Wednesday, March 31, 2010

More Dots

Nissan is introducing an electric car to compete with the Chevy Volt. Clearly the car maker's believe in Peak Oil. Corporations do not make massive investments and long range planning like this because of some silly conspiracy theory.

Imports of Oil into the U.S. continue their descent. Plunge is a more correct term. At .7% per month there is simply no better term. The U.S., even given the state of the economy, is easily the luckiest country in the history of the word. If it were not for corn ethanol and Shale Gas things would be FAR worse than 10% headline and 17.5% real unemployment. Still, the decline in Oil imports WILL ABSOLUTELY overwhelm these saviors in the not too distant future... though not quick enough for the "doomers" that have been rooting for Armageddon. These folks will likely have to wait through a long, grinding "play out" of the event. In real life, things just don't fit onto a 3:05 minute song track or 12 second sound bite.

Nat Gas prices AND the lagging performance of the energy equities seem to say that they believe Oil prices come in. Maybe, maybe not. All those folks saying that the world has all this "shut in" Oil production just does not ring true for me (doesn't mean I am correct). I mean, come on... all of a sudden the producers are not going to cheat like crazy on their quotas when the price of Oil is $83 per barrel? NAFC.

Tuesday, March 30, 2010

Mixed Signals

Before I move on to today's rant...

We built this mobile chicken coop on a sled of 2 x 4's and enclosed it in used cattle panels that were too bent up for fencing, and some left over wire garden fence. An old tarp was used for a roof.
My 16 year old son moving the ladies (and a few very lucky roosters) into their new home.

The finished product. The hens must have approved - we collected 25 eggs from 32 hens.
This "chicken tractor" is moved daily to let the hens graze on pasture but is really not light enough for many folks to move around. It works for us.


The bond market NEEDS another equity market correction or rates are going to move higher... Energy equities say Oil pulls back... Nat Gas says Oil pulls back... the Euro says the US$ moves higher... Nissan says they have an electric car that will get 100 miles per charge... Everybody says California is bigger than Greece... The U.S. equity market says it does not care about Oil, California, Nissan, Nat Gas, or interest rates...

Don't believe everything you hear.

Sunday, March 28, 2010

Pig Roast

Yesterday I was invited to the home of the delightful family that takes care of my farm in the winter when we are not here. They are originally from a very remote, mountainous part of Mexico - a place where running water and electricity is few and far between and not in people's homes for the most part. If they want to eat meat they have to raise, slaughter, and butcher it. If they want milk, they have to raise it and milk it. There are no Publix', Walmart, or StopnShop where these folks were from, and they had no refrigeration.

Now, in an American's concept of a picnic or BBQ, if they were to visualize it, might be some prepared chicken legs, a 6 foot deli sandwich, and maybe some cole slaw with hard boiled eggs... all wrapped in some food plastic wrap... and none of it prepared by the participants.

(All Photos taken with my cell phone...)

The Cook
The Business End (Notice the fancy table)
The Guest of Honor

Meanwhile the hog was boiled in its own oil over an outside wood fire and then served with tortilla's and scorching hot homemade salsa and lime juice. The Cold Beer flowed, my Spanish improved, and there was much rejoicing...

To Life!

Friday, March 26, 2010

The Set Up

Posting has been light with the Spring chores on the farm. Before I get on with today's rant...

Wilber returned to the farm yesterday. Here he is in bacon and sausage form. Nothing like a little home grown, hormone, pesticide, and antibiotic free food, minimally processed in this case. Until the farm, I had not seen bacon like that since I was a little kid.

Yesterday we had some homegrown chicken stew for dinner.

Speaking of home grown food... every year I save 2, 5 gallon buckets of "seed potatoes" from the garden. I store them in moist sand and leave the buckets in the unheated garage. Potatoes are a "can't miss". If they have water, its almost impossible NOT to have a good harvest (disease permitting). Here is a photo of the potatoes already sending out runners in mid March. I would guess each bucket holds 10 lbs of of potatoes in the Fall, and they dry out some and decrease in volume (that bucket was overflowing). I would guess I harvest a total of 400 - 500 lbs of potatoes, and I do nothing more than throw down the cut seed potatoes on the garden ground and cover them with a foot of left over hay or straw. No digging is required. The potatoes grow right in the composting straw, and come out clean as a whistle.

OK, back to the rant.

Britain operates one of the largest welfare states in Europe. And that, it seems, is just fine with many of the British.

Despite the worst recession since World War II, many people here show little appetite for shrinking a system that eats up half the nation’s economic output, more than in Portugal, Greece or Spain — all of which are trying to push through painful cuts. Indeed, as Britain’s Labour government confronts a yawning budget deficit, public sector workers are mobilizing to head off any reductions in wages or jobs.

As a midwife for the National Health Service, Rachel Voller is one of millions in Britain who have benefited from a decade of rising public spending. Now, she wants to protect her piece of the pie.

“We work hard and struggle to make ends meet, but they are the ones that get the bonuses,” Ms. Voller, 34, said Monday, as she and a group of colleagues gathered at the headquarters of the Royal Bank of Scotland here to sneer at investment bankers and pre-emptively protest salary or job cuts for health workers.

Think about it. The U.K. came back from the brink due to the North Sea's Oil production. Then, flush with Oil money, the U.K. expands its social programs and giveaways - completely addicting (and expanding) the population to these. Now, the declining Oil production in the North Sea has demolished the U.K. economy and its budget, leaving the Pound on the brink. There is not a power on earth that can save the U.K. from economic and political disaster.

Further, SOME politically interested party is attempting to cast the blame on London's financial district. The U.K., like the U.S., has as its primary "export" financial services. Without them this sneering mid-wife's children might have experienced poverty and hunger right out of a Charles Dickens' novel. She may yet get her chance. Envy is a powerful motivator and useful political weapon. Just look at 1917 Russia.

It is NO COINCIDENCE that the countries with large Oil export capacity have large social programs (the U.S. HAD the largest Oil export capacity when it began to implement its suicidal programs). Russia, Saudi Arabia, Venezuela, Britain, Norway, Canada... but once the Oil goes away, a humanitarian crisis of biblical proportions will visit each of these (with the possible exception of Canada). No Oil = No Social Programs. Can someone call the folks on the Left and clue them in? If they really wanted to help poor folks, they would organize and help fund Agricultural Co-ops, dairy, poultry, and swine production along with big time gardening on Public Housing grounds. That would actually help people. The Left does not want to "Help". They want to keep blaming the Right, the Republicans, the Religious, the Right to Life folks... They want power, and power comes from political control of people and money. Teaching them a useful skill (like providing for themselves) does not fit in with the Left's agenda.

What a crazy world.

Wednesday, March 24, 2010

Interesting Data Point

The U.S. Energy Information Administration's weekly data came out as usual. The import picture continues to decline at roughly 8% for the year to date period when compared to last year's to the same date (and 9% for the most recent 4 weeks).

Notice on Table 1 that Net Product Imports are down 39.6%. Product imports (Gasoline and Diesel but mostly Gasoline are down to only 734k per day. I can remember periods of 2mm+ per day. It would seem that refining capacity must be so much greater than supply, and it would also seem that we are getting to the point where ethanol is now over 10% by volume of finished motor gasoline (and that REAL petroleum based gasoline supplies are now down to 8.1 million bpd).
If anybody has any info on what that "Product stocks W/D or added" line... I would appreciate it.

