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peak oil gradually coming out of the shadows

“Output from the world's oilfields is declining faster than previously thought, the Financial Times reported on Wednesday, quoting from a draft International Energy Agency report it had obtained.

“The newspaper said the watchdog's annual World Energy Outlook report, which studied the biggest fields, showed that without extra investment to raise production, the natural annual rate of output decline was 9.1 percent.”
—
“The IEA forecast China, India and other developing countries' demand would require investments of $360 billion each year until 2030, said the newspaper. "The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand," the IEA was quoted as saying.”

The IEA have tried to damp down this report.

“The risk to the UK from falling oil production in coming years is greater than the threat posed by terrorism, according to an industry taskforce report published today.

“The report, from the Peak Oil group, warns that the problem of declining availability of oil will hit the UK earlier than generally expected - possibly within the next five years and as early as 2011.” [Quoted from guardian.co.uk]

Why the struggle to cover the reality? Why not open figures?

new 44-page report on peak oil [.pdf]

Introduction from Ron Oxburgh, former chairman, Shell

“There isn’t any shortage of oil, but there is a real shortage of the cheap oil that for too long we have taken for granted. During the 20th century, cheap oil - $20 - 30/barrel in today’s terms - allowed the internal combustion engine to replace the steam engine and sparked a transport revolution that fostered and fed the innate human desire to travel. We loved it.

“By the middle of the century warning bells began to ring and some such as King Hubbert began to point out that world oil was a finiteresource and furthermore that it was possible to estimate how much remained. At the time Hubbert was regarded by many as a crank and the industry line was that new discoveries would continue to replace what had been used. We now know differently.

“A great deal more oil has been discovered since Hubbert’s day but his basic thesis still holds. The difference is that today, with more exploration and more sophisticated exploration tools, we know the Earth much better and it is pretty clear that there is not much chance of finding any significant quantity of new cheap oil. Any new or unconventional oil is going to be expensive.

“A more immediate concern is that today the world supply of oil is only just meeting demand and this is keeping the price very high. Earlier this year the price nearly hit $150/per barrel and even with the subsequent fall back below $100, the forward price is high. These prices partly reflect short term market jitters about political instabilities and vulnerability of supplies to natural or man-made disasters, but more fundamentally there is a concern that even though supplies may increase they may not increase as rapidly as the demand from large developing countries. It is this looming prospect of an early overhang of unsatisfied demand that is keeping forward prices high. All that could change this view of the future is a major world economic recession, and even the effects of that on demand have to be put in the context of a rapidly rising global population.

“There is also another change from the past. Today around 80% of the world’s oil and gas reserves are controlled by governments through national oil companies. This is in marked contrast to a couple of decades ago when international oil companies had the major influence. Disregarding the potential use of fuel supplies as political levers, it is entirely reasonable that national governments should have legitimate policies different from those of oil majors when it comes to exploiting the natural resources of their countries. They are starting to regard their shrinking oil and gas resources as something to be husbanded. King Abdullah of Saudi Arabia recently described his response to new finds: "No, leave it in the ground - our children need it." In other words, even those who have less expensive oil may wish to exploit it slowly and get the best possible price for it - a marked contrast with the past when oil was sold in a highly competitive market for little more than it cost to get it out of the ground.

“Today’s high prices are sending a message to the world that words alone have failed to convey, namely that not only are we leaving the era of cheap energy but that we have to wean ourselves off fossil fuels. For once what is right is also what is expedient - we know that we have to stop burning fossil fuels because of the irreversible environmental damage they cause, and now it may be cheaper to do so as well! The problem is that in the developed world our power and transport infrastructure is based almost entirely on fossil fuels. With the best will and the best technology in the world this will take decades to change. In the pages that follow you will read the views of some of those closest to the oil industry. In the past these views might have been regarded as heretical. But they are not and their warnings are to be heeded.”
—
“The energy locked into one barrel of oil is equivalent to that expended by five labourers working 12-hour days non-stop for a year.”
—
“The production figures of all the five major international oil companies have been falling for five consecutive quarters.”
—
“…The aged and neglected infrastructure combines with the problem of demand growing at up to 10% per year to suggest, in one estimate by analysts, that as soon as 2015 Iran will no longer be an exporter. In June 2007 the Iranian government brought in fuel rationing as a reaction to shortages caused by long-run domestic under-investment in refining. Riots resulted, and in a foretaste of what awaits governments who fail to meet domestic expectations of oil supply, Iranians set fire to petrol filling stations.* It will be difficult indeed for a government to export in the face of this kind of pressure at home, if domestic demand cannot be met.

