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Tipping Point: Near-Term Systemic Implications Of Peak Oil


wren
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sure. but as I pointed out, you would only get negative nominal rates when the money supply is shrinking, so the two effects on asset prices largely cancel out, assuming of course that the interest rate is set at the right level.

or put another way, inflation targetting works fine with negative nominal rates, and any given level of CPI inflation, including +2% could be targetted by setting the appropriate nominal rate when the contraction of the money supply is taken into account.

the push towards having unique id numbers for the population and to extend universal banking to all are clear signs to my mind of preparation for this outcome.

which I feel is a good thing, because the alternative is collapse, as the oildrum article points out, and not the kind of collapse which nets you a cheap house, the kind of collapse that sees you and your kids shivering in an unlit and unheated hovel with a couple of cabbages.

I'm not interested in getting into a deflation-inflation debate.

Peak oil has nothing whatsoever to do with the purchasing power of paper or digital money tokens. It is much more fundamental.

The problems of peak oil (fossil fuel supply) are not solved by barcoding everybody. No doubt there are some people who would like to do that if they can find a way.

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Guest Steve Cook

I'm not interested in getting into a deflation-inflation debate.

Peak oil has nothing whatsoever to do with the purchasing power of paper or digital money tokens. It is much more fundamental.

The problems of peak oil (fossil fuel supply) are not solved by barcoding everybody. No doubt there are some people who would like to do that if they can find a way.

exactly

+1

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I replied to the above in a comment at the oildrum to this effect:

This part is a little short-sighted. Preparations are already being made for universal banking, which is a precusrsor to the elimination of cash from the economy. Once there is no longer any cash, withdrawl of financial assets from the network of financial intermediation we call banking will not be possible.

Yes it will. Ask anyone who runs an MMO how it happens.

Once this is the case, a declining economy will lead to losses of bank assets which will be passed onto savers of financial assets - savers. A negative nominal interest rate will emerge that corresponds to the decline of the economy, whether for peak oil or demographic reasons.

And we'll all starve to death unless such a system collapses fast enough.

Before you rush to shout 'hyperinfation, repudiation' consider that in the above scenario the money supply is shrinking, thus offsetting the effect of the negative interest rate to a greater or lesser extent. So a -3% nominal rate could represent a +1.5% real interest rate for example. The reality is the original paragraph above considers the future in terms of the old money+credit economy of 1700-1985, not the reality of the pure information/credit economy we now have. In the latter case there is no cause for concern over what are in reality 'imagined' constraints such as unrepayable debt or a 0% bound on nominal interest rates.

No, just the totalitarian dictatorship we'll all be living under and the fact that the shops are empty, there are no jobs and peopel keep disappearing in the middle of the night.

The OP is a good one, but the bank credit thing is a misnomer - it doesn't take much economic productivity to give someone PC numbers, or print up a bit of paper, or to default on debt.

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sure. but as I pointed out, you would only get negative nominal rates when the money supply is shrinking, so the two effects on asset prices largely cancel out, assuming of course that the interest rate is set at the right level.

or put another way, inflation targetting works fine with negative nominal rates, and any given level of CPI inflation, including +2% could be targetted by setting the appropriate nominal rate when the contraction of the money supply is taken into account.

the push towards having unique id numbers for the population and to extend universal banking to all are clear signs to my mind of preparation for this outcome.

which I feel is a good thing, because the alternative is collapse, as the oildrum article points out, and not the kind of collapse which nets you a cheap house, the kind of collapse that sees you and your kids shivering in an unlit and unheated hovel with a couple of cabbages.

I assume in this environment of shrinking money supply, you think wages will also have to fall and/or unemployment will go up? Do you not think this will cause a few problems with "sticky" prices?

How about the debt which was taken out, when there was a future of an increasing money supply? How will these debts be repaid?

