CERA: Peak Oil No Big Deal; Oil Drum/Hirsch: Come again?

ADDED Feb. 7, 2008:
A stiff challenge has been thrown down to CERA, which is led by Yergin, to put their money where their predictions are. I applaud. CERA is apparently listened to by serious people and taken seriously. This is a problem given their poor track record, noted below.

The Bet

HOUSTON (Feb. 6, 2008) – A group of businessmen and energy experts who believe that global oil production will soon peak, plateau and decline has issued a $100,000 wager to Cambridge Energy Research Associates (CERA), a prominent oil forecasting think tank. Members of the challenger group also renewed an invitation to hold a public debate on the issue of peak oil with CERA.

The group is betting against CERA’s June 2007 forecast that world oil production capacity will reach 112 million barrels per day (mmb/d) by 2017, which extrapolates* to107 mmb/d of actual production, up from about 87 million barrels today. CERA will hold its annual conference in Houston next week.

“CERA is forecasting an addition of 20 million barrels within a decade,” said Steve Andrews, co-founder of the Association for the Study of Peak Oil-USA (ASPO-USA). “That’s a vision in search of reality. Anything is possible on paper, but we are betting you can’t do that with the drill bit.”

The challenger group also notes that CERA called for a civil dialogue on peak oil, but then declined several invitations to engage in such a conversation...

“CERA projections have been wrong so often that policy makers should think twice about embracing their data,” added Bob Kanner, CEO of Cleveland-based PubCo Corporation, who has wide-ranging investments in the oil and gas industry. “I’m participating in this bet to illustrate the need for greater truth and clarity in the prediction of oil and gas supplies. We’re not just betting our money, we’re betting our nation’s future.”

...To call the bet, CERA must match the Peak Oil group’s $100,000 letter of credit from National City Corporation. In the event production in 2017 doesn’t exceed CERA’s forecast of 107 million b/d, the individuals of the group have agreed to donate their winnings to an energy-focused non-profit organization.

“If the CERA seers really believe their crystal balls, they should call our bet,” said Texas oilman Baldauf.

------------------------------------------------

The Peak Oil debate bears a commonality with the Climate Change debate: The Deniers. Yes, the mysteriously funded, don't-worry-folks-nothing-to-see-here crowd that always has an answer for everything. That is, unless you actually pay attention. CERA, for example, bases their claims on a proprietary database. I.e., something that we can't take a look at to vet or confirm the accuracy of. We must take their word for it.

An interesting group of deniers is CERA. They are lead by Daniel Yergin, who is highly respected for his work documenting the history of the oil business, but has some serious detractors when it comes to his prognostications on same. Robert Hirsch, who led an authoritative study (Linked in the side bar to the right.) for the US government in 2005 on Peak Oil that came to the conclusion we are in deep doo-doo, takes on CERA's recent pronouncement that Peak Oil is a lot of nothing much to worry. They claim new fields will cover all new demand and yearly declines in existing fields. Quite a claim given we need 5,000,000 or more barrels a day in new production each year to meet that new demand and depletion - and that's if depletion is only 4.5 percent, which appears to be pretty doubtful.

First, drop down to the bottom of this blog and take a look at the chart showing production vs. discoveries. Though Hirsch's rebuttal is a good read, all you need to know to see that CERA has a snowball's chance in hell of being correct on this is what is displayed on that graph. We haven't found such amounts of oil for decades, let alone been able to produce them. Light Crude oil production peaked in 2005 at around 73,000,000 b/d. Current liquid fuel (oil, gas, bio-diesel, etc.,) consumption is more than 14,000,000 b/d above that already.

Second, go read a thorough thrashing of Yergin's and CERA's prognostications through the years written by Glenn Morton, a geophysicist in the oil industry, over at The Oil Drum, found here.

Third, if you haven't hurt yourself falling over with laughter at the absurdity of CERA's claims by then, read Robert's rebuttal, partially reprinted below. CERA's claims can be accessed here, but it's behind a firewall at the WSJ. The full article can be found here. You can read all of Hirsch's rebuttal by clicking on the title below.

The WSJ Article on a CERA Oil Decline Study Written by Robert L. Hirsch

Monday, 28 January 2008
On January 17, The Wall Street Journal published an article entitled New Fields May Offset Oil Drop, reporting and commenting on a study by CERA entitled, “No Evidence of Precipitous Fall on Horizon for World Oil Production: Global 4.5% Decline Rate Means No Near-Term Peak: CERA/IHS Study.” Here are some WSJ article highlights and related comments / questions:

"Output from the world's existing oil fields is declining at a rate of about 4.5% annually."

Comment: Because of CERA's established record of marked optimism in oil and natural gas, a prudent observer might assume 4.5% as a lower bound on this extremely important parameter.

"This study supports a view that there is no impending short-term peak in global oil production."

Comment: What does short-term mean? The world has been on a liquid fuels production plateau since mid 2004, when viewed in the framework of a 4% fluctuation band, which was independently developed...

"The CERA study, however, asserts that fewer than half of the fields scrutinized were in decline."

Comment: ...this statement is without value. What matters most is which giant fields are now in decline, how fast they are declining, and how close other giant fields are to going into decline.

"This is a daily, hourly and minute-by-minute challenge for the world's oil industry."

Comment: If world oil production is as robust as CERA claims, why make this rather ominous statement?

"Andrew Gould, the longtime chief executive of oil-services titan Schlumberger Ltd., has estimated that the industry's average decline rate is closer to 8% a year and growing."