“In Russia, oil production from February 2006 to February 2007 increased by over 400,000 barrels per day, whereas exports remained flat. The excess was needed at home, where Russian car production and sales grew prodigiously in 2006. The Russian use of gas as an instrument of economic blackmail of its neighbours since 2006 shows clearly the kind of treatment states dependent on its fossil fuel exports can expect from the Kremlin, should a global energy crisis materialise. Ominously, Russian oil production has fallen in recent months after years of steady increase.

“Meanwhile in the UK, as domestic oil and gas production in the North Sea falls rapidly, we will be forced to look increasingly to imports. Britain imports only 5% of its energy now, but this requirement is likely to rise to something more like 50% in five years, much of it gas. The government appears sanguine about this, pointing to the growth of domestic infrastructure for liquefied natural gas (LNG) and pipelines from Norway, the Netherlands, and Belgium. But in 2007 imports of LNG into the UK actually fell. As for the pipelines, in May 2008 Thor Otto Lohne, executive vice-president of the Norwegian pipeline company Gassco, warned an energy seminar that long-term contracts with continental European companies meant that: "the UK is a secondary priority. Like it or not, that is a fact." ”

* Smart move ☺

The mess Brown the Clown has allowed to develop is unconscionable.

related material
energy economics and fossil fuels— how long do we have?

the web address for this article is
https://www.abelard.org/news/economics0810.php#peak_oil_301008

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primer on how sub-prime mortgages work

Fannie Mae was allowed/encouraged to become far too big and powerful. It was even pressured (and allowed) to become a market competitor with ridiculous freedom to compete in a market it should never have been allowed to become a real market actor.

Without Fannie Mae to soak up the bad practices, it is highly unlikely that most of the various swindling and idiocy could have been enabled or perpetrated.

This may assist understanding, though there is at least one error ☺

8:29 min

the web address for this article is
https://www.abelard.org/news/economics0810.php#subprime_primer_271008

how to get a ‘rising standard of living’ - clown style

The recession started years ago for much of the population, but you live on a fairly small wage. You are ambitious and hope for a steady rise in wages; but the taxes keep rising, and the nominal wages don’t go up much.

And then there’s the lying Clown who keeps telling you the economy is going great.

Each year you spend 10% more.

Behind the scenes, the Clown has inflated money by about 10% a year since 2005, and at least 5% a year since he got at the money box. Say about 80% in ten years.

So, your nominal wages rose a bit, but somehow you made no progress.

But you don’t even have a GCSE in arithmetic. Thanks to Labour education policies, you don’t understand inflation, and you certainly don’t realise that the Clown is lying about inflation - pretending it’s only 2 or 3% (by using dishonest and distorted figures). You don’t even realise that inflation is a deliberate secret tax engineered by government.

So the lying Clown tells you the GDP is rising at 2 or 3 percent, after you correct by that fake inflation rate. But of, course, the real inflation rate of recent times was over 10%, and you should be correcting by that. Thus the long term GDP is, in fact, falling. And the real inflation rate is going to rise much faster soon - even the fake inflation rate is now pushing 5%.

That continual real inflation is eating into your wages and now even showing in the food prices.

So, not being seriously smart, you start to borrow on your credit card, at 20+% real interest, and you borrow against your house - or your wages.

Not too bad if your house price is rising still faster than the inflation rate,

but the borrowings keep right on rising, and rising.

