Almost Daily Rant

Quick Hits for 8June10

Kunstler on America spiraling into a scary place.

Got Goggle? You might instead go with startpage.com which doesn't log searches.

Peakaholics make the NYT, but true to form, it was a silly depiction about a woman growing plants in her kitchen and I'm sure most readers will simply go back to their lattes. Nothing to see here folks. Seriously.

Yes, Obama has known how bad things are in the Gulf for a long time. Now Senator Bill Nelson is confirming that the casing is pierced underneath the surface, would mean that oil is making its way up through the subsurface strata gushing from one or more additional places on the sea bed away from the BOP.

Iran Red Crescent to Gaza. An Iran-Israeli skirmish could be the tipping point for WWIII.

Enron Style Environmental Shell Game

Through all of the controversy surrounding Climategate and climate change, one simple point that doesn't often get discussed, is the relationship between emissions and the inevitability of their decline due to peak extraction of fossil fuels.

Cutting emissions by half by 2040, or whatever the goal du jour may be, seems less a goal, than an inevitable predicament when you'll have have half the oil, natural gas and coal that you do today to burn. Yes, that is a gross over-simplification that doesn’t take into account infinite feedback loops, but the attempt to create a marketplace to trade paper and place an artificial value on a pollution right during an era of mass forced deindustrialization due to the natural laws of peak extraction, always seemed to me a greater con job that the great John Law could have ever conjured.

Many aspects of environmental collapse, are realities, but the Climate-ista agenda is not about the environment. It is about control, money and increased global government.

As for how the shell game actually works...

The UN and other agencies calling for a waron global warming say the price tag will be trillions.

But - according to top experts on climate and cap and trade - the regulatory framework being rammed through in America and internationally won't actually reduce carbon to any meaningful degree. See this, this, thisand this.

Now, the Independent notesthat the Copenhagen framework uses Enron-style accounting tricks to give the impression of cutting carbon, without really doing so: (Read Full Article)

Food Inc. Trailer

If you haven't seen the documentary Food Inc. you should. This is the story of why cheap food is actually very expensive in health, societal and environmental terms. Instead of simply villainizing the multi-national food corporations, the take-away message is that you vote with your actions and your pocket books.

If you want healthy, whole foods, then in the words of a close friend of mine, actions speak louder than criticism of agribusiness giants. It should also be clear that our food production and distribution system is as fragile is it is centralized. You pull the diesel and natural gas plug anywhere along the energy-intensive food chain, the machine stops and the 3-day food supply at your local Mammoth-Mart disappears overnight.

Peak Oil Never Left

One of today's biggest ironies is that the current chaotic economic and political conditions, since oil hit $150 a barrel a couple years ago, have disguised one of our biggest reckonings: Our Faustian arrangement that based an entire society on the premise of cheap and readily-availible black heroin oozing out of the ground. 

It is very hard for the average person in the street to come to a sensible conclusion on peak oil. It's a subject that prompts a passionate polarisation of views. The peak oilists sometimes sound like those extraordinary Christians with sandwich boards proclaiming that the end of the world is nigh. In contrast, the the international economic establishment – including the International Energy Agency (IEA) – has one very clear purpose in mind at all times: don't panic. Their mission seems to be focused on keeping jittery markets calm.

Faced with these options the majority of people shrug their shoulders in confusion and ignore the trickle of whistleblowers, industry insiders and careful analysts who have been warning of the imminent decline in oil for over a decade now (Full Article).

Cap and Trade - Another Fraud

The Waxman-Markley American Clean Air and Security Act of 2009 (ACES), cleverly paraded as an earth-saving, energy independence bill that lowers pollution, is a draconian measure of taxation and government control.

 

The sad irony for me is that this bill will make it more difficult for the average person to transition to a lifestyle less dependent on centralized systems in order to deal with the converging crisis of our times – many of which, such as energy, food and fresh water shortages are environmental. In years to come, we face enough scarcity as it is, and the current subsidies that keep prices artificially low are unsustainable.

 

For decades government manipulation, from tax incentives to military interventions to irresponsible monetary policy has destroyed real market signals resulting in years of privatized gains and socialized costs at the expense of the average person and the environment.

 

Now we are believe that the solution is to give the EPA czar-like authority and a pollution permit allocation scheme that will continue to socialize costs through trickle down taxation.

 

Once again, in great haste the House of Representatives has scrambled to pass a bill with huge implications without having the chance to digest, analyze and summarize the 1200-page proposal, which was being revised up until the final minutes before the July 4^th break.

 

It happened with the Patriot Act, then TARP and now ACES.

 

If bills were actually good for the population, then there would be no rush to push them onto the floor. But, since an informed electorate is the worst enemy of proponents of this type of legislation, they had to act fast before Americans had a chance to absorb the huge implications under cover of a constant deluge of Michael Jackson tributes in the media.

 

I usually avoid the global warming debate because even if humans do contribute to global warming, a combination of slowing population growth in the developed world and peaking out of easily accessible oil, natural gas and coal will offset the effects. If you do want to debate the science a growing number of scientists and Americans in general dispute the impacts of manmade warming. Even if you are are an advocate of global warming, then you know that the impacts of the bill on climate in the best case are negligible.

 

The real Inconvenient Truth for those of us paying attention is that you can control, tax and subject a person to do just about anything under false hopes that doing do will save the world. 

 

For the political class, cap and trade is a wealth and power accumulation scheme. 80% of the credits go to special interests and 20% go to the Treasury, while an entirely new marketplace for flipping emission allowances, compensatory allowances and offset credits is emerging. Carbon derivatives anyone?

 

The blatant example is that Al Gore, champion of the global warming agenda, runs a carbon trading firm. He is the Chairman of Generation Investment Management, LLP and one of the principle investment areas for the firm is Carbon Markets and Climate-Related Financial Services. The political connections to other stakeholders in the Chicago Climate Exchange such as Maurice Strong are well-documented.

 

There is a wide gap between the realities of legitimate environmental concerns and a Global Warming money making and social control agenda.  

 

The Love Song of J. Alfred Marketeer

There is no shortage of books on dystopia these days, but I’ve found very few that summarize how the major trends actually impact existing business models and more importantly the viewpoints of the people at the helm. Instead, most take an after-the-impact look where the present is discounted to something less than meaningful because the changes were so drastic and sudden. On the other hand, you have plenty of unrealistic, though fashionable, battle cries of “we should do x,y and z to keep doing what we're doing only in different ways” a la Thomas Friedman, and other poster children of intellectual idiocy.

A lot of folks can see two points – one a hyper-specialized consumer economy – the other some endgame of chicken farming and serfdom – but the connecting road is a lot less clear. Meanwhile, if you have a job or business or some going concern that seems less than certain in the long term, you still wake up in the morning and make a go at it while you can. And you probably do your best to reconcile your understanding of the inevitability of certain things with a surrounding culture of positivity which presumes things will eventually return to better business days of yesteryear.

This is one reason I’ve long enjoyed Charles Hugh Smith’s viewpoints and his ability to summarize the major trends that shape our lives. I also admire his ability to be matter-of-fact but not as draining and bitter-sounding as some of the other truth-tellers. A few months ago, I read his book, “Marketing in Crisis – The Era of Global Crisis: Intersection of Four Long-Term Cycles”.

Smith’s book is a very tight summary of the reasons why business leaders should reach way down, be honest with their stakeholders and put theses macro trends into direct focus with their business. Even today, when I listen to business forecasts I think, “The stories we tell ourselves…”

Smith describes the intersection of four mutually reinforcing long-term cycles:

· Peak extraction - the depletion cycle end-game of the global economy’s complete dependence on fossil fuels. (Smith indirectly expands this to planetary collapse in general – lack of fresh water, good soil, deforesting, peak extraction for metal ore etc.)

· The 60-70-year cycle of credit expansion and contraction which is transitioning from unsustainable credit expansion (bubble) to renunciation of debt (credit collapse) and global depression.

· The generational cycle – 4 generations or approximately 80 years of American history that leads to nation-changing social, political and economic upheaval. (The American Revolution: 1781+80 years = Civil War, 1861+80 years = 1941)

· The 100+year cycle of price inflation and stagnation of wages’ purchasing power which began around 1901 is not reaching the final state of widespread turmoil, shortages, famine, war, conflict and crisis.

Yes, I know if you’re reading this article, then you probably understand the problems at this point, but Smith then puts these factors into the context of, for lack of a better expression, business as usual: Creative destruction and capitalism. He then describes what we intuitively know – that boom-dependent businesses with a standard marketing model are dead.

Smith’s presentation allows you to bring up all the elephants in the living room to your cohorts, desperately clinging to familiar ways, without the usual arms-crossed response of, “So, you’re another one who thinks the world is ending.”

Mostly.

"The optimist view that history is an entelechy following a vector toward higher energy density, higher consumption, longer lives, stable peace and increasing liberty is facing unprecedented challenge on fundamental physical, demographic and financial fronts.

This Hegelian view of history fired both the idealistic Marxist ideologies of the 19^th and 20^th centuries, and the progressive/liberal Western Civilization view that humankind was inevitably growing wealthier and wiser.

The alternative view that history is essentially cyclical is supported by geography and financial data stretching back hundreds of years. Rather than choose between the two views, we should consider the possibility that just as light is both wave and particle, perhaps history is both entelechial and cyclical. The challenges the world faces within the next few years/decades certainly seems to mix teleological and cyclical forces and trends:

1.    Skyrocketing energy costs will act as an enormous global tax on consumption. (Note - With the recent collapse in energy prices when the bottom fell out of the financial markets, let’s not forget that badly-needed projects were scraped which will leave us in an even worse predicament in the years to come.)

2.    Just as FEW (food, energy, water) imbalances tax global consumption, demographics guarantee that huge Baby Boom populations in Europe, North America, China, Japan, India and elsewhere will be retiring and exiting the workforce just as their governments and employers find their revenues declining.

3.    The Kondratieff Cycle suggests that the global asset bubbles which are starting to deflate have a long way to go before the next cycle of financially healthy and stable growth can begin.

4.    Globally, public heath will be under increasing stress from persistent current trends (obesity, air pollution, resistant bacteria, diseases of overconsumption and diseases of malnourishment etc.) and disruptions, scarcities or outright shortages of food and water.

5.    “The End of History” which was welcomed just a decade ago has been replaced by a sober realization that deeply rooted post-colonial and ethnic/regional tensions were only suppressed, not resolved, by the Cold War.

6.    The constant geographical shifting of manufacturing for increasingly slight competitive advantages and the deployment of industrial robots both augur an era of overabundance of manufactured goods and a sustained global surplus of labor.

7.    Fragile delivery systems dependant on long supply chains and bottlenecks will be vulnerable to unpredictable fractal breakdowns and disruptions.

8.    Just as overabundance of manufactured goods reduces prices and profits to zero, the overabundance of marketing and advertising effectively reduces the value of all standard marketing to zero.

9.    What constitutes status and prestige will undergo substantial transformations as scarcity of essential commodities collides with overabundance of manufactured goods and marketing.

10.   As supply/demand imbalances in food, energy and water and the iron hand of demographics strangles government’s revenues and entitlement expenses, a global loss of faith in institutions will foster backlash/blowback and social disorder."

 

 

 

Death Spiral of the Dry Baltic Index

In spite of early 21^st century cheerleading by CEO’s and MSM columnists, globalism has been with us for centuries from origins in the Silk Road, Merchants of Venice, Dutch trading companies and so on. But the latest model, which multinational corporations, governments and billions of livelihoods are attached, can be reduced to several basic movements of raw materials, energy, goods and capital:

 

1.    Move production away from places with high labor costs – the US and Western Europe - towards places with cheaper labor – Asia, the global factory (Wage Arbitrage).

2.    Move raw materials from the Global South - Africa, South America and Australia to Asia.

3.    Move oil from the Petro states to Asia to fuel production and the US to fuel consumption.

4.    Move finished knick-knacks from Asia to the US for consumption.

5.    Move capital (Petrodollars) from the US and Asia to the Petro States in exchange for oil.

6.    Move capital surpluses from Asia to the US to purchase debt instruments (e.g. Treasuries) which fuels more debt-based consumption in the US.

7.    Move material from discarded and recycled finished goods to Asia for reproduction, repackaging and disposal.

8.    Move capital, borrowed at zero percent interest rates from Japan, to fuel speculation (Carry Trade) which resulted in debt-based inflation of the underlying collateral and consumption.

 

The first innings of a global depression and the effects on movements of raw materials, energy and finished knick-knacks that support this global model, is best illustrated by the Baltic Dry Index, an indicator of shipping rates for raw materials. The Baltic Dry Index is a good leading indicator for the overall global economy because it is not based on a survey like consumer confidence polls and instead is based on a sampling of actual booked shipping rates around the world.

 

 

This is a very nasty head and shoulders pattern followed by a freefall that best sums up graphically the seizure in world markets.  The graph is also forbearing of the future business impacts due to the whipsaw effect and extreme volatility over the last couple of years.

 

Imagine being a shipping company, leveraged up on debt to outfit a fleet of extremely expensive ships. You made assumptions about the going rates and then the bottom completely fell out of the shipping market. You’re getting 7 cents for every dollar you used to earn. Or you’re a mining company with operations which are no longer economic, or you’re an international oil company that just shelved deep offshore projects that required a seemingly conservative $80 per barrel oil at $147 barrel oil. Maybe you’re the leader of a Petro welfare state with an economy that grew addicted to $90 oil and an angry population at the gates. Then there’s the Chinese government concerned with an increasingly restless population of unemployed as factories get shuttered.

