Sunday, November 21, 2010

Oil prices

I think we are back to the point where a significant price spike in Oil could happen at any time.

Yea, China is "tightening"... B.S. China is P.O.ed and bluffing/negotiating. The Federal Reserve is going to use every dime they have threatened to... or lose all credibility forever (actually, that might have already happened... and nothing is impossible... but I would not count on the Fed backing down now).  The world ex-U.S. is increasing its demand for petroleum products... and the supply is simply not there.  Consumption within the exporters continues to grow briskly, as it is in Asia and Latin America... could a Europe blow-up throw oil demand off a great deal?  Maybe, but not for long (and probably not).

Ergo, demand will brought into equilibrium via price (spike)... and given prices are already in the low 80's.. . and given the fact that the U.S. unemployment picture is not likely to get much, much worse... and, bad as it is the U.S. is still consuming Oil like it was cheap...

All of the above I interpret as indicating much higher Oil prices sometime in the next 24 months is highly, or very highly, probable.

This is not a market call... In the short term markets exist to make us look dumb... but I am getting long here in the commodity and lightening up on the energy equities...

OK, so that's what I am doing trading wise (if I am wrong, I am gone)... IF (emphasis on "IF") it turns out I am correct and sometime before election-time-2012 there is another move in Oil, say, to a high of $120 to $180 (I didn't say oil was going to stay high...  I said it could spike higher until demand gets chocked to near death...) there will be no place for the U.S. Federal Government to hide.  The IEA is out... the EIA, at the direction of the Feds, is going to come out, too.

The U.S. will be forced to come clean on "Peak Oil Imports" or "Peak Oil" or "the End of Cheap Oil" or whatever label they are going to use.... the point is, in finally acknowledging it for what it is, the Government's acknowledgment that the Age of Oil is drawing to its close will have a profound impact on markets, politics, economics, population, immigration.... just to name a few.  A Profound Impact.


All of those hoping for the Government to "Do Something" are going to get there wish... As always, careful what you ask for - you just might get it.

This time, if I am right about a surge in prices, you might just get it.

So what policies might the Federal Government enact? What can they really do? Not very much... and a great deal.  Over the long term, not very much... in 20 (more likely less than 10) years the Oil age will be all but over if it is measured against our lifestyles now (inflationary or deflationary?  Who cares? I am going to spend any money I have left over after my Oil and farmland investments on one h*ll of a good time).  In the short term?  All manner of huffing and puffing, sucking and blowing, spitting and stammering... is in the cards, I'm afraid.  The propaganda effort launched by various special interest groups in an effort to leave somebody else holding "the bag" will be mind-boggling, and it will absolutely, positively begin in earnest immediately following the next Oil price spike.





52 comments:

bureaucrat said...

In the interest of a little balance ...

1) In 1992 (21 years ago), I was ushered into the world of alternative vehicle fuels (ethanol, natgas, etc.) I can say two things 20 years later: all the fuel alternatives suck .. they are "lesser fuels" not many people are going to like. But the other thing is: this whole thing started after the Exxon Valdez spill in 1989, and 22 years later, we are STILL waiting for oil shortages. Still waiting ...

2) I'm glad you acknowledged that prices aren't going to STAY spiked, as increasing oil prices will so smack the world economy that fuel prices will rise & demand for oil will drop back down just as fast (higher prices = lower demand). Oil is self-regulating, and in the short-term, oil isn't going over $100 for long. Long term, with inflation, however ....

3) With the colossal waste of oil around the world, we still need to see what happens when oil prices and supply force people to stop wasting this amazing, finite thing called hydrocarbons. Oil demand will drop for sure.

4) Did I mention we don't know what Iraq has to offer us for the future? Did I mention every research lab in the world is trying to find a substitute for crude oil (algae, etc)? Did I mention 5 years ago we thought natural gas was running out, and then somebody suddenly perfected horizontal drilling and hydraulic fracturing, loosing lots of (now cheap) natural gas? Science did rise to the occasion, as it usually does.

"The end is near" is getting old. :)

Bill said...

You made some comments on the last article about what you would do to prepare for the future. Your comments were well thought out but short. Do you think you could do a series fleshing out these ideas?

We are preppers and I like comparing and contrasting thoughts from different angles. I think your readers would enjoy it.

Bill said...

Bur,

By definition oil is a finite resource so it will eventually start running out. When is the question. What timeline do you feel is reasonable?

Also, it's not a matter of running out as in there is no more but that demand is so high because China and India like cars better than bicycles.