Then your house price drops and ceases to be a money box [2], and your wage is really going down in real terms. So now you are struggling to keep up payments.

And if you’ve been told your starter rate on your mortgage is now going to jump and jump and jump... Remember, you never were very good at arithmetic, and the schools didn’t teach you even basic economics.

So you don’t really know what’s happening. You just have this vague feeling your real standard of living has been dropping despite those apparent wage ‘rises’. (The so-called ‘rises’ were below the real rate of inflation, and thus were, in fact, wage drops.)

And now you owe much more on ‘your’ house, and at higher interest rates; and the real value of your wages and house are falling.

Your real standard of living has,, in fact, been falling for several years. Your increase in wages was fake or substantially fake. Much of the rise in your house price was fake.

And that fakery has been engineered by socialist ‘New’ Labour and the Clown.

Thus, the real recession has been bearing down on a considerable proportion of the population for several years, while the Clown has lied and lied and lied.

The Clown has trashed the currency. He has forged money, just like Mugabe but, of course, not yet on that scale.

He has cheated the vulnerable to fund his follies. He has steadily stolen from the poor and pensioners.

And now he is printing more money and still grabbing for other taxes to cover up his errors.

Please tell me people, what does the word crook mean?

The real economy in Britain has been increasingly founded on borrowing. The borrowings have merely covered up the underlying recession.

Standards of living for the majority of the population have been shrinking, as more and more of the expenditure was founded on borrowing. That is, by delaying the real effects of the real recession.

How will they cope now?

If this is too complicated for you, consider an analogy:

Again, you don’t realise you’re being cheated. You haven’t been educated too well. You try to keep yourself fit [solvent], but you do rather like ice creams [credit] and the television liebox keeps telling you how good ice cream is for you. You’re 18 years old and you take a size 10 dress [your debt level - zero at this point].

Now each year, the manufacturers [the government] re-label [inflate] all the size 11 dresses size 10, and the size 10 dresses size 9, and the size 15 dresses size 14 and so on.[3]

For your 19th birthday, you go into your fave dress shop and you’re delighted to find that you still fit into a size 10.

And then manufacturers revise the numbers of the sizes down again, so come your twentieth birthday you still fit into a size 10.

You don’t notice anything different because you haven’t been taught to observe the real world. After all, they only taught you at school to write about things and talk about things that you didn’t really understand. They didn’t teach you much about doing things in the real world, let alone teach you to observe or to be numerate.

Year by year, the population swells up, because they’re all doing the same thing. So you don’t even notice you’re getting fat [into debt], everyone now looks like a balloon [owing lots]. And after all, a size 18 now has a ‘10’ label in it.

Another few years and you drop down dead from heart failure [bankrupcy], but you never saw it coming.
And you lie there in your oversized coffin wondering how ever it happened, as you are only 32 years old.

It’s because you lived in a web of lies spun by the likes of Brown the Clown.

end notes

1. Scribblers are starting to talk about recession in the UK. By my calculations, Britain has been in an effective recession for at least three years.
   
   You can calculate effective recession with the following sum:
   Effective recession = real inflation minus GDP growth minus the false government-claimed inflation.
   If the result is positive, then there is an effective recession.
   [Why the government inflation figure is subtracted: this is done on the dubious assumption that the government corrects the GDP figure down by the rate of inflation.]
   
   By my calculations, the real inflation in the UK is running at about 10% and probably rising, the UK GDP is currently about 1.5% and dropping fast, while the UK government-claimed inflation is now at 5.2%.
   10 - 1.5 - 5.2 = 3.3. This is a positive number, which means there is an effective recession.
   
   When a country is in recession, how do you keep the same standard of living going, or even improve your standard of living? You bridge the gap with borrowing. But this is a policy which lowers your flexiblility and gradually runs out of road.
   
   
2. Much of the rise in house prices was that real inflation rate feeding disproportionately into house [asset] prices. You were, effectively, on the same side as the government, taxing those not holding such assets. Of course, if you've been emptying that money box as the years go by, you are also now in the same fix as the government!
   
