[OilBurner]

I was about to quote the dieoff response when it got edited. ""Curses, foiled again"

Sorry! Feel free to quote any parts you feel relevant from the website.

You make some good points too about the common mistake of projecting the problems of the first world countries onto other parts of the world. However, wouldn't India suffer if the price or availablity of pesticides and fertizlers skyrockted?

[smiley]

The gov. is already fudging employment, terror, and other critical indicating numbers. How will we know when or IF we ever got out of the last recession.

Indeed, I’m worried about whether this government is willing to act on inflation. You mentioned that the employment and terror numbers are being manipulated. The same is true for the inflation numbers.

Under the Bush administration the definition of the CPI has been adjusted twice. The CPI number should reflect the spending behaviour of the average person, but so many components have been cut from the CPI (food, fuel, goods) that it has lost its meaning.

Inflation, in the strictest sense is, the creation of money without assets to back it up and the resulting decline of the currency’s value. I think you are all aware that the printing presses are running overtime at the moment. I can’t see a justification why this shouldn’t create inflation.

And from what I hear, I estimate that inflation in the USA is running at an annual pace of 7-9% and growing. You can see it in the prices you pay for food, medical insurance, rent everything. Even the jackpot for your local lottery is a good indicator.

The value of the dollar and the buying power of the dollar abroad also indicate inflation of about 7-9%.

One component of inflation appears to be lacking, wage growth. Normally inflation is accompanied by strong growth of the salaries. The salary growth is reported at about 1-3% annually, but you can see very large differences between low, medium and high incomes. The high-incomes are growing at an alarming rate. Especially if you count bonuses, company cars, phones, stock options and other things, which do not show up in the salary. So I think wage inflation is present, but strongly localized.

If I’m right on this, Greenspan is way behind on the inflation curve. Rates should be around 6% to effectively combat inflation. 0.25% extra is not going to do the trick.

So you’ve got strong inflation, and a FED who’s unwilling to act on it. With peakoil approaching that’s a recipe for disaster.

[Barbara]

In Europe we are on the same boat about inflation. People is getting crazy to reach the end of the month with their paycheck: prices keep growing and wages are the same as 5 years ago. The perceived inflation is 15%, while the govts keep saying it's 2%. Big protests by consumer associations, with no results.
What is good in Europe is that we have a strong tradition in savings. And the mortgages refinancing is not allowed (one of our leaders proposed that last year, to help consumes, but everybody went crazy and they stopped the law).
In 90s all the people was more rich, and we began to ask for privatizations. But today all the people thanks God for public health, public schools, public transports and so on. Nobody dares to ask for privatizations anymore.

[OilBurner]

I wish all of Europe was so sensible. Here in the UK people have been abandoning savings with great haste.
Even worse than that, they have been re-mortgaging properties and taking the excess equity to spend on fast depreciating assets like expensive cars etc. House prices are going through the roof and people buying their first homes are borrowing 5x (and more) of their gross wages. Oh yeah, and low interest rates has encouraged many to splash out for stuff on credit cards. See http://news.bbc.co.uk/1/hi/business/3578909.stm for a taster on this.

This is a sad story and becoming more common:
http://news.bbc.co.uk/1/hi/business/3168285.stm

If that's not a recipe for disaster in the face of increasing interest rates, then I don't know what is!

[JayHMorrison]

And the mortgages refinancing is not allowed (one of our leaders proposed that last year, to help consumes, but everybody went crazy and they stopped the law).

That is nuts? People stuck in high interest mortgages are not allowed to take advantage of low rates and lower their borrowing costs?

How would they stop you? You pay off one loan. They you apply for another one? Is there a law actually stopping this? What country?

That is just stupid to disallow this. Someone stuck in a mortage at 10% from 1980s could not get a 6% mortgage now?

This is what businesses and banks do all the time. They get rid of high rate debt (call in a bond and pay it off) then they re-issue debt at new rates (Issue a new bond at the current rates).

To stop common sense activity like that seems just insane to me.

[JayHMorrison]

I wish all of Europe was so sensible. Here in the UK people have been abandoning savings with great haste.
Even worse than that, they have been re-mortgaging properties and taking the excess equity to spend on fast depreciating assets like expensive cars etc.

If the goal is to stop taking equity out, they could regulate the amount refinanced. For example, if refinancing for a low rate, the amount of debt for the new loan must be the same or lower. That is a financially smart transaction.

It all comes down to a freedom issue. People dont like to be told what to do with their money. Smart or dumb decisions dont really seem to matter.

House prices are going through the roof and people buying their first homes are borrowing 5x (and more) of their gross wages.

That is a problem with bank lending standards if they are approving those loans.

Oh yeah, and low interest rates has encouraged many to splash out for stuff on credit cards.