Anyway, just curious when you think we'll see major oil issues and why you think your timeline is reasonable.

PioneerPreppy said...

Well I guess no one can feel sorry for ya if you waited since the 80's for peak oil. As I remember it the leading theorist (I am too tired to remember his name right now) has always drawn the hockey stick as falling towards the handle about the end of the first decade of 2000. Maybe I am wrong about that since I wasn't too interested in peak oil until the late 90's. Seems to me they used a chart like the one the US oil production created during it's rise and fall.

As for prepping for the financial future investment-wise I have sunk some cash into smaller oil companies who have a stake in some fields which still show some promise. One or two have shown some significant increases this year. Silver ETF's a few ag plays in the US, China and S. America. I noted with interest one poster mentioned rail in the last discussion. I looked into that thinking rail would explode again as oil declined but have yet to find a good place to sink some cash. I think a general move out of my REIT's is in order this Winter.

Prepping my 25 acres for sustainable living as much as possible for the moment. Eventually it will increase into 250 or so but lets hope that is several years down the road. This Spring I plan on adding in some solar and branching out the livestock a bit. General prepping all the way.

Stephen B. said...
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Stephen B. said...
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Stephen B. said...

Pioneer,
That would be me wondering about rail’s resurgence. The way I see it, this country is going to want and move to some kind of intercity travel alternative to air travel and want it pretty fast. Between the hassles of reduced plane schedules, amazingly crowded remaining flights, the security-TSA problem, and the general misery associated with said travel, people will be looking for alternatives.

I see the excursion rail industry perhaps stepping in to the void, teamed up with the freight RRs. There are still a goodly amount of older passenger cars, sleepers and what have you, doing duty out there, mainly entertaining people. With some work, most of these cars could be pressed into real passenger service again and run at higher speeds (70 mph) and fairly soon. Orders would also start to be placed for new, conventional passenger car equipment. These excursion RRs already have the expertise to move people and operate this equipment while the freight RRs lost that expertise years ago. What still exists, however, is the freight RRs’ ability to accommodate charter, excursion trains on their tracks, and to a certain extent, they’re doing this now. I will admit though, that a goodly number of double tracks have been downsized to single track and, given the RRs’ prioritizing their freight train movements over visiting passenger operations, delays are likely. (This, in fact, is Amtrak’s major source of delays these days too.) I’m thinking that the RRs would accommodate these operators on their tracks in a manner akin to the way they hosted The Pullman Company’s cars decades ago, though perhaps this time the passenger contractor would run the locomotive and train themselves rather than just hooking a few cars onto an existing passenger train already run by the RR. I don’t know if there is a publicly traded investment opportunity in any such company right now or not, though I tend to doubt it.

Of course a lot of the old stations and platforms have been sold, converted to other uses, or just plain torn down. Operators would have to set up at least temporary stations in the interim. As well, secondary tracks to the smaller population centers have been ripped up too. Happily, at least around here in New England, state governments have been holding onto the old rights of way by building rail trails. Whether these get re-laid with rail or not, I don’t know. Certainly that won’t happen all that fast, but it could happen much faster than the multi-year, multi-billion $$ price tag, pie-in-the-sky “high speed rail could be executed.

(continued below)

Stephen B. said...

I also see big changes for the highways and interstate system of course. Repaving many more intercity highways with $400/ton hot mix asphalt via bankrupt governments doesn’t seem likely. Bridge repair is also out, and it’s bridge failure that forced the abandonment of many a RR secondary line back in the 1930s, 50s, and 60s. This time hard choices will be made on intercity roadbeds and soon too. I see consolidation where divided highways are combined onto one side, becoming open for two-way traffic, with the worst of the bridges abandoned. This could look something like the temporary, median-crossing detours we’ve seen for years that contractors set up for bridge rebuilding, only this time, said detours would be permanent.

I suppose we might run RR track down highway rights of way too. We might do this to recapture some of the massive investment we’ve made by resettling our society around the highways for the last 60 years. As well, this time, locomotives and trains can handle much steeper grades than the old steam ones could. (It was the latter’s grade climbing inability that forced old time RR route surveyors to follow rivers and whatnot rather than taking more direct routes.) We WON’T be going back to steam locomotives either, as they were notoriously labor intensive and fuel inefficient. IF we power trains with coal again, it will be burned at power plants running electric locomotives. We *could* run track over the steeper hills the interstate routes utilize.