The data does not jive with the GDP numbers.

Tuesday, March 23, 2010

Healthcare Bill

I got a couple of emails from friends that read my stuff asking where I have been, what with the Healthcare Bill and all.

As for the Healthcare Bill... YAAAAAWWWWNNNN!!

This was a disgusting display of politics on the part of the Congressional Democrats (not that the Republicans have not been equally as guilty - if you will recall the Medicare/Drug give away that the Republicans crafted a few years ago...), and a bald attempt by the really screwy folks on the Far Left to usurp Capitalism and the U.S. Constitution.

And it will not survive the coming Constitutional challenges.

And we don't have the money to pay for any of the non-sense coming out of Washington.

So, my personal answer is to go work outside (its a lovely day) and get a little exercise, eat well, brush my teeth, floss, and have a glass of wine everyday with dinner - that's my answer to my own "healthcare" questions. Worry about yourself, because there is not a soul on the Left NOR the Right that cares about your well being.

That's just me. For those of you that want something you can put your teeth in...

The following is a guest post by Congressman Dr. Ron Paul, MD:

Following months of heated public debate and aggressive closed-door negotiations, Congress finally cast a historic vote on healthcare late Sunday evening. It was truly a sad weekend on the House floor as we witnessed further dismantling of the Constitution, disregard of the will of the people, explosive expansion of the reach of government, unprecedented corporate favoritism, and the impending end of quality healthcare as we know it.

Those in favor of this bill touted their good intentions of ensuring quality healthcare for all Americans, as if those of us against the bill are against good medical care. They cite fanciful statistics of deficit reduction, while simultaneously planning to expand the already struggling medical welfare programs we currently have. They somehow think that healthcare in this country will be improved by swelling our welfare rolls and cutting reimbursement payments to doctors who are already losing money. It is estimated that thousands of doctors will be economically forced out of the profession should this government fuzzy math actually try to become healthcare reality. No one has thought to ask what good mandatory health insurance will be if people can’t find a doctor.

Legislative hopes and dreams don’t always stand up well against economic realities.

Frustratingly, this legislation does not deal at all with the real reasons access to healthcare is a struggle for so many – the astronomical costs. If tort reform was seriously discussed, if the massive regulatory burden on healthcare was reduced and reformed, if the free market was allowed to function and apply downward pressure on healthcare costs as it does with everything else, perhaps people wouldn’t be so beholden to insurance companies in the first place. If costs were lowered, more people could simply pay for what they need out of pocket, as they were able to do before government got so involved. Instead, in the name of going after greedy insurance companies, the federal government is going to make people even more beholden to them by mandating that everyone buy their product! Hefty fines are due from anyone found to have committed the heinous crime of not being a customer of a health insurance company. We will need to hire some 16,500 new IRS agents to police compliance with all these new mandates and administer various fines. So in government terms, this is also a jobs bill. Never mind that this program is also likely to cost the private sector some 5 million jobs.

Of course, the most troubling aspect of this bill is that it is so blatantly unconstitutional and contrary to the ideals of liberty. Nowhere in the constitution is there anything approaching authority for the Federal government to do any of this. The founders would have been horrified at the idea of government forcing citizens to become consumers of a particular product from certain government approved companies. 38 states are said to already be preparing legal and constitutional challenges to this legislation, and if the courts stand by their oaths, they will win. Protecting the right to life, liberty and pursuit of happiness, should be the court’s responsibility. Citizens have a responsibility over their own life, but they also have the liberty to choose how they will live and protect their lives. Healthcare choices are a part of liberty, another part that is being stripped away. Government interference in healthcare has already infringed on choices available to people, but rather than getting out of the way, it is entrenching itself, and its corporatist cronies, even more deeply.
I think that that sums it up better than I could have.

On another note... you remember "Wilber" the hog... the pig we contracted to clear our garden over the winter? Well, "Wilber" went off to his eternal reward, but before doing so he tipped the scales at 498 lbs. Not a bad weight gain from a 12 pound piglet last March 20 to 498 lbs today. For the most part "Wilber" will be going to some folks that will really appreciate him with a portion coming home for a BBQ with the neighbors and the folks that help keep the farm running during the winter.

Friday, March 19, 2010

Corn/Ethanol Paradox

Before I get on with the question of the day...

Here is a photo of some of the new baby goats born on the farm this winter... for some unknown reason they were congregating around a mama goat that was feeling under the weather with hoof problems (after a hoof trim and a soak she is feeling much better thanks). I thought it was just too cute:

OK. Back to business.

The Mad Scientist and I have been knocking this problem around for a couple of months now, without resolution. Maybe one of my brilliant readers will have a better grasp on the issue.

Here it is:

Corn ethanol is both an alternative fuel AND a reformulated gasoline blending component.

AS SUCH... Will demand for ethanol go UP or DOWN if gasoline supplies decline? Think about it... as a blending component dependent on gasoline volumes for its demand... as an alternative fuel independent of gasoline....

Getting this right can make (or break) a career. Why? Because we are currently using 42.5% of the U.S. corn crop to make ethanol. Either we are going to have too little corn or too much corn by a very large margin.

Any math/science inclined folks out there that have something to add, we are all ears. Yes, we already have an opinion, and no, we don't want to share it with you now as it might lead people away from their original thoughts.

In the end we will be very happy to share with you how we intend to play this provided that you understand that this is a big boy's game and we may very well be wrong...

Wednesday, March 17, 2010

U.S. Oil Imports continue their Decline in 2010

Before moving onto the U.S. Oil import data...

As many of you know I am an avid gardener (one of my best friends calls me a "rabid gardener") Weeds are the bane of gardening. Last year I had a pretty good harvest, but in the end the weeds got the better of me and by the end of September this 80' by 180' garden plot was choked with weeds and garden plants that had been picked over. I did not relish coming back to that in the Spring... So I met another gardener/small holder on line... and she said she never had a problem with weeds in her half acre garden anymore because she kept pigs in the garden over the winter. SO..... What did I have to lose? (BTW... within 1 year a pig will weigh over 400 lbs; our Wilber is roughly 450. Some people don't eat meat or do not eat pork for religious reasons. That does not mean one cannot employ a pig to eat all of the roots and weed seeds in your garden).

To make a long story short, we employed "Wilber" to work the garden over the winter...

click to enlarge

As you can see it looks like it has been plowed and tilled by a tractor.


In case anybody was wondering...

Oil imports into the U.S., for the period 1/1/2010 - 3/12/2010 show a decline of just over 7% when compared to the same period in 2009 (last 4 weeks average was down 7.7%).

Right on schedule.

Misallocation Central

I am going to lay out in broad strokes an important phenomenon I believe is going on in the financial markets and economy. INTELLIGENT, well reasoned comments are requested.

The number of mortgages that are in default is X% of the total number of mortgages (comments and data points are welcome here), but the US$ value of mortgages in default is a higher percentage than the number. In other words, higher dollar mortgages default more often than lower dollar mortgages. The number of people living in homes in which they are no longer paying a mortgage, property taxes, or insurance on is - I BELIEVE - a very significant number. There is no reliable data point for it. I am speaking from my own anecdotal experience. If I am correct, these people have experienced a windfall in disposable income. If my assertion is correct it would make sense that these people not be terribly interested in saving money that will be seized later in bankruptcy or in a lawsuit to recover unpaid mortgage debt.

