Kunstler on 2007

[phantom power]

Speaking of which, Happy New Year gang!
:toast:

PS, this is a long post by Kunstler, lots of various topics covered, energy and economics

Oil ended 2006 roughly where it began, at just over $60 a barrel. This reassured the public that all talk about Peak Oil was hysterical blather from a lunatic fringe. It was reinforced by publication of the mendacious Cambridge Energy Research Associates (CERA) report issued this fall -- a tragic document put out by a giant public relations firm representing the oil industry -- with the mission of staving off windfall profits taxes and other regulatory moves that a true resource emergency might recommend.

But beyond this debate, in the background, another ominous trend can account for the stalling of oil prices in 2006 -- totally unrecognized by the public and ignored by the news media: prices on the oil futures market leveled off because the Third World has effectively dropped out of bidding for it -- and using it. They cannot afford it at $60-a-barrel. The Third World has entered an era of energy destitution and it is manifesting in symptoms such as local resource wars, genocides, falling life expectancies, and in many places a near-total unraveling of the sociopolitical order. American mall-walkers and theme park visitors are oblivious to this tragic process, but it is perhaps the major reason why we are not now suffering from $100-per-barrel (or greater) oil prices (with the consequent unraveling of our sociopolitical and economic order).

The major trend on the oil scene the past 12 months is the apparent inability of the world to lift total production above 85 million barrels a day -- with demand now rising above that line. It is unclear how much more demand destruction will come out of the Third World before bidding intensifies between the developed nations. One commentator in particular, Dallas geologist Jeffrey Brown --a frequent contributor on the web's best oil debate site, TheOilDrum.com -- is advancing the idea that we are entering an oil export crisis that will presage a more general permanent world-wide oil emergency. Brown holds that the major oil exporting nations are using so much of their own product, because of rising populations, that their net exports are falling at an alarming rate, perhaps as much as 9 percent annually. This trend combines with general depletion rates now said to be around 3 percent a year.

The question of total oil reserves around the world remains somewhat murky, but Brown, Kenneth Deffeyes of Princeton, and others using a straightforward mathematical model, have stated that the world is roughly at the same point in all-time production as the Lower-48 United States was at in 1970, when America passed its all-time production peak. We know for certain that three of the four super giant oil fields (Daqing in China; Cantarell in Mexico; Burgan in Kuwait) are past peak and there is plenty of evidence that the greatest of them all, 50-year-old Ghawar in Saudi Arabia is not only past peak but perhaps "crashing" into a super-steep decline.

http://jameshowardkunstler.typepad.com/clusterfuck_nation/2007/01/forecast_for_th.html

[Strelnikov_]

1. Some Of My Favorites

Love him or hate him, he can rant with the best of them.


I'd have to conclude that the Federal Reserve is out of tricks for goosing economic activity. Their last major trick was hitching a jive economy to a real estate bubble by making loan money available to any jabonie with a pulse and promoting the demise of lending standards. The gambit lasted five years and is now blowing up in America's face.

. . .

But beyond this debate, in the background, another ominous trend can account for the stalling of oil prices in 2006 -- totally unrecognized by the public and ignored by the news media: prices on the oil futures market leveled off because the Third World has effectively dropped out of bidding for it -- and using it. They cannot afford it at $60-a-barrel. The Third World has entered an era of energy destitution and it is manifesting in symptoms such as local resource wars, genocides, falling life expectancies, and in many places a near-total unraveling of the sociopolitical order. American mall-walkers and theme park visitors are oblivious to this tragic process, but it is perhaps the major reason why we are not now suffering from $100-per-barrel (or greater) oil prices (with the consequent unraveling of our sociopolitical and economic order).

. . .

In short, the Middle East is rigged like a gargantuan booby trap, the biggest IED the world has ever seen. There are too many things that can go wrong, and countless possible combinations for Murphy's Law to come into play. As bloody and horrible as events have been in the Islamic world through 2006 -- including everything from the genocide in Darfur to the daily violence in Iraq and Afghanistan to the Hezbollah-Israel fight -- things can obviously get worse. At the bottom of all this are the exploding populations in a part of the world that has historically possessed only meager resources for human existence. Now that the most special resource of all -- abundant oil -- is heading into depletion all that remains on the horizon is a long, grinding competition among more people for less of every other resource. My guess is that the Middle East will shut down politically before it shuts down geologically.

. . .

I also believe that the feckless complacency of our current behavior could lead to a situation here in which Americans will beg an authoritarian leadership to tell them what to do. Winston Churchill famously remarked that Americans could always be relied upon to do the right thing -- after they had exhausted all the other possibilities. I hope we are not heading in that direction, but we are already romancing the "other possibilities" (like running WalMart on corn) instead of taking intelligent steps like fixing the railroads, or ending subsidies and incentives for suburban development, or slapping realistic taxes on gasoline.

. . .

[ramapo]

2. What keeps it going?

I'm much of the same mindset as Kunstler, always have been.

With 50 years under my belt, I continually wonder what keeps the deck of cards from crashing down?

We have an economy built on debt, a mindset that somehow there can be continual growth from population to the economy to energy consumption in a finite world with no consequence, to an ecosystem under tremendous stress with no end in sight.