 

The point is that an overwhelming majority of the players in these global movements, from source to sink, were hopelessly addicted to speculative financing of unproductive activities. Judging from the long list of retail closings, the days of an endless market for cheaply-built consumer, feel-good junk from the laundry list of Big Box specialty retailers are ending. So less ships with metal ore float to China, less Happy Meal toys get exchanged for Treasuries and less shipping containers wind up at ports in Los Angeles.

 

Like any addict, rather than quit cold turkey, world leaders are scrambling to substitute one drug for another. Maybe with zero percent interest rates to mimic those in Japan which unwound in the summer of 2007, the Feds can create a US Dollar carry trade to try and fuel more unproductive use of capital and risk taking.

 

In any event, even at zero percent interest rates and the possibility of higher returns somewhere else, when fear and loathing rules the day, return of investment trumps return on investment, which also has the effect of crimping productive activities – like small business investments and energy projects we’ll need to heat homes and keep the grid up and running.

 

Globalism, or more aptly put, trading between countries, didn’t begin in the 2^nd half of the 20^th century and in all likelihood won’t end in the 1^st part of the 21^st. but the model is shifting by painful necessity to something less insane.

Hands that Feed

Lost in the day-to-day panic in the financial world is the impact to farmers by the whipsaw in fuel and fertilizer prices, spot shortages, stranded high-priced inputs, the Ethanol implosion combined with the on-going financial collapse.

If history is a guide, the next administration is probably good for its own version of Smoot-Hawley which, like any flat-earther’s plans will have terrible unintended consequences.

Awake and Alone

Alice in Wonderland, how do you get to Wonderland?
Over the hill or underland, or just behind the tree?
When clouds go rolling by, they roll away and leave the sky.
Where is the land beyond the eye, the people cannot see, where can it be?
Where do stars go, where is the grass that's blue?
They must be somewhere in the sunny afternoon.
Alice in Wonderland, where is the path to Wonderland?
Over the hill or here or there, I wonder where.

-Lewis Carroll, "Alice's Adventures in Wonderland"

One of the biggest struggles for people with an acute awareness of the types of change we face in coming years is playing their part in a business-as-usual world.

People “in the know” often describe the sensation as Alice tumbling down the rabbit hole or Neo in the Matrix having taken the red pill, forsaking the comfort of ignorance for painful knowledge of reality.

It is a feeling of suddenly questioning every aspect of your reality.

Meanwhile, talk around the water cooler still revolves around selling more widgets to ABC or the Bears game with the occasional jab the mainstream political situation.

They are rambling on about this or that like the adults in Peanuts and the whole time you are thinking food shortages, riots, government debt defaults…

You realize there are many people like you out there in the wilderness of the Internet and so you seek refuge among the like-minded far from the vacant stares of “the Sheeple” at Wal-Mart. The Sheeple are of course helpless dregs living in a sort of consumer fantasy land, hopelessly addicted to corn syrup products, cheap gasoline, mindless reality shows, empty mainstream news groupthink and iPods. You only wish you could share with them the Theory of Everything, a narrative that ends with TEOTWAWKI, but unlike Paul spreading the word of Christ, you hesitate.

Not only is being a Doomer bad for business, but spreading the gospel lessens its novelty…after all how many Sheeple should be converted? How many lambs does Noah allow on the ship? When will they catch on? Will I be completely ready when “the masses wake up”?

So if you’re reading this and relating because your world is turning upside down, then one place to start is Dr. Kathy McMahon’s site. How you feel specifically about the Peak Oil issue is less important here as the common element of the emotional reactions that go hand-in-hand with internalizing the types of big disruptive changes we face in an era of economic, political and social turmoil.

Another challenge is pulling a real signal out of the noise of the day-to-day, frantic headlines. Interpretations of history are barely clear in hindsight and completely foggy in the making. For instance, Nassim Taleb in his book, Black Swan references William Shirer’s Berlin Diary: The Journal of a Foreign Correspondant, 1934-1941, Shirer describes the events of WWII as they were taking place, not after. In studying the wartime journal, Taleb realized that many people living through the beginning of WWII had no inkling that something momentous was taking place and the insight at the time went completely against what later would become conventional wisdom. For instance, many thought Hitler was just a temporary phenomenon.

What struck me about Taleb’s observation was that sometimes our ability to subconsciously adapt compensates for our sense of normalcy more than we may realize and numbs our awareness of huge changes in real time. Said a different way, it is not easy to pull the signal out of the noise when 99% of what you see and read is noise.

So in a survivalist mindset where there is some retreat, separate from business as usual, short of a complete breakdown in society, when is the correct time to “bug out” or declare, “yes, this is TEOTWAWKI”?

And Doomerville is not without its factions. Just like religion, it is splintered and so you must sift through the different voices until you distill them down to your personal narrative. There are many voices and few without political or pure fear mongering capitalistic agendas.

Increased self-sufficiency and community cooperation seem like no-brainers, but taken to an extreme individualist, survivalist mindset for instance, how much stuff will really save you in the absence of personal connectedness and know-how? Will anyone care if you die alone and in your bunker stocked with bullets, beans and Band-Aids?

And if you place life for life’s sake above all else like a hypochondriac at the expense of everything else, is life worth living? Taken a step further, is humanity in anyway redeemable in this form? And if your preparation for the big event is purely accumulating stuff that might save you, then what if the motorcycle zombie gangs you fear steal from you leaving you with nothing?

There is a reason why the lowest common denominator in survival is some form of community. And what might that community look like? There are many forms of lifeboat communities – self-sufficient projects detached from the rest of society – but what are the real prospects for success? Again, the struggle to maintain such an arrangement must be worth the fight and history shows that worth can only be measured in terms larger than oneself. This was the reason why the silly counter-culture experiments in the 60’s failed.  John Michael Greer takes on this subject here.

What all this suggests is that the central problem that proposed lifeboat communities must tackle is one of motivation. This same suggestion might have been drawn from the historical parallel that undergirds the entire project. The Christian monasteries that preserved classical culture through the last set of dark ages, after all, were not staffed by people trying to preserve some semblance of a middle-class Roman lifestyle while the world fell apart around them. Quite the opposite—the monks and nuns who copied old texts, taught at abbey schools, and kept the lamps of Western civilization burning when they were at their lowest ebb since Mycenae’s fall voluntarily embraced a lifestyle even more impoverished and restricted than that of the peasants among whom they lived. The same point is equally true of the Buddhist and Taoist monastics who accomplished the same vital task in other places and times. Arguably, it was precisely this willingness to embrace extreme poverty that freed up the time and effort needed for the economically unproductive activities needed to keep the heritage of a civilization alive.

The motivating factors that guided the followers of Benedict of Nursia, Kobo Daishi, and Chang Daoling, then, may be among the crucial missing pieces in current debates about lifeboat communities, and indeed the entire contemporary crisis of industrial civilization. To explore this possibility, we’re going to have to take a hard look at one of the least understood and, admittedly, most dysfunctional aspects of modern culture, and talk about the place of religion in a response to peak oil.

Another faction, the neoprimatives hold that humanity is hopelessly condemned since the adoption of agriculture. Once you cross the hunter-gatherer chasm, there is no turning back, so collapse of a system of unnatural and unsustainable dependencies is the natural progression of original sin. Taken to the extreme, this mindset would hold that nothing really matters – from Michelangelo’s wonders to the Space Shuttle - because we are doomed in any event. Jared Diamond’s "Worst Mistake..." essay makes a point, that many cling to after they realize sustainability of what we wish to sustain is largely a myth.

Not too far remove from the pure neoprimative case is the Olduvai Theory espoused by Richard Duncan, which distills the human condition down to a per capita energy measurement. From this standpoint, human progress over time is graphically shown as simply a flat line with a single impulse thanks to the benefit of fossil fuel extraction and depletion. We are simply on a ride back to the darkness of caves from this point on, having bypassed our peak extraction point of fuel and metal ore that support civilization.

John Micheal Greer’s, Long Descent is one of the better reads I’ve come across that takes the long, historical viewpoint in coming to terms with the different factions in this regard.

In a nutshell, Greer states the case for what he calls catabolic collapse, one that more resembles stair steps then a sudden cliff. It is the case for a series of disruptive changes, where each disruptive step down self-limits to some new normal before the next disruptive change. Taking a look backward, you can see this playing out and intensifying from the 1970’s forward to present day.

Granted Greer is a Druid, so frankly his stair step to the average Joe living in Suburbia would probably feel like TEOTWAWKI, but the key point is that history points to a de-evolution in stages rather than a sudden, new world dive down into a completely unfamiliar rabbit hole.

But this is not to say, each stair step, is not very painful and turbulent.

One of the keys to dealing with immense change is coming to terms and being aware of two major myths that are deeply ingrained in our belief systems: The Myth of Progress and Myth of Apocalypse.

Our culture’s mythology of progress envisions the goal of civilization as a utopian state in which poverty, illness, death and every other aspect of the human predicament has been converted into problems and solved by technology…The irony of the current crisis is that a civilization that tried to turn all of its predicaments into problems has ended up confronted with problems that, after being ignored too long, turned into predicaments…A predicament by contrast to problem, as no solutions. Faced with a predicament, people come up with responses.

With his distinction between predicament and problem, Greer cuts to the core of the issue with attempting to preserve industrial society in its present, happy motoring, consumer-cult form. Contrasted with the Myth of Progress is the Myth of Apocalypse, which has clear ties to Biblical and other religious terms that dominate our worldviews.

According to this story, all human history is a blind alley. At one time, people lived in harmony with their world, each other, and themselves, but that golden age ended with a disastrous wrong turn and things have gone downhill ever since…

…The history of the last century – think the Great Depression and Second World War, and the brutal excesses of Communism and Nazism, just for starters – shows that industrial societies can endure tremendous disruption without dissolving into a Hobbesian war of all against all…

Both the myth of progress and myth of apocalypse, on the other hand, have a great deal of emotional power; that’s why they’re popular. Faith in perpetual progress comforts those people who have made their peace with society as it is and want to believe that the frustrations and compromises of their lives are part of a process that will eventually lead to better things. Faith in imminent apocalypse comforts those people who cannot accept society as it is; they long for a catastrophe massive enough to topple the proud towers of a civilization they loathe.

The religion of progress has maintained its hold for the last three centuries because it has delivered on its promises, filling lives with technological marvels wondrous enough to distract us from the cost to our world, our communities and ourselves. When the parade of wonders grinds to a halt, then the impact on deindustrializing cultures may be immense…

The failures of its priests to produce miracles on cue could plunge many people into crises of faith with no easy way out. The recent vogue for conspiracy theories and apocalyptic visions of the future strike me as two clear signs that the people are beginning to turn their back on the religion of progress and seek their salvation from other gods.

So getting a handle on the drivers behind our need to cling to the stories we tell ourselves, with deep religious and cultural roots, helps in navigating the emotional river of collapse awareness. Also at the risk of being swept away in an isolated world, trying to find common ground with others who don’t quit share the same viewpoints is a worthy challenge to take.

For instance, you might have different takes on the cause of the world’s ills, but you might share the same take on the things you can learn together to deal with them. Maybe you’re a peaknik and maybe your friend believes Peak Oil is bunk and just another Illuminati myth. Does it matter if you’re building real personal bonds – the only real currency in a world with no guarantees?

Can you help one another redefine how you define yourself even if it means less in terms of the career you went to college for?

Can you teach one another deindustrialized skills that will prove useful as you adapt to each new crises?

Can you dare strike up a conversation with someone you don't think is in the know, find a common bond and take the risk of bringing up some of the larger problems?

Maybe beneath the wool, she is waiting for you to ask the questions because they are burning her beneath her calm surface.

A Father Son Conversation

(Speculative fiction based sometime in the not-too-distant future)

Son: "Pop, you talk sometimes about the Old Days. The pictures you’ve shown me. The things you describe. Why aren't things that way now? What happened?"

The boy’s father looks off into the distance, exhales and thinks how that question has become the difficult question that every child asks at some point. Probably more so than the birds and bees talk that most parents cringe over, but he shoulders on as best he can, to explain the world that came to be after the oil age.

Father: "Well, really to understand you have to go way back thousands of years. People learned how to grow their food and then they started storing it – instead of just foraging for what they ate at the time. People all over the earth gradually started learning more about agriculture and it came about for different reasons in different times in different ways."

"As food surpluses formed, the groups realized that not everyone needed to work in the fields. So people started doing other things. Some people worked on pottery to store the food. Other people worked as food traders. As more people had more time on their hands more specialized roles came about. They then realized they needed more complicated politics to manage all these complications that came about because of all these new roles.  Some people had enough time on their hand to focus purely on art and lots of really wonderful things came about because of it besides the not so good things like tax collectors."

Son: "I still have no idea what you’re talking about. What does that have to do with the Old Days?"

Father: "It has to do with how the idea of large civilizations, empires and nations started because they basically had extra food, which lead to extra wealth, which lead to people learning that they liked to own things, which lead to more people in each group, which lead to arguments between groups for what they owned when one group had more than the other."

Son: "Like wars?"

Father: "Yes."

The son shifts his weight between feet and awkwardly forces a smile, waiting for his father to get to the punch line.

Father: "So you see son, over the course of history, we got better and better at using technology to control nature for our benefit. And we became really good at using nature to build things that allowed us to live lives with very specific purposes without giving much thought to how we came about our basic needs. We became really good at using nature’s resources for energy and based our lives more and more on that energy."

"It took nature millions of years to build this energy up. But we used about half of this energy in about 100 years. We had so much energy that it was like having hundreds of servants that supported each of us for a very low cost."

