Movie: Collapse (about "Peak Oil")

[steve]

This makes me think about The Crash Course I watched a while back, In my opinion it was very informative.
There are 20 chapters
http://www.chrismartenson.com/crashcour ... ee-beliefs

[Jan Van]

Thanks for the links, y'all. Makes for some interesting reading!

[Storm]

I do think people get a little too carried away on both extremes.  For example, you can watch CNBC and listen to Jim Cramer telling you stocks are going to the moon and you better not keep your money in cash.  Or, you can read zerohedge.com and you would think we were on the brink of financial apocalypse and that soon we would be hiding out in the forest with assault rifles, eating MREs and trading junk silver coins, Mad Max style.

The real outcome is rarely either of those two extremes... it is usually somewhere in the middle.  Sure, bad events happen, but you shouldn't prepare for the unlikely end of the world scenario.  What I would prepare for is the more likely scenario like a hurricane hits the east coast (where I happen to live) and roads are inaccessible due to downed trees for a couple days.  Having a 72-hour kit which consists of just enough food and water to get by for 3 days until help can arrive is a good idea.  Having a bomb shelter complete with backup power generator, water filtration system, years supply of food, crosses and silver bullets for the vampire invasion, etc, is going a little overboard.

[moda0306]

Regarding nobody being an Island, my snowblower broke down this weekend.  3 of my neighbors (I live in a cul-de-sac) realized it and there was a parade of snow blowers and shovels coming my way with help getting out of the 4-foot drifts from off of my roof.

One small example, but when trusted friends, family and neighbors create a support network, it creates a surprisingly fun, efficient and useful tool for one to get through life's tough spots.

[MediumTex]

...
Everyone has an angle, and it is very rarely about delivering the un-filtered truth to you.  The theme that seems to run through most of it is keeping people entertained, frightened, uneasy or some combination of the three, normally as a setup to purchase products and services that will either enhance the entertainment or ease the fear and uneasiness.
...

That's quite a problem in itself. I'm intrigued by "Peak Oil" , but where do you find a "fair and balanced" investigation of it? It seems quite logical that we have too many people on too small a planet with not enough resources. And this is getting worse by the minute. But it doesn't seem to get that much attention. Well, it's gotten better the last years with the whole climate change discussion.

Although Richard Heinberg wanders off into socialist fantasies from time-to-time, his peak oil analysis is relatively level-headed.  He has written a couple of pretty good books on the topic.  As alarmists go, I find his thinking to be clearer than many others in the peak oil camp.

Here is a recent Heinberg article that is pretty good:

http://www.energybulletin.net/stories/2 ... end-growth

The Oil Drum is also a great resource.

"The Automatic Earth" is a blog with some good peak oil-related insights (and good writing), though their conclusion is that peak oil and global deleveraging will lead to deflation, not inflation.

If you are in the mood for some full bore (and cerebral) end-of-the-world musings, you must check out Dmitry Orlov:

http://cluborlov.blogspot.com/

Orlov is one of the few people who sometimes makes me laugh out loud when I am reading his stuff.

[Hobbery]

Wow.  That Chris Martenson "Crash Course" was an uplifting set of videos to watch over Christmas...  Pretty informative though.

OK.  So this is a bit off the "Peak Oil" topic, but certainly in line with "Economic Collapse".... 

Check out:  http://theeconomiccollapseblog.com/  for some good news and fun times!!!

[smurff]

For those into disaster porn, The History Channel aired a program yesterday, "Prophets of Doom" (nice title ) with Ruppert, Kunstler, and a bunch of other guys talking about collapse-related topics.  Oil, topsoil, food, finance, etc.  It's a two hour program and it came on twice yesterday.  If you missed it, they'll probably air it again in a week or so.

[moda0306]

How would the PP perform in such cases... you could argue inflation as the price of everyday products and commodities would rise due to scarcity, but the economy would slow to a crawl and LT bonds might actually do ok as the velocity of money slows to a crawl.