Comment: Schlumberger may have better data than anyone else on oil fields throughout the world, because they operate almost everywhere that oil is produced. This includes the OPEC countries... Indeed there is no indication that IHS/CERA has better oil field data than anyone else. Schlumberger and Gould have been too responsible for too long to believe that they would off-handedly estimate an 8% decline rate without knowing the facts...

"CERA argues that nearly half of that output will come from non-conventional sources such as biofuels and natural-gas liquids."

Comment: How is this credible without a worldwide crash program, which has not yet been seriously considered, let alone initiated?

...Finally, CERA, like others, has made a number of incorrect forecasts in the past, so why should their work be taken at face value now? CERA asks the world to trust it, but with the risks of error being so large, would that be prudent?

Money, Debt, the Fed and Usury

If you don't understand the Federal Reserve, you don't understand the world you live in. Draw your own conclusions...

This is the best presentation I've ever seen on the Federal Reserve. It is made to be understood by anyone, regardless of knowledge of The Fed.

Money as Debt 1
Money as Debt 2
Money as Debt 3
Money as Debt 4
Money as Debt 5

Another take:
Federal Reserve Part 1
Federal Reserve Part 2
Federal Reserve Part 3
Federal Reserve Part 4
Federal Reserve Part 5

A Cliff's Notes-type version:

A History of Money and Banking Secrets That Banks Dont Want Published A History of Money and Trade
To start with a history of money and debt, we must go back many years ago when people used to trade their wares for the things they wanted and needed.In place of money or Federal Reserve Notes, you could trade a well made pistol for a cow, which you could eat or trade a remainder of for other items like clothing.It didn't take long for people to realize there needed to be a more efficient means of trade. If you were a farmer, it was too difficult to carry baskets of fresh corn around to trade for a new horse. And, the person selling the horse might not want any corn at all.

A History of Money and Gold
So, people used gold for cash money, which always had a stable value, to trade for the items they wanted and needed... Gold was very heavy to carry and hard to conceal. In the beginning of our banking history what people would do is leave their gold with a goldsmith.The goldsmith would then give them a note, or paper money, that stated how much gold they had on deposit with the goldsmith (bank).The farmer could then take this paper money note... ...the note would continue to trade hands and very few people would ever go redeem it for the gold it was backed by.It didn't take long for the goldsmith to understand this reality. So, here he is storing all of this gold for other people. Let's give it a value to make this next principle clear.Let's say the gold he is storing is valued at $1,000 and there are $1,000 in real cash money notes backed by this real gold being circulated.

A History of Money and Loans
When many people wanted a loan for say a total of $1,000, he decided no one would notice and it would be real easy to lend them someone else's gold... And, he'd only charge 10% interest... ...why not lend out to anyone who looks like they can repay? And, that year he lent out a total of $10,000 worth of newly created or you could say counterfeit, funny money notes.

A History of Money and Inflation
...There is now ten times as much currency/notes floating around then there is real gold to back it. This causes the value of the original $1,000 to loose 90% of its value...Everyone now has way more money then they did the year before, they feel rich...This means there is still $1,000 of real cash money notes backed by REAL gold. $9,000 in funny money loans outstanding, $9,000 in total notes circulating and the goldsmith has pocketed $2,000.So, the goldsmith is now up $2,000 out of thin air...

A History of Money and Recession
People tighten up their spending for no apparent reason, but it is soley because there are less notes in circulation. So, prices start to fall... RECESSION...Year five, the borrowers paid back $1,400 worth of principal and $600 in interest. There is still only $1,000 in gold. $4,000 in loans outstanding, $1,000 in total notes circulating and the goldsmith has pocketed another $2,000, totaling $10,000 thus far, but $4,000 is still owed.With only $1,000 in total notes circulating, people obviously cannot continue to pay, so there is one thing left and that is the confiscation of their assets, and the remaining $1,000 in total notes circulating. Can you say BANKRUPTCY...

A History of Money and the FED
Oh, I know says the goldsmith, I'll just have to keep lending this counterfeit money backed by nothing so they can work hard for me for free, and I will own every asset on this planet for free. So the goldsmith starts to lend out money again and lends out $10,000 the first year which again causes the BOOM. And, on and on it goes....the goldsmith's are now called the Federal Reserve System and the funny money counterfeit notes are called Federal Reserve Notes. In the 1930's there was roughly $30 Billion in gold at Fort Knox, and now we owe $7,937,046,735,823.So, then I ask you fellow American, is this a history of money and debt that you thought was going on when you borrowed from Capital One or Providian?...

Bush: Can Saudi Arabia Increase Output?

As noted by The Oil Drum . Com, during his trip to Saudi Arabia Bush openly questioned whether SA had the capacity to increase production. One would be quite surprised were one to learn Bush needed to go to Saudi Arabia to obtain this information. One is further surprised Bush had decided to openly, though indirectly, acknowledge Peak Oil. While it is a certainty that BushCheney knows about Peak oil due to their extensive background in the oil industry and Cheney's statements in 1999 regarding oil, depletion and future supply, their prior association with Matt Simmons of Twilight in the Desert fame, etc., it is still startling to hear the president day it.

I know, you're thinking, "He said no such thing! Conspiracy theorist!" In fact, he did. This is a simple conclusion based on the following facts:

• The EIA, the USGS and the IEA all state that the bulk of future oil production must come from the Middle East, i.e. OPEC.
• Most of the other OPEC nations are producing at or near their limits.

Logically, it follows that if the KSA (Saudi Arabia) cannot ramp up production, nobody can make up the difference. In actuality, the KSA can ramp up, but probably not as quickly as many would like to believe. They have been adding wells at a huge rate over the last few years in preparation for ramping up production to 12.5 mb/d. One assumes, given that all fields deplete and the KSA's largest fields have been producing for decades, that they are also drilling to maintain production in older fields. But it takes time to bring new oil to market, whether from new wells at existing fields or new wells at new fields, and especially the latter. We recently had an announcement from Aramco that production at the new **** field will be delayed.