"These servants were like invisible machines you didn’t even think about that much. These machines were the ones that produced, packaged and shipped our food thousands of miles. These machines were the ones that powered all the machines inside our homes and at our places of work and allowed us to travel thousands of miles in a few hours without much thought. These machines support every aspect of how we lived and gave us more abundance than had ever been experienced in human history, so we had lots of time on our hands for leisure and other things."

"Within just a couple of generations, we became spoiled and expected that these invisible machines powered by a surplus of nature’s energy would be there forever. Because we figured out a way to use up these resources so quickly and use them to power enormous farms without much manual labor, the number of people in the world shot up from 1 billion to 7 billion people over 200 years."

"Think about that son, it took tens of thousands of years to get to 1 billion but only 200 years to add 6 billion more."

Son: "So oil and other resources powered the machines that allowed the population to grow so quickly."

Father: "Yes."

Son: "OK, but you said we used half of the energy. I still don’t get it. Why don’t we live like that now?"

Father: "Well there's plenty of energy. That's not really the problem. You see, things really heated up near the end of the 20^th century. For most of the 20^th century, much of the world’s resources were eaten up by a few rich countries. And there was a large gap in wealth between rich and poor countries."

"As the rich countries used up most of their own resources, they started moving their factories over to the poor countries where there were still resources to be had. The rich countries learned to base their way of life not so much on building things, but on instead on buying, selling and financing things that were made in the poor countries."

"The rich countries were able to do this for a while because it was easy to build something in on one side of the world and ship it to the other. And the rich countries controlled the money, the banks and the politics in the poor countries, so they made it easier for people in the rich countries to live as though they produced much more value than they really did and buy more of things on credit – which was just money they hadn’t earned yet or might never really earn, backed by things that weren’t really worth as much as they claimed to be, like the houses they lived in."

"The world seemed pretty small then."

"Some said it was flat."

Son: "I can’t even imagine that. But what about the half though?"

Father: "The world needed oil and other key resources just like your body needs water. Your body is something like 60% water. You’re about 100 pounds so 60 pounds is water. Now if you work outside and overdo it, you’ll dehydrate long before you lose all 60 pounds of course. You only need to lose a couple of pounds of water and your body systems start to shut down and soon your body collapses. That’s something like what happened years ago. With other things, when price went up, demand when down, but oil was so critical to everything that all bets where off when supply just couldn't keep up with demand."

"You see, the poorer countries were getting richer and suddenly they had more money to spend on things and they used more of their own energy and so they had less to sell to the rich countries. And in many countries with resources, after a half a century of being pushed around by the rich countries, the people there demanded that the resources be used in their own countries by their own people instead of being burned up in other countries."

"This was a huge power shift, so the rich countries were spending more, becoming poorer and competing against other countries for a shrinking supply. At the same time it was much harder and cost a lot more to get to the last half of the oil. Not just high in what it cost in paper money, but in much higher costs of other resources like fresh water and metals used to pull it out of the ground."

Son: "But didn’t smart people understand this. Didn’t some people try and warn the rest? Even I can see if you have more people needing more of something which there is less and less of you have a problem."

Father: "You’ve just nailed down the problem better than most people could back then. But sure, there were many people who talked about this sort of thing. It had been understood for decades, but the forces in effect were very powerful."

Son: "What does that mean? Why didn’t you find another way? Why did you mess things up so badly for us?"

Father: "Lots of really smart people were working hard on another way in a lot of different ways. But in the end, nature does as nature does. Things level out. Looking back, we did seem to put too much faith in technology, were fixed to a certain way of life and didn't admit some very important things to ourselves."

"At the same time, our needs for these resources overran our ability to pull them out of the ground fast enough and different groups of people became more and more desperate to get what they needed at any cost, even if it meant fighting over them and going to war. But even if we could pull them out of the ground fast enough, there were all these other problems like changing weather patterns that caused floods and lowered crop yields to deal with."

"Back in the old days, people who talked about these types of things were called alarmists up until the point when it became clearer that they were sounding the alarms for good reason. The famous expression was 'The stone age didn't end because we ran out of stones, so the oil age won't end because we ran out of oil.' Plus, truth be told there have been people talking about gloom and doom since the dawn of man. And since oil was discovered, there was always a group running around claiming it was about to run out. So people have just learned to silence them out for the most part - and normally they're wise to silence them out. Until they aren't."

"See back then, it was more popular to be falsely optimistic than realistic. Writers sold books on the secret to success and it was tough for people to have frank conversations about these sorts of things around in the feel good kind of culture that we had."

"There was a sort of trance that fed off one another. Deep down though, many people knew about the problems even though they all saw it in different ways, but normally took to one or a combination of three roads as an outlet – big money politics, blind faith in the markets or blame."

"The trouble with politics was that it put people in power who promised more of the public funds to voters and special favors to the big companies, which want short term profits and business as usual to keep going as long as possible. Companies needed to get back the money they spent on many things that depended on oil. And no one wanted to admit it, but just about everyone was part of the corporate system and benefiting because of the sytem in place at some level. And what politician would get elected if he said put your wallets down, do your best to accumulate less and learn to raise chickens after all? Where's the progress in that?"

"At the time when things really began to fall apart, the politician’s best solutions were mostly boondoggles - which is a fancy way of getting some money for not much good - based on short-term thinking like burning our last layer of topsoil in our gas tanks or big tax breaks to run your car on kitchen grease. It’s one thing to come up with other ways of making energy, but decades to try and change over everything about a world designed to run on fossil fuels and we started decades too late."

"The trouble with too much faith in free markets – where smart people get other people’s money and build things that help make a better world - is that the things, called signals, that tell the markets to do something didn’t come in time for a change this drastic. And also, markets weren’t really free and the market didn’t do a good job of making a number of small-scale, local solutions to help deal with inevitable collapse to some degree – the market was looking for large-scale solutions to keep a world based mostly on having cars on the road at any cost. And those big efforts will always fail in times of crisis because the things that the big efforts need to be successful will fall out of place. Make sense?"

His son shook his head affirmingly.

"Sure a lot of windmills went up all over places like West Texas and solar panels started appearing on everyone's homes. Normally those technologies that could use the things in place for the last techology were chosen - the power lines and ways to get that energy from where it was created to where it would be used. This is why everyone talked about things like hydrogen, but it never really got off the ground - how on earth would you store and transport it without decades of conversion? Plus it depended on too much of everything else that was already in short supply."

"Sure what people called alternative energy was a good thing, but the impact was too small and it took too much of the old oil and gas technologies to maintain and power the distribution systems which were already pushed passed their limits - plus everyone just expected to keep living like they did only with some substitution. And think about what happens when you needed to replace a solar panel on your roof, but you couldn't get replacement parts with industry coming to a halt and no trucks on the road?"

"But the worst outlet was blame. People started blaming the oil companies, the government, other countries, immigrants, the speculators and so on and so on. A lot of people who took responsibility and knew they were as much a part of the problem and took some blame, still felt paralyzed in taking any real action."

"Those people had jobs they spent their whole life preparing for and many lived in houses they spent most their money they earned on. So they wondered what they could they do but do what they did as long as they could do it. Sure some close-knit communities saw the writing on the wall and worked together on ways to keep the lights on, water flowing and food on their tables, but not many."

Son: "It sounded like a very confusing place."

Father: "Things would happen at a faster pace and then get normal for a while – at least what we then thought of normal – before things started happening fast again. People in different places experienced different things at different times. It wasn't like something just happened and the world stopped. We were just experiencing what the rest of the world had been experiencing for years. It was all about where you were standing. And you still had the experts on TV talking about how housing was going to turn around next year or some money guy saying inflation wasn't that bad. People were still debating about whether or not the country was in a recession when signs of collapse where everywhere."

"Some banks would close their doors. More people would lose their houses. People who worked for the cities stopped getting their pension checks because the cities were going broke too. The government would step in with some attempt at a bailout plan and there was some talk about starting some type of new New Deal program in certain areas to rebuild things and put the country back to work."

"Over time, the potholes in roads wouldn’t get repaired like they once did. Schools started going to 3-day weeks before some had to close their doors. Garbage pickups moved to once every other week. The airlines went under until the industry collapsed into a single airline backed by the government, but travel was just something most people couldn't do anymore."

"Meanwhile, the price of oil didn't go up in a straight line. Stock and commodity prices were all over the map as the market tried to price in scarcity, which would drive prices up, and a collapsing world economy, which would drive prices down. So the energy companies couldn't really make good business decisions even if they wanted to continue with their drilling programs in the Arctic Circle. Not that it would have done much, but you heard a lot of talk about the need to drill everywhere. It just got to the point where price didn't matter. It was availability."

"Then stores would be open one day and a closed sign would appear over the door the next. Truckers would strike and stop delivering medical, food and other supplies - but it was never well organized and it became less about their anger over the high costs and more about having to park their trucks because there was no fuel due to what amounted to hoarding by some of the big lines. And people learned quickly that the real emergency was less about fuel in their tanks, but the lack of food on the shelves due to fertilizer shortages on the farms, power shortages in the plants and fuel shortages for the trucks and trains. Some people panicked. Some people just waited for a government, which was becoming just as immobile as its people, to do something."

"The National Energy Security Act put fuel rationing and forced conservation into place, which seemed silly because the word conservation made it sound like you had a choice. The government was slow to hand out the emergency funds checks and ration tickets. People would barter with one another to get more tickets but it was a mess since all the machines were on computer and the stations that were open didn't have the extra people to monitor the tickets. People were angry, confused and on the move. People moved from north to south because they could no longer heat their homes, while people moved from south to north because their unventilated, boxed-in homes without air conditioning were unliveable."

"The news stopped reporting so much because that only made people panic more."

"Just as you’d adapt to the new situation as best you could, something else would happen. The Internet was the best way to keep in contact with the rest of the world, until we lost our connection when I'm guessing the backup battery power at the network access point just ran out. It came back for a while before going out again. The utilities held pretty well in our area, but eventually the blackouts would happen regularly until the maintenance trucks completely stopped and the gas had to be turned off for safety reasons because of low pressure."

Son: "Pop…"

Just as the father started to recap recent history, his son stopped him.

Father: "Yes son."

Son: "I know what happened next."

Father: "I guess you do huh sport..."

A moment of silence passed with the new quiet understanding when the father ended the talk.

Father: "You know son, the good old days weren’t always so good. And tomorrow really isn't as bad as it might seem. We do what we have to do and remember that each day is a gift so we make the most of it and find reward in what we do, even if it isn't what we once thought we'd be doing."

Son: "I know Pop. I know." 

The Cargo Cult of Suburbia

A man stares out to the sea from the shore of a South Pacific island.

He waits patiently for the promise of a man who will bring wealth and prosperity.

He built a landing strip for cargo planes to return as they once did long ago, but there are no planes on the horizon.

And no such man appears.

But still he waits.

Back in the states, the roads were noticeably less traveled this Memorial Day weekend.

Whirling by the outer reaches of the Texas Tollway, we passed one planned community after another along with the usual assortment of Target’s, Wachovia Banks and various outlet shops virtually in the middle of fields in the middle of nowhere, most of which broke ground within the last couple of years.

Oddly the pristine, newly-constructed landscape seemed at once obsolete and stillborn -  like the nonsensical words of a dying man - the last gasps of a 20-year blow off of the great credit expansion in the twilight of the cheap energy era.

As I gazed into row after row of vinyl-sided houses, I imagined the real estate agent showing the house to an eager, young couple. I could almost hear the close.

“Better than throwing your money away in rent.  And easy access to the new Tollway.”

I thought about the Tollway and what it represented – a sort of offering to the man who would bring wealth and prosperity – its own version of the empty landing strip on the South Pacific Island.

At this point, the economic unraveling so many have predicted is happening at a quickening pace. 

There is no stock market crash, but there is a Silent Spring of just about every industry, which cannot escape the long shadows cast by elephant in the living room few dared mention until recently – Peak Oil.

Events are happening at breakneck pace and difficult to keep up with, but the basic problem is fairly simple to understand. Things start to unravel quickly when production of real things you can drop or spill on your foot can no longer support those things (businesses, industries, ways of life etc.) which are based on existing capital.

Cities are going broke.

Airlines are going under.

The list of retail casualties grows longer.

People are selling their things at garage sales to raise cash.

As the grim awareness spreads that Suburbia is quickly turning into Suburbistan and our way of life is very negotiable after all, we can see the Cargo Cults taking shape along of course with the blame game.

Normally, our mythology is based on something “We” should or will do and normally it is centered on our faith in technology overcoming all obstacles. Many times, our solution is worded, “Something will come along.”

Trouble is, the thing with Cargo Cults is that it doesn't.

Now What?

The answer really boils down to what type of future you’re preparing for.

Is it:

A.      Ever advancing progress, sustained average quality of life, where we debate how the environment should be preserved like some relic for future generations. Someone with this meme might say, “We should use alternative energies because lower emissions mean a healthier planet for our children.”

 

B.      A gradual decline from peak industrialization and technology into an post industrial dark age over a prolonged period of time (10’s to 100’s of years) where societies adapt over time in generally a continuous fashion. Someone with this meme might say, “OK, so maybe we might not colonize Mars and maybe society has or will inevitably peak – but the decline will be manageable, we will innovate, conserve and adapt as a result along the way, and overall this process won’t have a major impact to my way of life during my lifetime.”

 

C.      A fast collapse where the world as we know it undergoes sharp discontinuities in a relatively short period of time (3-10 years) due to a number of interrelated trigger points. Someone with this meme might say, “The curtains are about to close on NASCAR, Wal-Mart and the suburban way of life. You better get serious about local food production because the days of large scale agribusiness with a just-in-time distribution system run by refrigerated diesel trucks are numbered.”

