge Sharon Astyk fan and hope she runs for President someday. A better role model for America's young women and girls I cannot imagine!

I go back and forth over the local ag thing. As you can see, I seem to enjoy agonizing back and forth over any number of things I am not so sure of.

The ability to change one's mind when the data changes or when you are OBVIOUSLY wrong is everything for traders and analysts.

I was speaking with the M.S. today... we were going over our various data points when I said something like " yea, and if a, b, and c happens you gotta watch D, if D responds X, we can't deny what our own eyes are seeing". Sometimes you have to keep reminding yourself what you need to do so you stay disciplined.

bureaucrat said...

Don't fall into the old man trap: where old men, usually white :), have to take the "side of the trade" where you have to keep saying "societal collapse is nigh!" over and over because nobody listens to you anymore. Such men have to keep pushing that we are thisclose to societal collapse, even tho just looking out your window shows that we aren't anywhere near that. Now, I have my investments aligned in such a way as to take advantage of what may come. But, as I said, for now, with have lots of still-cheap energy ($4 per million BTUs of natural gas, gasoline at $3 a gallon, coal is super cheap, etc etc), we are overflowing with food products (milk at $2.28 a gallon in Chicago!) and we have no idea what new "answers" may appear at any time. Not to mention all the energy we waste that could be conserved.

Dan said...

The thing about a garden is it takes a little know how and it is not like working with numbers- one can’t learn it in a book. A fairly dull fellow can be taught and this tends to make fairly sharp people think it is overly simple. While it is fairly simple and a reasonably sharp fellow could teach himself it takes time; a simple experiment can take a whole season.

If TSHTF and you know how to raise a garden you will have highly marketable skills. Even if you don’t have what you would need to be self sufficient if you have the know how you will have no problem finding others with the resources yet in a near panic because they have no clue what to do and no time to learn.

The Mad Scientist said...

Bureaucrat,
I am one of the Optimists on Peak oil as I am sure you are aware, But I cannot understand how you can make the leap from "Overflowing milk" to "we have years of supply".
For Energy as a whole we have 30 days of supply in storage, for gasoline we do not have enough if everyone tops of their tank simultaneously.
For NG a combination of a Cold winter and hurricanes (GF) could freeze our asses off in 2010.
For Food, our Food stocks are at the lowest levels ever and we are still adding 5 Million new mouths a month globally irrespective of the "great depression".
Considering the fertilizer used this year it is very likely that this crop will be at least 5 % below in yield over last year. That should be enough to wipe out all our stocks and then some unless we have rationing by price.

bureaucrat said...

Let me know when it happens, Sci. :)

Anonymous said...

Bureaucrat....

While I agree that oil and food aren't as tight for most of us as the Peakniks' hyperbole 5 years might have suggested it would be, I don't think the present is so rosy either.

I know plenty of people that don't consider $3 gasoline cheap. They've greatly changed their plans, gotten smaller vehicles, cut back on driving or something else, gone to Cape Code instead of Colorado for a vacation (many have obviously cut OUT the vacation altogether), etc. I've heard people complain about food prices too, saying they are buying less meat, etc. It is tempting to say things are okay because supply and demand of these products is still balanced in that for the moment, there aren't outright shortages, but there is no doubt that oil is over twice as expensive as in say, 2003. Ditto gasoline. People around the world staged food riots last summer in many countries, so clearly something is different with food in those places. In my own home town here in Walpole, MA, (in still-prosperous, suburban, eastern MA) our local food pantry is constantly appealing for increased donations as the number of people seeking assistance is up significantly. Ditto several other local pantries. Some pantries have run out of supplies lately too. We're not talking Mexico City, but right here in one of the major high-tech economies of the US.

The one commodity that really has crashed amongst the ones Peakniks warned about is natural gas, and I suspect that this is a mere temporary, whiplash phenomenon caused by a crashing industrial and commercial economy. (That's were a great deal of the nat. gas is used.)