Since the banks are not writing these debts off and marking to market BUT the mortgagor (borrower) IS... and is spending the money accordingly... this would be enormously stimulative in the short run... and a terrible precedent.

It would be reflected in the economic data as a no harm/no foul to the financials because they are not marking these losses to market, and the other side of all of this largess does reflect it in the form of increased spending and consumption.

Any data points or opinions would be appreciated.

Tuesday, March 16, 2010

Down on the Farm

Spent the last few days driving on I-75 from South Florida to Tennessee. Other than meeting with a couple investors along the way, I spent my time observing and contemplating. My quick take away was that the level of truck traffic had plummeted. This is my 5th Spring with the farm; in 2006 the truck traffic was nothing short of frightening - grumpy, pushy, and speeding truckers surrounded us it seemed. Pretty much the same in Spring 2007 and Spring 2008. We noticed much less truck traffic last year, and this year it was obvious that 20% to 30% of the trucks were missing.

Like I said. We did no detailed, scientific study to measure truck miles traveled. We didn't need to. It was that obvious.


The U.S. equity market has had one hell of a run. I am somewhat surprised at the depth and breadth of this rally. Retailers, as measured by Retail HOLDRS is less than 10% below its all time high. For all I know, it may even set a new high.

The market seems conspicuously unconcerned with the price of Oil.

This is what happens when excess liquidity meets optimism. Anybody on Wall Street think that retailing is in good shape? Not a one. Or that we need 6 times the retail space per capita as Europe? No one on Wall Street thinks that, either. So what's up with the market?


Or Government Sachs.

Ever wonder why those nice folks at Goldman never even had so much as a hint of an investigation blow their way (under Democrat and Republican alike)? They sold the very toxic sh*t that nearly collapsed the system (and could have plunged America into anarchy and martial law), then covered themselves with derivatives, backed by AIG, to cover their a$$, then had their cronies in Congress and Treasury bail them out (both directly and indirectly), with nary a bad word from the U.S.(in) Justice Department.

Most folks cannot comprehend how incestuous the financial markets have become. Clearly, no one in Government can, either. (I wonder if we will ever see the Federal Reserve audited. I would be curious to see if they have no small number of S&P Futures on their books.) I have never been much of a conspiracy theorist, but there are certainly more coincidences here than should be the case.

In the end, even the U.S. Government would fail attempting to control markets. In the mean time the market is always right. Until it isn't. Of course, it would seem that the Fed is willing to do whatever is required...

I need to noodle this some more. Though the market seems to be forecasting better times ahead for the U.S. economy, my bet is that that will not turn out so hot for those coming to the party now. U.S. Oil imports will not be there to support the optimist's case.


Despite bulging U.S. inventories and slack U.S. demand, the price of Oil is once again over $82 per barrel. India has stepped up to the plate to challenge China in the acquisition of Oil assets around the globe. While I think China might, in fact, be the Mother of All Bubbles, that does not mean that that is true when it comes to Oil. Now we have India throwing their hat in the ring.

Saturday, March 13, 2010

2010 -2019: Great Comments From the Peanut Gallery!

Today's Quote

"The man who views the world at fifty the same as he did at twenty has wasted thirty years of his life." Muhammad Ali (easily my favorite athlete of all time)

I sincerely appreciate the comments made in response to my request for a little idea flow on the implications of the Export Land Modeling coming to pass for the U.S.

I remember speaking with Jeffrey Brown circa the ASPO conference in Boston in the fall of 2006 about the impact of Peak Oil on the importing nations. Some time in 2008, Jeff sent me a detailed analysis of the top 5 exporters production and internal consumption trends. The Mad Scientist and I poured through it pretty well; we gave it the proverbial "scrubbing". The assertions on each exporting nation stood up to rigorous fact checking and statistical analysis (that does not mean that these assertions are a "certainty", but it would indicate a very high probability).

Given that this analysis was already over 1 year old when I received it, and given that the analysis has proved accurate for imports into the OECD overt the 2007 - 2009 time period, I am going to base MY investments and life planning on the predictions for U.S. and OECD oil imports for the remainder of the analysis period (which, if memory served had a mid case scenario for near ZERO exports sometime in middle of the 2020's). Some very smart people have crunched the data many, many, many times over. That doesn't make the model perfect - hence it has a best, worst, and mid case scenario - but it makes it a better data point than an arm-chair-general's analysis. I am talking oil import calculations here; what that means in terms of our collective and individual lives is anyone's guess. Still some guesses are better than others.

People frequently talk about unintended consequences - usually as if there is only a single unintended consequence to a particular action. I can tell you with great assurity, because I know from personal experience living as I do in a house full of "unintended consequences" that these said "consequences" continue to manufacture new, and expensive, unintended consequences each and every day - tuition, car insurance, health insurance, braces, lack of sleep... (if I knew the permutations of the unintended consequences of indulging my carnal instincts I might have opted for a monk's life... Just kidding... sort of...). Cut supplies, and therefor sales, of gasoline - and the taxes used to maintain roads evaporate before your eyes. Shift the burden elsewhere, and that industry dissipates before you can even blink. Replace "inefficient" cars with 100mpg motorcycles... ever go shopping and then try and transport home a dishwasher on a motorcycle? What about the thousands of catastrophic injuries surely to result with millions of middle aged fatso's taking to a motorcycle as their primary source of transportation?

Life is dynamic, not static, and of course we will "adapt". I like that word - "adapt". I wonder if anyone used that word when speaking to the Haitians after the earthquake. After all, OF COURSE they will adapt - all "survivors" of any outcome by definition have adapted, otherwise they would have been classified as "victims". (BTW... ever hear the term "survivor bias"? We see it every time a combat veteran speaks. My bet is he feels differently from those killed in the conflict... survivors HAVE a bias! The dead are not around to make themselves heard. If you could wake up those that perished, show them the family they could have had, the travels, wine, women, song, pleasure, pain, thrill et al that makes up the buoyant surge we know as being alive, had they not lost it all... I wonder what they might say about the conflict that cost them all of that...)

But I digress.

Back to adapt. Yes, of course the "survivors" will adapt - some folks will come out ahead, some will come out with the short end of the stick, and some will come out dead. I know which camp I want to be in. But this process happens all day everyday irrespective of the crisis de jour... making short shrift of this won't do you much good.

And there you have it and there it is. So far, the Export Land Model is tracking the real world outcome quite well. If it continues, we are all going to get a chance to live with our decisions. It will be interesting to see how each of us feels about them at that time, though I doubt most will have the luxury of time to ponder this - we might be rather busy doing other things. In the end, for those that do adapt life can just as easily become MORE enjoyable, MORE fun, MORE meaningful as LESS so.

To Life!

Friday, March 12, 2010

Its 2015 - 2019

I thank the commenters from my previous post, especially those that could manage to stay on topic and within the parameters of the given scenario.

Let's move the time scale forward.

Oil imports have fallen to 5 million bpd at the beginning of 2015. But time does not stop there, and that isn't that far away... Oil imports continue their decline, though the rate of decline on a percentage basis slow so that by the end of 2019 oil imports are down to 1.5 million bpd, the vast majority coming from Canada's Tar Sands.