I also doubt that in such an environment, this shrinking money supply will be enough to tempt people to keep their money in paper assets. You would have to have an awful lot of faith in both the governments and the central banks to contemplate leaving them in control of your savings during such a period of adjustment. Many people may simply refuse to trust them, especially in the light of where they have lead us thus far in recent history.

Besides, what is so wrong about having some sort of free market money (even the sort proposed by limited purpose banking)? Letting people choose which investments are winners or losers is surely going to piss off fewer people than forcing them into negative returns?

I think there is a disconnect between what economic theory dictates and how people in the real world react. I still can't see negative rates being either welcomed nor understood - people will just see their money rotting away, will swap/withdraw it for something else and stick the Vs up at "the system".

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Globalists often miss an important point...

You have to pay a Chinese worker $10 to produce 1 tonne of steel.

You have to pay a European or American worker $100 to produce 1 tonne of steel.

It takes 1 barrel of oil to ship a tonne of steel from China to the West.

What happens when oil reaches $90 a barrel?

;)

wind-boat-sets-sail_69.jpg

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Peak oil has nothing whatsoever to do with the purchasing power of paper or digital money tokens. It is much more fundamental.

The problems of peak oil (fossil fuel supply) are not solved by barcoding everybody. No doubt there are some people who would like to do that if they can find a way.

I agree with that, I was merely pointing out the flaw in the original article, which is that peak oil inevitably causes the monetary system to blow up, which is not the case.

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Not true as has been proven many times. Just scare mongering propaganda by idiots and further propagated by other idiots.

7B humans eating 100 watts = 700B watts

If it took 10j oil to make 1j food we would be using 7,000B watts (7TW) of oil on food production.

Total oil production isn’t even 7TW, it is closer to 6TW and as you know well we use oil in many other things than food so to even suggest near 100% is on food is stupid.

In reality it is certainly less than 5% of fossil fuels to make food and very likely it is less than 2% of fossil fuels in food.

That equates to less than 1j for 1j

I appreciate your input on these debates and they certainly bring them back down to earth. However, do you not agree that even with the above and the discussion about long haul costs, that life is set to change in a big way?

If it means people moving closer to work, some manufacturing returning, more people going veggy as meat is too expensive etc, then this is a fall in the standard of living. This is something we have not seen for generations and, IMO, the implications are far reaching.

Of course, looking at it from another POV - it will effect the poorest countries much harder than us. If they need cheap meat/food to survive, along with cheap fuel to ride their scooter to work, when this is no longer available, these people will be hit hard. A lot of civil unrest anywhere in the world can lead to war, which could well pull us into it too or at the very least, disrupt supply chains.

Peak oil appears to be a very important event, no matter how you look at it, IMO.

Edited by Traktion
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I think oil consumption is more flexible than people realise.

During the fuel protests everybody in the office still got to work.

The roads were nearly empty yet even the biggest petrolhead bore managed to find some alternative way to get in.

People and markets can adapt very quickly.

This.

Even the current bog standard engine technology is increasing efficiency at quite a pace. You can go out and buy a very average VW polo today that does 60-70mpg.

Then consider the average occupancy rate is a little over 1. 1 being the minimum for obvious reasons. So occupancy rates can triple quite easily before anyone even noticed even without tech efficiencies.

Transport costs would undoubtedly be impacted significantly, but most stuff people buy is junk and most of the junk is imported from China/Asia. The worst that will happen for years is that the western deficits will start to be repaired.

China on the other hand................

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Guest theboltonfury

I think oil consumption is more flexible than people realise.

During the fuel protests everybody in the office still got to work.

The roads were nearly empty yet even the biggest petrolhead bore managed to find some alternative way to get in.

People and markets can adapt very quickly.

That's just not true. If you are talikng about sep 2000.

In my office at the time, about 50% had no fuel and couldn't travel.

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this is not the place for that debate. My point was merely that the claim that peak oil automatically dooms our financial system is incorrect, or at the very least highly debatable. Yet the article trots it out as a certainty.