Yet year in and year out the train keeps chugging down the track, which just makes me fear all the more the day when the wheels come off and the boiler explodes.

[Dogmudgeon]

3. Kunstler's sole "error"

He thinks the course of the clusterfuck is at least a little predictable. I think it's now completely unpredictable, and deliberately so.

I think that a considerable amount of effort has been put into obfuscation, to prevent panics and market collapses. It was the reason, IMHO, for OPEC's massive revisions of oil supply figures in 1986 and 1995. The less useful information we have on the crisis, the less chance there will be of a rapid worldwide economic crisis and collapse. But hard times will come, none the less.

Of course, I concur with Kunstler's overall analysis. It's just that the process of getting there is going to be delayed as long as possible, and "engineered" into a long, slow, painful slump, as is already happening in the real estate market.

For one thing, oil production has been flat for a year and a half, right around the 84-85 Mbbl level. Over the last two years, all production forecasts have been lowered -- consistently.


(From Tracking the EIA Short Term Forecasts by GillesTheFrog at The Oil Drum.)

Getting accurate information from OPEC is like pulling teeth, and non-OPEC sources are scarcely better. Nobody wants the bon temps to stop roulant, and derived figures like the EIA Short-Term Outlook are all we have to go on. It is quite possible that Ken Deffeyes' tongue-in-cheek prediction for Peak Oil to hit on Thanksgiving Day, 2005, at 2:30 PM EST was on the money; with a completely symmetrical plateau around that date, we should be feeling the first shocks soon, although I think we have another couple years on the plateau yet. But it's not lookin' good.

My second big point is that JHK has overlooked his own point about the economic system now being based on confidence tricks, hot air, and slight-of-hand. I believe that such legerdemain can be sustained longer than Kunstler thinks -- else we would have had a strictly economic reckoning long ago. Remember, it was in 1971 that Nixon gutted the postwar Bretton Woods agreement that kept currencies stable and pegged to the Dollar. Bretton Woods probably needed some modification to keep up with Europe's postwar development and the emergence of the African and Asian economies, but Nixon's policy was rather like shaking up a pop bottle until it burst. This led (again, IMHO) to 35 years of highly speculative finance, financial value creation based almost entirely on the same kind of confidence from which the term "con" is derived. Certainly, real wealth has been created since 1971, but also certainly much less than the paper wealth that has supplanted it. A "reckoning", or economic re-alignment, wouldn't have been nearly as lucrative. In contrast, the pre-Depression speculation run-up of the 1920s only spanned about a decade, from the end of World War One, and there were far fewer mechanisms to keep the go-go years going. It was also limited to certain financial markets, like the Stock Market, and began with a crash, the rather more limited European currency crash of 1921-1923. It was the effect of finance capitalism wobbling and falling like a baby learning how to walk, not the exhaustion and collapse of an over-stressed and long-doped athlete at the breaking point.

I am not crying doom in the desert, however. America, as well as most of the world, has no shortage of people who are willing to work to create real wealth, not just buy into get-rich-quick schemes. With even modestly competent leadership, we could weather a severe depression; that's not my concern. I'm worried that a cascade of financial, political, resource, energy, and climate crises could wipe out a century of physical infrastructure and huge numbers of people. The destruction would be enormous, and the human cost in deaths could likewise be staggering.

I think Jim Kunstler would agree with that, at least the gist of it. So, my only real disagreement with Kunstler is that he trusts economic gravity more than I do. We both agree that the hot air is heated with oil; I just happen to think that it's wafted a lot higher than he does.

--p!

[phantom power]

5. They (and we) will be lucky if it can be engineered into a long painful slump.

I'd say that a catastrophic crash is on the table as a possibility.

[Porcupine]

4. "A double Dien Bien Phu"- that's optomistic.

I think our economic situation is something akin to a fat old lady with thin bones; one false step and the hip breaks.

In Nigeria there is evidence of increasing energy access problems by those at the bottom of the economic pile. They continue to tap pipelines despite accidents that result in hundreds of deaths. I suspect the fuel situation is as dire elsewhere but with no pipeline to tap people will be burning whatever they can find to cook food.

In Australia climate change will severly curtail or eliminate the ability of the ozzies to contribute to world grain production. Worldwide grain production has been falling below consumption for five years now supported by declining reserves. This will mean food will be unaffordable for many more people.

Here at home I saw a front page article (Santa Rosa Press Democrat) outlining how a St. Joseph statuette buried in the backyard would attract house buyers. A grim sign if that is front page news. I personally lost my job due to contraction in the rental investment market here in my town.

The Iraq war is lost. It is clear that there were weapons available to Hezbollah that would stop US armor and keep US helicopters at altitude. Iraqi IED's can crack our APC's and the snipers are getting more of our troops daily. There is no safe place in Iraq for an American off of military bases and the bases are regularly shelled by mortars.

The Southeast coast of the US will come to an economic halt if there is an active hurricane season. The lesson of Katrina was "don't get caught in the srike zone." Every single incoming hurricane will result in huge evacuation zones with resulting losses in whatever productive economic activity that was left.

The West of course always has earthquake and fire risks to make life interesting.

Fun times all around.