According to former Aramco production and exploration chief, Sadad al Huseini, 12.5 is all the KSA is likely to ever produce. BushCheney certainly know this if you and I do. One can only speculate that the public admission that the KSA may not have the capacity to ramp up is meant for the masses. It's a warning shot fired as if it wasn't meant to be serious. "We were only kidding" as it were. Plausible deniability so that BushCheney can later claim Peak Oil took them by surprise, too.

So, there you have it from the horse's ass's mouths: de facto statements of Peak Oil.

Here's some more on the topic:

Bush Acknowledges Peak Oil

This is a pretty stunning admission, during his press conference in Saudi Arabia:

I hope that OPEC, if possible, understands that if they could put more supply on the market it would be helpful. But a lot of these economies are going -- a lot of these oil-producing countries are full out.

---

...There is no longer any argument in the industry that non-OPEC oil is peaking (that includes the International Energy Agency and even ExxonMobil)

...the topic was disucssed 3 separate times in the interview:

I also understand the dynamics behind the issue, and that is growing demand from U.S., but more particularly, China and India, relative to supply.

Oil is a commodity; it isn't something you just turn a tap. I mean, it requires investment, exploration, a lot of capital. I talked to His Majesty early on in my presidency in the hopes that they would explore for new fields; they have. They've increased their capacity. But in the meantime, demand has gone up quite substantially.

Note that Bush states that Saudi Arabia has increased its production capacity since "early on in his presidency"...

...BP statistics show that Saudi internal consumption jumped from 1.5mb/d in 2000 to 2.0mb/d, which means that fully one third of Saudi Arabia's production increase went to domestic demand).

I would like for them to realize that high energy prices affect the economies of consuming nations. And that if these economies weaken, those economies will eventually be buying fewer barrels of oil. And having said that, there is not a lot of excess capacity in the marketplace. What's happened is, is that demand for energy has outstripped new supply. And that's why there's high price.

That's the third time he said it.

Now ask yourself, "Why is George Dumbya Bush off-grid?" (Thanks to LATOC for the link.) Here we have the most anti-environment, ecologically devastating president in the history of this nation, but he's off the grid? Is he telling YOU to get off the grid? Is he telling YOU to conserve? Is he telling YOU to build yourself a passive solar home complete with gray water re-use? No? Why not? This is the man who invaded a nation for its oil. Why in the world would he be against Kyoto, deny global warming for years, eviscerate the science of his own Executive Branch and muzzle James Hansen, perhaps the world's leading climate scientist, but live in an OFF THE GRID home?

As my economics prof in university used to say, "Rhetorical question."

Can they save the economy? No.

NOTE: Found this today. Sounds about right:

A $3 Trillion Bankruptcy Will Now Start To Emerge

An experienced European banker told EIR this morning that "the problems of 2008 are of a completely different order of magnitude than those we saw in 2007."... the real write-off concerns some $3 trillion, the source said. That is what is starting to emerge now.

Back to my blogging:

Let's set aside the obvious point I would make about Peak Oil and the energy problem and what it is/will do to GDP. But that doesn't solve our problems. The economic issues we face in and of themselves are going to be a disaster. What we have is a series of positive feedbacks, i.e. a set/series of reinforcing disasters.

An interesting non-issue, as far as the media and the economists are concerned, is the effect of the wars in Iraq and Afghanistan on the economy. It used to be thought war stimulates the economy. And this is true. In the short term. In the long term, it eats up valuable investment in capital and infrastructure. War spending is non-investment. The materials created get used. They get depleted. And they add nothing to future growth. The only long term advantage to war is conquering and/or controlling resources and gaining additional land for expansion.

Studies show that around the sixth year of a war the false propping up of the economy in the form of a rush of money supply expansion begins to be shown for what it is: reckless spending. It's not hard to see why. Imagine you have a neighborhood feud. You and your neighbor go at one another all the time. One day you find your roses cut up. You retaliate. Eventually you put in a fence. Looks great. Doesn't solve the problem. Your dog gets poisoned. (Don't worry, you've got a good vet. But he's expensive. More money goes out.) You put in a security system and slash his tires. He keys your car. You get motion detectors and salt his entire yard. He... anyway. So, you've got a new fence, etc., and have spent thousands of dollars you couldn't spare. Where are you now?

War spending undermining U.S. economy

One of the world’s most exclusive business clubs warned the United States recently that its open-ended national security and war expenditures, along with tax cuts that led to large budget deficits, could erode the country’s status as a powerful economic force.

The Geneva-based World Economic Forum issued its 2006-07 Global Competitiveness Index (GCI) rankings and listed the United States in sixth place, down from the top spot...

“With a low savings rate, record-high current account deficits and a worsening of the U.S.’s net debtor position, there is a non-negligible risk to both the country’s overall competitiveness and, given the relative size of the U.S. economy, the future of the global economy,” said Augusto Lopez-Claros, chief economist of the World Economic Forum’s Global Competitiveness Network.

The myth of the war economy

“'In previous periods when the U.S. has been involved in war, what you
typically end up with is an artificially propped up economy followed
by a decline in economic activity when the war is over,’ said
economist Patty Silverstein of Littleton-based Development Research
Partners.”

“'War is a wonderfully inflationary pressure on the economy,’ added
Tom Clark, director of the Jefferson Economic Council in Jefferson
County. ‘It's a wonderfully nonproductive use of assets, usually
followed by a period of hyper-inflation.’”