Peak to trough, the U.S. has lost 55% or so of its liquid petroleum supplies over a period of 14 years. Personal "Car Consumption" - gasoline, tires, repairs, insurance... is down 80% to 85% in this scenario. Heating Oil supplies are down 45%, while jet fuel supplies are down 80%, and over the road diesel for trucks is down 65% (triage has occurred in distillate fuels). We have invented a 100mpg diesel motorcycle and a 150mpg one seat car, but still have not figured out how to use it move large and bulky goods like food, clothing (cotton, wool), commodities (tomatoes, apples, and oranges) from the field to the rail and then from the rail to retail distribution... but at least you can drive these vehicles back and forth to the mall... will there be anything in the mall to buy absent truck delivery? (Driving around in circles does nor do much for the economy, but moving essential goods and services by truck and rail does.)

Bunker fuel, now supplying 8% of the energy for power plant electrical generation is down 50%.

How much has natural Natural Gas production increased/decreased? Is it sufficient to cover the loss of heating oil and bunker oil? How much Nuclear power electrical generating capacity has been built? Is there sufficient capacity increases in these 2 to support economic growth? If not, what are the economic consequences of the decline in imported Oil over the 2015 -2019 time period? What happens to the US$?

What happens to the population now living in the American industrial belt? Did they find jobs? What about the financial services worker in the Northeast? Has unemployment benefits been extended for 10 years? If not, what are these folks doing? If so, how did the international bond market react? What percentage of the population is receiving food assistance, healthcare, shelter or other service from the various governments? Again, how does the international bond market feel about that (they fund every thing we do)? Has the U.S. defaulted on its debt? Has the U.S. engaged in full scale monetization? If either of the previous has occurred how will essential goods and services be delivered absent energy and money?

How are children transported to school? What about ambulance and emergency services? Police patrols? (motorcycles and bicycles might be decent substitutes for patrol cars, but for ambulances and school buses they seem to come up short).

How are pensions funded? How are criminals punished? How is healthcare administered?

What are the environmental impacts? Is there a single tree left standing in places short of heat and or cooking fuel? Has the U.S. tried to make up for declining electrical generation by increasing coal consumption?

More questions soon. Clearly the solution for everything will not be golf carts and mopeds. I am still looking for more intelligent idea flow; comments remaining on topic will be greatly appreciated.

Thursday, March 11, 2010

"What If"? 2010 - 2014

In 2007, U.S. Oil imports fell just under 3% from 2006.

In 2008, U.S. Oil imports fell 8.5% from 2007.

In 2009, U.S. Oil imports fell approximately 10% from 2008.

So far in 2010, U.S. Oil imports are off just over 6% from 2009.

So, for the sake of THIS discussion, let us assume that Jeffrey Brown's modeling is spot on, and imports into the U.S. fall at double digit percentages for the remainder of the decade (if memory serves the rate of decline should accelerate in early part of the decade, and if Jeff is around he can comment).

It is now 2015 and imports have fallen to 5.0mm bpd from 9.7mm bpd in early 2010, and 12.5mm bpd in 2006:

What happens?

During the last 4 years, the U.S. has experienced a 2.5 mm bpd decline in imports (give or take) but was able to increase production of ethanol 800k bpd, and increase domestic production roughly 500k bpd. Vehicle Miles Traveled for cars fell 3% or so, while consumption of truck diesel and jet fuel fell 15% +/-. In other words, industry took the decrease in supply on the chin with consumers outbidding industry.

I would argue that ethanol, which now consumes by my calculations 42.5% of the U.S. corn crop, was a "one off" with very little capacity left to increase its volume. Same with domestic production of crude, condensates, and NGL's.

Forget price. What happens if the system does in fact lose nearly 5 MILLION bpd, or 26% of the total liquid petroleum products available to us between 2010 and 2015? Of the nearly 9mm bpd of gasoline the U.S. consumes now, what will be available in 2015? If we assume a pari-passu decline in gasoline, - 6.5 mm bpd instead of nearly 9 mm bpd - what are the effects? What about a similar decline in diesel, heating oil, and jet fuel? I'll throw a few out there:

  1. Car pooling - that means we are not going to be wearing out those cars, tires... like we used to. Think about that and about those folks on unemployment waiting to be rehired in these industries. I guess we will be extending unemployment benefits out until 2020, then 2025, 2030... (snicker/he he/ha ha/)
  2. Staff that can work from home WILL work from home. Clearly surgeons and waitresses can't work from home... but a lot of folks can and will (be forced to)... and there will be a great many less waitresses and cosmetic surgeons making a living. What are we going to do with all that empty office, retail, and industrial space? What about the support industries surrounding those empty offices (dry cleaning, dog walking, whatever...)? What is the value of the mortgages on those properties? What about the balance sheet of the banks holding that paper?
  3. Commuter schools. All those exclusive private schools with the drop off/pick up line that mom has to drive to/from/to/from every day? The oil isn't there to support that behavior. Commuter colleges? Same drill.
  4. Heating. We are going to be doing a great less of it with 25% less Oil. States like Florida that depend on bunker oil for electricity generation are going to suffer rolling blackouts unless they can build and supply coal fired or nuclear power plants. Muhammad Ali said: "Your hands can't hit what your eyes can't see. Float like a butterfly, sting like a bee"; well, "power plants can't burn what they can't see, to generate electricity for your A.C".
  5. Unemployment. Industries and financial services are going to get CRUSHED.
  6. Tax revenues would "sh*t the bed". That's a technical term for a severe contraction in tax receipts. Social Security taxes, sales taxes (remember gasoline is a HUGE collector of sales taxes; less gas = less taxes unless the price rise offsets the volume lost), property taxes (who is going to pay taxes on a property they can't get to?) would all go down like a rock in a pond. Considering the fiscal status of the various state and local governments, I see a number of pensions that would be defaulted upon.
  7. Restaurant and retail traffic will decline precipitously.
  8. I should think that large homes requiring extensive ongoing maintenance and landscaping will have no resale value. That brings us back to banking...
  9. Many of those muffler, brake, tire, and car repair eye-soars you see along every main road in every little town in America are going to go DARK - and these properties will get even uglier (if that's possible).
  10. People will migrate slowly southward. The northeast U.S. relies on heating oil a great deal. That will not turn out so hot, no pun intended.
  11. The current trucking food distribution model will NOT survive this. Take from that what you will.
  12. The American people will blame their political leadership. This is absurd, but somebody will have to hang. Maybe literally.
I woud welcome any other economic/social/financial outcomes that don't mention roving hoards of looters eating people as I am putting together a presentation on this and would welcome any intelligent input. If you disagree about declining Oil imports, please save it for a near future post. This post ASSUMES that the rate of decline continues and accelerates slightly over the next 5 years. IF you disagree with my analysis GIVEN THAT INPUT (or lack thereof) please comment accordingly. I could use the idea flow.

Wednesday, March 10, 2010

Today's import stats

The U.S. is "only" importing 9,724,000 barrels of Oil per day (last 4 weeks average). At today's price of $82, that's an annual $291 BILLION trade deficit JUST FOR OIL.

Actually, that is not as bad as it once was. In 2006, the U.S. was importing 12.5 million barrels of Oil per day...

Click this link. Notice how the U.S. trade deficit just keeps getting better? That's mostly because oil imports have steadily declined (keep that in mind the next time this administration takes credit for bringing the trade deficit under control). Let's use an expected average of the past 6 and next 6 month's average of $30 billion per month, or $360 billion per year.