I suppose we will see intercity buses make a comeback too, at least for a while, if and until the intercity road conditions deteriorate too much. I don’t know if there is a decent, publicly traded bus manufacturer left out there that is enough of a pure play to matter. I doubt there’s that much of a rush to buy even if there exists such an investment opportunity.

Of course, the government could outright nationalize the major railroad companies too. Heck, they’ve grabbed GM already. I don’t know if they’d have the nerve to take Warren Buffet’s RR or not, for example. Right now, most of the publicly traded RRs are still near their highs.

The state of Maine just recently purchased all the track of the former Bangor & Aroostook RR, comprised of all the RR trackage in the northern part of the state. It was the BAR that enabled the massive potato and other farming of northern Maine a century ago along with all the timber production. Nowadays, all that tonnage goes down govt.-subsidized I-95 and US Rt. 2. I suspect the state got their hands on this RR just as the tide was about to turn on rails’ resurgence in Maine.

Check out this timetable for a passenger train that used to run to northern Maine daily, out of Boston and Portland, Maine: http://www.streamlinerschedules.com/concourse/track3/potatoland195407.html There’s a well patronized bus that does that route now, running up I-95, but it’s a cramped, long ride. How long private cars will run up the 350 miles on 95 is anybody’s guess, but I say that’s winding down pretty soon.

Stephen B. said...

By the way, that link I posted to that Maine RR train's timetable is part of a web site that has lots of old train timetables. Most of the other trains went much faster than that long, local "Potatoland Special" I pointed to.

http://www.streamlinerschedules.com/concourse/index.html

Most Amtrak trains that run similar routes don't beat those speeds even today.

bureaucrat said...

Stephen needs his own blog. :)

Anonymous said...

Bur,

I'll agree with you on this, the doomsday boys have been at it a long time. In the mid-seventies I heard a report on the radio about oil supply. It that claimed the replacement cost on a barrel of oil was $174. Prices would only go up. It was BS then, but I'm afraid its not BS now.

Technology will supply some relief, but how much and how fast depends a lot on how much the government gets out of the way. In the short run it will be too little to late. I'd love to see $1 a gallon tax on imported oil, and then let the market sort out what to do about it. But, there is no market. There is only what regulators will allow. There will be no tax because it is politically impossible.

Lines at the pump are not the issue. Lines don't matter one bit. As long as there is a market for oil, there will always be gas at the pump. The problem is that the economy will continue to collapse as the price of oil rises. There will be gas at the pump because most of us won't be able to afford it. THAT is the issue. Why do you not see the world's economy getting smacked as THE problem? Are you so secure in your job that you think you are immune to the fallout of all this?

Regards,
Coal Guy

westexas said...

It's interesting to look at the Consumption (C) to Production (P) ratios for US, coal, natural gas and oil (EIA). 100% marks the demarcation line between net exporter and net importer status.

C/P for 1998 & 2008:

Coal: 93% & 96%

NG: 117% & 114%

Oil: 203% & 229%

Because of an uptick in production, and a further decline in consumption, the C/P ratio for oil fell to 205% in 2009, and there was probably drop in the NG ratio too. However, the US is still a NG net importer (apparently world's third largest net NG importer in 2009), and we are still the world's largest net oil importer.

Regarding coal, there has been a recent uptick in net exports, but the longer term trend line shows us approaching net importer status. The C/P ratio in 1980 was 85%. The 1980 to 2008 trend line suggests that we approach zero net exports around 2020.

Anonymous said...

Bur-

You are right about those guys working on the algae diesel. They are hard at work and have been for the last 20 years.

In fact, you can now purchase some algal diesel for about $100.00 per gallon.

I guess that in order to make algal diesel competitive, they will only need to bring the price/gal down by a factor of 50X.

Best,
Marshall

Best, Marshall

Stephen B. said...

Thanks Bur :)

I'm curious about the future of pavement. It's something that never gets talked about much in oil depletion circles. Kunstler has mentioned it a few times when he refers to broken truck axles stopping long distance shipping, but generally people are quiet on the subject. We hear about electric cars and other things that probably will allow us to continue *some* automobile use for more local travel and for those folk that manage to hang on to some wealth. Nobody, however, has really gone in-depth as to what we'll actually have for paved road beds at the local, in-town level, and on the intercity level or talked about the transition time table as less and lower quality roads are forced onto our country.

Governments are broke and yet they're going to repave roads when hot mix asphalt is 4X its present price? Even concrete uses lots of natural gas for the cement kilns along with lots of cheap energy for the hauling and spreading equipment.