Another thing, gasoline, nat. gas, oil, and food may or may not be priced in higher nominal dollars than 5 years ago, but possibly excepting nat. gas, they certainly are more expensive in real dollars for most people now as earnings have continued to deteriorate both in the US and many parts of the world.

When one carefully looks at the numbers, it *is* worse than 5 years ago, but it's affected some people more than others, as would be expected.

I'd be careful not to be lulled into a false sense of security as they say, by the fact that there aren't mile-long gas lines at the filling stations and fights over bread at the supermarkets. All in all, it's not as good as before and it eventually may get a good deal worse.

Stephen B.

Anonymous said...

Donal,

I certainly agree that the US government is moving counter to the problem. I can't get my head around why, except that the beltway elite are so separated from the American people that they believe they have to lie to keep their positions. A solution to the energy problem has been eminently sell-able for years. The left gets conservation and environmental benefits. The right gets balance of trade and national security benefits. Everybody gets the benefit of increased employment in the industries that replace the need foreign oil. Still they all act as if the problem doesn't exist. Pathetic.

I've got my vegetable garden, too. I'll have one when I'm 85 if I keep my health. There is a big difference between a sub-acre vegetable garden and 40 acres and a mule.

There were lots of back-to-the-land initiatives in the 60s and 70s. Virtually none remain. Too much work for the return. Future economics my change that equation.

Regards,

Coal Guy

Anonymous said...

Steven B.

And there is a little tent city in Providence. Things are not so good for a lot of people. It's not going to get better soon.

Over the next 12 months I'm expecting the economy to heat up and then crash. My rationale for this is Federal economic policy. The government (well, the Fed) has supplied the banks with hundreds of billions of capital. They are sitting on it, or have lent it back to the Fed, as the Fed pays interest on it. There are few good reasons to borrow money right now. So there it sits. The amount of base money has been doubled, but is not in circulation.

However, over the next year, the Fed will most likely have to monetize a large fraction the Federal deficit. This direct purchase of debt sends money right into circulation. It will be a huge stimulus that will heat up the economy. This will pull the money out of the banks. Then oil will skyrocket, and we'll crash again. the whole cycle should take 18 to 24 months. Inflation will be serious.

Regards,

Coal Guy

A Quaker in a Strange Land said...

"There were lots of back-to-the-land initiatives in the 60s and 70s. Virtually none remain. Too much work for the return. Future economics may change that equation."

How very true.

It is also true that the AMerican family farm collapsed in the 1980's, which would have taken those other back to the land types down as well.

Here is a telling data point.

A milk goat in 1920's could be purchased for $100 to $200 in Philadelphia PA. Today, a milk goat would fetch about the same.

In real terms, the price of milk has gone down so far that it is not worthwhile for the average family to own a dairy animal. But WAS worth it in the 1920's and certainly in the 1930's...

"Future economics may change that equation".

As always, thank you for your well reasoned comments everyone.

bureaucrat said...

Corn, wheat and soybeans hit recent lows today. The supplies of food may be dropping overall, but none of the futures traders seems to think we're going to have any shortage of food for awhile.

oOOo said...

Really interesting post first of all.

2nd of all, bureaucrat I love your optimism but also find your masochism fascinating posting how everything will continue as it is on the American energy crisis blog, representing a view contrary to the available data. A balance of opinions is always needed.

3rd of all, Greg what do you make of the cap and trade bill which has just passed the house? It seems to me TPTB are starting to turn the lights off and trying to get paid for it at the same time. They are proposing a declining amount of carbon credits per year and an open market to trade the carbon credits. A perfect market for the next bubble as Matt Taibbi wrote about recently.

http://blog.derestricted.com/2009/06/re-up/

Anonymous said...

Cap and trade a resource that's disappearing anyway. I'm sure it will be a big success. Our government is so on top of things.

Does anyone here know what natural process removes CO2 from the atmosphere? I'd bet you think that plants do it. Well, sort of...

Regards,

Coal Guy

A Quaker in a Strange Land said...
This comment has been removed by the author.
A Quaker in a Strange Land said...