Stimulus packages, the other side of this plug nickel, are also a big mistake. What got us here, after all? Unlimited spending, unlimited lending/borrowing, unlimited money supply (Check the Shadow Government Stats link), huge tax breaks almost all for the wealthy (Trickle down? Kiss my ass...), Greenspan telling banks to get creative with their lending while interest rates hovered near zero, crazy new debt instruments... No, what is needed is fiscal responsibility at all levels. Long term, the fractional banking system (usury) needs to die a quick, painful death.

Stop Bush, Democrats Before They Save Our Economy: Amity Shlaes

Jan. 16 (Bloomberg) -- ...economic experts have already endorsed the concept of such short-term measures.

Former Treasury Secretary Larry Summers... Nobel Prize winner Joseph Stiglitz... President George W. Bush, briefed by experts, may take up the stimulus concept as early as this week...

This is perverse. The real question about tinkering should not be ``how?'' but ``why?'' The persistence of the stimulus habit, and the endorsements by experts, makes it worthwhile to review such previous interventions and their consequences.

Back in the early 1990s, great economies confronted trouble. ...U.S... Japan, banks were foundering, and the real estate bubble had popped...

...economists... talked about a $10 billion or $15 billion outlay... For Japan... Christopher called the Japanese leader's $115 billion stimulus plan merely ``a useful first step.'

Fortunately, Republicans and conservative Democrats tamped Clinton's domestic project down into nothing... with spectacular results.

Japan, by contrast, heeded the U.S. and the experts and dutifully ``stimulated'' the economy for years.

...A number of stimulus packages and Bridges to Nowhere later, the Japanese economy slept on.

...in the early 1970s...

Nixon's greatest tinkering came after his Camp David retreat in 1971. He emerged from the hills to order an end to the gold-exchange standard and a 90-day freeze on wages and prices. His eight-point plan also slapped a 10 percent surcharge on imports.

...the plan was not great. Its consequences were terrible ruction for the gold market and the stagflationary 1970s...

The worst problem with the tinkering impulse is what it precludes: necessary permanent reform...

The Elephant in the Room

Population. None of the problems this blog is about exist without rapidly expanding population. Global Warming?

"Stabilize CO2 emissions!"
OK, let's get the population rate down to 1:1. There. Done.

"Reduce fossil fuel consumption!"
OK, let's get population growth rate down to 1:1, reduce, reuse, re-localize. There. Done.

Simple, eh? Not quite. According to Dr. Albert Bartlett, even if you go to zero population growth as a policy and actually do it, the population doesn't actually stabilize until all the people who were alive when the policy took hold have passed away. So, that's 70 more years of population growth. 70 more years of increased consumption.

But, what if we become more efficient?
We already did. After the two oil crises of '73-5 and '80-81 the US dropped consumption from around 19 mb/d in '73 and over 21mb/d in '79 to less than 15mb/d in '83. Since then we have only become even more efficient. In fact, one reason given for $95 oil not driving us into recession already (don't worry, it actually is) is increased efficiency. Well, if efficiency is improving, why do we use more than 20,000,000 barrels a day today? Could it be population?

Population trumps all. US population was around 210,000,000 in '73. It's around 310,000,000 now. That's a 50% increase. No matter how efficient we get, if population keeps rising we will eventually erase any gains in efficiency.

Jared Diamond on population and consumption:

...Per capita consumption rates in China are still about 11 times below ours, but let’s suppose they rise to our level. Let’s also make things easy by imagining that nothing else happens to increase world consumption — that is, no other country increases its consumption, all national populations (including China’s) remain unchanged and immigration ceases. China’s catching up alone would roughly double world consumption rates. Oil consumption would increase by 106 percent, for instance, and world metal consumption by 94 percent.

If India as well as China were to catch up, world consumption rates would triple. If the whole developing world were suddenly to catch up, world rates would increase eleven fold. It would be as if the world population ballooned to 72 billion people (retaining present consumption rates)...

I haven’t met anyone crazy enough to claim that we could support 72 billion. Yet we often promise developing countries that if they will only adopt good policies — for example, institute honest government and a free-market economy — they, too, will be able to enjoy a first-world lifestyle. This promise is impossible, a cruel hoax: we are having difficulty supporting a first-world lifestyle even now for only one billion people...

Does this strike you as sustainable? Neither does Dr. Bartlett. Dr. Bartlett is fond of asking if we are dumber than yeast. I'll let him explain.

...Bacteria grow by doubling. One bacterium divides to become two, the two divide to become 4, the 4 become 8, 16 and so on. Suppose we had bacteria that doubled in number this way every minute. Suppose we put one of these bacteria into an empty bottle at 11:00 in the morning, and then observe that the bottle is full at 12:00 noon. There's our case of just ordinary steady growth: it has a doubling time of one minute, it’s in the finite environment of one bottle.

I want to ask you three questions. Number one: at what time was the bottle half full? Well, would you believe 11:59, one minute before 12:00? Because they double in number every minute.

And the second question: if you were an average bacterium in that bottle, at what time would you first realise you were running of space? Well, let’s just look at the last minutes in the bottle. At 12:00 noon, it’s full; one minute before, it’s half full; 2 minutes before, it’s a quarter full; then an 8th; then a 16th. Let me ask you, at 5 minutes before 12:00, when the bottle is only 3% full and is 97% open space just yearning for development, how many of you would realise there’s a problem?

...They now have four bottles, before their discovery, there was only one. Now surely this will give them a sustainable society, won’t it?