I see a MUCH reduced ability to keep this country's intercity lane-miles of highway in serviceable shape. A lot of country roads will be (and already are) going back to dirt. I suppose the more important local roads, the Main streets and Station streets of the towns, keeping their pavement for a while. I've asked this question before, but never have really gotten any in-depth answers.

What do folks see for a dismantling scenario for paved roads?

Stephen B. said...

Ignoring the huge cost for a moment, can they repave roads with algae diesel? I mean, algae diesel can run the dump trucks and pavers, but can the pavement people actually get something sticky and heavy enough to use as the gravel binder?

@westexas,

Thanks for those production/consumption ratios. That's really eye opening.

This country is indeed in an energy bind. So much so that I see transportation will be severely cut in overall size.

I wonder what even railroads will use for energy? For a while, diesel locomotives can run on natural gas with conversion. In most cases, they'd have to pull a nat. gas tender somewhat like the old locomotives pulled water and coal tenders, but that's doable.

In the longer run either precious and expensive algae or coal to liquids or hydrogen made from nuclear and/or renewables powers a diminished locomotive fleet, or more trackage could be electrified so locomotives could run on nuclear, wind, hydro, solar, etc., but those support towers and associated wiring are wildly expensive too and probably will never be done for the lesser used, more remote sections of track.

In 30 years (for those of us still here), we really won't be traveling around much at all, nor will our goods.

Stephen B. said...

Kunstler pointed out an extensive disinformation piece in the New York Times that ran recently regarding energy supplies:

http://www.nytimes.com/2010/11/17/business/energy-environment/17FUEL.html?_r=3

Bur's right. I do need my own blog.

bureaucrat said...

1) I got 13 years left. I'll make it. :)

2) Unfortunatley, it is when the government STOPS regulating that a lot more NEAR-term damage occurs, a la the near-total deregulation of Wall Street & deepwater drilling. You don't appreciate government until you find yourself drowning in losses and other bad stuff. :)

Anonymous said...

Bur,

You are smoking some good stuff! Wall Street and deep water drilling are both very well regulated. They've got the best regulations that money can buy. The whole idea that the Treasury and the Fed did not know what was going on is foolish on the face of it. The Treasury and Fed were COMPLICIT. Co-conspirators. Partners in crime. Too little regulation my A$$! The game was to kick the can down the road as long as possible. And, that's what they did.

Regards,

Coal Guy.

Dextred1 said...

aStephen,

Cost of materials are less than you purpose. Most states are starting to use warm mix instead of conventional because of the lower fossil fuel usage required (heated between 212 and 285 instead of 320+). About 25 % of the material in typical asphalt is reclaimed so lowers the overall price because of existing bitumen. Other modifiers also keep the cost lower such as pea stone, sea shells in south, fly ash, rubber (mainly car tires) etc. So that might compose somewhere around another 25% of typical ton. The last 5 tons I bought was around 70 dollars a ton. This is slightly more than concrete at around 90-100 a yard. The advantage of asphalt is you can set up a cheap road system with it, but the durability is extremely limited. Back to my point even if bitumen quadrupled in price the current cost is only 70 dollars a yard (new total would be 280 a yard, but half of the priced in material is already included so it is not a direct correlation of oil price. I think it thus safe to assume that 30-40% of the price is locked in. So let’s use the middle of 35% and that is about 24.50$ of the typical ton. So the other approx 65% would quadruple in price (182.00$) for a grand total of 182+24.50=206.50. Expensive, but still very reasonable for at least the main roads and highways. Now this is assuming the price I get, which is higher than a road company will pay (more like 55$ or so). Installation is a larger part of the cost than materials. And if you want to know us concrete/asphalt guys are getting bent over on every job in this crappy economy so if the oil price lowers growth it lowers are demand which intern lowers our prices.

Greg T. Jeffers said...

Bur:

Please do not co-opt my time.

Here is my perspective in short:

Market price signals TO ME indicate a high probability of a significant price spike in oil. I could be wrong... I laid out a brief explanation.

IF I am correct, there will be a significant policy response and big impacts on election 2012.

That was it.

There rest I am still noodling.

Crybaby said...

The Chinese are not bluffing they are very serious about curtailing economic growth before it spirals out of control. Nothing puts more fear into the heart of a Communist party official than the thought of quelling another peasant uprising like Tianaman Square. They will impose price caps and restrictions on oil use if they need to. They will keep raising rates until food prices stabilize. China is the second largest economy in the world. This is not a small factor.
I am not a commodities analyst but I will tell you the chart of gold prices is making a perfect head and shoulders top pattern, and all commodities tend to move in tandem. In addition, the US dollar is likely to get a big boost from the ongoing debt problems in the eurozone which are spiralling out of control way faster than in the US. The dollar plays the role of the anti-euro here. A stronger dollar means weaker oil prices. So it might be premature to talk about a collapse in the US dollar due to the Fed's mismanagment.Problems elsewhere are alot more severe right now.

bureaucrat said...

