Last year when oil was skyrocketing, peak oil talk was all the rage. Now you hear nary a peep save from the diehards. But commodity prices are grinding upward, in the face of rather sizable inventories.
Jim Hamilton also suggested a connection that has been generally overlooked, namely, that it was the oil/commodities price spike that put the dent in consumer budgets that kicked off serious deleveraging. I am not sure I buy that thesis, the deeper I drill into the crisis, the more I am convinced that the borrowing had hit the self-limiting point. Subprime defaults were rising in an economic expansion, an unheard-of phenomenon. So while the commodity price rise might have acted as an accelerant to the deleveraging, the debt bubble was destined to collapse under its own weight.
Nevertheless, this article presents an interesting theory on the relationship of oil prices and growth. Bottom line: historically, when the cost of oil expenses reaches 4% of GDP, the economy shrinks. And we are not that far from that trigger.
From the National Post (hat tip reader John D):
“The US has experienced six recessions since 1972. At least five of these were associated with oil prices. In every case, when oil consumption in the US reached 4% percent of GDP, the U.S. went into recession. Right now, 4% of GDP is US$80 a barrel oil. So my current view is that if the oil price exceeds US$80, then expect the U.S. to fall back into recession,” wrote Steven Kopits, managing director for U.K.-based energy-consulting and -research firm Douglas-Westwood LLC in New York.
Kopits is a poster boy on all the “peak oil” websites….If Kopits is correct, so much for “green shoots”….Here is the roller-coaster cycle he points out: Higher oil prices mean recessions, recessions mean less consumption then lower oil prices which leads to less exploration and supply which leads to higher oil prices and recession again…
The reality suggests that there are only two antidotes to this vicious cycle. Gradual price increases mitigate the negative effect of oil price increases. Recessions follow jumps of 50% within one year. The Saudis and OPEC plus other producers would have to play a role in modulating prices. Or else consuming nations must reduce consumption dramatically through legislation, taxation and rationing…
Kopits on demand: “Consumption will tend to grow faster in developing economies for two reasons. First, by their nature, developing economies should grow faster than mature ones….So faster economic growth means faster growth in demand for oil. Further, oil consumption growth follows an “S”-curve. At low levels of GDP, oil demand growth is quite slow. Once a country has reached middle class income levels, per capita oil consumption stabilizes. However, in the middle, as a country becomes middle class, oil demand growth can be explosive. Take South Korea, for example. South Korean per capita oil consumption peaked in 1996; however, in the previous 12 years, the country’s consumption increased nearly fourfold. China is now firmly on the S-curve. Based on South Korean experience, we would expect Chinese oil demand to stabilize at around 50 mbpd around 2032-2035.”
(China currently 8 million per day, US 20 million, Japan 5 million).
Kopits on price: “If you have a flat—or heaven help us, declining—supply of oil, then the emerging and fast-growing economies will have no choice but to start bidding away the oil from the advanced or slow-growing economies. That is consistent with what we’ve seen in the data starting in about 2006. For China to grow, it will have to take away the oil of Japan, the US and Europe, just as it has in the last three years.”
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Yves,
The fact that the spike in energy prices occured more or less at the same time that the financial bubble burst indeed makes it more difficult to asses which factor contributed most and with how much. Looking forward to any discussion you may have on this in the book.
The 4% figure is interesting. I wonder if that includes the geo-political cost of having an empire-sized military presence across the planet to secure energy supply. Probably not.
From a EU-centric perspective, the Union should in my view has as long, long-term goal to secure its energy needs internally, which of course would be very difficult to achive. But it would probably we worth it, all things considered. Unfortunately, things are going in the opposite direction in many ways, as we saw from the BBC piece on expected blackouts in the UK in 2016.
The story quoted:
http://network.nationalpost.com/np/blogs/francis/archive/2009/09/16/oil-prices-mean-perpetual-recession.aspx
contains extremely similar data as a certain third party’s (non-Douglas-Westwood) research. Perhaps Douglas-Westwood should credit that research when it uses it……
“Here is the roller-coaster cycle he points out: Higher oil prices mean recessions, recessions mean less consumption then lower oil prices which leads to less exploration and supply which leads to higher oil prices and recession again”
Yes I know how price equilibrium works, thank you, but what has this got to do with anything? (Oil) prices react to changes in demand – where’s the ‘roller-coaster vicious cycle’ in that? The reasoning only works if you already believe that any price increase would quickly reach that famous 4% of GDP – and that that would instantly cause a recession.