You know what the third question is: how long can the growth continue as a result of this magnificent discovery? Well, look at the score: at 12:00 noon, one bottle is filled, there are three to go; 12:01, two bottles are filled, there are two to go; and at 12:02, all four are filled and that’s the end of the line.

Get it now? Some math for you to play with on your own:

You just take the number 70, divide it by the percent growth per unit time and that gives you the doubling time. So our example of 5% per year, you divide the 5 into 70, you find that growing quantity will double in size every 14 years.

Well, you might ask, where did the 70 come from? The answer is that it's approximately 100 multiplied by the natural logarithm of two. If you wanted the time to triple, you'd use the natural logarithm of three. So it's all very logical. But you don't have to remember where it came from, just remember 70.

Let's practice. We are using 73,000,000 barrels of oil a day. Growth is at 1.7 - 2% a year. So, 70 / 1.7 = 41. In 41 years we'll need 146,000,000 a day of oil. For all oil liquids we are using 86,000,000 b/d, so we'd need 172,000,000b/d. The OECD countries are in decline. Most nations are. Everyone you read or hear will tell you the bulk of future oil production lies with OPEC. OPEC is going to produce an additional 73 - 86 mb/d? No way in hell. Saudi Arabia states their goal is a decades-long plateau of 12.5 mb/d. Well, there's 3mb/d!

As for population, there are now more than 6.5 billion people. The world growth rate is over around 1.14 according to wiki. 70/1.14=61. Thus, in 2067 world population will be 13+ billion. Hmmm... Per capita energy use is a strong indicator of standard of living. The image to the right shows what's happening to oil production per capita, from dieoff.org.

You see, without addressing population, we cannot address any of the issues we face. How do we have that many people and produce LESS CO2 and other gases, even with strong conservation? Where does the energy come from? Since the poor want to live like we do (not that we don't have our own poor...), when do they just start trying to take it? Or what happens as we keep taking their energy? We took Iran's. Look what happened. We are taking Iraq's. Look what's happening.

Would the world as we know it exist without oil? The chart at the right suggests not. Found here.

Hang on, It's going to be a bumpy ride.

The Crash

The third part of the positive feedback loop creating the Perfect Storm is the economy. On a simple level you have a simple boom-bust cycle in housing: a price run-up coupled with too many sub-prime loans leading to an eventual bust as ARMs and other complex mortgage packages reset, leaving marginal buyers and speculative investors with payments they can't make. A downward cycle ensues. Were it that simple.

The true problem with sub-primes has not a lot to do with a simple boom-bust cycle. While that alone would drag on the economy, the rest of the world has been chugging along nicely and a slowdown in the U.S. would probably be contained by a relatively normal recession. We are due for one, anyway. We are currently in the second longest expansion in U.S. history, after all, and economic cycles tend to be pretty regular (in a Chaotic fashion, however.) No, the real problem lies with the CDOs (collateralized debt obligations ) and SIVs (structured investment vehicles) ) used to sell mortgages to investors, in turn getting the assets/debts off the books of the bankers/lenders. Loans were packaged together and sold as blocks of real estate holdings, i.e., mortgages.

A huge number of these loans were to buyers without the long-term means to pay them. For their part, many were essentially speculators, using their homes as ATMs under the assumption they could refinance before prices went down. (One must assume a fair number of these people also were unsophisticated in their understanding of real estate investing, failing to understand that for the Average Joe, real estate should be a long term investment, the lifetime of which would see a variety of peaks and valleys in price and that only in the long term could one reasonably expect a relatively safe return on investment.)

Back to the banks. As much as 1 trillion dollars is tied up in these SIVs. CDOs and other investment vehicles. To solve this problem the Federal Reserve banks of several nations are throwing money at the banks hoping to slow the problem, supposedly. What this is doing is driving down the value of the dollar even more than already is the case and expanding the bubble. (Now, when the government gives me money to help me out it is called welfare, when given to banks and corporations it's called subsidy or monetary policy. These institutions are being given money to stay alive so they can collect your debt.)

Where did the bubble come from? The Federal Reserve a la Alan Greenspan. In the early 2000's Greenspan actually encouraged banks/lenders to increase the range of types of loans to make it easier for people to get loans. He told them to be more creative. And were they ever! Just three weeks before beginning the rise in interest rates, as late as 2005, he was still doing this. Let me make this clear: Greenspan was encouraging risky loans while planning to begin raising interest rates, knowing full well it would result in ARMs being more expensive for these marginal home buyers.

So, we have a housing bubble collapsing. We have SIVs and CDOs being held by investors not just in the US, but all over the world. They are held by retirement funds, by schools, by just about every investor of any size. At 1 trillion dollars, 7.6% of US GDP is disappearing before our eyes. For some perspective, the entire 1973-75 recession saw a drop in GDP of 6.8%. Further, the recession of 2001 was only .032 %! These numbers should scare the hell out of you because we are just getting started. Let me clear, the loss in value of these investments does not directly equal GDP, but how can that much value be lost and NOT affect GDP? The homes being lost are real homes. Lost homes will lead to lower economic activity, bankruptcies, defaults on other monetary devices, such as credit cards, etc.

To top it all off, the US is already in recession - if you don't listen to Washington. The US Bush administration stopped publishing both M3 money supply and real inflation numbers. They give us what they call "core" inflation which does not include food or oil prices, claiming they are too volatile to reflect real inflationary pressures. But it just so happens these are the prices most likely to affect us on a daily basis. Why doesn't the Bush administration want you to know this info? If you know M3, real money supply, you can guess what's going to happen to the dollar. If you know real inflation, you'd probably stop spending money. Then the economy tanks because the US economy is dependent upon... you spending money. When you stop doing that, a recession comes next.