Not to worry, the trade deficit is going to keep getting better! Oil imports WILL approach zero sometime by the end of the decade, and the U.S. trade deficit will be a thing of the past.

Good thing, too. We don't need any competition for funding the world's largest debtor nation's incredible liabilities - not even from ourselves.

Still I wonder... without Oil... how do we pay back the national debt (especially as it smashes through 100% of GDP)? Is it a coincidence that as the trade deficit falls the budget deficit just hit a monthly record? NAFC. Not even a little bit.

How does anybody pay back any of their debt? Is the net of all this deflationary? Or inflationary?

More soon...

Tuesday, March 9, 2010

The Most Disconcerting thing I have ever Read

I have been in the deflationist camp for some time. That does not mean that I am overly confident in my position and that I don't question it every &^^%$! day (considering how goofy the system is at the moment, being confident of anything can really, really, REALLY get you in to deep doo-doo - and quick).

I love to read the "Zero Hedge" blog - it is brilliant, quirky, irreverent... and constantly questions its own assertions (and they use one of my favorite movie lines ever at the head line of their blog: "On a long enough time line the survival rate of everyone drops to zero". Isn't that just delicious?)

To cut to the chase, the following is a quote from a recent post that you should read in its entirety (and that I found to be the most disconcerting thing I have ever read - because I DID assume "that the existing liquidity pyramid would persist"):

As the above Gordian Knot chart indicates, there is much as stake here, and much reason for the authorities to distract the general populace with such silly concepts as a Consumer Protection Agency and Healthcare Reform. Indeed, shadow economy investors stand to lose over $70 trillion dollars should the traditional-shadow banking linkage be broken and the cash flow transfer process be disrupted. The bigger question: how much longer will such cash flows sustain in the current day and age when real demand has collapse courtesy of record domestic unemployment. The biggest question: what happens when there is a secular change to the prevalent level of capital flows into shadow banking. One of the primary reasons for the massive expansion in the money system (via the credit pyramid), has been precisely the shadow banking system, which is second only to the credit and interest rate derivative market (incidentally we were fascinated by the race to the currency bottom, and the technical associated short squeezes in the Dollar and Euro, in May 2009, long before anyone even considered such now daily discussion pieces).

Yet should shadow baning disappear, the tranche above it (or below it by seniority) would disappear as well. And with 90%+ of global liquidity gone, and no additional source of "credit" money to fill the Fed's infinite demand for monetary supply, asset prices will explode (forget about gold - one apple will be $6,000 an ounce). Deflationists are right that ceteris paribus asset prices will decline, and that the Fed is powerless to stop this. Yet deflationists take one huge variable for granted: that the existing liquidity pyramid will persist. It is obvious that should another systemic stress episode emerge and money contract by a massive amount, the end consumer will matter little when total global credit collapses from $600 trillion to mid double digits, thereby decimating the real shadow monetary base, and realligning global assets with a liability side in flux. After all, the key offset to CPI going stratospheric over the past 30, 50 and even 100 years has been precisely the emergence of the alternative banking system, with its influx of tens if not hundreds of trillions of "shadow" dollars, which almost ceased to exist in the 2007-2009 crisis. The netting of intangible money to tangible currency in circulation would be a forced explosion in the money multiplier by the same amount as the shadow economy has sucked out in a vacuum of expiring credibility overnight.

For this, and much more we recommend a read of the attached "Q&A about the Financial Crisis" in which Gary Gorton discusses before the US Financial Crisis Inquiry Commission, in very clear language, the big dangers still facing shadow banking.
Ouch. (BTW... "ceteris paribus" = all things being equal).

This is a critical point, and one that I thought would be an issue further out on the time line. This requires some noodling.

Sunday, March 7, 2010

Please pick a Nom de Plume

I must ask that our commenters pick a nick name, or Nom de Plume, and stick with it.

It is getting difficult to carry on a rational conversation with a series of "Anonymous".

You don't have to register with Google, you can still be "Anon" with a nick name specific to this site.

Guest Post from ("Westexas") Jeffrey Brown

The following was written by Jeffrey Brown in the Comments section of my most recent post. As many folks skip the comments area, I thought I would repost those comments directly on the Blog.

For those of you outside of the industry or issue, Jeffrey Brown is one of the better known, if not the best known, Geologist in the world (Ken Deffeyes from Princeton University is a close contender). Although several people made note that peak oil would hit the importer's first, it was Jeff's work and detailed analysis depicted in his "Export Land Model" (click the link for a better explanation) that became the "Aha!" moment.

I give you Jeffrey Brown:

Dividing an expanding economic pie is difficult enough, but dividing a contracting economic pie is, and will increasingly become (perhaps literally in many cases), a bloodbath.

The division between the savers and the spenders, between producers of essential goods & services and consumers of essential goods & services, will become increasingly apparent. Kurt Cobb probably had the best image, he showed an inverse pyramid with 95% of the US economy resting on the 5% represented by the food & energy producers.

I have described developed countries with out of control debt financed government spending as the Grand Prix of Debt Race; some countries are just closer to the edge of the fiscal cliff than others. The "Thelma & Lousie" moment is the point at which local, regional and national governments can't borrow enough money to fully finance their deficits. For national governments, it would especially be the point at which they can't borrow enough money in their own currencies to fully finance their deficits.

Circa 2005/2006, I started describing the probable impending decline of (North) Ghawar Field in Saudi Arabia and the certain decline of Cantrarell in Mexico (the two largest producing fields in the world at the time) as "Two warning beacons heralding the onset of Peak Oil." From 2002 to 2005, combined net oil exports from Saudi Arabia and Mexico increased from 8.7 mbpd (million barrels per day) to 10.8 mbpd (close to one-fourth of total world net oil exports, EIA)--as annual oil prices rose from $26 to $57. But from 2005 to 2008, their combined net oil exports fell from 10.8 mbpd to 9.5 mbpd, a decline of 8%, as annual oil prices went from $57 to $100. This was, IMO, a huge confirmation of the "Warning Beacons" thesis, but our government/finance system can't handle to concept of a finite earth, so these warning beacons continue to be largely ignored.

To put projected US deficits in perspective, let's assume that we had to repay the debt with barrels of oil. The CBO is projecting 10 year cumulative deficits of $9.8 trillion (let's call it $10 trillion). Of course, this assumes economic growth. In any case, let's assume $100 oil, so if we had to pay back $10 trillion of debt with oil, if my math is correct, we would have to come up with about 100 billon barrels (100 Gb) of oil--the equivalent of about eight Prudhoe Bay Fields.

And to put 100 Gb of oil in perspective, if we extrapolate Chindia's (China & India's) recent rate of increase in net oil imports out to 2018, they would be net importing 15 mbpd, when our best case projection puts the combined (2005) top five net oil exports at about 15 mbpd. So, based on these two projections, the total volume of post-2010 cumulative net oil exports from Saudi Arabia, Russia, Norway, Iran and the UAE--after subtracting out Chindia's net imports--would be about 22 Gb.

Estimated annual 2010 net exports from the (2005) top five exporters--less Chindia's estimated net imports--are about 5.5 Gb.