That is also the banks fault. If they are granting enough unsecured credit lines to people who cannot afford it, then they will have the higher default rates that come with poor lending decisions.

[OilBurner]

I won't argue with you there, the banks are being quite silly. They seem to think in terms of affordability (thanks to low rates) rather than actual borrowed amounts. This kind of short-termism is quite staggering.
Until the BoE actually started pushing interest rates up, I used to regularly hear from friends and family "they won't put the rates up, it'll hurt too many people and we won't qualify for the Euro". Those people are starting to get a wake up call now!
People actually seem to believe that interest rates only ever go down! There's optimism and then there's just sheer ignorance..

Here's a quote on loan multiples in the UK:

NatWest also has a Professional mortgage for selected professionals with a minimum salary of £20,000, offering up to five times first salary, and up to 100 per cent of the value of the property (though there is a MIG for loans worth 90 per cent or more of the value). The Scottish Widows Professional mortgage offers four times single salary, or three times joint.

Source: http://msn.whatmortgageonline.co.uk/WHM10.htm

Worse than this, even if the banks were thinking sensibly whether people can afford the loans, they are often not even checking income properly: http://news.bbc.co.uk/1/hi/business/3750603.stm
Some lenders have even been accused of encouraging people to lie about their income: http://news.bbc.co.uk/1/hi/business/3478635.stm

Madness!

[sheilach]

Pops, this is nonsense. OPEC is trying to keep prices low, they know that high prices = lower demand, bigger investments into alternatives => in future ability to sell less oil.
Check some articles about it, they actually fear world recession from rising prices, Saudis are trying to improve oil production, they even ask their competitor- Russians, to produce more..

What alternatives are there to oil for transportation,fertilizer, electric generation on a large scale, plastics, chemicals etc????

As oil declines it's value will rise and raise the price of everything else.

The value of the doller will also decline because of our huge debt and trade imbalance.
Internatioinal trade will decline because of the expence of transportation, more will have to be done localy including food production but our ability to grow food will also decline.

Many other economic activities will also decline like mining, fishing, electric generation, manufacturing, airlines will go out of business and all transportation will decline.

Even India depends upon imports of oil for transportation, farming and fertilizers.Their ability to feed themselves will also decline and they will be unable to import food to make up the difference.

At first as oil becomes more expensive, people will be forced to conserve and oil prices may briefly stabilize, but eventualy demand will exceed supply and oil prices will rise quicky as nations compete for what remains.

Expect more wars for oil,mass immigration, border wars, the military deployed to protect farms & grocery shops from looters,and big cities becoming unmanagable 'jungles'.

Our ability to treat sewage, water, pump water, pick up garbage and fight forest fires will also decline

Fuel may be allocated for essential uses, farming,military and some transportation.

For at least as long as it lasts that is.

Draft horses and mules will become more in demand as will blacksmithing skills.
Of course draft animals must eat every day so more land will have to be dedicated to growing food for them leaving less land to grow food for humans.

Few people will be able to afford pets.In cities, pets will become food.
Rat catchers will sell their catch for good prices.

SUVs will be used for scrap metal and fishing boats will have to return to sail as there main power source.

I think there will be a huge die off of humans, more in some places than others, so called 'primitives' will fare best as will subsistance farmers.

Worse off will be those countries that depend upon high energy imputs to grow and transport their food and manufactured goods.

I don't see how we can avoid a major depression as oil and natural gas declines.
There will however be more jobs for farmers and farm workers, draft animal breeders and trainers, blacksmiths, military, and wood workers.

There will be a open hunting season on politicians and economists.

[JayHMorrison]

What alternatives are there to oil for transportation,fertilizer, electric generation on a large scale, plastics, chemicals etc????

The main things are transportation (oil) and fertilizer (natural gas).

Electricity is not generated by oil (less than 2%). Plastics and chemicals could be generated by heavy oil or sand tar oil in Canada. Neither are in short supply.

[sheilach]

Electricity is not generated by oil (less than 2%). Plastics and chemicals could be generated by heavy oil or sand tar oil in Canada. Neither are in short supply

Sure there is a lot of TAR in Canadas tar sands BUT it's very difficult to get out and takes about as much energy to extract as what is recovered.
Most of that tar sands and rock will be impossible to access or extract, so that won't "save us" either.

Extracting tar from rock also leaves a LOT of tailings and uses a huge amount of water, it's a difficult and expensive process and only a small fraction of the tar sand 'reserves' can be extracted.

If you read about what form of fuel is used to generate electricity in the World Almanac , you will notice that most electricity is generated by coal,natural gas and PETROLIUM with a minor bit of generation from hydroelectric and nuclear, this information will be found in the information about the states in America.

Tar is fine for paving roads but it's not of much use as a fuel for transportation or making plastics.