 

If you’re a Case C person, once you leave the big picture, it is tough for most people to face reality because of what it asks of you a very personal level, depending on your individual situation:

 

Was my advanced degree a waste of time and money?

Will there be a tech field job for me in 5 years?

Should I wait it out and if things really get worse then I’ll start to react?

Will the market eventually sort things out after the first few major market disruptions?

Should I just cash out, buy a homestead and start to learn to live off the land?

Should I even worry about things like home value or preparing for retirement?

 

So as always the answer to “now what” depends on who, what and where you are.

And of course understanding and doing part take time and commitment. You may even be a person who deep down feels more life purpose in a Case C world, or may even romanticize the idea of a post consumer-driven culture, and the psychological treatment of that issue is well being where I want to take this write-up today.

 

I do sense a voice of “the way it ought to be” in some of the prognostic write-ups I’ve come across that deals with these issues due to disenchantments of suburban living and feel-good consumerism. And of course the various end-of-days religious theme is another element to consider in getting your own arms around it all.

 

In any event, what makes the doing part difficult is in spite of the various progressive movements, history shows us that people will generally do something until they can no longer do it any longer.

 

In other words, why should  I bust my hump preparing for a world where I can’t do or acquire the things I take for granted today, by using my spare time to learn to grow my own food or learn how to fix something myself if I still live in a time and place where I can just go to store or pay someone? Or why should I take a chance and reach out to my neighbors and start these frank discussions about how we’d manage without city water and prolonged power outages, when there’s a chance when my future will look more like Case B, a more continuous descent?

 

Trouble is if we’re facing Case C, then if you wait until Case C is the future we face, then you won’t have time to adapt.

 

So the “now what” depends on your personal understanding about the ongoing process and interconnectedness of collapse and then how you take measured actions in response as far as what you do to adapt how you come to terms with it all. It comes down to personal scenario planning - your day planner and your checkbook – how you spend your time and money.

 

Or you can do nothing and hope really hard for Case A.

Empty Shelves

We hear of riots every day now in places like Egypt, Haiti and Asia due to a global food shortage crisis in over 30 countries, but we may be on the cusp of our first food shock right here in the US as hard as it may be to imagine in the land of plenty.  

The peaknik, survivalist and doom and gloom websites have been alert to the escalating food crisis for years, but the situation has reached a point where the headlines of US shortages and hoarding at grocery warehouse chains like Costco have appeared in the mainstream press like the Wall Street Journal, CBS News, Washington Times and New York Sun.

Wheat, rice and other grain supplies are at decades lows when demand has never been higher due to a combination of factors including biofuels, skyrocketing energy prices, fertilizer availibility, Asian demand, fresh water and arable land availibility and the resulting failure of crop outputs to meet the required record pace. One of the recent fallouts is that Thailand, the world's largest rice exporter, has now restricted exports. 

Suddenly, it's not just the end of the world as we know it camp that's starting to take note of the situation and act and in doing so creating a near panic situation and run on the bank mentality making matters worse.

There's complacency in the day-to-day normalcy of things in the US, but consider how quickly this situation could escalate knowing that grocers have about a 3-day supply on hand and our food chain in the US depends on 2 trainlines that run from the heartland to each coast. 

In the best case we face a continuation of higher food prices with spot shortages as we gradually adapt to circumstances. But right now, reality is urging us to ask ourselves what will we do when the shelves are empty at Walmart, the riots start and a cardboard "no gas" sign hangs over the pump?

I've included links below on the crisis.


Early signs of food rationing in the US

http://www.cbsnews.com/stories/2008/04/23/earlyshow/main4036816.shtml

http://www2.nysun.com/article/74994

http://online.wsj.com/article/SB120881517227532621.html

http://www.reuters.com/article/email/idUSN2323679120080423

http://www.washingtontimes.com/article/20080423/BUSINESS/868303815/1001

Crisis in world food supplies

http://www.economist.com/opinion/displaystory.cfm?story_id=11050146

http://theautomaticearth.blogspot.com/2008/04/famines-do-not-happen-in-democracies.html

http://www.guardian.co.uk/commentisfree/2008/mar/28/food.ethicalliving/print

http://www.iht.com/articles/2007/12/17/europe/food.php#end_main

http://www.thefirstpost.co.uk/?storyID=11410

http://iht.com/articles/2008/03/31/business/food.php

http://www.telegraph.co.uk/money/main.jhtml?view=DETAILS&grid=&xml=/money/2008/02/07/cnoil107.xml

http://www.energybulletin.net/22584.html

http://www.ft.com/cms/s/5a9b3c72-db2e-11dc-9fdd-0000779fd2ac.html

http://www.cattlenetwork.com/content.asp?contentid=170846

http://www.timesonline.co.uk/tol/news/environment/article3500975.ece

http://www.timesonline.co.uk/tol/news/environment/article3500975.ece

http://edition.cnn.com/2008/WORLD/asiapcf/03/16/eco.food.miles/

http://www.financialsense.com/fsu/editorials/dancy/2008/0104.html

http://www.financialsense.com/fsu/editorials/dancy/2008/0104.html

http://www.csmonitor.com/2008/0227/p01s05-usec.html

http://sharonastyk.com/2008/03/19/wheat-rationing-seed-shortages/

http://www.spiegel.de/international/world/0,1518,548300,00.html

http://us.ft.com/ftgateway/superpage.ft?news_id=fto032820080525305933&referrer_id=yahoofinance

Threat of catastrophic wheat rust

http://www.marketoracle.co.uk/Article4161.html

Corn rationing; Mexico riots

http://www.chron.com/disp/story.mpl/ap/fn/5662307.html

Ripple effect of grains to dairy products and eggs

http://iht.com/articles/2007/08/31/business/wbmilk.php

http://www.spiegel.de/international/germany/0,1518,549186,00.html

Foodbanks feel the pinch when they need help the most

http://www.truthout.org/docs_2006/113007P.shtml

Honeybee colony collapse

http://www.sciencedaily.com/releases/2007/04/070422190612.htm

The biofuel effect on corn and other grains

http://financialsense.com/editorials/engdahl/2007/0725.html

Another record crop is needed in 2008 just to meet demand

http://www.reuters.com/article/environmentNews/idUSN2017609720071220?pageNumber=1&virtualBrandChannel=0

The Impact of speculators

http://www.theglobeandmail.com/servlet/story/LAC.20080423.RCFTC23/TPStory/Business

Wildcards like avian flu

http://www.news.com.au/couriermail/story/0,23739,22929648-953,00.html?

Letting Go of Our Entitlement Mentality

Can the US manage an orderly decline in its standard of living? That seems to be the prevailing question in the early part of the 21^st century.

After living through the collapse of the Soviet Union, Dmitry Orlov has some very sharp insight into the phases of societal collapse and how that compares with what we’re experiencing in the US. Dmitry describes the phases of progression as financial, commercial, political, social and cultural. Right now, most Americans are becoming intimately familiar with financial unraveling, while survivalist types have been preparing for the head for the hills phase for decades. In countries like Haiti and North Korea, priced out of the commodities markets, collapse has reached the later phases.

The analogy for our collective confusion and denial of a frog in a pan water, complacent as the water gradually heats to a boil is useful.

Many seem to be anticipating some singular, catastrophic IT to happen when in reality, collapse usually results from a series of unresolved, interrelated crises. In the later case, collapse at least in the early stages, is individual and the pain you feel is proportional to where you started on the food chain – or simply put, the poor suffer first, the middle class in turn disappears while the rich can make due for some time on their proverbial lifeboats.

So no, this isn't something that happens in 100 years or when "it really hits the fan" or when the stock market tanks. From recent moves in the US and UK to essentially nationalize the banking system to keep the system propped up, looking at things in currency-denominated terms has less real meaning. Zimbabwe is of course the extreme example in that respect.   

So IT is happening now and has been happening for years depending on where you're standing.   

Facing the confluence of issues, one of our biggest liabilities is our entitlement mindset. The entitlement mentality we’ve developed during a period of post WWII wealth and prosperity becomes more obsolete with each passing day. Entitlements require abundance and in the years ahead, all signs point to anything but. Our mindsets, rooted from ancestors on a nation of 4 million with unbounded natural resources, applied to a tapped out nation of 300 million do not hold water.

There is little sense in complaining about the cost of gas because we feel entitled to something like 500 man-hours of work in a $3 gallon of unleaded. And there is little sense in continuing on with our expectations for government and municipal services that can only be subsidized with cheap energy and undervalued resources which subsidizes a strong housing market which subsidizes services through property tax receipts which subsidizes related debt asset bubbles and so for and so on. At a more basic level, with wheat, milk, rice, corn and other food costs soaring, the entitlement to cheap food will vanish one way or another rising well beyond the historic low 10% of income level we've taken for granted.   

That said I’m continually amazed by the media’s ability to focus on issues in isolation with regards to the housing bust or financial crisis or higher food costs.

And what is a dollar anyway?

It seems our mental construct of value will inevitably be priced less in terms of dollars, Euros or Rubles and more in terms of tangible items as central banks of the world continue to inflate their currencies to feign growth during an unprecedented era of monetary inflation. As an example, oil priced in terms of other commodities does not look that much more expensive than it did in 2000. If the money supply has doubled over the past 7 years and we continue to use more than we find then what else would you expect?  

Unfortunately, this isn’t the type of “change” our leaders discuss. Most of the change relates to cul-de-sac entitlement mentality, when the change we need to acknowledge is nothing less than a Swan Song for 200 years of industrial growth.

Eskom, the South African Long Emergency, Platinum and Fuel Cells

When Eskom, the South African utility company, failed to meet the power demand, South Africa plunged prematurely into a Long Emergency.

Prospects that they will get the power situation back in order are not good. It takes years to build out capacity so once a utility gets behind the power curve, the effort becomes one of running uphill on a slippery treadmill. To get a handle on the real human impact on how the power grid failure has rippled out to impact infrastructure, services and lives, read this letter from a South American farmer.

"...The first reaction to the power emergency took the form of a rush for candles, refilling of gas bottles and the purchasing of generators (if you could get them). Then the complacency set it, business learnt to sit through power outages, retail shops were forced to close their doors for a few hours a day. There was and is a shortage of food supplies, food went bad in the fridges and had to been thrown away. It was kind of charming in a strange kind of way, to eat dinner by candle light and forgo the ‘soapies’ on TV. Traffic lights were out over a large number of suburbs and delays in getting to business meetings became the norm. The schools are unable to teach a full day’s lesson. The internet service providers and the mobile phone companies’ frequently have service delays or are just plain ‘off line’. The battery runs out on your laptop and that’s the days productive work is over until the power is back on…Patients in ICU or undergoing operations, as the power grid went down, were at risk of and did, die..."

Without enough power, the platinum mines have had to cut production, and since South Africa produces 80% of the world’s supply, platinum has sky-rocketed to over $2000 per ounce. South Africa's platinum production comes mainly from Rustenburg, Impala and Lonrho, which means that South Africa has a much tighter chokehold on the platinum supply than OPEC countries have on oil. 

As it stands, platinum is extremely rare. All the platinum ever mined throughout history would fill a 25 foot square cube. Platinum supplies are always tight, because it takes approximately ten tons of mined ore to get just one ounce of the metal. Still platinum is a cornerstone in the grand vision of the hydrogen economy since most fuel cell designs use platinum as a catalyst.

Isn’t it ironic that most long-term energy policies involves migrating a fleet of cars and infrastructure, run on a diminishing fuel source in unfriendly, unstable countries, to hydrogen which ultimately requires a scarce metal from South Africa, a county not exactly known for its political stability?

A study by consultants TIAX, for the U.S. Energy Department, has claimed platinum will not run out though.  It believes platinum use will drop 75% to 15g a fuel cell once hydrogen cars become viable, so let’s be even more aggressive and base our model of what it would take to move the world’s fleet of cars to hydrogen on 10g of platinum per fuel cell. For now, we’ll forget about other challenges with hydrogen such as storage, cost to transport and the fact that it is an energy carrier, not an energy source, and the production of hydrogen is mostly powered by natural gas and other fossil fuel inputs. To be fair, palladium and other metals have also been explored for use in fuel cells, but they have similar supply limitations.

Let's just focus on the link between fuel cells and platinum.

In 2002 there were 590 million cars on the road. Clearly that number has increased given the ramp-up in auto ownership in China and India over the past 5 years, but let’s use 600 million cars as a conservative estimate. In 2006, total global platinum production reached a record level of 6.79 million ounces.

A back of the napkin calculation tells us that if we were to somehow hold production flat at record 2006 levels, then we’d need to divert the entirety of 46 years of global platinum production to supply 600 million cars with fuel cells. 

So simple math does not support a massive hydrogen overhaul and that assumes no supply disruptions, such as a power crisis due to a shortage of coal, in one of the most resource rich parts of the world, which impacts the mines.

The point is not to debate the specifics of fuel cell efficiency and make silly assumptions like the one I made above about an overnight fleet replacement, but instead to make a more general point that the availability of inputs for alternative energy infrastructure is impacted by the same resource supply constraints as the fossil fuels they are designed to replace.

In world with ever increasing interconnectedness and resource scarcity, one broken link in a supporting supply chain impacts another and so forth and so on -as in this one isolated case where Eskom coal power limits platinum mining which has a major impact of the viability of fuel cells.

That said, we’d be wise to make our future living arrangements with something in mind other than fantasy and wishful thinking.

What Would You Do in a World Made by Hand?