22 Gb divided by 5.5 Gb/year is four years. In other words, based on the above projection, the estimated volume of post-2010 cumulative net oil exports from Saudi Arabia, Russia, Norway, Iran and the UAE, after subtracting out China & India's net import,s would be depleted in four years at the current import rate. The key point here is that recent data show a clear pattern of developing countries like Chindia outbidding developed countries like the US for declining oil exports.

Again, my forecast for the US is that we are going to be forced to make do with a declining share of a falling volume of global net oil exports.

End of Jeffrey Brown's Comments

Friday, March 5, 2010

epilogue -1

Today's quote:

"You know the difference between a terrorist and a do-gooder? You can negotiate with a terrorist." - Unknown. Brilliant, but unknown...

Some have turned to free clinics. It’s just one indication that the health care crisis is really an economic crisis. And for the boomers it’s only going to get tougher, according to Harvard financial historian Niall Ferguson.

“If they’ve done their homework, then they’ll be afraid,” he said. “Very afraid.”

Ferguson says it won’t be easy to care for a generation with ailing bodies and many more years to live.

“The baby boomers have set us on a path towards a massive fiscal crisis,” he said. “Which is going to hit as the baby boomers retire.”

The recession, though devastating, will pass. But rising health care costs as boomers age may bring lasting harm to this generation’s financial well-being. By the time all boomers are 65, the senior population will have grown from 40 million now to about 72 million. Who will pay their medical bills?

“This thing is going to blow up,” said Ferguson, “because A: The number of retirees is about to zoom upwards just the way the number of teenagers once zoomed upwards in the ’50s, ’60s and ’70s; and B: Because the costs of these systems are completely out of control.”

The strain that the burden of caring for aging boomers will put on the health care system could overwhelm the economy.

If current trends continue, in 20 years almost a third of everything we spend on goods and services will be spent on medical care.

“The cost of health care for the elderly has been explosive,” said Ferguson. “And that is the crisis which seems to be the really big crisis lying ahead of us. We simply don’t have an answer as a society to the problem of a very large number of relatively unhealthy people who live into their 80s.”
And so it goes and will go and go and go until the mushroom cloud climbs over the horizon, blowing up what had been a noble experiment because a bunch of do-gooders really thought they could change the Facts of Life, or that there would never be an unintended consequence to their do-gooding, or that as long as you meant well its ok if you bring down the world's great Liberal Democracy...

Great nations are destroyed from within... by sloth, greed, unrestrained extravagance, arrogance, pride, boastfulness... of their people. They are not destroyed by their enemies nor by the frugal, modest, reasonable, and rational. Our foolhardy attempt to remove personal responsibility from the lives of our citizens and its celebration in our sh*t-for-brains media and pop culture has led us to this sorry state of affairs.

Doubt this? Let me ask you a few questions:

Was our society harmed by:

People starting businesses and employing people?
People saving their money and living within their means?
Parents providing for their children and making sacrifices to provide for themselves?

Not a shot.

Our society has come to this unhappy place because of the unholy alliance between a political elite that sold out the people mentioned above, pandering to those that did not or would not and expanding their numbers with the confiscated resources of the productive portion of society to the point that our financial system is unraveling.

I am sure to get ridiculous anecdotal data points about Ken Lay and Enron... or whoever. I could reply that Bernie Madoff was one of the New York Liberal elite's biggest financial contributors. But this is unimportant. All of us under the age of 60 have already been ripped off, the proceeds of the Ponzi scheme have already been distributed by the political elites, and there is no way to get it back - but the expectations remain.

"And therein lies the rub..."

Thursday, March 4, 2010

Its a Cold, Cruel World - The Final Analysis

OK, I've laid out the "Why" (BTW... the "Why" comes after "If" and before "Then").

But before we move on, I want to sum it up again:

The already overwhelmed, overburdened, and overtaxed productive people in our society (if this were not true, we would not have deficits, right?) are steadily losing their "energy slaves" (we all know what is meant by energy slaves, don't we? If not, for brevity sake please google it), AND the "tax receivers", those people that are subsidized in their daily lives by the productive tax payer, are ALSO losing their "energy slaves", leaving them MORE dependent upon the Net Tax Payer, a Net Tax payer that is has been maxed out. (Don't worry about money, cash, printing presses, etc... the only real measure is goods and services produced and then the percentage confiscated as transfer payments of those goods and services).

Now that we have established the issues for ANYONE, ANYWHERE on the political spectrum... how does it all turn out?

Well, that's very complicated.

How much longer will industrial civilization be able to increase the volume of nitrogen fertilizer? What will be the world population at "Peak Fertilizer"? How will the international community compete for declining volumes of energy exports from OPEC? How much and what form of resistance will those populations losing government support give? During the transition period will we endure a string of bad luck... or good luck? (You can fill in the blank with your favorite boogey man. Mine? I rather think that a massive California earthquake at this time would be the disaster to end all disasters. The state is broke, and that would really, really finish that off... and they supply so much of America's food with a water supply that is entirely manmade and would be destroyed in an earthquake... oohhh! Such Hollywood script!)

To my mind the humanitarian crisis brewing in the coming decades for America's elderly is mind boggling and it will make Haiti look like a small potatoes. Social Security was established to provide comfort and support for a reason - many people did not or could not provide for their final years during the early part of the 20th century. Social Security did not change the Facts of Life, it likely only enlarged the elderly population and condensed the issue into the future where the demographic time bomb will, IMHO, be of biblical proportion.

Eventually, there will be a Jay Hanson-esque "Die Off" (google him and "die off"), and it could be 5 years or 50 years from now, but all of my readers are familiar with the mathematical concept "e", and "e" says the probability of that outcome approaches 1.00. But we knew that, didn't we? Nobody wants to sound like party-pooper, but in the back of our minds we all knew what had to happen at some point on the time line. Well, when it happens, it will happen to the elderly - primarily to those without family. If you have ever traveled DEEP into the third-world (I hate that term, but is the best I've got... "developing world" does not, to my mind, describe living in an abandoned Inca home in Peruvian Andes and living the same way as your ancestor's did before the arrival of the Conquistadors... I have spent a great deal of time there, traveling by foot, bike, bus, and hitchhiking... If you live in the West and you have not experienced this, you might want to tune me out and surf over to a Home & Garden dot com type site...) you know why people celebrate the birth of a child! No children = a very, very tough old age for people in these countries, and it will be so for people living in the West, too.

The rest of us will muddle along, IMHO. We will live with more people in smaller homes, and will heat and cool a much smaller portion of our homes. We will be thinner. We will be poorer. But if we were to live like those Indians I lived with in Peru or Costa Rica or Honduras or Mexico... we will not be NEARLY as busy nor as stressed - they seemed to have plenty of time for soccer and socializing (well, I don't know about people living in the far North and having a 6 month winter to contend with... in most of my travels in the third world, there was not a big requirement for heating as they were in the tropics and sub-tropics (think Malaria)... I cannot imagine the cabin fever of spending a winter in upstate New York or Minn., Wis., the era I foresee). The very rich will lose most of their "wealth" (for the most part, its already gone... they just don't know it) and the very poor, those depending on government for their daily bred, will adjust by making other arrangements - or else.

The Middle Class will lose most of their wealth, too, just as I described the wealthy above. Since they are already used to working hard and budgeting, etc... they will get by, too. The issue will be for the weak - the elderly, disabled, the sick, etc... the resources simply will not be there in the form that they now exist. The only thing you will have is family.