Carbon, they were being Republican/Libertarians (also known as delusional "protect the rich at all cost" dreamers).

"Get the government out of the way and amazing things will happen economically." No, nothing magical will happen. The great inventions of the last 200 years have already been "magically invetented" (radio, TV, antibiotics, railroads, internal combustion, etc.) All we have to look forward to is silly "handheld apps" and bio-medicine. The great days of steel and real industry are behind us.

The only thing our country's "entrepenuers" are gonna find with government out of the way is some ammmmmazing new thing, like a new sandwich or new haircut (like the Po'Hawk!!). Nothing meaningful.

A mature country needs to act maturely, and not assume the big money heads are going to do the right thing. Obviously, they aren't.

Dextred1 said...

Stephen,

Not saying I disagree with your main points in any significant way though. Most of which I find fit in to my basic framework of coming events. I just think that we have some ways of making this puppy hold on for longer than anyone cares to admit (referring to road system).

My quick thoughts are first rail will have to expand to manufacturing areas to carry the heavy products (Coal, oil, steel, etc). Trucking fuel is I think something like 22% give or take of oil usage, so we could knock off hopefully half that from a reinvigorated rail system. This would save the roads because of decreased usage. Also something that would go along with this is to lower the weight of trucks to something like 90,000 pounds to protect the roads. Michigan we are allowed to go to 156,000 I think with all of the drop axles. You can tell when you drive on the roads too, but we need heavier limits because of parts, steel and machinery for the auto industry. Coal guy’s idea of a 1 tax or tariff per gallon would be a great way to jump start local exploration of oil, ng and coal. We need to stop wasting money on electric car subsidies until we find a viable battery. Ram that money into a joint R&D to reformat cars with diesel and ng engines because of the availability of ng and the increased fuel economy of diesel. Also think it is inevitable that we need to turn most of the back roads into gravel or more likely limestone to save paving costs for more important corollary’s of economic growth. But most importantly is that bur is right that oil is self-regulating so the wasteful uses will be a thing of the past. What that really means though is that you won’t drive unless you need supplies, work, etc. I just realized we are in deep S**T.

Dextred1 said...

Bur,

You ever think we were maybe just pragmatists, knowing that human nature is such that to allow the government to plunder one citizen also allows them to control the rest of us.

I do actually agree that the tax base needs to be expanded though. Everyone should pay something that way they understand the cost of government and the "free programs". I would like to see a flat tax of 18% on all income (1040, investments, etc). Do away with corporate tax rates, it provides no tax base because of write-offs (Google paying effective rate of 2.6). This way all the revenue is either going towards business operations, salaries or dividends. Anyone living under poverty line receives a tax day check to make up the difference of 18% tax rate to protect the poorest among us. But I would only do this if we passed a constitutional amendment allowing the government to only spend 15% of Gdp per yr until the national debt is paid off. Bur we are the big boys, we understand that there is nothing free in life. I do agree though that any efficiency that we gained from international trade in heavy industries is now past since most of our manufactures are much more efficient or else they would not have lasted this long. I think we need to go into a mercantilist system to protect our remaining heavy industry and textiles. We have plenty of free trade between the states.

Stephen B. said...

Thanks Dex,

Perhaps I am thinking pavement costs are going to go too high, too fast. As well, though I knew that pavement commonly gets recycled, I didn't realize that it did so at a 25% rate. Around here, I don't often see them run those planers or whatever they're called before they lay new pavement. I did see our town scrape up a few miles of really beat up surface this past summer before laying new stuff, but I don't think it is done as a rule around here though.

Still, I think governments are going to be hard pressed to take on any increase in paving/repaving prices even if we're talking $280 versus $400.

I wonder what electric cars are going to mean for the roads? With less fuel changing hands, there will be less road use taxes available for road projects. To a certain point, more efficient use of diesel and lower consumption of gasoline due to electric cars, will free oil for construction equipment, paving included. On the other hand, since asphalt is a more or less fixed percentage of a bbl of oil, if oil use declines dramatically, it seems likely that there would be less of the heavy stuff leftover for the pavement industry.