I saw you took the opportunity for a good rant about the advantages of negative rates though or I wouldn't have bothered replying! :rolleyes:

I'm happy to save further debate for another thread though.

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Globalists often miss an important point...

You have to pay a Chinese worker $10 to produce 1 tonne of steel.

You have to pay a European or American worker $100 to produce 1 tonne of steel.

It takes 1 barrel of oil to ship a tonne of steel from China to the West.

What happens when oil reaches $90 a barrel?

;)

Thats the best point I have read in a long time. How it plays out is another thing but I take your point that rising oil prices takes away the financial incentive to outsource and for that matter import from the far east. This, whilst in no way making produce cheaper, would bring production back home therefore helping to balance the books. However, higher prices will reduce our demand for the produce in the first place therefore cutting growth.

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Well, apparently

http://www.oakleysteel.co.uk/steel_plate_shipping_costs.htm

Edit: Going by the figures quoted here, where 1 Euro = 0.5% cost of shipping, fuel costs would appear to be around 50 Euro/Tonne (for a 20 Tonne load).

Fuel is a small part of the cost of shipping,

It may cost $50 to ship a tonne of goods half way around the world but most of that is other costs, capital, wages, insurance, pirates, profit etc. the cost of the fuel is sub $10 to move a tonne at $100 oil.

Steel is a bulk good and it doesn’t cost much to transport via ship.

Peak oil may encourage some more locally produced goods but we in the UK don’t really have the materials. So instead of expensive oil helping the UK steel industry it will mean more steel is shipped into the UK rather than made here because it is easier and cheaper to ship 1 tonne of steel slab than it is to ship 2 tonnes of iron ore plus coal to make 1 tonne of steel slab.

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I appreciate your input on these debates and they certainly bring them back down to earth. However, do you not agree that even with the above and the discussion about long haul costs, that life is set to change in a big way?

If it means people moving closer to work, some manufacturing returning, more people going veggy as meat is too expensive etc, then this is a fall in the standard of living. This is something we have not seen for generations and, IMO, the implications are far reaching.

Of course, looking at it from another POV - it will effect the poorest countries much harder than us. If they need cheap meat/food to survive, along with cheap fuel to ride their scooter to work, when this is no longer available, these people will be hit hard. A lot of civil unrest anywhere in the world can lead to war, which could well pull us into it too or at the very least, disrupt supply chains.

Peak oil appears to be a very important event, no matter how you look at it, IMO.

Peak oil is not very important for many reasons however for me the main reason is simply because we are not reliant on just oil.

We use about

6TW of oil

5TW of coal

4TW of gas

1.5TW equivalent of other (mostly hydro and nuclear)

What we know as a fact is that coal and gas are not near peak. In fact we believe coal and gas will go to7-8TW and 6TW respectively over the next two decades.

It also looks like over that time the world will add about 2TW of other (mostly nuclear and wind). It also seems we may destroy 2TW of demand via efficiency.

Oil may be near a peak we can never be sure (especially with the recent big easy oil finds in northern iraq) but we are almost certain coal and gas are not peaking but expanding rapidly. Hence overall today we use about 16TW of power and in two decades there is a clear path to add 5.5 to 7.5TW.

So oil may or may not be at a peak but total energy most certainly isn’t.

The peak oil crew counter the above by saving, well it is liquids that are important and not total energy. However that is wrong because we can and have and currently do convert coal to liquids and gas to liquids. Even easier is to simply substitute, that is to say burn gas directly in cars. We could quite easily stop building the about 50m oil cars and build 25m gas/ 25m oil cars. Within only 5 years you would have “destroyed” 125m oil cars and replaced them with gas cars.

Also coal, oil, gas, nuclear are all used for electricity production. If you run short of one you just substitute. Like in the UK in the winter when gas is short we up the coal plants and run light on gas.

In short, peak ENERGY is fundamental not peak OIL. Peak energy is not remotely close.