I read a lot about "Community". I believe this is PC speak for Liberals. Your tribe, your clan, your DNA will matter a great deal to you. Your "Community"? Not so much, but good luck with that... let me know how it turns out in the long run. If you look at the history of "Community", Israel's Kibbutz experience is pretty telling:

With time, the kibbutz members’ sense of identification with the kibbutz and its goals decreased. This process originated both from personal frustrations among the kibbutz members as a result of internal processes and from the growing stratification and inequality due to the growth of capitalistic practices. [9] Over the years, some kibbutz members established professional careers outside the kibbutz, accumulating power, privileges and prestige. [10] The balance between individual values and values of the kibbutz began to tip, and work motivation was affected. An emphasis was placed on social compensation to encourage productivity. These processes occurred in parallel with a severe economic crisis.
Nice idea. Might work in heaven, or on another planet...

As I have said at least 2 GAZZILION times before, there are no macro solutions. There are also no individual preparations one can make unless one is either rich or semi-rich. Read this link. Here's a family that bought a homestead and is finding out that this is really not a solution if you have to have a 9 to 5 job to fund it. "Its a Cold, Cruel World". If you did not have the luck or foresight to do something like regular commenter here at the AEC, "Kathy", did - namely, build her LIFE around this lifestyle and become accustomed and GOOD at it and do it from Jump Street (don't know Jump Street?) - well, you better have the resources to treat a homestead like this as an insurance expense. My bet is, this fellow is going to be stuck there for a while, and with any luck forever without having to pay back his mortgage. I wish him well. It has taken me 4 years (this is my 5th growing season and I can't wait to get at it) to feel somewhat competent at running a homestead - and I had the luxury of not sweating the mortgage.

In other words, I have NO SOLUTIONS for most folks - you are on your own. Still, I think I laid out the issue reasonably well (well, at least I think so). Of course that and $4 will get you a grande mocha frapacino....

Wednesday, March 3, 2010

Its a Cold, Cruel World - Part 4

Liberal economic policies have blown their constituent's belief systems out of the water. By increasing the number of people receiving government assistance, whether it be for rent, heat, food, healthcare, etc... doesn't matter. The fact is that the exponential function applies to liberal economic policies the same way it applies to human populations or weeds in a building lot - if the number of "tax receivers", (those receiving NET government assistance - which means plenty of "tax payers" are really "net tax receivers") continues to rise steadily then by definition anyone with with a calculator can apply the exponential function, determine when the slope goes vertical and the system fails. Pretty simple, really. EXCEPT... we are talking politics. The same folks that grasp ERoEI (Energy Returned on Energy Invested) go f*@&^ing deaf, dumb, and blind when "e" is applied to any of their core beliefs.

But the "Cold, Cruel World" doesn't give a good fart WHAT you believe. In fact, the only reason we are even having this debate is that these belief systems have caused the outcome that mathematics predicted with certainty would come to pass.

I read a lot of the writings from folks on the other side of the aisle around the blogsphere. Kuntsler has some amusing commentary about complexity in his most recent post, not all of it very consistent. I watch in fascination as MILLIONS of folks on the Left support a 2,000 page healthcare bill that recasts one of the largest and most complex systems in the history of mankind... EVEN THOUGH THEY HAVE NOT READ IT! Is that hysterical?!

I watched in morbid fascination the debate on going to War in Iraq. A nation that had just witnessed, and was appropriately appalled by the murder of 3,000 non-combatants on 9/11/01 was supporting the idea of dropping half-ton bombs on population centers!!

Sometimes I think I am the only normal person left.

Think of the "Green Revolution". Did it alleviate world hunger as promised? Of course not. Did it encourage an explosion of population (think Haiti) that only increase the number of people starving? I leave that to you.

Did the social programs in the U.S. alleviate the suffering they were charged with? Or did they only increase the number of people that will endure tremendous suffering in the future? If you answered no to the first question and yes to the second...

I want to emphasize a point I made earlier: Energy in general, and Oil in particular has MAGNIFIED, or LEVERAGED the ability of the productive members of our society to produce enough goods and services to have supported the non-productive. Please think about that. How "productive" will these people be in a world of declining energy availability? How would it be possible to confiscate enough of their production to satisfy the demands, given the fact that we are running enormous deficits to fund this cluster f***, of all of the "tax receivers"?

Tell me how that can be done.

Tuesday, March 2, 2010

Its a Cold Cruel World - Part 3

Where was I? Old folks and recent college grads...

You see, the 17% "real unemployment" is not "real unemployment", either. To make accurate comparisons as Oil and energy become less and less available on a per capita basis is the real issue. (Here's something to think about... Oil consumption in kilocalorie terms per person, or per capita, in the U.S. is down about 5 or 6 % since 2005... more people, and less kilocalories....) we as a society have to start telling ourselves THE TRUTH. The 40 million folks over the age of 65 should not be excluded from the employment calculations because they sure as h*ll did not pay into the system what they are extracting (otherwise, we would have a surplus), and they sure as h*ll are not producing members of society for the most part.

Same goes with young adults. People in college are an enormous consumption drag on our output. The entire college population that is not working should also be counted into the employment numbers.

There are a few other groups - prisoners, the disabled, welfare and food stamp recipients that are not employed et al, and when you add seniors and college students et al... the remaining producers and tax payers simply cannot support the government services these groups require by NOT WORKING! (Yes, you can argue that education is an investment, and in a large minority that is true... so we will have to discount for that portion - while once again subtracting for the 23 to 30 year olds that live on their parent's couch playing video games.) The non working spouses of folks making a decent living and NOT taking care of the home unassisted must also be added this number.

Unfortunately, and I want to say this gingerly and with respect.. we would need to calculate all military personnel as well.

ALL, that's right, ALL of these folks are consuming from the tax pool or disposable earnings pool that the tax payers are paying into, and there are simply too many people drawing from the pool and not enough people paying into the pool... now add to this equation the fact that Oil subsidizes the efforts of those paying into the pool and reduces the requests from those drawing from the pool.

Up until this point we have had the international bond market to fund this absurd cluster f***, particularly China and Japan, but now it appears that they are choking on the paper, and the Federal Reserve has had to step in and monetize the debt. The good news, if you want to call it that, is that the deflation in non government debt has outpaced the printing presses, and will for some time to come. Still, the Administration is NOT making noises about "jacking the social security retirement age" just for the fun of it. They got some guys there (Volker) that can count, too.

Of course, these pools of tax dollars for social programs have the perverse effect of creating more and more dependent people, another exponential function to calculate (in Dr. Bartlett's famous speech he speaks of a local politician that says he grasps the "e" function, but does not believe that it applies on the local level... to which Dr. Bartlett amusingly replies: "Oh, great. We have a local politician that believes that the laws of Mathematics do not apply in Boulder County, Colorado... worse, he has a degree from this (Univ. of Col. Boulder) institution... how embarrassing!") Certain members of the political establishment can see clearly that Americans are addicted to Oil, but CANNOT seem to see that American's are addicted to unfunded and teetering "social programs" (free money).

In the end, "It's a Cold, Cruel World" and the world will make the adjustments for us because as I have said a GAZILLION times before: There is no macro solution to any of this. The mass of of folks believing in, and addicted to (and hence unable to provide for themselves), these entitlements is just too f*&^%ing large to be overcome (thank you, FDR) politically. You can see this in the price of Gold, Oil, the employment situation et al...