You can get info on the real numbers here.
You can read an interesting overview on the situation here.
You can read an interesting threaded discussion by some amateurs, and get lots of links, here. (You don't need to read all the many, many posts, just go through and pick out the links, particularly of poster "keane.")
You can get a taste of how all the issues discussed on this blog might tie together to create our Perfect Storm here.

This post will be updated and expanded, so keep coming back.

Oil Price Touches $100 a Barrel; Signal of Pending Oil Shortages Ignored

The price for West Texas Intermediate (WTI) oil touched $100 on January 2, 2008, a new milestone. According to TheOilDrum.com, WTI oil price has been giving a very clear signal of pending shortage for over five years now, and in breaching the symbolic $100 a barrel mark, continues to do so. Those driving the world economy have steadfastly ignored this red warning light. In doing so, they are steering the world toward an energy disaster characterized by shortages, high energy prices, inflation, growing inequity, civil unrest and famine.

(PRWEB) January 4, 2008 -- Oil Production Graph Data for graph

A Signal Ignored
...The $100 a barrel price is a sign that times will never be the same again. According to TheOilDrum.com, the world is entering a new era, where the supply of energy will come to dominate the political landscape in a way that is currently not recognized by any of the leading candidates.

Over the past two years, citizens have been repeatedly assured that there is no problem with future oil supply... the public has heard false promises of lower future prices, and been beguiled by the possibility of a price collapse in the face of excess supply...

Both oil and natural gas resources around the world are found in underground reservoirs of a finite size... As the quantity of oil remaining in place falls, the rate at which oil can be recovered also falls... This happened to the United States in 1970... oil production... has since declined from... 9.6 million barrels a day (mbd), to ... 5 mbd. ...the North Sea, the Alaskan fields on the North Slope, and the huge Cantarell field in Mexico have entered irreversible decline... the world is now reaching the point where all of the oil fields of the world are in aggregate coming to peak production... countries that still have a surplus of oil to export are seeing ...an increase in their own demand for oil, which reduces the amount that can be made available for export... The increasingly limited ability of nations such as Saudi Arabia and Russia to increase oil production is already becoming evident, leading to a reduced potential for raising world production. It now appears unlikely that the world will ever see a daily oil production rate of 90 mbd, even when natural gas liquids and condensate are included. Thus, future projections that speak glibly of numbers above this level are foisting a canard on the world's population that all will come to regret...
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Korea Vulnerable

I have spent a significant portion of my adult life in Korea. I am married to a Korean and have a son whose genes are half Korean. I work here. I live here. And the future scares the hell out of me even more so were I back home in the BushCheney-ravaged US. Why? Korea is poor in natural resources, but has a huge population density. Can you say conflict?

Korea's situation is like that of Ireland. One is an island, the other at the end of a peninsula blocked from China by an unfriendly and already-economically devastated brother. Isolated, relatively speaking. Both are extremely reliant upon, nee dependent upon imported energy. When TSHTF, these two nations are among the most vulnerable of the OECD nations.

As stated before, one of the problems with our oil addiction is it is so pervasive. Oil is in the price of everything, either directly manufactured with oil, with things made with oil, or transported by it. Everything. As the price of oil rises, so does everything else. Eventually. Producers try to keep prices down to avoid demand destruction, but how long can they wait? Damned if they do, damned if they don't.

Documentary with parallels to the Korean situation:
http://www.youtube.com/watch?v=3sPDNR2YS3s

Recent Korean news:

Soaring Oil Price a Warning Signal for Korea’s Economy
Optimism Alone Can't Solve the Oil Problem
How Will $100 a Barrel Oil Impact Consumers?
Korean Air Hikes Fuel Surcharge by w100,000
Nuclear Power in Korea
Transportation in Korea

On a positive note, the Korean government isn't as stupid or bullheaded as BushCheney. They know there is a problem. They are setting aside money to invest in energy resources abroad and are planning to build additional nuclear reactors. (Is nuclear an option?) I hope they move fast. Will the recession underway in the US and subsequent likely depression prevent this? If so, watch out. We will be living back in the Choson Kingdom. That's Iron Age.

When TSHTF, what are people going to do? What are WE going to do? (More on that later.)

TEOTWAWKI

A Doomer view, but realistic over the long run. The question is one of collapse vs. chaos. In 1929, The Great Depression era, only 25% of people were out of work. The underlying structure of society still existed. Resources were plentiful. This was an economic emergency, not a geological one. Peak Oil is the inability to produce oil fast enough. It will become the inability to produce enough at all. Sure, there is half the oil left, but demand has begun to surpass production. Crude oil production is falling. US stocks of crude have been falling since summer, even when they typically should be rising. Why? We need between 2 and 6 million barrels a day in new production every year just to cover natural declines in existing oil fields. We are not finding it and haven't been for 25 years. (See image in side bar.) We are on borrowed time. In the 70's and 80's the oil reductions were paralleled by reductions in GDP. A five percent decline is a big recession. We are looking at 4-8% decline year after year. After year. With the world in Depression, how do we pay for the massive changes and problems caused by Global Warming? How do we pay for a new energy system globally? That goes doubly for the fact that we are entering a massive financial meltdown independent of either Peak Oil or Global Warming. Millions are losing their homes now, and we are just getting started. Where the hell is the money going to come from? If we don't do something about global warming NOW, it will be too late to bother.