[JayHMorrison]

Electricity is not generated by oil (less than 2%). Plastics and chemicals could be generated by heavy oil or sand tar oil in Canada. Neither are in short supply

Sure there is a lot of TAR in Canadas tar sands BUT it's very difficult to get out and takes about as much energy to extract as what is recovered.

The tar sands are energy positive. Not as good as conventional oil. But it is energy positive and the end result is crude oil.

Most of that tar sands and rock will be impossible to access or extract, so that won't "save us" either.

I am not expecting it to save conventional transportation. But I think oil will cease to be economical for transportation while there is still a bunch of it left underground. There will likely always be enough oil for plastics and other non-transportation uses.

If you read about what form of fuel is used to generate electricity in the World Almanac , you will notice that most electricity is generated by coal,natural gas and PETROLIUM with a minor bit of generation from hydroelectric and nuclear, this information will be found in the information about the states in America.

The numbers for electricity in America are approximately as follows.

50% Coal
20% Nuclear
20% Natural Gas
7% Hydro
2% Oil
1% other (wind, solar, etc)

Oil is minor source of electricity.

Tar is fine for paving roads but it's not of much use as a fuel for transportation or making plastics.

The end result of the tar sands is crude oil. I think the current high estimate for eventual production in a few years is 2 million bpd.

[smiley]

JayHMorrison wrote:
The end result of the tar sands is crude oil. I think the current high estimate for eventual production in a few years is 2 million bpd.

What the conversion of tar sand to oil concerns. It's a stupid idea. Energeticallly it would be much better to convert it to syngas and use it for plastics.

the current decline rate for post peak countries is already 1 million bpd per year, so tar sand production needs to grow a bit harder than that. Another problem is that you need a lot of natural gas to harvest the tar.

JayHMorrison wrote:
There will likely always be enough oil for plastics and other non-transportation uses.

There are a lot of industries totally dependent on oil. Most people focus on polymers since they are directly made of oil. However most materials you encounter in daily life are not made of polymers, yet they rely heavily on oil. If you only look at your own house you'll find:

Cement/concrete (calcining of lime)
Bricks (firing)
Glass (melting, shaping)
Metals (forging, heat treating)

The energy consumption of these industries is staggering. You would be surprised how much oil it costs to build a house.

For these industries there are no alternatives to fossil fuels.

[JayHMorrison]

For these industries there are no alternatives to fossil fuels.

You are correct and nobody disagrees with you. But I think most of us recognize that the first sector that will be hit most will be daily transportation by individuals.

Inflation from other areas is a lagging indicator. Those prices will rise after gasoline at the pump.

Daily transportation use of oil represents about 2/3 of our oil consumption. That includes cars, trucks, planes, etc. The other 1/3 is other industries that you noted and more. (this is all approx)

Oil will cease to be economical for a lot of industries at such high prices. There will be a huge effort to find a way to utilize the electric grid instead of using oil. Some will be successful, other will not. I recall one quote from someone who said, "I cannot think of a way to make a bike helmet without oil polymers."

I think the key once the crisis is recognized by the public is to identify industries that NEED oil (no substitution possible) and those where alternatives are possible, but more expensive. Those industries that exist on cheap oil, but can use a more expensive alternative, will be forced to convert. Either the market price of oil will force the conversion, or the gov't will mandate the conversion.

There will eventually be a massive effort in identifying an energy conversion plan. It is inevitable. Oil will be reserved for mission critical needs. What those changes will be are almost unimaginable at our level. None of us has the expertise to say in detail what those projects will entail.

[Ender]

The tar sands are energy positive. Not as good as conventional oil. But it is energy positive and the end result is crude oil.

The numbers for electricity in America are approximately as follows.

50% Coal
20% Nuclear
20% Natural Gas
7% Hydro
2% Oil
1% other (wind, solar, etc)

Oil is minor source of electricity.

The end result of the tar sands is crude oil. I think the current high estimate for eventual production in a few years is 2 million bpd.

The tar sands require a lot of heat to extract them. Currently, that heat comes from burning quite considerable amounts of natural gas. There are also issues of scale: even if a nuclear reactor was built to provide the heat, which would take some time, 2 million bpd extracted at enormous financial and environmental cost is not actually that much. If it can be sustained it might just offset the decline in Canadian conventional oil production. There would need to be a lot of infrastructure put in place too.

Since North America is approaching the end of its natural gas reserves as well (and it is impossible to say whether they will enter decline next year or ten years hence: but they will do so with very little warning because of the way gas depletes), the tar sands project could come to an abrupt halt when the gas is needed for other things.

And while oil is a minor source of electricity in the United States, it is a major source in Mexico and the grids are interconnected. Further, natural gas is not a minor source of electricity in the US (20% on your data, which I'm happy to accept). The gas cliff will see the dim ages hit North America unless a lot of nuclear, wind and solar generation is installed pronto.