Another reason it doesn’t really matter in a country like the UK is that all our excess money goes into houses. So if oil crashes house prices go up by a similar amount, if oil goes up then house prices will fall and we will still be left with a similar quality of life. Fuel more expensive but housing cheaper.

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So- are we finally going to get our wired world now- the return of the telecommuters? The US seems especially ripe for this solution, given the distances they drive to work each day. Maybe this is part of the thinking behind the new drive to broadband America?

Of course once you've put in place remote working the world is your oyster- so we could end up with an ironic situation where the blue collar jobs come back, while the 'information workers' find their jobs being outsourced instead- the cost of transporting digital data being trivial. A complete reversal of the 'knowledge economy' idea.

Edited by wonderpup
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I would imagine it would depend how far they lived from the office and in what area. A 30 mile one way commute where there is no public transport is going to take a while on foot.

I doubt whether any office has 50% of it's staff live 30 miles away with no public transport link.

But where I worked nearly everyone was a contractor. Permy deadwood would always find reasons not to make it to work.

You wouldn't miss 50% of them. In fact, if 50% didn't turn up it would be a more efficient place.

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Of course once you've put in place remote working the world is your oyster- so we could end up with an ironic situation where the blue collar jobs come back, while the 'information workers' find their jobs being outsourced instead- the cost of transporting digital data being trivial. A complete reversal of the 'knowledge economy' idea.

This. coupled with there actually being a lot less manufacturing of anything except IT equipment. Less cars for example.

More gratification in the virtual world, which is to date, in its infancy.

Imagine one lives in a residence perfectly equipped for telecommuting, in a community of say 10000 souls. What in actual fact are your energetic needs, in this environment, for the purposes of basic sustenance through to quality of life?

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This. coupled with there actually being a lot less manufacturing of anything except IT equipment. Less cars for example.

More gratification in the virtual world, which is to date, in its infancy.

Imagine one lives in a residence perfectly equipped for telecommuting, in a community of say 10000 souls. What in actual fact are your energetic needs, in this environment, for the purposes of basic sustenance through to quality of life?

The baker boys of tomorrow -

pd404271.jpg

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In short, peak ENERGY is fundamental not peak OIL. Peak energy is not remotely close.

The problem is transitioning.

Of course, there will be a lot more coal burnt and more nuclear power etc.

But the new infrastructure and vehicles cost energy, raw materials and time.

A new nuclear power station takes several years to build (Finland has suffered massive delays in getting its new one finished).

The UK, owing to dismal planning, may suffer problems in electricity production by 2016. I suppose they'll just not decommission the power stations which they are supposed to.

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The problem is transitioning.

Of course, there will be a lot more coal burnt and more nuclear power etc.

But the new infrastructure and vehicles cost energy, raw materials and time.

A new nuclear power station takes several years to build (Finland has suffered massive delays in getting its new one finished).

The UK, owing to dismal planning, may suffer problems in electricity production by 2016. I suppose they'll just not decommission the power stations which they are supposed to.

We impose these restrictions on ourselves because we are in a time of plenty.

If say by chance half the power stations in the country broke tomorrow do you think they would still mandate a three toe newt study and re-housing program before they gave the green light to begin work? No they would instantly give permission and screw anyone who is a NIMBY.

The same applies to many things, nuclear for example is expensive and takes 6-10 years to build because we have put regulations in place to force it to be costly and expensive. But in a world with a lack of energy (which won’t happen because coal/gas is going to expand lots) we would be knocking out a big nuke plant every 5 days (France built an average of one nuke every 3 months for 15 years and it didn’t bankrupt them strongly suggesting that a country who wants to can build them fast and cheap. The rich world scaled up today could probably do one nuke every other day).

The transition would happen more rapidly than most think.

Plus there are things that are near instant and huge. For example a western nation like the UK uses about 30% of its energy for space heating. We could massively reduce that by simply not turning the central heating on in the winter. Sure it may be chilly but an extra jumper and your not going to be that bad off. With that much elastic demand it would give plenty of time to build new infrastructure.

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