But Kopits confuses correlation and causation. Typical economists’ fallacy. Why would 4% be the magic number? If it is true that the debt-laden subprime households in America finally collapsed under high oil prices, then it would follow that economies with, for instance, a higher household savings rate are less sensitive to oil price increases, thereby challenging the universality of superstitiously extrapolated ‘4%’.
Peak Oil did not cause the credit crisis, nor the recession, but it will be an ongoing constraint from here forward. Oils global peak, likely in 2005 on annual basis and July 2008 on monthly basis, was just one of an increasing show of symptoms, of the larger underlying disease: exponential growth on a world with limited resources. Two major drivers underpinned GDP growth the past 50 years: cheap energy, and after the US peaked in 1970 and energy became more expense, increasingly, debt. In order to maintain a rough semblance of social equality, USA started importing energy paid for with dollars and consumers increasingly borrowed against their assets and their future to keep up with the Joneses.
We need energy to grow, and growth to pay off debt, and debt to finance new, costlier energy. This virtuous cycle is what conventional economists are missing. Even those like Krugman and Taleb, who recognize ‘something’ is wrong can’t really articulate what it is. We live in a biophysical world, where the amount of natural resources required to procure the marginal unit of resource is increasing (depletion is trumping technology). The amount of ‘energy gain’, (energy output returned per unit of energy input), has been a key variable in nature in conferring adaptive advantages. When energy gain started to flatten out for human societies, we increasingly turned to ‘fake’ energy gain: debt, credit, rules changes, etc. all an effort to throw tertiary marker wealth at a problem of declines in real (median) wealth per capita.
The flood of credit/debt earlier this decade caused a false price signal of increased oil supply – when in reality technology brought online to pump every barrel possible was a)largely a one time option and b)increased the short term flow rate at cost of accelerating the longer term decline rates. As deflationary debt devaluations occur, and marker wealth becomes more in line with underlying energy and resource capability, GDP will contract dramatically – as if you back out the impact of debt, GDP is overstated by roughly 80-100% (meaning 40-50% drop). Any intervention by governments to stem the natural debt decline, will make things worse, as then hyperinflation becomes a risk (well, worse depending on perspective).
The bottom line is oil has subsidized our economic system at $.05 per kWh, while human labor globally averages over $13 per kWh, (US over $60). Without a) the perception of perpetual availability of cheap flow rates of oil and b) the reality of such flow rates, the economy will very quickly run into biophysical limits. I expect governments to continue to bail out a failed model, because the people calling the shots (Summers, Bernanke, etc.) have absolutely no clue on wide boundary ecology, energy, systems constraints. Nor do they understand shortfall risk, as they were taught that money could replace energy as just another capital input.
That is not the case.
Nate Hagens said: “When energy gain started to flatten out for human societies, we increasingly turned to ‘fake’ energy gain: debt, credit, rules changes, etc. all an effort to throw tertiary marker wealth at a problem of declines in real (median) wealth per capita.”
Welcome to Animal Farm folks!
On Sunday morning Squealer, holding down a long strip of paper with his trotter, would read out to them lists of figures proving that the production of every class of food-stuff had increased by two hundred percent, three hundred percent, or five hundred percent, as the case might be. The animals saw no reason to disbelieve him, especially as they could no longer remember very clearly what conditions had been like before the Rebellion. All the same, there were days when they felt that they would sooner have had less figures and more food.
Nate Hagens continues: “I expect governments to continue to bail out a failed model, because the people calling the shots (Summers, Bernanke, etc.) have absolutely no clue on wide boundary ecology, energy, systems constraints. Nor do they understand shortfall risk, as they were taught that money could replace energy as just another capital input.”