   
3. Recall what was a size 10 dress is now only a size 9 dress. You don’t get as much dress for your number.(The analogy isn’t perfect here, but the idea’s the thing. The numbers have changed their meanings.)

the web address for this article is
https://www.abelard.org/news/economics0810.php#brown_living_standards_251008

greenspan - the financial crisis and the role of federal regulators hearing

“Greenspan, 82, acknowledged under questioning that he had made a "mistake" in believing that banks, operating in their own self-interest, would do what was necessary to protect their shareholders and institutions. Greenspan called that "a flaw in the model ... that defines how the world works." ”[Quoted from wsvn.com]

“ "If we are right 60 percent of the time in forecasting, we are doing exceptionally well; that means we are wrong 40 percent of the time,'' Greenspan said. ``Forecasting never gets to the point where it is 100 percent accurate.'' ”
—
“Firms that bundle loans into securities for sale should be required to keep part of those securities, Greenspan said in prepared testimony. Other rules should address fraud and settlement of trades, he said.” [Quoted from bloomberg.com]

the web address for this article is
https://www.abelard.org/news/economics0810.php#greenspan_241008

i’m becoming increasingly cheesed by the public misuse of the term ‘regulation’

This confusion is highly dangerous in public discourse.

The markets were, and are, ‘regulated’.

‘Regulation’ is just another word for ‘law’.

No society even functions without law.

Fools never can tell the difference between good regulation/law; and bad regulation/law.

Fools do not even understand the difference between good regulation/law and no regulation/law.

Statists/socialists are lying when they claim a lack of regulation, and use that dishonest cry to justify more infringement by the state.

At the core of this market gum-up was regulation, regulation forced by Clinton to ‘strengthen’ the Community Reinvestment Act [CRA].

That was bad, that was disastrous regulation.

McCain called for transparency at that time. Transparency is good regulation. It demands that public transactions can be seen, and thus assessed, by parties to those transactions.

It is because Fannie Mae was effectively protected from regulation by ‘Democrat’ time-servers that the ‘toxic debt’ went undetected. (Barack Obama supped at that trough of ‘Democrat’ corruption.) There is blame to be assigned to those in the financial community who failed to do due diligence.

But as Warren Buffet said,

"It’s an argument that managing complex financial institutions where the management wants to deceive you can be very, very difficult."

That management was intimately linked to the high table of the ‘Democrat’ Party.

Notes:

1. added to the misused term ‘regulation’ is often the abused term ‘strong’. The ‘strength’ or otherwise, of any law/regulation is merely the degree of force used to back that law.
   
   Laws are not inherently ‘strong’ or ‘weak’ of themselves.
   
   
2. As you will see above, not all laws are ‘good’. Emplacing laws is a matter of judgment and refinement.

For detailed background on the Fannie Mae debacle, start with Fanny Mae and Freddie Mac - a history

the web address for this article is
https://www.abelard.org/news/economics0810.php#regulation_law_181008

a useful lesson in the byways of economics - the devil’s excrement

“Venezuela's daily oil production has fallen by a quarter since President Hugo Chavez won power, depriving his "Bolivarian Revolution" of much of the benefit of the global boom in oil prices.”
—
“To win allies and forge an anti-American front, Mr Chavez sells oil to friendly countries at low prices. Ironically, the only big customer buying Venezuelan oil at the full market price is the United States, which the president routinely denounces as the "Empire".”
—
“The state oil company, PDVSA, produced 3.2 million barrels per day in 1998, the year before Mr Chavez won the presidency. After a decade of rising corruption and inefficiency, daily output has now fallen to 2.4 million barrels,”
—
“The company now grows food after Mr Chavez's price controls emptied supermarket shelves of products like milk and eggs. Another branch produces furniture and domestic appliances in an effort to stem the flow of imports. What PDVSA seems unable to do is produce more oil.” [Quoted from telegraph.co.uk]

Meanwhile, Putin is trying to sell Chavez arms, and Russia is developing similar problems.