The silence is deafening.

There is no buzz and hum of traffic.

The pavement slowly succumbs to the earth after a few years of neglect.

Every so often the electricity flickers on and you’re startled by the momentary crackle of a distant evangelist blurting through the radio.

Store shelves are empty, windows are broken and any material that could have been salvaged has long since disappeared. 

You hear rumors of how the rest of the nation is fairing but have no real idea without any electronic communication. There were riots. There was a deadly flu epidemic.  Two major cities were destroyed. Shipping ports have long since shut down. Global commerce is replaced by bartering and the world has become a salvaging operation. There is effectively no central government, though you hear rumors of a President up North, while factions, cults and other lifeboat communities band together here and there and conflicts result.

The motor of the world has stopped, but still you go on.

This is the world that James Howard Kunstler paints in his “World Made by Hand” for one small town in upstate New York dealing with a post-industrial reality.

Kunstler has become the Paul Revere of peak everything awareness urging Americans to wake up to some unwelcome realities we face in the early 21^st century.

Whether you fall in the doomer camp or believe like Thomas Friedman that the world will remain flat or you fall somewhere in between, this is a very gripping novel.

Kunstler’s vivid descriptions of human adaptability, resourcefulness and making due when you can no longer take anything for granted leads you to believe he has been to that place and come back to tell us this story, revealing one poignant scene after another.

The narrative is told through the eyes of Robert Earle, a software executive in “the old world”, who now works as a carpenter years after the flu took his wife and daughter. He recalls jet-setting to places like Las Vegas and Orlando for trade conventions back in the high octane days. Things he took for granted in the fat years, consume much of his time now since you eat what you can either produce or trade for. He converted an old refrigerator to a smoker, made the rear patio of his house a summer kitchen with a wood stove and rigged a metal firebox above the shower head for warm water. He misses what used to be simple, easily obtainable things like black pepper, cinnamon and coffee.

In and around the town of Union Grove, you fell into one of a few camps: You might live and work on Stephen Bullock’s old orchard farm, or become part of the New Faith religious sect who just settled into town and bought the old dilapidated high school and converted it into a hermitage. Or you might fall into Wayne Karp’s circle of motor heads who claimed the landfill and controlled most of the salvage trade or, like Robert Earle, you remained a townsperson trying to manage in an age without any social safety nets.

Yes, Kunstler’s book is speculative fiction, but in a world of cascading, escalating and unresolved crises, truth may ultimately prove stranger than fiction.

If nothing else, you should read this book and ask yourself what would you do in a world made by hand?

Reality-based Optimism

There was a memorable line in a movie, which itself wasn’t really memorable which went, “If you can’t give a man something to love, give him something to hope for and if you can’t give him hope just give him something to do.”

I can’t help but put that line squarely into the context of where we are in 2008.

Here we are in the midst of an election year, another on-going pageant which rewards those who make you feel, well the most loved or the most hope and if nothing else at least assure each of us we’ll have a meaningful role to play in the future.

National morale is low with the sinking economy, housing bust and war in the Middle East. Political pundits ramble on about who will carry the torch into America’s future while the average guy just shrugs and wonders how we’ll continue to finance guns or butter for that matter.

Daytime radio hosts, Times editorialists and business tycoons of glory days espouse their personal solutions and “we ought to’s” and “we need to just’s” in order to rebuild, regain, re-entrench our way into the future.

But underneath the public spectacle of Hillary’s tears and sound bites edited for mass consumption, I do sense a growing number of people with a keen awareness of the interconnectedness of the converging economic, social, energy and environmental crises in an age of increasing scarcity.

Trouble is it’s socially deadly to have frank discussions about these matters among a population that grew up with Disney World, happy movie endings and believe in ever advancing progress, abundance and prosperity.

So few do.

No presidential candidate has said, “No, we’re not having a housing slowdown; really the suburban expansion which has had a nice run for 60 years, and through which we’ve squandered much of our post WWII wealth, has topped out. It’s pretty much downhill from here and when you think about the relationship between Suburbia, the American economy and way of life, that’s going to hurt.”

No financial guru interviewed by cable news would say, “No, we’re really not about to have a recession, what you’re seeing is just one of the first waves of the collapse of the financial system. But really what else would you expect after 30 years of divergence between the paper, debt-based economy and the world’s ability to back it with hard assets and resources? Now we're faced with the fallout of a combination of consumer and national debt, years of growing trade deficits, underfunded government obligations, retirement system collapse and a massive derivative implosion. If you think subprime and collateralized debt obligations was fun, just wait until the $50 trillion credit default swap mess gets going.”

Or, “Yes, Asia is growing and is the story of the 21^st century, but do you really think 700 million Chinese can live like Americans running errands to Wal-Mart and Home Depot in their knock-off Excursions?”

No Federal Reserve Chairman would admit, “The average person is going to get waylaid by the combined freight trains of deflation from the credit and housing bust and inflation from skyrocketing commodity prices. But don’t worry as you won’t feel the pinch of inflation if you don’t plan on eating, driving, keeping your home warm or watching ‘American Idol’. But we’ll do our best to inject so much funny money into the system that if you did manage to save a buck, I’d advise you go ahead and spend it today, since it will be worth much less tomorrow."

No talk radio host who claims environmental restrictions are the reason we're not energy independent would actually say, "Even if we opened up the entire continental shelf, quickly invented the seismic equipment, had a growing fleet of newer offshore rigs to drill these deep offshore wells, discovered two new North Seas, then maybe we could spend $500 billion and maybe end up 10 years from now with 6 million barrels per day of fresh supply. Trouble is we have none of those things. And 10-15 years from now, our 73 million barrels per day of current crude production could easily be down to 50 or 45 based on depletion rates of existing fields. Even if you had another 6 million barrels per day, you'll have much less than you have today."

Nor would he say, "Sure we’re going to be more and more energy independent and we’re almost certain to meet our goals of importing less oil and refined fuel. What would you expect since there is less and less available on the world market?”

You get the gist.

But none of this is to say there is no hope.

It is to say that hope is personal responsibility as is dealing with reality.

And in a culture consumed with pop positivism, I found Kathy McMahon’s article on why blind, unfounded optimism in the face of what confronts us is well…downright neurotic.

Panglossian Disorders and Their Subtypes

Panglossian Disorder: “The neurotic tendency toward extreme optimism in the face of likely cultural and planetary collapse.”

Temporal Subtypes:
Scarlet O’Hara-ism- “I’ll just have to think about that tomorrow.” A strategy of denial that allows the person to temporally compartmentalize the feared event(s).
Futurism: “Sure, that will happen, but it will occur after all of us are long dead.” A belief that something that might happen in the distant future is no concern in the present.
Y2K features : “They said everything would collapse with 2000, and it didn’t.” A belief that any prior concern about societal problems that didn’t occur demonstrates the impossibility of any others happening in the future.

Angry Subtypes:
Rhett-Butlerist Features - “Peak Oil? Planetary Collapse? Frankly, my dear, I don’t give a damn.” Aggressive denial of information not in keeping with one’s world view.
Kill the Messenger Redirection : “Why are you telling me this? What kind of sicko focuses on these kinds of facts? You need help!” The belief that those who bring bad news are doing it for malevolent reasons.

Narcissistic Subtypes:
Rigid Cheney-ism: “The American Way of Life is non-negotiable.” The belief that any undesirable change can be avoided by a sheer act of will.
Survivalistic features : “Hey, if the rest of the world is doomed, I don’t worry about it, because I’ve got mine.” A belief that personal preparation is adequate.

Religious Subtypes:
Religiousity : “God/The Planet/Mother Nature loves humans. He/She/It would never permit massive die-off.” Or “If that happens, I just put my faith in my Savior.”
Neoliberal Econo-manic Tendencies : “The market will sort it out.” A belief that market forces control all--- including geological realities.
Nascarian Features : “People love their automobiles. A solution will have to be found to keep us driving.”

Subtypes with Denial or Minimization as the Central Feature:
Pure Denial: “That can’t be right. It’s just impossible.”
Minimalization as a primary defense : “There may be some shortages, but I doubt it will be as bad as you say.”

Subtypes with Histrionic, Helplessness, Acquiescence or Submissive Features:
Submissive Features : You're probably right. [Shrug]" Too hard/scary to think about... A response that acknowledges the reality of the threat, but is emotionally frozen or unwilling to devote emotional time and energy to the matter.
Histrionic Features : “I just don’t know anything about that. Oh, Golly, I hope you’re wrong. That’s all I can say. Oh Golly, I just can’t think about it.”

Subtypes with Delusional or Magical Thinking:
Meglomatic Features :“This simply won’t happen to me.” A belief in one’s specialness, which will save them from the consequences affecting those around them.
Paternalistic Features : "The government/corporations will sort it out." A belief in the infallibility of organizational structures to resolve problems they aren’t willing to even acknowledge.
Doubting Thomas Features : “Peak Oil is a scam by the Oil Companies to raise prices!” Minimizing the possibility of the crisis by the belief that some one or some group has ultimate control over its happening.
Pure Cornucopian Features : “The more we need, the more they’ll be.” A belief that continued progress and provision of material items for mankind can be met by advances in technology.
The Flinestonian : “The stone-age didn’t end because they ran out of stones.” A belief that modern innovation is eternal.
Frank Zappa-ism : “As soon as things get really bad, they’ll come up with something.” A belief that necessity is the mother of invention.
Magical Thinking : “Don’t worry, we can build a car that can run on air!” Proposes solutions that are clearly outside the realm of physics.
McGiveristic Features - A belief that massive planetary problems can be solved with ordinary/common items found readily at hand. Eg.: “Pig dung will be the next fossil fuel.” Or “Coke Cans can be turned into solar panels.”

Facing Questions in a New Year

What a year it was.

As for 2008, I’ll spare you any prognostications.

What do I know anyway? Real people make real bets with their love, time and money. Everything else is just gossip and speculation.

Besides, there are already too many crystal balls in the air right now.

And I just can’t begin the year with yet another article with facts and figures on resource scarcity, oil export shortages, a global credit implosion, environmental collapse, toxic collateralized debt instruments, national debt, housing collapse, dollar crisis, foreclosure epidemic, sky rocketing food prices, stagflation, inflation, deflation and so on and so forth.

Either you’ve been paying attention or you’re already dealing with the consequences or you've been sleeping happily.

I do suspect that 2008 will be a year where an early majority, in a classic adoption curve sense, will start to answer “yeah…but really” to lip service answers to some of the larger questions such as:

Do you think doubling oil prices year over year is more due to “speculation” and “above ground issues” or stark realities about supply and demand?

Do you think the US will withdraw its military, whether a Democrat or Republican wins the Presidential election, within the next 3 years from the world’s largest energy corridor, a position of tremendous geopolitical leverage over Europe and Asia?

Do you think alternatives that have poor net energy returns, not to mention subsidized by government and produced, transported and maintained with the resources they are supposed to displace are true “solutions” that require no real sacrifice on our part?

Do you think oil exporting countries will keep increasing exchange of the world's most important commodity for petrodollars when their internal demand is skyrocketing and production decreasing?

Do you think it makes sense to grow our energy supplies in large scale when world food supplies are at multi-decade lows?

Do you think the world economy will grow and produce more jobs and business will go on as normal when oil fails to meet demand and substitutes fail to “fill the gap” in a developed and developing world where absolutely everything is supported by an interconnected fabric of readily available and cheaply produced hydrocarbons?

Do you think you can finance an empire on debt for years without ever paying the tab in some way, shape or form - most probably continued erosion of currency value?

Do you really think the dollar’s diminishing status as the world’s reserve currency isn’t going to impact you when the trade of the century and one of the key reasons for US strength, has been our ability to exchange our paper dollars we could print at will for real goods and services of other countries?

Have you thought about how ripple effects of an on-going financial crisis on municipal and state investment funds could impact your benefits, your children’s education or your local health services due to budget shortfalls?

Do you believe we can sustain the unsustainable by substition of different means towards the same ends?

Do you think China is going voluntarily slow their growth rate, go green and risk societal upheaval by taking the foot of the pedal when even at 10% growth, the economy fails to employ millions?

Do you think we’ll continue to have a cozy trading partner arrangement with China when we really start butting heads over resources in Africa and the Middle East?

When faced with these questions and the painful laws of unintended consequences when large-scale political solutions are implemented in haste especially in an election year, it seems wise to be honest with ourselves and answer these questions as individuals first, before heading down the path of groupthink towards “solutions” that exacerbate the problems more than help.

Thoughts on the 2007 ASPO-USA Houston World Oil Conference

A couple of weeks ago, the Association of Peak Oil had their annual world conference in Houston.

Presentation after presentation and chart after chart revealed that an increasingly energy-scarce future is arriving in the developed world sooner than most had hoped or planned for. See link to presentations here and notes on the conference taken by Chris Nelder, an editor at Energy and Capital.

As usual, Matthew Simmons’ presentation hits the nail on the head, but Jeffrey Brown focused on one of the most import points to consider in his presentation: Oil-producing countries are using more and exporting less so supply curves are dropping faster than overall global production. He calls this the Export Land Model and this is another example of a positive feedback loop, where as oil prices climb, more petrodollars enter exporting nations and raise income levels and domestic demand which cuts the amount available for export.

Obviously, this is a very big near-term problem for the United States which imports 2/3^rds of its demand. Chris Skrebowski’s presentation on megaprojects summarized this phenomenon as a peaking of oil supply in international trade before the oil production peak.