“Comrades!” he cried. “You do not imagine, I hope, that we pigs are doing this in a spirit of selfishness and privilege? Many of us actually dislike milk and apples. I dislike them myself. Our sole object in taking these things is to preserve our health. Milk and apples (this has been proved by Science, comrades) contain substances absolutely necessary to the well-being of a pig. We pigs are brainworkers. The whole management and organization of this farm depend on us. Day and night we are watching over your welfare. It is for you sake that we drink that milk and eat those apples. Do you know what would happen if we pigs failed in our duty?”
George Orwell, Animal Farm
Nate is entirely too kind to the “scientist kings” and “problem-solvers,” probably because he is such a child of the Enlightenment himself:
Most of the social scientists are such unqualified rationalists that they seem to imagine that men of power will immediately check their exactions and pretensions in society, as soon as they have been apprised by the social scientists that their actions and attitudes are anti-social…
[I]t is impossible to justify the degree of inequality which complex societies inevitably create by the increased centralization of power which develops with more elaborate civilizations…. If superior abilities and services to society deserve special rewards it may be regarded as axiomatic that the rewards are always higher than the services warrant. No impartial society determines the rewards. The men of power who control society grant these perquisites to themselves. Whenever special ability is not associated with power, as in the case of the modern professional man, his excess of income over the average is ridiculously low in comparison with that of the economic overlords, who are the real centres of power in an industrial society. Most rational and social justifications of unequal privilege are clearly afterthoughts. The facts are created by the disproportion of power which exists in a given social system. The justifications are usually dictated by the desire of the men of power to hide the nakedness of their greed, and by the inclination of society itself to veil the brutal facts of human life from itself…
Whenever men hold unequal power in society, they will strive to maintain it. They will use whatever means are most convenient to that end and will seek to justify them by the most plausible arguments they are able to devise.
–Reinhold Niebuhr, Moral Man and Immoral Society
Under normal circumstances the liar is defeated by reality, for which there is no substitute; no matter how large the tissue of falsehood that an experienced liar has to offer…
There always comes the point beyond which lying becomes counterproductive. This point is reached when the audience to which the lies are addressed is forced to disregard altogether the distinguishing line between truth and falsehood in order to be able to survive.
–Hannah Arendt, Crises of the Republic
Nate, why don’t you call Summers, Bernanke, etc. for what they really are, which is pseudo-scientists whose sole purpose in life is to give greed and plunder the imprimatur of scientific respectability?
Summers, Bernanke et al may be pseudo-scientists, but they are “experts” above all.
http://www.theaustralian.news.com.au/story/0,25197,25979808-25132,00.html
Thanks for the link, Steve. That’s a great article!
From the article: “It is worth noting that the record of science in child-rearing, education and relationships has proved to be one of ever-recurring fads that rarely achieve any positive durable results.”
Which begs the question: What will the record of the field of economics look like a few years from now? Its prospects at this point don’t look so hot either.
Agree – disagree …
Nate sez, “Peak Oil did not cause the credit crisis, nor the recession …” then describes how the various productive segments of the economy are integrated.
It really is not possible to separate out the components of production into discrete categories; credit excesses formed as a hedge against rising energy prices, whether or not this was an overt strategy does not matter. Even when energy costs were low, the long- remembered ‘outlier’ was the oil embargo in 1973 and politics- derived shortages a few years later. These required an economic response which took place in credit formation.
Looking back over the short duration of the ‘Carbon Economy’ it is hard to imagine rationalizing the building of prosperity for billions upon such a tenuous resource.
In Japan, energy prices or the credit cost of the hedges erected against energy prices begining in 1973 have created a permanent deflationary recession since 1989. We Americans erected the same credit hedges beginning in 1985 – bubbles in stocks, real estate and finance – and have left us in the same situation. Notice that the decline in the US econommy has resulted in frantic bubble- inflating by policy makers.
For what other purpose would such bubbles be created?
On a dollar basis, the greatest availability of petroleum products world- wide was in 1998, when crude cost $12 a barrel. Price matters. It’s increase of 500% since then cuts into every sector, every pocketbook, every customer account, every good and service supplier. The US strategy was to outsource high paying jobs to Mexico and China. This was when the choice was made – bubbles over production. The loss of customers and the consequent trade imbalances have also had a devastating effect … yet rising energy costs during the period left business no other choice.