REgarding Cap & Trade:

I wish I could say I was stunned at the level of hypocrisy from the so called "Left"... but having worked in politics and with the benefit of a frighteningly accurate bullshit meter often going red line...

Nothing surprises me anymore - except the level of naivete among the younger members of that group.

Lest you think I side with the "Right". Not even a little. The "Right" does no where near the level of stealing, skullduggary and outright thievery that the Left does - so they don't irk me as much - but I am no more inclined to stroke those jag offs with their silly sh*t than I am the jag offs on the Left.

That said... what should be done to bring carbon outputs in a Libertarian framework? I have a number of ideas, none of which would work, which makes them at least as valid is this g-d d-amn Cap & Trade BS.

The Mad Scientist said...

Bureaucrat
They are wrong.

Anonymous said...

Wow! Great comments on this post. Greg, you are really getting the readership up as you deserve. Your blog is a must read for me.

I have a confession to make. I just bought my wife a Lexus LS430 (255KW V8)for her birthday and will sell her Honda Jazz/Fit. Hey its not because I think PO isn't real. It certainly is real and we are past it. It just means that the Lexus is cheap as chips right now for what it delivers a friggin bargain. Also if I don't have the fuel to fill up the Lex I will not have the fuel to fill up the Jazz either. In any case since others will drive the gas hogs anyway Im tired of economizing and "saving the world" while the other clueless bastards are using up the resources. And anyways I want the kids to enjoy the heated massaging rear seats because sure as death and taxes they will never have a car of their own.

This should start the comments going! Bring it on homeboys.

Anonymous said...

Even in the EPA there is fierce debate over whether or not CO2 emissions are the greater part of the current global warming trend. It is not hard science, although it is being marketed as such. Just imagine all of the things that the left can control in your life through abuse of environmental policy. It is staggering.

The promoters of CO2 reduction don't seem too worried about it in a personal way. The bloated floating turd, Al Gore, bought himself a 10,000 square foot house after winning the Nobel Prize. The Illuminati of the left want us to live at about 150 sq ft per person. Conservation, obviously, is for the rest of us. All in all, what I wish to say to Anonymous 1:23AM is:

YOU GO GUY!!!!

Best Regards,

Coal Guy

Anonymous said...

Futures traders don't really get it right all that much. I mean, back in 2004-6, did the futures ever indicate anything close to $140 oil for 2007-8?

No.

Futures go up and down with the present more than they respond to the future imo.

Thus, I think grain futures are quite possibly similarly misinformed.

Stephen B.

Anonymous said...

Here are two pretty good articles on CO2. The jist of the second one is that there aren't enough fossil fuels left to make a big difference.

http://www.ferdinand-engelbeen.be/klimaat/co2_measurements.html

http://www.john-daly.com/carbon.htm

Regards,

Coal Guy

A Quaker in a Strange Land said...

Coal Guy:

I wrote a post that there are not enough fossil fuels to accomplish the CO2 claims 2 or 3 years ago. I will repost it.

Of course, it was met with the same derision that any criticism Obama or accepted Left Dogma does.

The Right is not the only group that denies science.

Anonymous said...

I have believed all along that Global Warming, now Climate Change, has been a farce. It is what the left is all about. Read their literature. They get all upset when someone on the right lies or dishonest. Yet, the elite left believe that is morally necessary to guide the masses, because they are too stupid to govern themselves. Lying is a morally justifiable means to that end. Kind of makes Social Democrat an oxymoron.

Regards,

Coal Guy

A Quaker in a Strange Land said...

Coal Guy:

I believe the science behind anthropogenic climate change is very compelling, though it ain't my area.

However, the ASSUMPTION is that we will be able to grow our carbon based fossil fuel consumption at a 2.5% clip right through 2100, and that just ain't so.

It is funny how the same guys are Peak Oil aware, but conveniently don't make this leap. Well, when it comes to politics, everyone spins, lies, and obfuscates their way to advantage - we are, after all, a nation of law(yer)s.