Here is a current article on the preparations some utilities are making for the coming roll out of electric cars. What makes it interesting is the rather large number of electric cars they're planning for and fairly soon:

http://www.thestar.com/business/article/894729--u-s-utilities-scramble-to-ready-grid-for-electric-cars

Okay, I've got to take a break. I'm taking up all of Greg's blog space today :)

Crybaby said...

For those in the Low-taxes-stimulate-growth category: Take a look at what is happening in Ireland. They flourished under the 12.5% corporate tax rate until the house of cards fell apart and now the whole country has to beg for money from the EU and the IMF. Let that be a lesson to all of us.

Dextred1 said...

Crybaby,

In what way does that show any causation? It was the housing bubble that collapsed their banks not the "low" taxes. Correlation is not the same as causation. Not to mention the fairly healty "welfare state" there. The real lesson is you cannot be a welfare/warfare state and have low taxes, is it not? You have to find a balance, which just means balancing the books. We do know that a frugal government with low taxes has produced the greatest economic machine in the history of the world up until the creation of the fed, and even with that terrible event we have managed some pretty decent growth.

bureaucrat said...

Dex, I'm afraid the vast majority of people are NOT big boys and girls, as they like their benefits and will destroy any politician who toys with Social Security and Medicare (80+% of the Federal budget is for five wildly popular programs: SS, Medcare, Medcaid, Interest, Def., all of which will NEVER be cut substantially) (which is why the Tea Partiers are toast if they ever start talking specifics), and so we need money from everyone .. but the big dollars are in the upper 20% of income earners, who have been escaping being properly taxed for 30 years. It's pretty simple, but until the Chinese, Japanese and American bondholders (like me) stop buying Treasuries, nothing is gonna change.

Greg T. Jeffers said...

Crybaby:

I need to make this brief. Try to keep up.

No sovereign nation with its own currency needs taxes. NOT AT ALL. We could have zero tax rates, the government would then "print" what it needs, and inflation would take care of balancing it all out.

So why don't governments do this? After all, they would save all of the money that the taxing authority costs, as well as all of the enforcement and penal element... not to mention remove the tax disincentive...

So why do they go thru the whole tax circle jerk? They do so as price stabilization mechanism... taxes drain M1,2, & 3.... an effective fiscal control AND price control. (BTW.... they way we do do it is really freaking the worst thing we could possibly do.)

Now, since the f*(&Iing FLOOD (Noah's) the average total tax take of the Feds has been 18%... so why not do away with all of the brackets and jag-offs and tax everybody a flat 18%? After all, we have PLENTY of data that shows quite clearly that a net tax take of 20% actually contracts the economy and leads to LESS tax revenue every freaking time...

Bill said...

Bur,

The issue with not touching SS and the other sacred cows is that if we don't then eventually we'll just have to stop paying for it. With what we owe you can't keep doing it forever.

www.usdebtclock.org

bureaucrat said...

Bill, they can make reasonable adjustments to the Social Security system and buy themselves increased years of continued payouts. I can give you the four suggestions a Senate panel came up with, but they are hanging on board in my office right now, and I am not there. :) There are things that can be done.

Donal Lang said...

Any sentence that is predicated on the word 'should' is by definition wishful thinking. We 'should' invest oil in building an alternative infrastructure, but it won't happen because other investments (based on the oil economy) offer a higher return. That includes your pension scheme. We 'should' start living with less oil, but comfort and convenience are seductive, like that 4x4, so 'you first'! We should have selfless politicians, and honest bankers investing in worthy ventures, and people 'should' be nicer to each other.

The alternative is reality and, as we collectively drive off the cliff, we can take comfort in the fact that we all agreed (by our actions) to be complicit in this decision to do so. Not much point, therefore, in grumbling and whingeing all the way to the bottom!

Crybaby said...

China has now formally banned hoarding of oil and coal. Look for more action from them in the future. Crude moving lower.

Crybaby said...

Dextred and Jeffers, if you want to live in a civilized society you pay taxes. Its the price you pay. If you don't like it move to Somalia where there is no government and no taxes and every man protects his property with guns and mercenaries.

Donal Lang said...

Re Westexas; your comment; 'The 1980 to 2008 trend line suggests that we approach zero net exports around 2020.' presumably assumes straight line progression. I'd say that isn't possible - elasticity of demand would meet huge resistance after the first 2 or 3% of reductions. By 2020 the price would have rocketed and most infrastructure, especially road transport, would have collapsed in that scenario.

bureaucrat said...

