Oil Production v. Oil Peak
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I am not aware of any major energy-related institution that says global oil production will not peak. It's like death, the question is when. Due to lack of knowledge about reserves in the Middle East and Former Soviet Union, there is a wide range of estimates -- from now thru 30+ years, clustering in the 15 year range. Since a crash adaptation program will take roughly 20 years, we're already on the clock. The major agencies -- us DOE and the International Energy Agency -- have been clear on this challenge, esp this year. I recommend reading the IEA's World Energy Outlook 2007 (here's the free Executive Summary)
Actually, the immediate problem is not necessarily "oil peak" in regards to reduced oil deposits for extraction, but the eventual "peak" of extraction and production capabilities. On any given oil field there are only so many points of extraction and so much oil producing infrastructure. It's this in the short term that is being outstripped by demand and will continue so.
Silver lining? Maybe force us to move into other energy resources sooner or risk a severe recession caused by inflated oil prices due to increasing demands.
and, yes, I fear a shift in economic power if we do not have a significant change in trading practices.
One reason why I have been torn on the immigration situation in the US. The only way to keep us viable is to be able to compete in the labor market. We need significant immigration of low skilled workers to re-invent our manufacturing capabilities. We also need to watch artificially increasing wages with minimum wage hikes. We also need to reduce federal spending significantly. We have to be able to survive our own economic war devices.
Right now, I sometimes feel like we are calling the bombs down on top of our position so to speak.
4GW, WWI, and Economic Warfare
I don't know the protocol of this, but anyway...I just posted this on my blog, stimulated by this excellent discussion!
1. 4GW war is a conceptual tool. Debates like these show its power, generating new perspectives. Look at the comments posted at SWC {here}. Note how they assume that States are the only significant actors. 4GW suggests that this is not so. {as the discussion has continued, this is less so, note the previous comment!}
Major states, the important ones in global finance, tend to be reactive, incrementalist, slow, and conservative. For example, it is as likely that the head of the People’s Bank of China will push the red button on his desk – instantly selling a trillion+ dollars of US bonds – as President Bush firing off ICBMs at China.
But private actors are major players in global finance.
a. Asian and European institutional bond investors hold hundreds of billions of US bonds. Their losses as the USD loses value, esp. the EU investors, have been horrific.
b. Hedge funds wield over a trillion dollars in assets, far more than when they wrecked Europe’s Exchange Rate Mechanism on Black Wednesday 1992, or initiated a depression in SE Asia in 1997.
c. US investors in foreign bonds, esp. in Canadian, Australian, and Euro bonds, have had large returns.
Relatively small moves by US or international investors could destabilize the dollar – currency flight. Or a massive move against the dollar by speculators could do so.
2. We would know if we were on the brink of a crisis, wouldn’t we?
WWI was inevitable and obvious, the result of growing tensions in Europe. Or so the standard history reads. William Lind says…
One pebble touched off an avalanche. It did so because it occurred, not as an isolated incident, but as one more in a series of crises that rocked Europe in its last ten years of peace, 1904-1914. Each of those crises had the potential to touch off a general European war, and each further de-stabilized the region, making the next incident all the more dangerous. 1905-06 witnessed the First Moroccan Crisis, when the German Foreign Office (whose motto, after Bismarck, might well be, "Clowns unto ages of ages") compelled a very reluctant Kaiser Wilhelm II to land at Tangier as a challenge to France. 1908 brought the Bosnian Annexation Crisis, where Austria humiliated Russia and left her anxious for revenge. Then came the Second Moroccan Crisis of 1911, the Tripolitan War of 1911-1912 (a war Italy actually won, against the tottering Ottoman Empire) and the Balkan Wars of 1912-13. By 1914, it had become a question more of which crisis would finally set all Europe ablaze than of whether peace would endure. This was true despite the fact that, in the abstract, no major European state wanted war.
But this was not obvious to people at that time! Harvard historian Niall Ferguson looks at the prices of UK government bonds (gilts). These show complacency right up to the brink. City investors read of the mobilization orders, panicked, and the markets imploded.