Probably a combination of both as anything of basic useful value holds its value or rises (like high-mileage used cars did in 2008), and any luxurious or nonessential items (gold? JK) collapse in price.

There's really not much I'd rather have than the PP for an uncertain future.

[MediumTex]

How would the PP perform in such cases... you could argue inflation as the price of everyday products and commodities would rise due to scarcity, but the economy would slow to a crawl and LT bonds might actually do ok as the velocity of money slows to a crawl.

Probably a combination of both as anything of basic useful value holds its value or rises (like high-mileage used cars did in 2008), and any luxurious or nonessential items (gold? JK) collapse in price.

There's really not much I'd rather have than the PP for an uncertain future.

Less net energy (which is part of the peak oil story) means less economic growth.

Less economic growth is deflationary, not inflationary.

When the market perceives future economic growth to be contracting, the supply of credit will contract as well (since today's credit is extended based upon the perception of tomorrow's ability to pay it back).  This, too, is deflationary.

I could argue it either way (deflationary or inflationary), but the basic problem is that we have a supply of a critical resource (i.e., oil) that has seen its YOY global production increase for many decades, and we are now looking at a potential decline in annual production numbers basically from here forward.  I don't know what effect this fundemental shift will have in a world designed around the idea of perpetual economic expansion, but I suspect that its effects will be more problematic than people imagine.

Consider that every recession since the early 1970s was preceded by an oil price spike (including the one that started in 2007).  Ask yourself what a world would look like where such price spikes become the norm?

Note, too, that we are currently in the middle of a new oil price spike.  Normally, after a recession the price of oil is depressed for many years.  This time around the price of oil was depressed for only a few months (from late 2008 through mid-2009).

The basic problem is that high energy prices are toxic to economic growth and energy prices will be high if there is no ability to increase production at will.

People who are accustomed to things like printing more money in response to a debt overhang often don't appreciate that natural resources are subject to a different set of constraints than financial instruments.

I don't think that the peak oil thesis invalidates any of the thinking behind the PP.

[moda0306]

How would more expensive energy actually make things cheaper?  It may increase unemployment and reduce growth, but as far as costs go, aren't they going to go up?

[MediumTex]

How would more expensive energy actually make things cheaper?  It may increase unemployment and reduce growth, but as far as costs go, aren't they going to go up?

Higher energy prices create demand destruction across the entire economy as people have the same amount of money as before but everything starts costing more.  Faced with no extra money to pay higher prices, demand across the entire economy becomes soft, driving prices lower after an initial upward surge. 

It doesn't have to happen this way, but a broad deleveraging trend stacked on top of this energy dynamic makes it more likely, IMHO.

This is exactly what happened in 2008.  Remember how in early 2008 everyone was talking about inflation and gas prices were going through the roof?

[Lone Wolf]

Higher energy prices create demand destruction across the entire economy as people have the same amount of money as before but everything starts costing more.  Faced with no extra money to pay higher prices, demand across the entire economy becomes soft, driving prices lower after an initial upward surge. 

You're making a compelling argument, but isn't something like the 70s "stagflation" quite likely in such a case?  If lots of money gets pumped into an economy in which it can chase fewer goods, why couldn't we see weak economic growth coupled with higher prices?  It seems to match history pretty cleanly.

[moda0306]

High gas prices in 2008 triggered what was already a bubble waiting to collapse.  It may have been the hair that broke the camels back, but we had huge problems going into it with housing/debt/banks etc that were just waiting for something to set it off.

[Wonk]

I tend to agree with the stagflation example.  I think that's exactly what we're experiencing right now.  If we look at monetary aggregates, they are all expanding.  Credit is still being destroyed, but most things purchased at the earliest levels of production are increasing in price and are usually purchased with cash or short net terms.