“Ten years from now, 20 years from now, you will see," former Venezuelan Oil Minister and OPEC co-founder Juan Pablo Perez Alfonzo predicted in the 1970s, "oil will bring us ruin." It was an oddball statement at a time when oil was bringing Venezuela unprecedented wealth--the government's 1973 revenues were larger than all previous years combined, raising hopes that black gold would catapult Venezuela straight to First World status. But Perez Alfonzo had a different name for oil: "the devil's excrement."

“Today he seems a prophet. When it hit the jackpot, Venezuela had a functioning democracy and the highest per-capita income on the continent. Now it has a state of near-civil war and a per-capita income lower than its 1960 level.

“Far from an anomaly, Venezuela is a classic example of what economists call the "natural resource curse." A 1995 analysis of developing countries by Jeffrey Sachs and Andrew Warner found that the more an economy relied on mineral wealth, the lower its growth rate. Venezuela isn't poor despite its oil riches--it's poor because of them.

“How could that be? For the same reason so many entertainers go bankrupt. Showered with sudden windfalls, governments start spending like rock stars, creating programs that are hard to undo when oil prices fall. And because nobody wants to pay taxes to a government that's swimming in petrodollars--"In Venezuela only the stupid pay taxes," a former President once said--the state finds itself living beyond its means.” [Quoted from money.cnn.com]

Reading the whole of this second, short article is highly recommended.

the web address for this article is
https://www.abelard.org/news/economics0810.php#devils_excrement_171008

inflation - uk housing prices

My approximation is that the UK has inflated by over 80% since Brown the Clown moved into no.11 as Chancellor of the Exchequer in 1997. The USA has inflated at nothing approaching that rate.

The pound has recently dropped around 20% against the dollar. Meanwhile, house prices in the UK jumped around 180%.

So, take a house priced at £100 when socialist ‘New’ Labour came to destroy us. It would jump to £180 by now.

Now, the actual marker price has risen to £280, that is about 55% higher than the inflation would suggest [280/180].

As there are considerable advantages in avoiding the Clown’s awesome taxation and waste by buying a house, so some of that increase will be hedging factors (modified by the taxes he’s added to house prices - say council tax and stamp duty) which will drive down the real value of houses.

So how much of that 55% is good value as hedge? In my view, quite a lot of it is the profligate and irresponsible Clown’s responsibility. That means to me that houses are not greatly over-valued in the UK. Say we guess at 10 or 20% overpriced. It’s already dropped that much from the bits I bother to notice.

So I think there’s more panic than substance among the UK housing whingers. But what else is there to rabbit about in a socialist state where you’re still allowed to ‘own’ a house?

Meanwhile, ‘ordinary’ wages are hardly rising relative to real inflation. Thus the real income of pensioners and wage slaves must, by my calculations, be dropping quite heavily in the Clown’s socialist paradise. And of course, one of the sneaky stats quoted is that GINI is growing (the gap between ‘rich’ and ‘poor’).

Perhaps someone will apply my figures to the UKstocks rates and see why are they now lower than when the Clown started out to ruin the country? I’ve kept well away from UK stocks for more than a decade as I thought they were overpriced, but just maybe they are becoming more realistic!

Note:
Approximating numbers - I never can be bothered to do the details. The approximations are quite enough for my decision making .

the web address for this article is
https://www.abelard.org/news/economics0810.php#inflation_uk_housing_141008

the eussr bail out compared to the usa

PPP figures:
EUSSR:

$14.3 billion - population 491 million

USA:

$13.8 billion - population 304 million

EUSSR bail out:

€2,000 billion (includes $1 trillion for the UK)
in dollars: $2.68 trillion (at exchange rate)

USA bail out:

$700billion standby

So far, the EUSSR bail out is around 4 times that for the USA (which is only standby as yet).