The 4% is hard to pin down; 4% of which GDP? The fraudulent ‘official’ GDP? I suspect the real ratio is less because energy is bought with available funds – there were more prior to last year because so much financial lettuce had money- like qualities. Prior to that date 4% might make sense. Today … ?
What is missing from the debate is the token value of machines. These actually need the oily stuff to run, but the human population is given the spotlight:
We live in a biophysical world, where the amount of natural resources required to procure the marginal unit of resource is increasing – biophysical.
Maybe we need the machines and maybe not; they certainly are appealing toys. They at least must stand up and be counted. Then, they can be jettisoned. It’s us or them.
You can argue about peak oil all day but the fact is cheap oil may be comming to the end. Easy extractable oil fields are harder to find so when you find oil which is way below ground its going to cost a lot of money to bring it to the market hence the cost. So lets replace the Peak Oil theory with the end of cheap oil fact.
Peak oil and the earlier episodes of oil price volatility are not now or ever causative of recessions. Oil price volatility is a component of a varying set of economic misallocations that generate unstainable activity and prices.
What is clear is that we are on the downside of cheap oil production. The sooner we move to a substitute for oil the better off we shall be except that the oil exporters may not feel so good.
@ Nat Hagens
Thanks.
Considering this: “Without a) the perception of perpetual availability of cheap flow rates of oil and b) the reality of such flow rates, the economy will very quickly run into biophysical limits. I expect governments to continue to bail out a failed model, because the people calling the shots (Summers, Bernanke, etc.) have absolutely no clue on wide boundary ecology, energy, systems constraints.”
Do you believe that Sweden’s energy policy ( http://www.sweden.gov.se/content/1/c6/12/00/88/d353dca5.pdf ) is the right/wrong, viable/not viable approach? If not, I would be grateful for some of you thoughts on as to why. If yes, could Sweden’s approach be projected onto the whole of the EU?
Many thanks for any thoughts you may have on this.
Two interesting perspectives about peak oil:
http://www.oilendgame.com/
http://www.collapsemovie.com/COLLAPSEMOVIE/
Peak oil may have peaked from a production stand point.
Has credit peaked?
Has technological advances peaked?
We don’t know what can and will happen in the future but $100 barrel of oil can’t be sustainable after peak credit and with a glut of global non-self liquidating debt.
Its a macro global issue, not a micro energy issue. If you look at in a micro sense, than you better consider technology or alternatives as expensive oil will cause innovation.
the nearsightedness is a bit disturbing.
Yves I agree with your assessment that the current financial crisis is that we as a world have a debt limit. Something that debt Jubilees have cured in the past and seem to have been long forgotten. However as one poster pointed out this does not mean that peak oil is not a reality. The real problem is that peak oil is very hard to measure or prove because it is happening on a planet wide scale and both economists and engineers don’t have good tools to measure planet wide changes yet. (Like climate change) Also coupled with this is oil speculation which to my mind was driving up the price more than peak oil last year, where peak oil was the excuse to hide massive speculation and profits. Getting to the bottom of the question was it peak oil or speculation that was the major driver of the price spike will be next to impossible.
But we have not solved the debt crisis in any major way so oil prices can only help to trigger another collapse. But oil prices will be only one of many possible triggers.
I would argue the dollar’s value is declining. That decline makes itself apparent in oil, which trades primarily in USD.
I don’t know enough about the topic to say that with confidence, so any feedback would be great.
I second the notion that the end of cheap oil is being conflated with supply issues.
The site that Nate contributes to has the most compelling hypothesis in my opinion. Here is an overview that I always link to when discussing this topic.
I fully agree that it is not enough to simply look at debt as the only measure, since the economy’s real growth is founded on energy/raw materials, and our debt levels would be sustainable if those got significantly cheaper (putting aside labor inequalities which are obvious problems).
As the conclusion suggests, we aren’t likely to see permanently high oil prices due to peak oil, but major volatility and whipsaws in price that will destroy business efficiencies and make for hellish business cycles. And that is the “good” outcome, with the bad outcome being collapse of currencies and economic foundations due to that volatility.