Speaking of employment... all of the absurd regulatory overreach (as well as the not so absurd) will come apart in the near future. Sexual harassment policies, discrimination policies, government worker's unions, etc... were all creations of the age of cheap and abundant energy, along with a long list of social and political "isms". Feminism? Gone. Liberalism? Say good night, Gracie. The NAACP? Gay Rights? Who cares? We won't have any money to fund any of this stuff. In a resource constrained world nobody is going to care who you are sleeping with (especially if it simply cannot result in a pregnancy) or what you are angry about.

To be Continued...

Monday, March 1, 2010

Its a Cold Cruel World Part 2

Before I begin...

I have never before edited or censured comments on this Blog. That policy is no longer. All intelligent, thoughtful, helpful, reasonable comments are welcome no matter how much they might disagree... Mean spirited, demeaning, asinine, pointless, thoughtless, and just plain sh*tty comments by morons, nit wits, and the immature will be deleted forthwith.


It is a cold, cruel world. And as it turns out, "Peak Credit" (the term coined by Mike Shedlock) is likely as big a problem in the West as "Peak Oil", and likely will be for another few years... we shall see just how correct folks like Me, Jeffrey Brown, Saif Lalani, Ken Deffeys et al have been with our export/import models soon enough - by the end of 2011, I should think.

Right now, while the "financial system" has been stabilized, it certainly has not been fixed. I am going to speak of the U.S. economy, for the most part, and its effects on the American people and the ROW. This is going to be a brutal, politically incorrect assessment of where the U.S. finds itself, and what the U.S. is going to be like post purge - because that's what's up, the U.S. is about to purge, major gastro-intestinal distress with a release coming from both ends.

How did we get here? Glad you asked. Sooooo.... here comes MY definition:

We got here because "WE" wanted to reconcile an unfair and unjust world with the fair and just G-d that our people were purported to believe in, but Who just seemed to be falling down on the job (otherwise why play G-D?). After all, as George Carlin famously quipped:

G-d is all knowing, all powerful, all seeing, and all wise... he just can't handle money. He always needs money!
Just kidding.

Anyway, since life was not fair, and we all agree that it is not, and we wanted to show what kind of society we were... the nice folks in the FDR administration came up with what we now know as Social Security et al (by et al I mean all of the myriad state and federal transfer payment programs). From the Wikipedia Social Security site:

U.S. Social Security is a social insurance program funded through dedicated payroll taxes called Federal Insurance Contributions Act (FICA). Tax deposits are formally entrusted to[3] the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, or the Federal Supplementary Medical Insurance Trust Fund. The main part of the program is sometimes abbreviated OASDI (Old Age, Survivors, and Disability Insurance) or RSDI (Retirement, Survivors, and Disability Insurance). When initially signed into law by President Franklin D. Roosevelt in 1935 as part of his New Deal, the term Social Security covered unemployment insurance as well. The term, in everyday speech, is used to refer only to the benefits for retirement, disability, survivorship, and death, which are the four main benefits provided by traditional private-sector pension plans. In 2004 the U.S. Social Security system paid out almost $500 billion in benefits.[4] By dollars paid, the U.S. Social Security program is the largest government program in the world and the single greatest expenditure in the federal budget, with 20.8% for social security, compared to 20.5% for discretionary defense and 20.1% for Medicare/Medicaid.[5] Social Security is currently the largest social insurance program in the U.S., constituting 37% of government expenditure and 7% of the gross domestic product[6] and is currently estimated to keep roughly 40% of all Americans age 65 or older out of poverty.
You can read the above link yourself, you don't need me. You can see the years where the coverage was expanded, and the steady increase in the tax rate, and the expansion into healthcare in 1965, and the many adjustments to the system thereafter...

Now, superimpose the timeline in the above link over the Oil production and export/import timeline for the U.S. In 1935, the year Social Security was enacted, the U.S. was the world's largest exporter of Petroleum. In 30 years, 1965, when Medicare was enacted, the U.S. was only 5 YEARS from the peak of its production, and within an additional 35 years, imports of Oil into the U.S. were DOUBLE domestic production. In other words, in a time span LESS THAN A HUMAN LIFE Social Security went from enactment to insolvency and the U.S. went from the world's largest Oil exporter to largest Oil importer. When Social Security was enacted in 1935, the presumption was that the U.S. would be able to expand its Oil production forever - and that presumption has turned out to be quite wrong. There was also the presumption that Social Security benefits, and later Healthcare (Medicare) could continue growing at 2X or 3X the rate inflation or GDP - and that presumption has turned out quite wrong.

So here we are, its 2010 and Medicare and Social Security, 2 programs growing exponentially and that have entered their terminal apogee at the extreme NE quadrant of a quadratic table:

This is the graphical representation of "e". Conceptually, anything growing exponentially will grow to infinity, or have the slope of the line go vertical. Since Medicare and Social Security cannot GO vertical... well, we all know what has to happen.


Addicts have no idea about graphs, and slopes, and exponential functions... they only know that they need their fix - the government check in the mail, cheap oil to drive 40 miles each way to work, credit cards to assuage depression brought on by long commutes, expanding waste lines and boring love lives... by consuming sh*t we don't need and forcing us to work at jobs we hate to continue to do so, not to mention to pay off those student loans... and, boy! was the Government ever successful at addicting millions of people to years and years of idle time funded by the demographic tail end of that graph...

So, here we are... with demographic time bombs going off all around us... otherwise known as California, Illinois, New York, the Federal Budget.... and crazy people educated well enough to know better insisting that the above sloped line is NOT true - pay no attention to that man behind the curtain - none of us has any responsibility at all because all we have to do is tax the "rich"! AND mock people living in fly-over-land because they had the inability to see the simple logic that the elites know better...

Now the time has come... soon the check WON'T be in the mail... because the international bond market won't let Uncle Sam get to the post office (they're broke, too)... Soon... lunch won't be free, love won't be free (whoever said "free love" clearly had never been married and divorced), healthcare certainly won't be free...

Americans will be forced to save money and live within their means! Can you believe THAT? We will actually question taking on 200k in debt for Liberal Arts educations, pack lunches, cook in, buy things second-hand, wear hand-me-downs, work until we die, and pay for our own mistakes with our own money. The first generation going through this won't like it one little bit, but those that come after won't know any other way. Some people will still get rich, and others will not. Some people will be good looking, while most will be as plain as Abe Lincoln. Some will live long, while others die young. We WILL get over the idea of trying to legislate LUCK away. Luck will always happen to a few, and not to the rest and we will give up trying to make life fair by hiring government thugs. People who call themselves "Liberals" or "Humanitarians" won't be much of either unless they can do it with their own money, but they won't have much so that won't be an issue.

Old people that have no family and that have been relying on the government are in for an incredible experience - and not a positive one. Most recent college grads will be fortunate to find menial work having nothing to do with their training for pay that will leave them living on top of each other Manhattan style - but with none of the benefits of living in Manhattan. Each and everyone of us will be forced to actually produce something or go hungry. On a happy note, divorce lawyers will starve to death... not that I'm not bitter...

The Great Recession and the Great Deflation are going to be bigger than Peak Oil for the near future, and they are going to humble Great and Small alike.

To Be Continued...