With so much data supporting the fact that we may have already passed an irreversible decline point at a time when demand from China and India is just getting started, it’s worth reading Ali Samsam Bakhtiari's thoughts on the transition period we now find ourselves in.  Bakhtiari was formerly employed by the National Iranian Oil Co. (NIOC) of Tehran, Iran and like T. Boone Pickens is convinced we’re on the downward slope of global production.

Dr. Bakhtiari views the future of worldwide oil extraction in terms of four phases of transition, or, as he puts it, T1, T2, T3, and T4 where the four transition periods (T1, T2, T3, and T4) will roughly span the 2006-2020 era. Each transition [will] cover, on average, three-four years...[T]he only transition we can see rather clearly (or rather, we hope to be able to comprehend) is T1. It is clear that T1 will witness the tilting of the 'oil demand' and 'oil supply' scales -- with the former dominant at the onset and the latter commanding toward the close (say, by 2009 or 2010)."

Dr. Bakhtiari believes that this state of affairs, the peaking of global oil extraction, is truly the "event of the century," which he explains thus:

"The 21st century is still young, as there are another 93 years to go. So it might sound overambitious to claim that 'The Event of the Century' is already behind us. But I'll gladly take the risk, for I seriously believe that the peaking of the global production of crude oil -- commonly known as 'Peak Oil' -- has occurred in 2006 and will be 'The Event' bound to dominate the history of the 21st century: one of those 'historical inflection points,' which abruptly change fundamentals in the course of world history.

As daunting as it is, it seems wise to individually adjust our deeply embedded lifestyle presuppositions, expectations and assumptions accordingly as true awareness of our predicament spreads into the mass news media and into living rooms.

The Liquidity Crisis Central Banks Can’t Solve – Oil Depletion

With the mortgage meltdown in the US, media attention has turned to how central banks can cure the credit disaster with the same medicine that by and large caused the disease to begin with: More liquidity. If you’re scratching your head, you’re not alone.

Still you shouldn’t be too surprised at the choice to postpone an even bigger reckoning day, which has been brewing for over 20 years, at the expense of inflation. The mortgage mess is part of the continuation of the global credit bubble that began in Japan in the 80’s, spread to Asia’s Dragon economies in the mid-90’s, the US stock market in the late 90’s and the US housing market that peaked in 2005. Solving economic crisis by a combination of lower interest rates and adding to the money supply has been the preferred route since the lessons learned of the Great Depression. Didn’t John Keynes say that in the long run we’re all dead anyway? And so goes the dollar.

Just as it has been a tough pill for most Americans to let go of the idea that “real estate always goes up in value”, the end of another accepted truth seems imminent if world events are any indicator: That our energy supplies will continue to meet demands.

So while the US politicians address the mortgage crisis, even more daunting is another liquidity crisis that cannot be solved by central banks – one with real limits imposed by the real world, far removed from electronic pulses that represent money: Oil supply. Without going off into chart and statistics land, as a general rule, to maintain the expected 4% annual world economic growth and business as usual, world oil production needs to increase by 1.5% per year. The evidence why it won't be possible to maintain, much less increase supply to meet demand with each passing year, is mounting. Even the historically optimistic EIA, in their July 2007 Medium-Term Oil Market Report is predicting "increasing market tightness beyond 2010 with OPEC spare capacity declining to minimum levels by 2012." 

Rather than chart out what we expect to see as we journey deeper into the energy crisis, consider what the rest of the world is already experiencing.

If you listen carefully, before you write this off as "demand destruction", you can hear the cries from the lower decks as we rearrange the deck chairs here in the US:

From Chris Nelder’s column in the Energy and Capital Report:

Here in the first world, we still have the luxury of armchair theorizing about peak oil, and paying a bit more for gasoline, but the third world is actually feeling the pain of peak oil today. Rising oil prices are acting as a regressive worldwide tax, pricing poorer countries right out of the market. Since their experience must to some extent herald ours as peak sets in, let's see how peak oil feels to those who are undergoing it firsthand.

Asia and Middle East

Nepal: Gasoline and diesel shortages are crippling the country. In July, the Kathmandu valley was hit with its worst energy crisis in history as the state-owned petroleum importer and distributor stopped supplies to gas stations entirely. Fuming taxi drivers subsequently parked their cars before the heart of the Nepalese government center to protest the shortfall. The Nepal Oil Company (NOC) has been facing cuts from its sole supplier, the Indian Oil Corporation (IOC), because of mounting debts owing to Nepal's subsidies, which force NOC to sell fuel below cost.

Pakistan: Chronic power shortages have led to riots in the streets in Karachi. At one point this summer, the gap between supply and demand reached a peak of 3,000 megawatts (MW). Due to chronic underinvestment in energy infrastructure, the country's Planning Commission estimates that its shortfall in oil supply will grow to 3.2 million tons of oil equivalent (TOE) in 2010, and 21.5 TOE in 2020.

Iraq: Iraq has suffered from an acute shortage of oil products since the U.S.-led invasion in 2003. This week brought a report that Iraq's electricity grid could collapse any day now, due to sabotage, rising demand, fuel shortages, and provincial officials who are disconnecting their local power stations from the national grid (presumably in the interest of self-preservation). Constant attacks on pipelines have made it impossible for Iraq to meet its internal need for gasoline, forcing it to rely on imports to the tune of 1.3 million gallons per day. At the same time, it is being forced to reduce subsidies on gasoline in order to meet IMF debt-reduction requirements, even as it struggles with 60% unemployment and rampant poverty as well as chronic grid blackouts. Oil smuggling and a robust black market have sprung up to take advantage of an estimated 10x spread between the official subsidized prices and black market rates.

Iran: Chronic gasoline shortages have forced the government to impose rationing. Motorists can buy only 100 liters a month at the subsidized price of 1,000 riyals (about 11 cents) a liter (the cheapest gasoline in the world). Iran's program of oil subsidies--combined with sanctions from the West over its nuclear intentions--has proved disastrous, putting the government in an intense budgetary squeeze. Angry protesters torched 19 gas stations in response to the rationing in late June. Tehran currently imports about half of its gasoline, and absorbs a loss of nearly $2 per gallon on it, creating an intense drain on the national coffers. As in Iraq, rationing is expected to lead to a brisk black market. Bangladesh: The shortage of electricity is acute, to the tune of about 2,000 MW a day, which is resulting in regular blackouts. Bangladesh's attempts to import electricity from India, Nepal and Bhutan have been fruitless, so in June the country obtained permission from the International Atomic Energy Agency (IAEA) to begin building nuclear power plants.

Sri Lanka: Severe shortages of fuel have led the UN to warn the government that it may not be able to continue providing humanitarian aid or preserve its supply of vaccines and essential medicines. The UN agencies have been forced to curtail the usage of generators and vehicles. Construction activity in the Jaffna and Wanni regions has all but ceased due to the lack of fuel.

Philippines: A deadly tropical storm hit the country this week, bringing an end to a three-month drought that had severely reduced the country's electricity output. Extremely low water levels were recorded at five major hydroelectric power dams, one of which was forced to shut down entirely. The shortage caused sporadic electricity outages in the country's capital of Manila, which turned to coal and oil-fired power plants to make up the difference.

China: A red-hot economy with rapidly growing industrial sectors has put China in a constant state of electricity shortages, with brownouts a common occurrence. Shortages of coal, power and oil have been reported. Top refiner Sinopec has stopped selling refined products to other companies and private filling stations in order to maintain supply to its own outlets, and some oil dealers are suspected of hoarding supplies. Now the world's second largest energy consumer (behind the U.S.), China's total energy consumption has risen by an average of more than 11% each year for the last five years, 70% to 80% of which is supplied by coal. Meanwhile, all of that coal is casting a shadow of soot around the world, dropping it in places like the west coast of the U.S., and causing acid rain that poisons lakes, rivers, forests and crops. It has been estimated that fully 77% of the black carbon emitted into North America's lower atmosphere comes from Asia. 

India: Soaring temperatures as high as 122° F have caused hundreds of deaths and raised grid demand to a record 4,000 MW in the capital of New Delhi, where rolling blackouts and equipment failures have caused power outages lasting up to 15 hours a day. Chronic power shortages in urban and rural India are crippling industrial and agricultural productivity and discouraging foreign investment. The country is currently looking to nuclear energy to provide some relief.

Vietnam: Another red-hot Asian economy with electricity consumption growing at the rate of 15% to 20% annually, Vietnam is facing a 1,000 megawatt shortfall in peak power production. The capitol has ordered local governments to keep the thermostats set no lower than 77° F and to turn off air conditioners a half-hour before the end of the day--with a $1,250 fine for non-compliance.

Africa

Some 25 of the 44 sub-Saharan nations are facing "unprecedented" and crippling electricity shortages with common power outages, even in South Africa. In Nigeria, Kenya, Tanzania, Uganda, Ghana and other parts of West Africa, drought has slashed the generating capacity of hydroelectric dams, which is in turn crippling production of gold, aluminum, and other basic metals.

Uganda: Electricity shortages are frequent as the grid is strained beyond capacity, largely because drought has lowered the water level of the Nile River, reducing hydroelectric generation. Parts of the capital are blacked out for as much as a day at a time. The country has leased two 50-megawatt diesel-burning generators to compensate, reportedly costing the nation about as much as it would have cost to build two new hydroelectric dams. And in a horribly ironic twist, grid power shortages are shutting down a pipeline from Kenya, adding to the diesel shortages.

Zimbabwe: Critical gasoline and diesel shortages are ruining the economy, pushing the price of a liter of petrol to a staggering 120,000 Zimbabwe dollars. Fuel stations went completely dry in June, and there have been long queues at the few which had any to sell. Ghana: Electricity shortages are causing load shedding blackouts, costing the economy on the order of US $5 million a day. Ghana, among others, has compensated by leasing huge gas generators to produce emergency power--at exorbitant rates.

Nigeria: An acute shortage of fuel occurred in June due to strikes by unionized oil labor over wages, a hike in fuel prices, and the sale of two refineries. Nigeria Labour Congress (NLC) has vowed to cripple the government of Oyo State if it makes good on its threat to eliminate some of the state work force. Abductions, killings and robberies have plunged the oil-producing parts of the country into chaos. Only 19 of 79 power plants even work, and blackouts are costing the economy $1 billion a year. In Nigeria, Angola and other nations, most businesses and many residents run private generators because the grid is so unreliable, adding to their economic and air pollution woes. Imagine: "I've been on the 20th floor of an apartment building in Luanda, and there would be generators on all the verandas, with the racket, the fumes."

Senegal: State power company Senelec has been unable to pay for supplies of fuel for its oil-fired power stations, leading to cuts in electricity supply. China has come to its rescue with a 370 million yuan loan to fund a new distribution network, in addition to its commitment to build a 250 megawatt coal-fired power station there. Kenya: Gasoline and diesel shortages in Nairobi are grounding industrial and personal transport alike, and price hikes appear likely. Gambia: Shortages of gasoline and diesel are taking an economic toll across the country, with many empty petrol stations and long lines at stations that have fuel to sell--but only to customers holding coupons from Shell.

Americas

Argentina: The country is facing its worst energy shortage in nearly 20 years. An increase in heating demand caused by an unseasonably early cold snap, combined with the failure of a power plant, caused the collapse of both the power grid and the fuel supply system. Electricity supplies have been severely curtailed, plunging entire districts into darkness and causing the layoff of industrial workers. Shortages of compressed natural gas, which powers many Argentine cars and 90% of the capital's taxis, are common. Argentina now has less than ten years' worth of gas reserves, and can no longer meet peak electricity demand.

Nicaragua: Electricity shortages have led to widespread blackouts, prompting the recently re-elected president Daniel Ortega to promise an end to the "energy bankruptcy" that has afflicted the country. The nation's energy deficit is running between 20% and 30%, forcing the power-distribution company Unión Fenosa to shut down whole cities for six to ten hours at a time. Ortega announced that nations such as Iran would help to build new energy plants to address the issue. Chile: Reduced supplies of natural gas and lower-than-average rainfall have pushed electricity spot prices to record highs, prompting concerns of inflation and reduced valuations of the country's energy companies. The market took Chile's third-biggest power generator, Colbun SA (COLBUN CC), to the woodshed in early July.

Costa Rica: Beginning in April, Costa Rica began experiencing nationwide electricity blackouts, forcing emergency rationing. The country's hydroelectric capacity is strained to the max, due to a dry summer cutting power output by 25%, damaged turbines at oil-burning thermal plants, and Panama's decision to stop exporting electricity to Costa Rica. Blackouts are now routinely scheduled.

Dominican Republic: Electricity blackouts have become commonplace, apparently due to a lack of fuel and regular maintenance of power plants. Programmed blackouts have now spread from the barrio neighborhoods to the exclusive residential districts.

The picture is clear: the poor and undeveloped countries of the world are the first to fall before the remorseless price inflation brought by peak oil.

The Lunacy of Ethanol

Watching world events unfold lately reminds me why I’m more concerned with governmental and societal reactions to certain realities, than the realities themselves.

A case in point is the political, agribusiness, pseudo-environmental thrust for Ethanol production and the impacts on the world’s food supply. 

Remember, to meet our goal of 35 billion gallons by 2017 would require our entire corn crop for 2005. In the meantime, with a 51 cent per gallon subsidy, agribusiness is more incentivized to grow corn and other grains for use as Ethanol as opposed to food and feed crops.  

This has much deeper and dire implications than paying more for your corn flakes as we’re all just beginning to experience and you don't have to be Malthus to see the disconnect.

It is startling how little the average American understands about the relationship between fossil fuels and a very fragile food chain. Heinberg lays out a very condensed explanation of the food-fuel relationship here.