This point about the pricing models for oil is right on the money. It is one thing to cope with price changes for inelastic demand (the underlying cause of the health crisis) but it’s a whole new universe when both supply and demand are inelastic. If production has truly peaked — which again doesn’t mean we are anywhere close to running out of oil, just that supply is constrained — then the last year’s commodity price behavior will look rather tepid moving forward.
It’s disgusting that no formal economic school makes a good attempt at integrating biophysical resources into their models. Stiglitz is the only major player I know of that has, and his paper laid out optimal consumption strategies for both renewable and non-renewable resources. It was written in the 70s and the conclusion was exactly what happened: over utilization inevitably led to lower trend GDP growth that could only be masked by massive amounts of debt…first domestic debt starting in the 80s due to our personal peak, and later globally.
I also have to say that “peak oil” has two facets. There is the question of whether we have hit a theoretical peak because we’ve just tapped all those fields already, and a question of whether our current situation is going to lead to a major peak regardless of future production. I think the evidence for the former is strong, but the evidence for the latter is nearly certain. Even if we found new megafields today, we will still have a decade or so of peak oil and who knows how much havoc that will wreak on the economy in general and industry in particular.
I like the comment made by (I think) some Saudi Prince: The stone age didn’t end because of a shortage of stones.
@ mikkel
Could you possibly give a reference to the paper by Stiglitz you make reference to? I would very much like to read it.
Thanks.
Stiglitz, J. (1974). “Growth with Exhaustible Natural Resources: Efficient and Optimal Growth Paths,” Review of Economic Studies 41, 123-137.
Link here.
I forgot that he didn’t look at renewable resources, which were address later by different people. Here is a more recent paper.
“We need energy to grow, and growth to pay off debt, and debt to finance new, costlier energy.”
This is really well put. One thing about the peak oil debate that people on all sides of the issue tend to miss is that much of our economy is based on the expectation of future growth. Peak oil awareness removes that expectation. You get generations born into what everyone now knows to be a stagnant economy.
This has pretty big implications at the individual level. In a stagnant economy, you don’t want to go into debt at all, your income isn’t going to rise to be able to pay it back. But it doesn’t make much sense to save either, since there is no good place to invest your savings, you will be lucky that you can access them later uneroded by inflation.
People in a stagnant economy really live day to day in a way most Americans can’t comprehend.
I am actually with Hamilton on this one. I drive a lot for fun through CA and surrounding states. At the time of USD 4.85 a gallon visiting Redwood NP near Eureka 1.5 years ago I concluded that that gas prices were killing the poor. Quite often the person before me only got gas for 5, 10 or maybe 20 dollars. That translates to 1 to 4 gallons of fuel (or 1/10 to 1/3 of a tank) and driving only 15 to 100 miles till recharge. This behavior is actually quite common in poor eastern European countries. At 3 dollars a gallon I see this behavior less often, but it is still there. For me this is one of the canaries that I am watching.
I like Gregor’s writing and don’t know why he isn’t read more. I recommend this one for now:
http://gregor.us/mexico/clarion-call-from-cantarell/
Articles like this one drive me nuts. Yes, we entered the plateau area of peak oil in 2005 but peak oil has yet to exert any significant influence on price. The price spike last year, coming as the housing bubble burst, has everything to do with speculative money going from housing into oil and other commodities. This was a natural move. There had been excess speculation in the oil market since 2004 (co-occurring with the housing bubble). There was even a Senate report on this that came out in 2006, for cripes sake:
http://levin.senate.gov/newsroom/supporting/2006/PSI.gasandoilspec.062606.pdf
Then there is the insanity of associating the current increase in oil prices with peak oil, despite there being an oil glut!!! I mean can we please get our stories straight. If peak oil is supposed to be affecting supply, then why is there a glut. And if there is a glut and we are seeing supply-demand as the market driver in the peak oil scenario, oil prices should be falling. What instead we are seeing is a return of a speculative push in oil, although not to the same degree as last year.
As for the Saudis modulating prices, again I have difficulty even knowing what that means. If you are a peak oil adherent (which I actually happen to be), then it would seem like you would be saying that the Saudis don’t have the reserve capacity to effect that modulation. In fact most of the reserve capacity the Saudis do have at the moment has come from their reducing supply in response to the worldwide downturn. The Saudis do have excess capacity they could tap into beyond this. The problem is that what there is of that are mostly heavy crudes that US refineries, for instance, can’t use.
