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An Important Ratio

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http://www.marketoracle.co.uk/Article12875.html

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What’s the Big Deal about an EROI of 1:1?

Well, that’s the real clincher. The United States and most of the western world has been built on cheap and abundant oil with a high EROI. When we were extracting oil at 100:1 down to 30:1 there was plenty of net oil left to supply the growing economy. Now that the United States EROI is only a fraction of its once formal self, there is far less discretionary oil available to the economy…hence the rise of the price of a barrel of oil to $140.

An EROI of 1:1 means that there is no net oil remaining after exploration, development and production is considered. It becomes a zero-sum game. That isn’t the worst of it. Once you figure in all the other energy costs of refining, transportation and maintenance of the infrastructure system for a modern economy to be a sustainable one there has to be a minimum EROI of 3:1. If you want to bore yourself with the details of why a 3:1 is a minimum EROI for a modern society to survive, you can read “What is the Minimum EROI that a Sustainable Society Must Have?†[3]

Has the light gone off in your head yet? Once the USA and the world hit an EROI of 1:1 -- it’s game over. We have passed a sustainable 3:1 ratio for a modern economy. This has serious consequences to many facets of our society. This is what most economists and analysts are missing in their forecasts. They are getting in front of television cameras and writing online articles, predicting where the economy is heading without understanding the most fundamental aspect… the EROI. They are in fact just rambling on without a clue. I call it “BLABBERING IN A VACUUMâ€.

Conclusion

In my opinion, EROI will prove to be one of the most important aspects in understanding where we are headed in this global economy. As the EROI ratio declines in the future it will put a severe strain on mining, manufacturing and production in the world. EROI will affect precious metals, industrial metals, agriculture, real estate, the US Dollar, all fiat currencies, stocks, bonds and just about everything else one could imagine.

Economists and analysts talking about green shoots, a bottom in the recession, and a return to the good old days are totally incompetent. The continued blabbering never ceases to amaze me. The huge debts attached to the public and private sector in the United States will never be paid back; they are nothing more than a huge Ponzi scheme. Printing US Dollars might allow the grand economic iIlusion to continue for a brief period longer, but the ultimate extinguisher of debt won’t be gold, as Mr. Antal Fekete reminds us, but rather the lowering of the EROI ratio.

Don’t get me wrong, I am very bullish on Gold and Silver. The lowering of the EROI ratio makes precious metals even more bullish far into the future. Once the world figures out that in a declining EROI environment debts will be increasingly difficult, if not impossible, to be paid back; the entire US Debt Market will implode. There will be a great avalanche of investors stampeding out of Ponzi debt (i.e. US Treasuries, US Bonds and US Dollars), and into tangibles -- especially Gold and Silver.

In future articles, I plan on writing how the EROI will affect different individual markets. My next article will focus on EROI and its affect on the mining industry, especially with regard to silver in a response to Bob Moriarty’s recent article, “Mexican Silverâ€. Mr. Moriarty says silver won’t hit $100 an ounce unless we go back to a gold standard. He states that Mexico has so much silver, the country has barely been scratched. Although I am on the same side as Mr. Moriarty when it comes to gold and silver, he fails to understand what EROI will do to future silver production. Even though there may be a lot of silver down in them thar hills, you need energy to get it out.

Energy which is actually Net Energy, becomes increasingly more expensive and less available in a falling EROI environment.

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something else to plan for

as well as monetary reform

Energy is money.

Well, that and land.

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Energy is money.

Well, that and land.

Well, that seemed to kill the thread!

Which is a shame, because the OP is important.

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Which is a shame, because the OP is important.

Indeed, did you see the 'Crash Course?

Also see here, page 4.

The oil industry has to drill deeper at more extreme locations which costs more energy. Additional energy is thus needed to reach the oil. Also more energy is needed to process it to a useful product due to a decline in quality from conventional to increasingly unconventional oil. Studies by Professor Charles Hall and his science group at State University New York show that the energy necessary to draw a barrel of 159 liters of oil out of the ground from conventional oil, has increased from approximately 3 liters of oil equivalent in the beginning of the 1990s to 6 liters of oil equivalent now.

Latest edition here

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Well we do indeed have a significant plan here in the US.

I think we have a good chance at finally getting something going.

More to come.

something else to plan for

as well as monetary reform

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