You tell those Libertarians, Crybaby!! :)

The Senate Select Committee on Aging published a report this year with suggestions on how to fix Social Security ...

1) The whole $5.3 trillion gap over the next 75 years could be filled if payroll taxes were increased 1.1%, to 7.3%, for both employers and employees

2) If all wages were taxed for SS, not just those under $106,000, that would fill the gap too.

3) 75% of the shortfall could be wiped out by reducing cost of living increases 1 percentage point every year

4) About 25% could be saved by bumping the "full benefits" age from 67 to 68.

All reasonable. The first baby boomers hit 65 on January of next year (2011). They are coming. Might as well get used to it. When the under 50 people figure out what has been done to their future by the baby boomers, no nursing home will be safe ...

Anonymous said...

Donal,

I've got to agree. Exporting countries have to balance internal consumption against the need to engage in trade for food and other necessities. It will be a declining exponential rather than a straight line. Also, there is more $100 oil in the ground than $80, etc. Reserves expand with increasing price. I think the tail is longer than many predict. Perhaps, even now, the price of oil is reflecting replacement cost rather than production cost, and those engaged in exploration simply won't sell for less than the cost of the next barrel of oil. That is the only way to stay in business.

Regards,

Coal Guy

Anonymous said...

Bur-

You are FOS again (and again).

"When the under 50 people figure out what has been done to their future by the baby boomers, no nursing home will be safe ..."

Did you realize that the the GenXers are in their forties. This means that GenX has been living and benefiting off the system as adults for around 30years.

Why didn't GenX change the sytem in those 30 years? Because they too like the cheap oil, cheap credit, shopping mall excursions. They like the benefits of being consuming citizens in a global empire. They didn't want to change the system.

And while you are villifying the entire 80million citizens born between 1946 and 1962, please be aware that many of us have fought the current system for many years- the rampant debt economy, militarism, etc. And many of us have led a debt-free life- in my case I have not a penny of debt and live in a house paid for with cash.

Best,
Marshall

bureaucrat said...

I am a Gen-Xer (age 43), but like almost all of my generation, we weren't running anything yet. The baby boomers took over as the supervisors, managers, directors, vice-presidents, presidents, representatives, senators, presidents, etc., from the Greatest Generation. Plus there are millions LESS Gen-Xers than baby boomers (BBs had 4 kids per family in the 1940s.)

BBs are 1946-1964, Marshall. And it was 78 million babies born during that era. Get your numbers right. :)

I'm glad you lived right. So did all the other people persecuted throughout the centuries for one reason or another. You all get conveniently lumped together no matter how innocent you are in an upheaval. I would hate for that to happen. :)

oOOo said...

Oil did a massive u turn today despite rising dollar and despite a massive sell off everywhere else, so you may unfortunately be right about an upcoming price spike. If the IEA are right about the 2006 peak it would seem fairly likely too. How do you minimize loses or avoid losing money with the monthly contract rollover if you don't mind my asking?

Anonymous said...

Our boom ended with a run up in oil. Are we seeing the beginning of of the end of China's boom?

Regards,

Coal Guy

Anonymous said...

Coal Guy-

The Chinese boom is looking pretty shakey. They too will have their appointment with peak fossil fuels tho the Chinese have been a lot smarter by tying up oil resources in favored customer bi-lateral contracts.

If the Chinese miracle implodes, the world commodity base will take a major hit as China is the factory of the world. Of course, China appears to be fated to play the 1930s, role of the USA- crashing demand undermining a newly built world-class manufacturing export economy. Lots of interesting events coming toward us.

An old oilfield observation on out-of-control wildcat formations was- "It's coming to see you".

Best to be prepared for anything at this point.

Best, Marshall

Anonymous said...

Bur-

You and the "so-called" GenXers are just as complicit in benefiting off the US vapor-ware economy as anybody else.

Just as an observation- my Great Grandfather was a farmer in Ohio in the late 1800s. He sold his farm in the late 1890a and moved into the city as industrialized agriculture took over.

His son, my grandfather, was born in the city but when the Model T appeared in the 1920s, he moved back to the farm and started commuting into town by automobile. This was all in the 1920s and 30s. He also enjoy all the modern industrial appliances which were bought on time payment for his farmhouse. Especially his new Ford tractor.

My other grandfather was born in Nebraska in the 1880s and pioneered throughout the west. However, when the great industrial revolution came about, he moved back east and, with great enthusiasm, bought into the industrial revolution. He loved the cars, refrigerators, radios, modern tools, airplanes etc. He never had ANY romanticism about the west or back-to-basics living. He LOVED the modern industrial world including his TV set (think Lawrence Welk and Mitch Miller).