related material
some disturbing comparisons - the clown and the usa
fanny mae and freddie mac - a history
fanny mae and freddie mac - the best politicians money can buy?
fanny mae and freddie mac - clearing up the mess
fannie mae / freddie mac - a summary

the web address for this article is
https://www.abelard.org/news/economics0810.php#eussr_bailout_usa_141008

bernanke on deflation - dated 2002

This so-called ‘credit-crunch’ is a very ‘interesting’ economic situation ☺

it is an effective deflation in the midst of real inflation!

this speech is regularly referred to as ‘the helicopter speech’. The term actually comes from Milton Friedman

“First, the Fed should try to preserve a buffer zone for the inflation rate, that is, during normal times it should not try to push inflation down all the way to zero. Most central banks seem to understand the need for a buffer zone. For example, central banks with explicit inflation targets almost invariably set their target for inflation above zero, generally between 1 and 3 percent per year. Maintaining an inflation buffer zone reduces the risk that a large, unanticipated drop in aggregate demand will drive the economy far enough into deflationary territory to lower the nominal interest rate to zero. Of course, this benefit of having a buffer zone for inflation must be weighed against the costs associated with allowing a higher inflation rate in normal times.”

This ‘small’ amount of inflation is usually sold as a means of gaining price flexibility, for instance, by encouraging people in jobs that are losing bargaining power to accept lower real wages. (This is because of the ‘money illusion’, that is concentration on the numbers, rather than on the real losses through inflation.) However, treated as a ‘buffer zone’, this would, of course, be expected to break on occasion, merely by probability. That is, real inflation will vary around the target inflation (of between 1 and 3 percent) and, thereby, by chance, fall below zero percent inflation, that is, into deflation.

“The conclusion that deflation is always reversible under a fiat money system follows from basic economic reasoning. A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

“What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

OK, but with one reservation. I don’t accept the ‘arrogant’ assumption that government “can always generate higher spending” by this action.

It is people who spend, and they can revert to barter or saving the fluttering, ‘excess’ paper. In fact, that is part of the present effect generating excitement. Thus, you can view it as an element of a bear market, that is the propensity to hold onto paper and wait for bargains.

“…given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it…”
—
“…A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money.”

related material
fanny mae and freddie mac - a history
fanny mae and freddie mac - the best politicians money can buy?
fanny mae and freddie mac - clearing up the mess
fannie mae / freddie mac - a summary

the web address for this article is
https://www.abelard.org/news/economics0810.php#bernanke_081008

one sane uk response to the credit crunch

absolutely first-class speech by david cameron on bank problems

Recommended.
And I advise great care and attention to the details. This is what should to be expected of a first-rank leader.
Short and entirely to the point.

“First, we must pass legislation to enable the Bank of England to rescue failing banks. That legislation is ready, it can be brought before Parliament on Monday and we will support it. We have been arguing with the government over one aspect: who pulls the trigger to start the process of rescuing a bank. We argued that it should be the Bank of England; the government argued that it should be the FSA.

“In the end what matters is getting the legislation through quickly and so I can announce today that we are prepared to drop that objection to allow rapid and safe passage of the Bill - and we can return to this issue later.

“The second thing we need to do is pass further legislation to protect people's savings and deposits and ensure quick payout. If we pass this legislation, everyone will have the comfort and security of knowing that whatever happens, their money is safe. I am calling today on the government to accelerate this legislation, to bring it forward next week and I can promise them it will have our full support.

“The third thing we need to do is break the self-fulfilling cycle that is reducing banks' ability to lend. The problem is this. When the value of financial assets falls, a new international accounting regulation called "marking to market" automatically downgrades the value of banks. They are less able to raise the money to carry on their business.

“That in turn causes further falls in the value of financial assets. And this is making the financial crisis worse than in previous downturns. So our regulatory authorities, together with the European regulators, need to address this difficult issue.”

Transcript of complete speech, made on 30 September 2008.

related material
fannie mae / freddie mac - a summary

the web address for this article is
https://www.abelard.org/news/economics0810.php#uk_credit_cameron_061008

email email_abelard [at] abelard.org

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