Some food for thought for a Sunday.

Excellent follow on chat from the must watch video I posted last week.

Perhaps there was a time when it wasn’t important to be knowledgeable, but now is not that time. I highly recommend everybody watch/listen to this, because it is the best thing I have seen for a while showing the big picture of where we are, and where we are going:

Since all our money is loaned onto existence, our economy has to grow exponentially. Martenson proves this point empirically by showing a 99.9% fit of the actual growth curve of the last 40 years to an exponential curve. If we wanted to continue on this path, our debt load would have to double again over the next 10 years. By continually increasing our debt relative to GDP we are making the assumption that our future will always be wealthier than our past. He believes that this assumption is flawed and that the debt loads are already unmanageable.

Martenson explains how exponential growth works and why it is so scary that our economy is based on it. In an example he illustrates how unimaginably fast things speed up towards the end of an exponential curve. He shows that an exponential chart can be found in every one of the three “E’s” for instance in GDP growth, oil production, water use or species extinction. Due to the natural limitations on resources, Martenson comes to the conclusion that we are facing a serious energy crisis.

This energy predicament is namely that the quantity of oil as well as the quality of oil are in decline. He shows that oil discoveries peaked in 1964 and oil production peaked 40 years later. Martenson also shows how our return on invested energy is rapidly declining – the “cheap and easy” oil fields have already been exploited. In 1930 the energy return for oil was 100:1 or greater. Today it is already down to 3:1 and newer technologies such as corn-based ethanol only provide a 1.5:1 return. Martenson predicts that the time in between oil shocks will get shorter and shorter and that oil prices will go much higher.

Not only oil but also other natural resources are being rapidly used up as well. At the current projected pace of use, known reserves for many metals and minerals will be gone within the next 10 to 20 years. The energy needed to get these non-renewable resources out of the ground is growing exponentially. So we live in a world that must grow, but can’t grow and is subject to depletion. The conclusion out of all this is that our money system is poorly designed and that we need to rethink how we do things as quickly as possible.

VIA ZeroHedge

There are as many old people as Teenagers and more Protests than riots, but it is a great documentary anyway despite the title. What a mess. None of the “cures” being offered by any of the politicians tackle the 30pc – 40pc currency misalignment and therefore loss of competitiveness Southern Europe has experienced vs the North since the Euro began which is one of the deeper causes of this crisis. So as long as Greece and other Southern European countries stay in the Euro things are unlikely to improve for them. Or until Germany and a few others leave perhaps. Some long, steep, twisty, rocky roads ahead and we seem to be riding a heavy, high mileage old bobber with low gas and flat tires.

VIA OUR FRIENDS AT ZERO HEDGE

Dam, crazy seeing what is happening to my old hometown.
Panic on the streets.

Affected areas (since Saturday but mostly Monday night), with sources where appropriate.

Drowning in debt, the OECD did have one little nest egg tucked away in the form of strategic petroleum reserves (SPR). Yesterday the International Energy Agency (IEA), an OECD organisation, decided to raid these meager savings in order to try and keep the global growth party alive. The recognition that high oil and energy prices were threatening a weak and faltering recovery is an admission by the OECD that high oil prices were threatening recession.

The decision yesterday to release 60 million barrels from strategic reserves over a 30 day period sent already weak and falling oil prices through the floor with Brent futures down 8% at one point. This represents 4% of total OECD public stocks of crude oil and refined products that totals 1547 million barrels.

Many believe that the $900 billion of quantitative easing in the USA has underpinned the most recent commodities spike. Ask the question where the global economy would be right now without QE? Rising demand colliding with inelastic supply is the technical cause of high and volatile oil prices. The logical solution is to boost supply and reduce demand. Yesterday’s action by the IEA is designed to do the exact opposite of that since the aim is to reduce price. This will boost demand and hurt high cost oil producers in the OECD.

My own view on the OECD economies is that anemic growth in many countries has likely already turned negative mirrored by already falling oil prices. Higher taxes, reduced public spending and the burden of high energy prices lie at the heart of this problem. But there seems no way out. Countries like the UK require strong economic growth to repair their public balance sheets to avoid the risk of default. This growth requires growing supplies of cheap energy. 60 million barrels of oil, 18 hours of global consumption, is the latest sticking plaster to be rolled out.

Interesting thread continued here with lots of good comments.