When we get to the so-called "greatest generation", it was the same. They absolutely loved the cars, freeways, airplanes, space rockets, social security, TV, unemployment insurance, skyscrapers, etc It was the "greatest generation" that started the shopping mall boom and designed and built the Interstate Highway System. They also built the US global empire.

And I will tell you that it was the "Greatest Generation" that would absolutely go ecstatic about the prospect of being "triple dippers" ie collecting social security + military pension + private employment pension.


Lots of blame to go around.

Best, Marshall

westexas said...

Donal Lang said...

You might want to read what I wrote again. Hint: I wasn't talking about oil.

Anonymous said...

Marshall,

My daughter brought the notion back from some radical college professor that the Evil West was unfairly imposing its culture on the rest of the world. My response is that it didn't have to. Choose between 14 hours a day hard labor for a subsistence living, scant medical care and the occasional famine while under the thumb of some war-lord compared to three squares a day, relatively clean work, modern medicine and civil rights. Europe was no better 400 years ago, either. Back to nature ain't all it's cracked up to be.

Regards,

Coal Guy

Dextred1 said...

Where do I start crybaby.

First what is the link between high taxes and a civil society? It is completely absurd and ridiculous to make that link. The average federal revenue for the last one hundred years is almost exactly 18% of GDP. If you don’t understand this you are lost in the world of spin. We are now around 25% of Gdp and if you noticed we cannot collect enough revenue to make up the difference. Every time we go over this 18% point we get into “deficit spending”. Why is this, well very simply you tax out all of the productive capital and then are faced with a continually shrinking tax base. I said low tax rates, repeat low tax rates. You and bur simply refuse to acknowledge that a lower tax rate with a wider base is much more important to increasing revenue than higher bracket rates. Anything over this amount can be concluded as frivolous by the simple understanding that the government does nothing more than it did 20, 30, 50 yrs ago. Not to mention the obvious issue that you refuse to acknowledge that the local and state governments are by far the most important government when dealing with a civil society. The states have what we call policing powers, not the federal government.

I can give numerous examples of nations with very high effective tax rates that are on the verge of collapse, Venezuela anyone? So we are not debating really whether we are a civilized society, but whether your particularly philosophy of the world is true. You operate from a zero sum economic perspective. So can at least admit it is spending and not revenue that is the problem?

Bill said...

Bur,

I don't understand the connections you are making. You listed four, what you called, 'reasonable' responses to the SS problem and then went on to say the young folks are going to hunt down everyone in a nursing home.

If the available responses are reasonable then why would anyone be angry?

bureaucrat said...

Social Security isn't everything Bill. And since I'm in between, I don't care what happens. But if everyone thinks inter-generational warfare is unlikely, well ... who cares what I think. :)

tweell said...

Well, I'm feeling better about moving a big chunk out of silver and into oil. Thanks!

PioneerPreppy said...

I agree with Marshal it was the Greatest Generation that totally screwed everything up. The Boomers went along for the ride and continued the attack on a social level but they were just working with what they were given. This is of course very general but.

As for SS just wait. Another year or two of ignoring real inflation with no cost of living increase coupled with the likelier much higher inflation many are predicting and even the retired boomers will call for leaving it behind. If they won't increase it, which they can't.

The next real step down will be the unemployment benefits. If they are allowed to expire now things will get bad fast I bet. Gonna be interesting.

Stephen B. said...

An interesting read from Gene Logsdon:

Corn Crazy

The commercial corn business, says Sheila Bair of the FDIC, seems to be inflating another one of those hot air market bubbles (my words, not hers). If it bursts, it will leave the financial landscape of the cornbelt looking as forlorn as a field of dead cornstalks. As Otto Doering, a farm economist at Purdue says about the situation in Farm and Dairy newspaper on Nov 11: “We are now at the bottom of the hole and there is nothing that the Republicans or Democrats can do at this point to dig us out quickly. We’re in a hole that we’ve been digging ourselves into for at least 20 years.”

http://thecontraryfarmer.wordpress.com/2010/11/17/corn-crazy/#more-4224

Bill said...

Bur,

I know SS isn't everything. I mentioned SS and our other liabilities and then you responded about SS as if there are reasonable responses without mentioning anything else.

On one hand you seem to think we have reasonable responses and on the other you think we'll have some kind of generational war. Just curious what you think will actually happen? Reasonable responses or generational warfare?