Consider that the world is already at the lowest level of grain reserves for the past 34-year period, at 57 days, and Ethanol demand is expected to double over the next 2-3 years.

Now ask yourself, is Ethanol more a part of the problem or solution?

Why Grow?

A few years ago, a CEO and friend of mine asked the business question, “Why grow”? We ended up settling on the simple answer that generally a business should only grow to reduce the unit cost, a basic principle of economies of scale.

I tend to think about that conversation when I travel across the outer reaches of cities like Houston with wave upon wave of Big Box retailers and chain restaurants that in many eyes have memorialized some of the Frankensteinian aspects of concepts like standardizing assets to reduce cost when scaling a business. 

I’m not here to socially criticize growth, or gravity for that matter, but I do think it’s worth reflecting back to some of the reasons that the Americanized growth impulse is there to begin with, since we’re faced more and more with reconciling this impulse in an era diminishing resources and environmental concerns.

Picking a mid-stream starting point for brevity, much of that growth impulse rests on the shoulders of a few Enlightenment-era philosophers. Francis Bacon, the father of modern science rooted the idea of harnessing nature and criticized the Greeks for spending most of their time asking Why things worked. Bacon was more interested in the How with his Scientific Method.

Then Descartes came along and really commoditized nature into a resource through mathematics, coordinate planes and measurements. With Descartes, we became less concerned about nature’s subjectivity and reduced it to a universal rational domain. If we could map it and plot it, we can control it regardless of what the It was.

John Locke in turn was a huge influence on our founding fathers. He taught us that land left wholly to nature is waste and that the negation of nature is the way to happiness. Humans were liberated by the accumulation and consumption of nature’s bounty.

Locke’s ideas were firmly implanted into the frontier mentality which pitted man against nature. Eventually, after the western US was settled and we became used to having unlimited land and natural resources to tame and harness, the suburbs became a substitution for the frontier and automobiles replaced horses. Automobiles, which we base our living arrangement and economy around is a fitting name, representing autonomy and mobility – two basic principles of the American Dream. 

Is it any wonder then why we couldn’t resist that creamy nougat of fossil fuels at nature’s finger tips, to base our world and expectations of perpetual growth on, since surely something else would come along?

Landslide

At a very basic level, we’re creatures of habit and repeat the same behaviors because frankly they haven’t killed us yet.

And just as water doesn’t flow uphill, most people choose the least resistive path to wealth, love, happiness, feeding their bellies, visiting a relative or fetching their morning coffee.

At the same time we look around at others who have similar behaviors that reinforce our own, even though we’re very suspect of those behaviors and understand how destructive or short-lived they are. After all, we tend to look to others for guidance in how to behave. Psychologists call this phenomenon cognitive dissonance and it has a lot to do with the reason why we’re in some of the binds we’re in.

It also helps explain why many of our larger energy or environmental issues have for the most part become spectator sports in the blogosphere. Politics and activism for the most part revolves around substitution of the means to prolong the same behavior, even if the behavior is the issue to begin with. And with each election, there’s a misguided hope that putting the right man or woman in office might right the course and allow us to continue down a similar lifestyle path just in slightly different ways.

It is a tough nail to swallow that we’ve based every aspect of our living arrangement on cheap, abundant energy and we’re entering a permanent era of increasingly more expensive, scarce energy. That’s a nice way to say that our suburbs, schools, medical care, grocery stores, transportation infrastructure, trips to the Gap will become more and more obsolete and simply untenable with each passing year. So to really DO something means we have to reassess everything about who we are, what we do and how we live. All this in the face of everyone around us continuing to do what we’ve been taught, trained and programmed to do so long as they can continue to do it.

Eventually, change happens whether forced or voluntary, but for now the challenge for most of us in an era of remaining choices, is simply forming the awareness of how the inertia here resembles the Stevie Nicks song “Landslide” in that we’re afraid of changing ‘cause we’ve built our life around you…

Peak Friendliness

My wife came in from work the other night and said that she thought people were becoming less friendly on the highways and in general. I couldn’t help but hop-skip right over symptoms such as a divisive war, and draw the core reasons back to our growth-addicted society at or near its high water mark of expansion, heading kicking and screaming into an unwelcome age of energy decent.

So I said, “I think we’ve sailed on past Peak Friendliness.”

1.) An eroding resource base means that most people are working harder for less and will continue to work harder for even less and in turn become more competitive with peers for all the products and benefits of that shrinking resource base. Think about how nasty animals in the wild become during droughts. Less water ultimately means less food. It’s just not pretty. Technology, health, education, construction, big box retail, food, sports, and communications - all these industries are ultimately based on how cheaply we can extract and discard stuff from and back into the earth: Oil, fresh water, metal ore and other building blocks that support our way of life. And yes, at a very basic level, less oil is less food. At a higher level, as humans we don’t miss what we’ve never had, but we absolutely hate the idea of losing what we have had. When we lose it, as unfortunately more and more of the former middle class is discovering, we find someone – usually not like us - or something to blame when the outsourced technology job or bubbly housing market does not faithfully return.

2.) As a society becomes more complex, the benefits of that complexity reach diminishing returns and start to decline. As a case in point, consider how most new technology industries or business ideas have an impact that is further and further removed from adding real value to an average person's quality of life.  There is a wide gap of usefulness between the invention of pottery and most of the electronic doo-dads displayed in airliner shopping catalogues.

3.) Technology in all of its glory and conveniences has commoditized many sensual benefits. For instance, most people consider a heated home a good thing and I agree. But in the past to have heat, you'd have to cut down some trees, stack the wood and build a fire and that was often a family or tribal ordeal. As another example, in the past, most musical experiences were local with sounds that emanated from actual instruments with physical human contact. Now much of the music we hear is produced by MP3 players which convert a digital stream of electronic pulses to sound. In other words, technology puts an artificial barrier between the benefit and the cause of that benefit. Again, most people like turning a dial for heat, as opposed to chopping down trees, and MP3 players and I don’t disagree – after all, I have a degree is in engineering so I’m not a Luddite - but for most of our human existence we've had to gather wood and make our own music or visit someone who could play it. You do lose something in the translation – mostly the genuine appreciation of that benefit, the human bonding experience and the identify we form required to obtain the benefit, because it is so far removed.

4.) Most of us have been conditioned that accumulating nice things makes us happier, but accumulation becomes ever more difficult as economic and societal growth slows because of an eroding resource base. You can borrow time and continue to expand an economy with big credit engines that support, for example a market for bets on collateralized bad loans to people who will never pay them back, and print currency to essentially purchase energy for free on which to base that growth, but eventually the reality of growth limits sets it.

So just as we cope with the steepening treadmill due to #1 to achieve #4, we perceive the diminishing returns of #2 and #3 and that just plain makes a lot of people indifferent and unfriendly.

Luckily, we’re adaptable, so over time we’ll just have to reclaim the things that used to make us laugh, smile and be decent to one another before happiness equated to cash-out-refi’s, 24-hour drive-through Taco Shacks and every movie ever made on-demand always…

"Dead Past E"

When I was 7, I had a babysitter named Conrad. I remember riding with him in his pine green Pontiac Bonneville listening to him fret about being short of cash and running around town on a nearly empty gas tank. I can still hear him say, “Dead past E…dead past E.”

I imagine if Conrad is out there looking at the latest EIA reports on US gasoline supplies, he’d shake his head in disgust and say the same.

Gas supplies in the US haven’t been this low for a 4-week time span over the 17-year reporting period – even during Katrina.

Even more disturbing is the increasing amount of refined gasoline we now import to barely meet demand. This is one short-term answer to why we're paying more per gallon than a year ago even though the cost per barrel of oil is less.

Numbers like these just before summer driving season may spell some runs, shortages and mini-local panics this summer even without a wildcard event like a hurricane.

While Congress and the media gripe at Big Oil for higher gas prices the above- and below-ground picture becomes even murkier.

Currently, at least 64 oil producing nations have passed sustainable peak production and 6 oil exporting regions face declining oil production. The Burgan in Kuwait, Cantarell in Mexico, Iran’s six giant fields, Syria, Yemen, Oman, most giant oilfields in the former Soviet Union, conventional oil in Canada, Venezuela, Argentina, Columbia and on and on. Even more unnerving is than the possibility that the giant of giants, Ghawar in Saudi Arabia may have joined or will soon be joining that list.

The recent statement by the Saudi Oil Minister quoted in Bloomberg that Saudi Arabia may not need to produce beyond 12.5M barrels per day by the end of 2009 given “conservation, for efficiency of use, for use of alternative sources of energy” does not instill confidence in me.

While known for their secrecy on field-by-field production, they just may be tipping their cards to a pretty awful hand.

What an odd statement given worldwide production declines, the inability to push the world supply needle past ~85M barrels per day since 2005 with a projected demand increase to 120M barrels per day in 2030. And this with furious drilling and exploration activity and a seemingly unquenchable world thirst for energy at a time when 3 billion people have only recently joined the oil party.

Meanwhile, the White House plan of action is to alleviate our dependency on foreign oil in large part through ethanol citing a target of 35 billion gallons by 2017 – 15% of expected demand. While sugar has more energy density, we’re stuck with making ethanol primarily from corn in the US. There’s a lot of debate about energy ratios and such, but so far many studies have found corn ethanol an energy loser, requiring about 30% more fossil fuel energy inputs from than energy returned.

In 2005 the US produced roughly 10 billion bushels of corn, which is about 40% of the world’s total. It takes about 1 bushel of corn to produce 3 gallons of ethanol, so that plan of attack would require more corn for ethanol than the total amount that the US produced in 2005.

So far the only person who hasn’t noticed higher grocery bills due to increased energy costs and ethanol diversion is the keeper of the official core inflation figures which oddly excludes food and energy costs. As food prices spiral ever upward, and if we trade our oil dependency for food dependency, the conflict between feeding people and feeding tanks will come into focus as it already has in the 3^rd world.

The market can be especially cruel to the lower bidder in a shrinking resource base.

With every talking head on cable news that asks for the simple, elusive, business-as-usual solution from the energy expert du jour, I can’t help but think that we can all do the math.

We just don’t like what it adds up to.

Resource Limits, Peak Oil and the Dollar System

It is old, mainstream news that we live in an era of inconvenient truths.

Internalization is a different matter altogether though.

Let’s recap:

The world’s resources are finite.

Our appetite for growth is not.

Something has to give.

Plenty of books, such as “Limits to Growth”, “Plan B 2.0” and “Natural Capitalism” have been written on the strained relationship between the global economy, the human ecological footprint and an earth that is struggling to maintain it. The effects of overshoot – or humanity living beyond the earth’s ability to sustain it indefinitely – are staring us down: Soil erosion, falling water tables, lower crop yields, depleted fisheries and forest decimation. Many of these effects are inter-related by positive feedback loops.  

Exaggerating the trend is a global economy based on an industrial system that discounts the true value of natural resources and the services they provide. Fueling the flames of unsustainable growth is an economic system based on relatively unbounded credit expansion and fiat currencies with no direct valuation ties to resource commodities.

According to the Limits of Growth study, since 1981, as an aggregate we’ve been living in overshoot where we consume resources faster than the earth can replenish them. This means that we need more than 1 earth to keep living the way we do. This also means that for example: Water tables are drawn down faster than their refresh rate due to irrigation demands; Timber is harvested faster than saplings can take their place leading to soil erosion; Fish are harvested faster than they can reproduce. 

As with any overshoot condition, you can deplete a store of something faster that you replenish it for a while without running empty - Think of running water into a ½-full bathtub while the water drains from beneath at a faster rate. You stay wet for a while, but eventually you’re naked in an empty tub.

Great - Another Oil Peakist

Oil of course is a finite resource, but the issue is not that we are running out of oil. The issue – and in all likelihood the biggest challenge we face in the early part of the first half of the 21st century – is reaching Peak Oil - the period of maximum global oil production. After reaching Peak Oil, the overall trend for oil production is decline towards an unbridgeable supply-demand gap as the cost to extract and produce the oil that remains continues to climb. 

The concept of Peak Oil originated with a geophysicist King Hubbert who in 1956 accurately predicted, and was scoffed by many, that US oil production would peak in 1970. Since that time production has declined and the US has imported an increasing share of oil with reprieves with the Prudhoe Bay and North Sea finds. The ideal shape of the production over time curve is the familiar Gaussian or bell shaped curve; however, production curves for individual wells, oilfields, countries or total global output are of course highly variable and shaped by a number of factors. 

In reality, the “peak” may look like a bumpy plateau. Peak oil analyst Colin Campbell expects the progression to go as follows:

• Price shock as the capacity limit is breached
• Economic recession cutting demand
• Price collapse as the market overreacts to small imbalances between surplus and shortage
• Economic recovery followed by increased demand
• Price shock as falling capacity limits are again breached

So I’ll Buy a Hybrid

Unfortunately, reaching peak oil production, in our business-as-usual world, has impacts well beyond what we pay at the pump. The social and economic effects of reaching Peak Oil, as the gap between demand and supply widens, on an unprepared and cheap-oil dependent population are absolutely convulsive. We have all heard the environmental battle cries condemning the energy abusive American image of driving an SUV from a McMansion to a Walmart to buy cheap, imported goods sourced by a moving, just-in-time warehouse of planes, ships and wheels from 12,000 miles away.

Taken a step further, cheap oil is so pervasive and so fundamental to just about everything we associate with modern life, that it is a scary thought experiment when you take Peak Oil to the next logical steps. During the oil bonanza, we’ve been tapping into millions of years of solar energy of biomass stored in the form of energy-dense hydrocarbons. Oil is a feedstock for the production of petrochemical building blocks that are used to make everything from furniture, Barbie dolls, toothbrushes, aspirin, CD’s, integrated circuits, house wiring, credit cards, panty hose, deodorant and on and on.