There is another good write up about it here too.
Once the oil price starts getting high (over $85 is high, over $110 is very high), the high oil prices start causing recessionary influences, because citizens have to cut back on other goods. Oil and food prices usually rise and fall together, because a lot of oil is used in food production.

Unfortunately, if high cost oil is what sinks the economy, high cost green energy is of very little help. We have been misled in this regard. It doesn’t even matter if the government provides a subsidy for expensive green energy–it still comes back around to sink the economy, because higher taxes are needed–either that, or it adds to the overly burdensome debt situation. Once citizens are charged higher taxes, the effect is very much the same as if citizens had paid the high prices to begin with–it reduces their discretionary income, and thus tends to be recessionary.

Not like it wasn’t expected or anything. Is there a plan B? hell no. I am no fan of nuclear power really but it seems all countries are decommissioning their nuclear plants right about the time we will need them more than ever.

LONDON (Reuters) – OPEC followed this week’s failure to reach an output deal with a forecast world oil supplies would begin to fall short later this year, draining inventories just when demand is expected to hit a seasonal peak.

In its monthly report published Friday, OPEC said world demand for its oil would average 30.7 million barrels per day (bpd) in the second half of the year, much higher than the 28.97 million bpd the 12-member group produced in May.

The figures suggest the world will be undersupplied by 1.73 million bpd — enough to meet demand in an economy the size of France.

I read this full chapter of the WEO report and pulled out some excerpts for you. They try to put a positive spin on it somewhat, but clearly acknowledge for the first time the serious nature of peak oil on the global economy. This fact alone is fairly significant, even if rather late:

The persistent increase in oil prices over the past decade suggests that global oil markets have entered a period of increased scarcity. Given the expected rapid growth in oil demand in emerging market economies and a downshift in the trend growth of oil supply, a return to abundance is unlikely in the near term.

Consumption levels of many natural resources, including crude oil, have already risen above precrisis peaks, largely reflecting robust demand in emerging and developing economies.

There is considerable uncertainty about how strong the tension will be between rapid growth in oil demand in emerging market economies and the downshift in oil supply trends.

The key question for the future is how the larger and likely growing number of maturing oil fields will affect the global oil supply outlook. In particular, is the broad stagnation in oil production over the past five years temporary or more permanent?

Frankly, dear public, you are being robbed. This may be put crudely but at least it is clear.
—Frederic Bastiat, Economic Sophisms

Individuals rarely invest significant amounts of time analyzing economics because they assume they are too ignorant to understand it. Besides, we are constantly promised that tomorrow someone in power, some brilliant leader, will stop inflation and recession. Tomorrow the government will bring us back to prosperity. Our jobs will be secure. Our savings will be secure. Life will be secure.

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This book explains the monetary system and the tricks of the manipulators in terms you can understand. Read the following chapters carefully and they can be your key to financial survival.

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Hear, hear.

Everybody should see this.

Villopoto’s KX and all the other Japanese bikes are going to unfortunately be quite expensive soon, support was broken on the dollar yen just now and it plunged to an all time record low of 76.9. The dollar has now lost around 26% against the Yen in the last year. On top of the other unfolding tragedies over there this is horrible for the exports of poor Japan. My heart goes out to them. Not much of a consolation really, but at least they are winning in US Supercross.

Not in complete agreement with this article as to start a transition away from oil would be a good outcome and high oil prices should help, the trouble is there is nothing really to transition to yet. Or at all. Plus, as much as I loved the electric KTM SX prototype I tested, internal combustion engines are still much more versatile and will be around for a (long) while yet, just being increasingly more expensive to run (assuming of course enough oil makes it out of MENA to run them). At least motorcycles get great MPG. The KTM 690 engine just won the distinction of being the most fuel efficient bike in South Africa , averaging 3.0 Liters/100km (78.4 mpg) in Econorun 2010.