I think the more interesting issue is why the current price of oil in the $70 range, despite the glut and as determined by speculation in the oil market, just happens to be what the Saudis had for a target price. Unfortunately, the markets remain largely opaque. Still I would love to know if this is coincidence or design.
Peak oil is not about current production per se. It is about future production. And the current production glut is a product of producers protecting their quotas even as demand falls. Neither variable (current production and demand) has anything to do with future production, which is bound (required) to decrease with decreasing discovery, increasing cost of recovery and ongoing depletion of known reserves. Simple as that.
If anything, one could easily make the claim that the current price of oil is pricing in the probability of future scarcity. That’s at least as valid as the notion that it is a reflection of immediate rampant speculation on dollar weakness, though there is no reason both couldn’t be in operation at the same instant via different routes and actors. In fact, one would expect both aspects at all times with the relative weighing of each being the only thing that changes over time as we enter a market that begins to wake up to near-future very large scale production failures.
cougar
“If anything, one could easily make the claim that the current price of oil is pricing in the probability of future scarcity.”
The Hubbert curve has been around for decades and last I saw future scarcity has never during all that time had any perceptible effect on oil prices. I once wrote what I called an iron law of energy about it in which I said that in the short term oil was vastly overpriced and in the long term absurdly underpriced. And if you look at how the futures market is structured, how noncommercials were let into it, and what their role has been, there is plenty of evidence for how excessive speculation played itself out. In the big spike last summer, dollar weakness played no part. At other times, I have noted dollar strength in shifts back and forth between oil and the stock market. More recently though these two have moved together and I have seen no such correlation.
Technology matters. Ricardo announced an engine that can switch from 4 stroke to 2 stroke when high power is wanted, allowing a dinky engine to replace a much bigger one. They claim 27% fuel savings with the same acceleration performance. If fuels get really expensive, other technologies become viable. I’ve personally witnessed experiments with not driving all the damn time, which results in great savings. I’ve also heard rumors of vehicles containing more than one person, thus allowing other vehicles to remain parked.
World demand is inelastic over the short term, but the US demand did respond to high prices. That may be because our prices are more closely tied to the oil price. Much of the world’s fuel is subsidized or heavily taxed. Both dampen the apparent price changes at the pump. Once prices are high for a long time, adaptations will occur and the demand curve will shift.
Demand for oil is inelastic without cultural bounds. A culture that supports sustainable city planning as a priority would be less likely to continue consumption at high costs because the alternatives to driving would be baked in.
Where I live (SF Bay Area/silicon valley) however, planning has been car-centric for 50 years. Jobs are 50 miles from homes. Shopping is 15 miles. Schools are 5 miles, busing is sparse, and walking to school is dangerous; children are killed regularly in crosswalks by bad drivers.
People in their cars here have virtually no choice. They know it and they are playing it that way, and drive the biggest SUV they can afford as a matter of survival because accidents are common. They bought the gas at $4.50/gal at peak, and they are paying $3.25/gal today every single day. This is totally normal now. The sense of fatalism and entrapment is palpable.
I and my family ride bikes (I, 60 miles a day to/from work) but our neighbors think we are insane. Almost nobody is agitating for another way, something not car-based. For walkable cities, cyclist corridors, or even speed bumps near schools. Denial is rampant, discussion is taboo.
We are asleep, walking. It will not end well. Though it surely will end.
cougar
“Oil and Economics — a dialogue”
http://echoesofthedeepworld.blogspot.com/
I think the U.S. elite is quite aware of peak oil; we did invade Iraq for a reason, and we are establishing a permanent presence in the Asian Balkans for the same reason. China has made some big energy investments, but it’s nowhere near enough to meet future demand. The U.S. still has stranglehold over Saudi Arabia, which is by far the most important country in terms of oil.
Comparing South Korea with China just isn’t happening. South Korea is a tiny country that can be accommodated within the world’s pyramid-like class system. China moving into the elite destroys that pyramid , because there aren’t enough people on the bottom left to exploit . China boomed because of cheap labor, and that pool of cheap labor was getting very shallow just before the 2008 crash.