We are now faced with resources disappearing across the board. Why? Population and consumption. By some estimates we need 1.2 Earths to satisfy our current living standards into the future. For everyone to live as Americans do, more than 6 Earths. This is obviously impossible. Keep in mind: societies and systems are not limited by the abundance of all resources, but by the lack of just one critical resource. Consider: if water were not available, civilization dies. Period. It doesn't matter what else is there. Or, if you have all else, but no fuel, what happens? Growth? Heat? Cooling? Of course not. Systems are limited by THE resource that is least available, yet necessary.

The following is some sound advice/observation in the worst case scenario. Read it. Please.

The payoff of a much longer speech. It's worth reading in its totality.

The End f Civilization and the Extinction of Humanity

by Guy McPherson

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Transcript of a talk I delivered 17 August 2007. It was the keynote address for a conference organized by, and for, students in the University of Arizona's Master of Public Health (MPH) program.

The invitation to speak today is quite an honor, and I appreciate the opportunity...

Many experts who write about simply one of these issues -- Peak Oil -- predict complete economic collapse within a decade, followed shortly thereafter by utter chaos and the subsequent death of more than 80% of the world's population. After all, the exponential curve of human population growth matches perfectly the exponential growth of world energy supply, suggesting that the downturn of the energy curve will cause a large-scale die-off of human beings. And if you think chaos can't descend on this country, you weren't paying attention to New Orleans in the wake of hurricane Katrina. Horrible as that event was, nearly everybody involved knew it was a temporary inconvenience; I'm concerned how people might act when they recognize Peak Oil as a long emergency.

Can we get from here to there?... To tackle Peak Oil and runaway greenhouse at the same time might require larger doses of courage, compassion, and creativity than we can find in ourselves.

...And in that hope, we find the agenda ahead, laid out in ten huge steps by James Howard Kunstler, author of The Long Emergency. This is a not a 10-step plan in the usual sense; rather, we will have to start all of these steps simultaneously, and now. These steps are ginormous. That's a new word, as of last month when Webster's

Step 1: Expand our horizons beyond the question of how we will run the cars by means other than gasoline.
The TechnoMessiah will not save us from ourselves, nor will she magically create a substitute for crude oil. The mainstream media would have you believe ethanol is the savior, when in fact the most likely outcome of the ethanol craze is that we'll use our gas tanks to burn through the last six inches of topsoil in America's breadbasket. Biodiesel represents the most viable of the alternative fuels, but it requires a choice: We can use our farmland to grow food, or we can use it to grow fuel for our cars.... It's time to abandon the car, time to make other arrangements for nearly all the common activities of daily life.

Step 2: We must produce food differently.
Industrial agriculture is destined for disaster, and will leave in its wake sterile soils and an agricultural model at a grossly inappropriate scale. Within the next decade or so, small-scale farming will return to the center of American life. Think of the Victory Gardens of Oil War II as a small-scale, temporary experiment...

Step 3: We must inhabit the terrain differently.
The American suburbs and the interstate highway system are designed for a culture that has no future: the misguided car culture. The suburbs in particular represent perhaps the greatest misallocation of resources in the history of the world.... Our towns must be re-inhabited and the areas around them must be re-structured to accommodate small farms and the manufacture of goods to serve the towns. This entire process will require gihugic demographic shifts and is likely to be turbulent... when all this is happening and the thermometer reads 105 degrees and the calendar says summer's not here yet; you'd better get along with your neighbors, especially the heavily armed ones who take a strict interpretation of the Second Amendment. If you're looking for a job in the decades ahead, look no further than the brand-new fields of architecture, planning, and political leadership. The old versions of these enterprises are useless and must be abandoned...

Step 4: We must move people and things differently.
You've probably all seen the bumper sticker on about every fourth 18-wheeler on the interstate: "Without trucks, America stops." That's about right, at least with respect to economic growth. And the trucks are going to stop within the next half-decade or so...

We could start with our railroads... they can run on renewable energy. Then we could move to the waterways...

Step 5: We need to transform retail trade.
...Again, there are plenty of career opportunities for energetic individuals interested in small, local businesses. In the locally owned shops of the future, even the much maligned "middle man" will be making a comeback (so, too, will the lesser-known "middle woman").

Step 6: We have to start making things again.
We will have far fewer choices when we go to the store, but we still will need clothes and household goods...

Step 7: We need artists again.
....We're going to need playhouses and live performance halls... And we'll need musicians and actors and playwrights and stagehands and theater managers. We'll need storytellers, too, to keep history alive when the publishers stop printing books...

Step 8: We must reorganize the educational system.
Yellow fleets of school buses are on their way out. We have invested heavily in centralized systems of primary and secondary school -- most recently and disastrously in the form of "No Child Left Behind" -- and we will undoubtedly continue to invest in that centralization at the expense of true education. Such investment will slow the transition to a reasonable system of education that perhaps will grow, in fits and starts, from the home-schooling movement...

Step 9: Our medical system must be completely reorganized
Without power-hungry high-tech tools, we'll need real doctors again: people who understand how the body actually functions...

Step 10: Our entire socio-economic and political system will become much more local.
Every large system will fail. If you can find a way to do something practical and useful on a smaller scale than it is currently being done, you are likely to be well fed and even revered in your local community. Local politics will assume increasing importance as first the federal government, then the state government, simply fade from relevance. Neo-conservatism clings tenuously to life but, much to the dismay of Business Party I and Business Party II, [it?] will soon be dead.

The collapse of American Empire will bring many opportunities for local heroes...
There you have it: a thumbnail sketch of the agenda.

This, then, is the bottom line: This is not the time for wishful thinking. It's the time for doing. The way to feel hopeful about the future is to get off your butt and demonstrate to yourself, and perhaps to others, that you are a capable, competent individual determinedly able to face new circumstances...