As Colin Cambell said, We’re entering the second half of the age of oil. How steep the slide down the back is remains to be seen, but if you want to somewhat understand where we are at, this article is a good place to start:

The political class and their mouthpieces in the corporate controlled mainstream media are desperately trying to spin the oil price surge as a temporary inconvenience that will not derail their phony recovery story. Brent crude closed at $116 per barrel yesterday. West Texas crude closed at $104 per barrel. Unleaded gas has risen by 22% in the last month and 60% since September 1, 2010. I’m sure this slight increase hasn’t impacted Ben Bernanke or Lloyd Blankfein. Their limo drivers just charge it to their unlimited expense accounts. Joe Sixpack, driving his 15 mpg Dodge RAM pickup, is now forking over an extra $1,200 per year in gas expenditures, not to mention more for everything impacted by oil such as food, utilities, and anything transported to their local Wal-Mart by truck (everything). Luckily, the Federal Reserve and crooked politicians only care about their comrades in the top 1% elitist society, for whom oil is an investment, not an expense.

http://www.zerohedge.com/article/guest-post-there-are-no-good-outcomes

The global economy had no sooner put in its first year of solid growth when world oil demand, like a jack in the box, sprang to a new record high. China alone added almost a million barrels a day to global demand, which ended the year at more than 87 million barrels a day. And demand shows no sign of abating this year.

It was far from clear where the world was going to find another two million barrels a day of new supply to meet another year of demand growth. That would be in addition to the nearly four million barrels a day of new production that must be brought on simply to replace what is lost every year in depletion.

Then came the turmoil in North Africa and the Middle East. Now it’s even less clear where that oil will be flowing from. The region of the world that was expected to pump that additional oil supply, utilizing its supposedly ample spare capacity, is now falling into anarchy.

In reality, that official spare capacity hasn’t existed for years. Confidential cables from the U.S. embassy in Riyadh recently released by Wikileaks confirm what skeptics like the late Matt Simmons long suspected. Saudi Arabia, OPEC’s biggest producer, and the country holding the world’s largest oil reserves, has little more to give.

Continue reading..

The low-hanging fruit of this world is gone. If you understand that, you’re halfway there. We’ve got nearly seven billion people on this world all chasing for the same goods.

Uh oh.

“Today alone, WTI (April) Crude oil has surged from $90 to over $98 in electronic trading. As for Brent oil, it passed $108.50. As a reminder, and people forget this all too readily, each dollar jump in crude wipes out $100 billion in US GDP. That means that at face value, today’s move in the commodity complex, may have taken out as much as 5% of annualized GDP when fully processed through the economy!”

The stability of the global economy is under threat due to oil prices entering a “dangerous zone,” according to the IEA’s Chief Economist, Fatih Birol.

Dr Birol’s warning follows new analysis from the IEA which found that oil import costs for member countries of the Organisation for Economic Co-operation and Development have shot up by $200 billion to $790 billion at the end of 2010.

“Oil prices are entering a dangerous zone for the global economy” warns Dr Birol. “The oil import bills are becoming a threat to the economic recovery. This is a wake-up call to the oil consuming countries and to the oil producers.”

(EDITORS NOTE: Wake up?? Not like there are any alternatives, they already raised taxes here on petrol and Diesel considerably and do we drive less? Not really, it’s still by far the easiest and quickest way to get around, and while we can, we will drive, all that happened was we just got a fair bit poorer. Solutions? Not really. Not yet.)

Despite a dip yesterday, oil prices have been climbing steadily in recent weeks, pushing close to $100 a barrel. On Monday Brent Crude reached $95 a barrel, its highest price for over two years, while the WTI price hit $89, up from $79 this time last year.

The analysis from the IEA, an energy policy advisor for its 28 member countries and beyond, also found that the European Union’s oil import bill grew by $70 billion last year. This figure is equal to the combined budget deficits of Greece and Portugal.

http://www.iea.org/index_info.asp?id=1737

Surging Food Prices Are Sparking Riots All Around The World.

Rising food inflation sparked violence across the Middle East and South Asia over the weekend, as demonstrators protested the high cost of staple commodities like sugar, rice and milk. The outbursts ignited fears that the world is due for a repeat of the 2008 food protests that rocked countries as far apart as Haiti, Senegal and Bangladesh. Food prices are now at an all time high, and are trending higher, indicating that this may be only the beginning of the food riot problem.
Read more.

Oil prices are now at the same levels which helped tip the economy into recession in 2008 too. The last time I filled up my car a few days ago on the German autobahn the bill came to the most I have ever seen it, at 109 euro. So much for Bernanke’s wealth effect.

Violence Over Surging Food Prices In Algeria Spreads As Rioting Leaves Many Dead In Neighboring Tunisia.