Fundamentally, cheap oil has artificially increased the earth’s ability to support and feed a growing population now over 6 billion. In a major sense, we’ve been eating oil for decades given modern agricultural practices that provide the means to fertilize, cultivate, harvest and transport crop yields. In the current agribusiness model, it takes about 10 calories of energy to bring 1 food calorie to market.

Where In the Curve Are We?

The short answer is no one really knows. Production curves only become apparent from the overused term rearview mirror, but some of the puzzle pieces are coming together. As a reference point, global oil production has held in the 84MBarrels/day range from October 2004-March 2006. “Proven” (in quotes since reserves of many OPEC members, including Saudi Arabia is highly contested) worldwide reserves at the end of 2003 numbered about 1.1 trillion barrels. To date the world has consumed roughly 1 trillion barrels of oil with a total current yearly consumption of about 31 billion barrels.

While there is very little debate about whether oil production will peak, there is much debate about when. Dates range from 2006 to 2070. There are a number of issues with predicting when. For starters, nationalized oil companies such as Saudi Aramco are very secretive about field-by-field production and reserve statistics. Additionally, OPEC member countries are motivated to overstate reserve statistics to drive higher quotas and in turn higher oil revenues just as publicly traded oil companies are motivated to boost valuation through higher reserve numbers. There is also much debate about the depletion rates of maturing oil fields which source the majority of the world’s oil. All in all, historically predicting oil demand and supply has been a very inaccurate game.

Despite the lack of clarity on timing, there is little debate that global production will peak with Saudi oil production. In 2003, Mathew Simmons published “Twilight in the Desert”, a detailed assessment of the state of Saudi Arabia’s oil production capabilities. Simmons based his study on technical information on Saudi oil fields sourced from decades of Society of Petroleum Engineers (SPE) journals articles written by Aramco engineers. The findings shook the ground of key assumptions US and world energy planners live by:

• Saudi Arabian oil is so plentiful and can be produced so inexpensively that its supply could be expanded to any realistic level the world might need at least through 2030.
• Saudi Arabia will be able to produce as much as 20-25M Barrels/day within the next 2-3 decades.

These assumptions are clearly expressed through the US Middle Eastern foreign and military policy ensuring the flow of oil to Western markets. Saudi Arabia currently produces about 9M Barrels/day or ~11% of the world total. As I studied Simmons book, several key themes emerged:

• 90% of all the oil that Saudi has ever produced has come from 7 giant fields located in a very small portion of the kingdom.
• The Kingdom’s 3 most important fields - Ghawar, Abqaiq and Safaniya - have been producing at very high rates for over 50 years.
• Ghawar, the world’s largest oilfield, has accounted for ~60% of Saudi’s total production for the 2nd half of the 20th century.
• Production in key fields has been maintained by water injection that keeps pressure high in huge underground reservoirs.
• New projects, originally intended to increase net production are only substituting for depletion of maturing fields.
• According to the Petroleum Review, 90% of known reserves are in production and as much as 70% of the world’s producing fields are now in decline with decline rates averaging between 4 and 6% per year.
• While Saudi Aramco has extensively employed the most advanced oilfield technologies, the general effect of new extraction techniques in other giant oilfields has been to increase the rate of depletion without altering the field’s ultimate recovery.
• Exploration efforts in other parts of the kingdom have been disappointing and yielded very little.

To summarize, Simmons concluded, with painstaking attention to technical findings from engineering journals, that Saudi’s oil output was highly dependent on a small number of aging oilfields, each with very significant and well-documented production challenges. Simmons placed a ton of doubt on the assumption that Saudia Arabia could continue to act as the world’s swing producer indefinitely.

Now consider some other pieces to the puzzle:

• According to ChevronTexaco, oil production is declining for 33 out of 48 significant oil-producing nations.
• According to HIS Energy Inc. in 2005 a total of ~5 billion barrels of oil were discovered in new fields, while ~31 billion barrels of oil were extracted and used worldwide. The analogy here is that the oil industry is replacing whales with minnows.
• According to a separate study by Mathew Simmons, in 2001 the world had only 120 oilfields that produced over 100,000 barrels per day. These giant oilfields accounted for half the world’s oil supply.
• Just about all of these oil fields were discovered in the 1940’s, 50’s, 60’s and 70’s.
• The 14 largest oilfields, which had an average age of over 50 years, accounted for over 20% of global oil supply.
• The peak oil discovery year was 1965.
• In the last 40 years only 4 super-giant oilfields were discovered outside of the middle east and all 4 are in depletion (Daqing - China, Samotler- Russia, Prudoe Bay – Alaska, Cantarell – Mexico)
• Supergiant oil fields, typically experience a 50% production decline within 10 years of peaking.
• The ratio of energy expended in getting the oil out of the ground to the energy produced by that oil in the US oil industry has fallen from 28:1 in 1916 to 2:1 in 2004.
• Sada al-Husseini, former head of exploration and production at Saudi Aramco during a recent interview with the New York Times said that the industry could not continue to sustain annual growth in world demand of 2 million barrels and the annual decline in production from existing fields of over 4 million barrels per day.

In February 2005, a report by Science Applications International (SAIC), led by Robert Hirsch, for the US Department of Energy concluded that it would take 20 years of crash program scale of effort of all government and industry resources to avert major fuel shortages. The Hirsh report begins with the statement, “The peaking of world oil production presents the U.S. and world with an unprecedented risk management problem…Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking.”

Now ask yourself, given the high likelihood of facing Peak Oil within 20 years and the urgency for 20 years of concerted effort to avert widespread social and economic disruptions it will cause, what real actions have you seen by industry or government? Many actions seem to stop with a bumper sticker by populist candidates condemning Big Oil. Yes, there has been some pricing collusion amongst the majors. Get over it. The real issues are geological.

Impacts on the American Empire and Globalism

Our American landscape and economy is shaped by the automobile and an underlying assumption of perpetual cheap oil. Goodyear trumped the trolley, Ford fed on the frontier mythology substituting a car for a horse, Eisenhower got his interstate system and the rest of America’s decentralized lifestyle took its course.

With the end of cheap oil, we may see in our lifetimes that suburban expansion was the biggest misallocation of capital in world history. The American consumer lifestyle, powered by cheap oil and the Federal Reserve credit engine, is now centered on constructing, furnishing, connecting, wiring, supporting and financing suburban expansion. A sudden emergence of Peak Oil would be especially harsh on this unsustainable lifestyle.

Much as been written about a post-Peak Oil universe, so there is little use to do more than summarize in my own few words:

Peak Oil will curb globalization and inevitably spawn an age of re-localization. We will travel less, live closer to where we work, eat more local foods and generally wean ourselves from the orgy of conveniences we’ve grown accustomed to in the blimp of time known as the oil age.

The Dollar System

The Dollar system has a key role in the larger framework of consumption, resource scarcity and oil depletion. Until the last few years it seemed the world generally had faith in the US Dollar as a reserve currency since the time Nixon cut the gold standard. Over time, the US has run up enormous debt and huge trade deficits, but the exporting countries of the world have soaked our debt to keep their exports competitive. In some respects, the Dollar System was a brilliant scheme for a lone superpower.

Meanwhile the US government has followed on the heels of so many past, not to tax and not to cut budgets, but instead to borrow evermore against the future. Never before has the world’s commerce been based in large part on a reserve currency been backed by a country with government and a population so deeply in debt. We just can’t seem to buy enough of what we don’t need with money we don’t have. I can’t think of a time in history when good things happened because a government and its people ran up huge deficits and debts. Think clipping the coins in Rome, burning marks for heat in 1920’s hyperinflation-torn Germany and more recently Argentina. But we’re the US right? We have been the dominant empire for over 100 years. It is the world’s privilege to fund our debt because they need us to consume and in this information age, we no longer need to make tangible things for export. Manufacturing is for poor countries. The same poor countries with a much lower average income but much higher savings rate. The same poor countries that fund our debt and now start to influence our foreign policy. 

Since the departure from the gold standard in 1973, the global economy has increasingly become based on US debt-based consumption. No longer was currency fixed to any true store of value – something finite – a rare and precious resource that had to be pulled out of the ground.

Prior to 1973, trade imbalances were usually kept in check because fixing currency values to gold essentially provided a feedback mechanism. When the world was on a gold standard, gold was the only reserve asset with which countries would finance investment and trade imbalances. If much more gold entered a country than left it, economic overheating and inflation would occur since a surplus of gold led to credit creation. When prices in turn rose in the surplus country, its exports would decline (because they were more expensive in other countries) and its imports would rise (because their currency would buy more) until balance was re-established. With dollar-based reserve assets, there is no longer such a feedback mechanism. As the US purchases more from foreign nations than they from the US, and as their investment income from their US investments (including interest they earn on their ownership of many of U.S. Treasury bonds) grows faster than what the US invests in their nations, the US owes them the difference.

The Current Account is the broadest gauge of the country's trade performance, because it not only measures trade in goods and services, but also investment flows between nations. At the end of 2005, the cumulative Current Account deficit was $3.8T. Foreign central banks in Asia and US trading partners with large trade surpluses have reinvested their dollar surpluses in US dollar-denominated assets to prevent increased valuation of their currency which would reduce exports. This foreign acquisition of US stock, corporate bonds and US agency debt (e.g. Fannie Mae, Freddie Mac and the Federal Home Loan Bank system) have helped fuel the stock market bubble, led to the misallocation of corporate capital and helped drive US property prices to excessive levels. In short – asset inflation. Consider that over 17 years, the Dow Jones Industrial Average rose over 1000% between 1983 and 2000 and US aggregate housing values increased 73% between 1997 and 2005.

The credit creation that the dollar standard made possible has resulted in overinvestment across most industries, producing excess capacity. Additionally, globalization and free trade with countries with very low labor costs has reduced the price of goods that the US imports, holding down inflation. In short, the consumption engine is still running with plenty of credit fuel and cheap foreign labor to extract resources, package and ship them overseas to willing US buyers.

The rest of the world has become reliant on exporting to the US and has allowed the US to pay for much of its imports on credit. As a result, the ratio of total US debt to GDP increased from 169% in 1980 to 292% in 2002. This last statistic quantifies the common perception that many Americans are living beyond their means. For now the world is willing to accept paper for real goods and services.

At this point, record numbers of bankruptcies and corporate and agency accounting fraud have raised serious doubts about the creditworthiness of the US. As a result, exporting countries have 2 choices: To continue to invest their dollar surpluses in US dollar-denominated assets despite reasons to believe they are less secure or to convert their dollar surpluses into their own currencies, which would cause their currencies to appreciate causing their exports and economic growth to decline. The unwinding of these trade imbalances would culminate in a substantial devaluation of the US dollar and a global economy slump because the US economy will soon no longer be able to generate a supply of secure US dollar-denominated investments used by the rest of the world to recycle its now $700B annual current account surplus.

In the meantime, since the Stock Market collapse in 2000, US Federal Reserve monetary policy of running the money print presses and sustaining artificially low interest rates led to hyper-inflated asset values and the current housing bubble. Low interest rates and higher property values resulted in a consumer-led recovery (US consumers accounted for about 70% of GDP in 2001) funded in large part by borrowing against home equity. Goldman Sachs estimated that total housing-equity withdrawal rose to 7.4% of personal disposable income. Once home prices stop rising, and this income from capital gains vanishes, US consumers will spend less and the largest component of the GDP will contract having a major impact on the global economy. As of October 2006, even with a slumping housing market, consumers are pedaling along. Eventually, the housing slump may spark the recession that temporarily decreases oil demand as we bump along the peak oil plateau.

How dependent are we on sprawl powered by cheap oil? On June 18th of 2005, the “Economist” quantified the current housing bubble in a time when property values are central to the US economy. Over the last 4 years, consumer spending and residential construction have accounted for 90% of the total growth in GDP and 2/5ths of all private-sector jobs have been in the housing related sector.

How big is the housing bubble? During the last 5 years, the total value of residential property in developed countries rose by more than $30T to over $70T, an increase equal to 100% of those countries combined GDPs.

History shows that asset bubbles such as that in the US before the Depression, Japan in the 1980’s, Thailand in the 1990’s and the US stock market in 2000 begins with an excess of credit due to trade and investment surpluses. The crucial characteristic these crisis had in common was that in one way or another, either through trade imbalances or extraordinary capital inflows, foreign assets entered the banking system of the country affected and acting as high powered money triggered through a process of credit creation and over-investment, an unsustainable surge in asset prices and economic activity that ended in severe recession, a systemic banking crisis and drastically higher government debt.

In bubbles, investment turns to speculation. Bubbles burst when the credit extended to finance the speculative ventures can not be repaid. Imagine how suburban housing and its inhabitants will fair as we start to tumble down the right side of the oil production curve.

So Now What?

I suppose I’m un-American for not believing the seamless transition to the mythical hydrogen economy through a transition phase where biofuels and other alternatives fill the fossil fuel void. After all, we’ve been conditioned to worship technology with the frontier outlook that resources are abundant.

I’m also discouraged by most alternative energies which have so far demonstrated terrible energy ratios and are all in some way, shape or form based on a fossil fuel platform. The Tar Sands of Canada – the North American cornucopia argument - deserve a lengthy treatment but to date have proven to be very energy intensive and no substitute for high oil flow rates required to replace conventional sources. Meanwhile, deep sea, Arctic and Antarctic frontiers are speculative projects that can only delay peak oil rather than avoid it.