During the time of Christ, in the Mediterranean region, the population of humans was viewed through the same lens as other populations. As such, human deaths often occurred in large numbers, as a result of war, conquest, famine, and pestilence...

Until very recently, large-scale die-offs were viewed as "normal"... The description and management of human populations back in the days of the Greek Cynics was oriented along population lines, with relatively little societal regard for individuals...

The years ahead will see a dramatic rise in deaths from starvation... At the population level, starvation is called famine... pestilence -- what we call disease, when it happens one person at a time... Famine and pestilence are two of the Four Horsemen; war and conquest are the other two. Already, resource wars have begun, and they are likely to ratchet up in the near future. The so-called bipartisan Iraqi study group concluded that Operation Iraqi Freedom was conducted in pursuit of black gold... I fear Oil War III is just getting started.

I'll finish where I started, which was the common good as the basis for friendship and hope. And, of course, with the ancients.

Without the common good, and the struggle on its behalf, there can be no Aristotelian friendship. There can be no justice. And there can be no virtue... And I further conclude that: As friends, we reveal our differences, we appreciate our differences, and then we set them aside ... for the common good.

With hope shining like a beacon, we struggle together ... for the common good... We have in our hands the destiny of our planet, including our own species and so many others... Walking a path that honors the planet and ourselves is a responsibility we share, you and I -- a responsibility unlike any other in human history. And it is not just a responsibility, but also something more: It is a joy, and a privilege.

A New Dark Ages or a New Light Age?

The answers seem simple enough:

1. small communities (neighborhoods, villages, towns) Think New Hampshire-esque where decisions are always made at the local level not just by elected officials, but the real input and vote of the people. This must trump national input on all things but those that are truly international, e.g., treaties, war powers, etc.

2. Localization. This must be undertaken by the locals themselves. It can only succeed this way given the base must be as in 1. (Examples: the video.) People must lead their municipalities in this direction to show them what is possible. However, if municipalities do not devolve much power back to the neighborhoodish level, this too will fail.

3. Reduce, Re-use, Recycle.

4. In the US, you are literally looking at a Constitutional Convention to more clearly elucidate the division of power and specify local powers from State and state powers.

5. Capitalism must die. It must be replaced with something closer to the barter system and usury, of any kind, made, again, illegal. Usury leads to inflation and never-ending growth at speeds we cannot adapt to in a healthy fashion. Imagine how different a world this might be had banking, and more so, the fractional reserve system, not been created. Imagine how different it might be had population taken eons to rise to current levels instead of decades.

None of this is going to end greed, of course. That is why communities that are tight knit and strong at their core must exist: to stand against individual evil without stifling individual expression and production.

If, at the very least, usury is not removed from the equation, none of this is truly sustainable. We will, regardless of the systems adopted or adapted to, go through he same cycle in the future. Perhaps a simple way to put is this: we should strive to live in such a way that the only cycles of destruction we experience are natural ones. Cycles are real and inexorable. But I think we have some choice as to which types of cycles we submit ourselves to.

6. As alluded to above, we must choose harmony with our environment. Cuba provides a surprising example how this transition can start, though given the totalitarian model there, it might not be so easy in non-totalitarian nations.

The devil is in the details of implementation. In some ways, this may take care of itself. That is, if TSHTF resulting in TEOTWAWKI, those places prepared will prevail and their standard may become the de facto standard for that area or region. So the question applies only if we don't fall to the worst case scenario.

Let's say we end up with an extended recession, i.e. depression. This will leave the powers that be (TPTB) intact and lead to a long fight to realign socio-economico-geopolitically. In this case, small localization groups/transition towns will have to go toe-to-toe with TPTB. This will lead to conflict. That conflict might well be, and ideally would be, civil disobedience leading to redress and realignment. However, governments being what they are and human nature being addicted to power as it far too often is, more likely you would be looking at the imposition of military/paramilitary power to impose the current paradigms into the future. Again, the people would have the choice of open rebellion or the long-suffering, Ghandi-style rebellion. Not sure which Jefferson had in mind when he said a little rebellion is good for a nation.

None of this is going to happen without conflict if things get rough. In some ways, the worst that could happen for Freedom and The Pursuit of Happiness is for the S to not HTF. That's not advocating any open rebellion, but is a recognition of inertia. If the inertia doesn't get a shove, things will remain the same or completely collapse. Remaining the same, however, actually means get much worse as we drift further and further into a drone-like state of living. (Once again, Sci-Fi provides the vision of what is coming...)

Given what the population of the US has faced the last seven years, our shearing is nearly complete. Indeed, where are the protests? Where is the national strike? Where is th impeachment? 1776 is too distant. The Founding Father's voices muted, even considered quaint. Given this reality, how can anything happen except at the very local level? Yes, that is where it is starting, and where it must start - and end.

My vision is of a world that remains connected regardless of how good or bad the future becomes. The internet and other forms of mass communication must remain intact and must be a high priority for any and all groups of whatever size. Knowledge and information must remain available for those that need it. Communication must remain open to allow coordination and sharing of ideas, developments over time, etc. But, our day-to-day lives will almost certainly have to become far more pastoral. This does not mean science and advancement should not exist, but that it should be applied to making our lives healthier and happier in the holistic sense, not in the now-bankrupt idea of acquisitiveness. I envision a hobbiton-esque community with a gleaming understructure of hi technology. Smart houses based on renewable energies, mass transit except where impracticable, etc.

No matter how you slice it, to get to a sustainable world, not just a sustainable local community, we are looking at a shift in scale equal to the great changes of the past, e.g. The Dark Ages. With a great deal of luck founded in a great awakening, this might be The Light Ages.