Oh, and what do you mine coal with, your fingers? The machinery used to mine it runs mostly on diesel fuel.

[Mark_i]

"Nice" finding about British debts:



US doesn't look better, while in Germany almost no new (netto)credits are taken, so Germany is going the deflationary way on a lower debt level that has yet to come in UK & USA after their debt rise has stopped as at any time such a livel will be unbearable.

You can read the chart by this way: <b>British households financed from 2001 to 2003 about 15% of their spendings by credit</b>, so what if they are not able to get new credits.... deflationary tendencies!

Now add peak oil to this scenario! This could also lead to stagflation which would be only slightly better.

[JayHMorrison]

Now add peak oil to this scenario! This could also lead to stagflation which would be only slightly better.

Energy inflation that starts affecting other products will trigger higher rates. The likely response of the FED and ECB would be to raise interest rates to kill inflation. The lessons of the 70s and early 80s taught them the dangers of inflation. But they would likely be raising rates without realizing that Peak Oil is a permanent issue.

Basically that will put is into recession and economic contraction. Housing sector gets crushed. Re-financing goto zero. The only people who buy homes are those with all cash (less than 5%). Everyone who owns all of the mortgage backed bonds at 6% or less is going to get absolutely crushed. People who locked in a 30 year fixed rate will be doing great, as long as they can keep their job.

Expect a lot of defaults as the ARMs start adjusting their rates higher. There should be a ton of houses in suburbia on the market from forclosures.

The only positive things about the fed raising rates is that it will slow down economic activity and oil consumption. But it basically blows an even bigger hole in the budget deficits of every government.

[Ben]

The graph Mark_i posted shows why central banks in the West will be loathe to raise rates: it might cause a collapse of the currency.

If people in general cannot pay back their debts -- due to the massive debt level now accompanied by high interest rates --and they default, then the banks that lent the money to these people will not be able to pay back THEIR debts and default. Removing all this debt from the system reduces the money supply, which is deflationary and makes it harder to get money -- causing more defaults! It's a positive feedback system and you can see this same sort of thing happening in the Great Depression.

Nowadays, central banks intervene by giving insolvent banks newly printed debased money until they are solvent again -- sharply inflationary if not hyper-inflationary. It can literally make the currency worthless, as it did in the case of Russia, Brazil (twice), Argentina, etc. in only the last 15 years alone. If it is managed better it can turn out like Japan. People in the US probably look at some of these countries and are like, "how can they be so stupid to make their money worthless?" but now it's becoming increasingly probable that something like this will occur in the US.

So Paul Volcker's (the Fed chief in the early 80s) strategy to stamp out inflation by increasing the interest rates and decreasing the money supply, is not an option right now for the Fed. However, in the end the Fed really has limited control over interest rates -- if no one wants to invest their savings in a bond yielding 6% when inflation is 13%, the bond market will force the Fed's hand.

I think terms like "inflation" and "deflation" aren't really sufficient to describe what will happen because they sort of describe minor perturbations in the monetary equilibrium, whereas peak oil will basically cause a collapse of the entire system, and probably the end of the dollar. I would say that in general I think the "inflationary deflation" description of the cost of necessities rising while the cost of luxuries decreases is generally correct.

Gold? Gold has no real value except for jewelry. Platinum might be worth investing in. It is a real metal and it has industrial value in an energy crisis for fuel cells. Whether fuel cells work or not, investors will likely bid it up.

As far as precious metals, I own some platinum and I recommend it to family members who won't have the balls to hold onto gold or silver when they are confiscated, but I think tbe monetary metals will skyrocket iin value as people flee paper currencies. Yes, gold has little to no industrial value, but it has enormous value as money, which will become increasingly important as people realize their paper currencies are becoming worthless. Honestly I had a similar view initially as you, but once I got some coins I understood why they'll always be valuable. Psychology is important in economics. Your average Joe on the street doesn't even know what platinum is.

By the way, this is a great forum. I had no idea there was this many people who understood peak oil in the entire world, let alone the number of people who came to exactly the same conclusions as I did independently. Wow.

[Ardalla]

Yes I'm consistently amazed at the quality of the info/analysis given here. Much of it goes right by me (I'm just a factory worker ), but i appreciate the effort people make to be cordial and informative.

[mmm]

I'm not sure metals will be a great investment. They'll be unloaded quickly to make stock market margin calls and to generate liquidity in general. That's what happened in the most recent stock market crash.

Then, once the metal sell-off ends, you'll be in a recessionary economy with much lower demand for metal.

Certainly metal will be better than paper investments like stocks. And it would probably do better than cash, since inflation would boost its value.

It's just that people shouldn't have the idea that metal is a completely safe investment. Some value might be lost. It's just a matter of how much of that value will be lost relative to other investments.