Check out Blinder and Rudd’s paper:
Why didn’t the most recent run-up in oil prices have dramatic effects as in the 1970s? Here one of the world’s leading macroeconomists surveys a variety of explanations: i) developed countries are now less energy-intensive, ii) wages are more flexible, iii) the US auto industry is relatively smaller, iv) monetary policy now targets core inflation, and recent shocks were to industrial demand, not oil supply.
http://voxeu.org/index.php?q=node/2786
Being the contrarian that I am, may I offer the following unique solution to this oil problem? Here it is:
Now that we finally secured Iraq and Afghanistan, and showed those Middle Easterners who’s boss here, how ‘bout we demand they give us their oil for free, or else?…
Vinny G.
PS – I’m open to suggestions on how I may further refine the above strategy, especially the “else” part…LOL
“Now that we finally secured Iraq and Afghanistan…”
hmmm, you might have to rethink this……..
I think the real question is can we contain the disenfranchised assetless rabble that will be most affected by Helicopter Ben’s strategy. While flooding the market with dollars will increase the relative value of assets such as equities, seeming to make equity holders more wealthy and able to absorb increasing prices of externally supplied resources, the standard of living of the rest will continue to decrease. Build more prisons? Soylent Green, indeed.
I can’t speak to the peak oil issue but can speak anecdotally about the effect of fuel prices and deleveraging. I work in a relatively large (by our industry standards) credit union in Orange County, California. Most people think we are a economically wealthy area, and some parts of the county are, but we began to experience mass voluntary repossessions of vehicles from our membership when gas prices shot up last year. Our delinquency and charge off ratios had been low compared to peer up to that point as we had performed conservative underwriting on our mortgage products during the boom. Despite our job losses in mortgage and real estate related jobs, gas was the tipping point for a lot of people. SUVs and luxury cars were turned in like crazy. So, chicken or egg? I don’t know but if prices get to that point again, I think we can bet on another flood of cars dropped off in our lots.
Hagens points are well-made and especially his larger point of linking the apparent peak oil – recurring recession with the wider exponential economic growth issue. This has been discussed elsewhere as well but the point is that the US especially but the rest of the industrialized world consumes an enormous amont of resources and produces an equally enormous amount of pollution (including Co2), The point is that if China and India were to achieve even a fraction of our standard of living as we produce it now, the earth’s oil and other resources would be exhausted or – in reality – we would all crash to a much lower standard of living. Technology optimists assume any level of population and consumption can be reached via the “silver bullet” of some new package of technologies. But the laws of physics say otherwise (especially Newton’s, ironically). Incipient climate change is already telling us this and I am surprised no one has raised the climate change wild card – the instability, conflicts and other resource system damaging impacts (e.g. ocean acidification = collapse of fisheries) well within all of our lifetimes. Peak oil is just a relative phenomenon. Cooking the planet will put paid to all economic models.
The story quoted:
http://network.nationalpost.com/np/blogs/francis/archive/2009/09/16/oil-prices-mean-perpetual-recession.aspx
contains extremely similar data as a certain third party (non-Douglas-Westwood) research. Perhaps Douglas-Westwood should credit that research when it uses it……
Oiler –
I generally credit research if I run across it. The analysis backing the story in the national post can be found here: http://www.dw-1.com/files/files/438-06-09_-_Research_Note_-_Oil_-_What_Price_can_America_Afford_-_DWL_website_version.pdf and elsewhere.
An additional portion of the analysis will be published in the next couple of days in Oil & Gas Journal.
My analyses are essentially generic. Anyone with an spreadsheet and an internet connection can replicate the work. So it’s not surprising that my analysis should be similar to that of others. If you pull on a string, then the analysis should follow.
But what is the third party research you are referring to? Could you provide a link?
Sorry, that should be “Oil & Gas Investor”
I warned of an impending stockmarket crash back in early 2007.
The main trend remains down – has the current bear market rally ended ?
My USD long term indicator continues to give bullish warnings.
LATEST MARKET OUTLOOK:
http://www.zerohedge.com/forum/market-outlook-0
I tend to agree about being bullish on the short term for the USD. Long term, we’re printing our way to oblivion.