It is absolutely necessary one of three scenarios to occur:

1. Assets drop to clear malinvestment and bad debt (deflationary)
2. "Money" in its various forms needs to expand and inflate in order to rise to a level that supports assets (inflationary)
3. Some combination of #1 & #2 (stagflationary)

Just the action of suspending mark to market accounting was inflationary by itself to a certain degree.  If we made banks realize market value for their assets, most large institutions holding mortgage paper would be insolvent.  The Fed can openly monetize bad debt via purchasing MBSs from institutions and adding them to their own balance sheet.  What would be deflationary (foreclosure realized at 50c/dollar) can now be inflationary (paper sold to Fed at par).

On the issue of peak oil, I don't think folks should get worked up over it.  Most people don't like change because they can't predict the outcome with certainty.  Back in the late 70s when inflation was rampant and unemployment was high, people were pessimistic.  Who would have thought the productivity gains of personal computing and the internet would be right around the corner? 

We just don't know what breakthroughs are ahead of us.  I would absolutely not be surprised if there are major technology breakthroughs in energy that will drive economic prosperity in the 2020s and beyond.  Nat gas, hydrogen, solar, wind...whatever. 

We will trudge through our current mess as prior generations did with theirs, and then we will move on and make a better life in the future.  That is all provided we don't wipe each other out in a nuclear holocaust...but the PP wouldn't save us then so who cares?

[MediumTex]

Higher energy prices create demand destruction across the entire economy as people have the same amount of money as before but everything starts costing more.  Faced with no extra money to pay higher prices, demand across the entire economy becomes soft, driving prices lower after an initial upward surge. 

You're making a compelling argument, but isn't something like the 70s "stagflation" quite likely in such a case?  If lots of money gets pumped into an economy in which it can chase fewer goods, why couldn't we see weak economic growth coupled with higher prices?  It seems to match history pretty cleanly.

IMHO, stagflation requires a different demographic profile than we currently have (i.e., an expanding workforce) and more ability to exert upward wage pressure through entities such as labor unions.  We had an expanding workforce in the 1970s and strong labor unions.  We have neither of these things today.

In the 1970s there was also strong appreciation in housing prices in most parts of the country, which was inflationary.  Anyone think house prices are about to start rising again?

In the 1970s there was a tiny fraction of the amount of debt in the system compared to today.  Back then there was no massive credit contraction competing with Fed attempts to reflate the economy.  It's harder to create inflation when for every dollar you print several dollars are extinguished through credit contraction (ask the Japanese).

As a shorthand approach, since we know that Tbills have historically more or less tracked inflation, just watch the Tbill rate.  When it begins to rise, you will know that there is some inflation in the pipeline.

I don't know how it will play out, but I would take the deflation thesis seriously.  The last 20 years in Japan show how that story can play out and how much damage it can do.

An Austrian economist would say that what we are seeing today are merely effects which are following causes that occurred long ago and these effects are not alterable at this point.  The only choice is whether additional malinvestment is going to occur through governmental attempts to short circuit the deleveraging process.  This is what the Japanese attempted to do in the 1990s and 2000s and what the U.S. attempted to do in the 1930s and today, with more or less predictable results.

One of the basic insights of Austrian economics is that it is the malinvestment facilitated by artificially low interest rates during the boom period that causes the depression that follows.  The crash that precedes the depression (and which appears to be its cause) is just the point at which the pressure within the system finally manifested itself.  By 2008, we were far past the point at which something could have actually been done to mitigate the effects we are observing today.

[Wonk]

MT,

I can always dig your well measured point of view. 

Best,
Wonk

[MediumTex]

I have found that it is a good exercise with PP assets to be able to make both a bull and bear case to yourself at all times.  This helps me to keep from getting overly optimistic or pessimistic about any one asset, because I just don't know what's going to actually happen.

Making the deflation argument certainly makes sense to me, but it also makes sense that every fiat currency in history has eventually failed (as has every centralized government).

Perhaps in the short term the deflation argument will carry the day and in the longer term the inflation story will take over.  How long will this take and how will it unfold?  If I knew I wouldn't need the PP.