Of course, we are much smarter than they. We would know if the world was on the brink of a crisis…
(I do not have a link to the Ferguson article. Will post when I find it).
Only fools would disregard new realities
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With crude oil prices nearing $100 a barrel, there is no end in sight to the redistribution of more than 1 percent of the world's gross domestic product. Earlier oil shocks generated giant shifts in wealth and pools of petrodollars, but they eventually faded and economies adjusted. This new high point in petroleum prices has arrived over four years, and many believe it will represent a new plateau even if prices drop back somewhat in coming months.
"There's never been anything like this on a sustained basis the way we've seen the last couple of years," said Kenneth Rogoff, a Harvard University economics professor and former chief economist at the International Monetary Fund. Oil prices "are not spiking; they're just rising," he added.
http://www.msnbc.msn.com/id/21718926/
By way of introduction, this first post may appear to have a liberal slant to some, but only if you view our national security issues from a political party perspective, where the facts are too often confused with agendas. I have always been an independent with a slight lean to the right, but in the end equally despise both parties and pray for a viable third party.
The enclosed article has little to do with economic warfare directly, but everything to do with your facts and assumptions if you’re a strategic planner looking at future threats to our national security, and as we all know there are other than military threats. Any political party in office would attempt to deny that we are experiencing an energy crisis on their watch, so you’ll start seeing so called experts come out of the woodwork saying there is no such thing as peak oil, or increased demand, and that our infrastructure if sufficient, etc., which is another case of facts being confused with agendas. However, the government is taking steps behind the scenes to address these very real problems.
Our national level instruments for waging war, shaping behavior, however we want to phrase it are diplomatic, information, military and economic (DIME). Unfortunately, all of these instruments have been weakened since our invasion of Iraq. We can overcome this setback with a strong economy, because the bottom line is that money is still king and enables all the other instruments, and our adversaries know this, so it only makes sense that they would wage economic warfare against us to weaken our center of gravity, which is our economy.
We’re definitely vulnerable now with our national debt, foreign investment keeping us afloat, an increased demand for energy resources worldwide, and to top it off our excessive credit based economy is starting to bite us in the butt with the real estate correction and its second order effects. Add to that the costs of the long war, Hurricane Katrina, and the other disasters that are normal drains on any nation and you can see the challenge. It isn’t a disaster if we develop appropriate responses and fiscal policies, but if an adversary wants to influence our economy now with a few hostile acts (informational, military, terrorist, economic policy, etc.) it very well could be, and the way to address it isn’t by being in a state of denial.
Are hedge fund managers criminals when they inflict economic harm?
Hedge funds are not criminal under our system of laws, no matter how much harm they cause. When they collapse companies or even nations, they are considered agents of the "invisible hand" (Adam Smith) spurring "creative destruction" (Joseph Schumpeter) in the interest of greater economic efficiency.
As we perhaps approach "regime change" (in the economic sense), the rules might change -- as the folks making the rules change. Creditors make the rules, probably over time becoming Asian (in a broad sense) and Middle Eastern elites. They might have different views of speculators, and enforce them.
On the other hand, history shows many instances of societies at first condemning weapons, then adopting them. Like the crossbow and strategic bombing. Perhaps other nations will adopt our methods of (in their eyes) economic warfare, but now wielded by the State (not investors) for national (not private) ends.
just a thought on housing...
selil correctly reports that the consensus of economists is that the housing crisis will be a normal cyclical event. This is beyond the scope of this thread, but somewhat relevent. There is a minority opinion that this is the end of the post-WWII "debt supercycle" (coined by the people at Bank Credit Analyst)
Each US economic cycle since 1960 has ended with increased household debt. At some point we reach our maximum carrying capacity of debt. That might be now. The housing credit crisis may be the precipitating event. This is known as the Minsky Cycle, and we're at the Minsky moment.
For more on the housing down cycle I strongly recommend this analysis and forecast:
"The Recessionary Macro Effect of the Worst U.S. Housing Bust Ever" by Prof Nouriel Roubini (Economist, NYU). Brief and clear.