Declining Global Oil Supplies Have Caused An Irreversible Decline Of The Fed

The Federal Reserve is an artifact of the Abundance Economics that have governed Western economies over the past 250 years. For nearly 250 years exactly we have climbed the ladder of ever increasing energy density, and ever increasing energy supply. That era has now come to an end.
You can see that view, the end of the abundance era, expressed by a number of different writers, whether it’s today’s longish piece from Matterhorn Management, last year’s piece by Richard Heinberg on the End of Growth, or some of the shorter (free) posts I write here at Gregor.us. To keep things simple, oil is no longer available to fund world growth. Oil is certainly available to fund existing systems as they are currently set up, but not new growth. You can only fund new growth with an energy supply that is growing. That’s why the developing world has turned to coal, not oil, to fund its growth. Based on the most recent data, let’s update the chart of global crude oil production:




The credibility of the United States Federal Reserve is closely aligned with its ability to induce economic activity, by the provision of money and credit. But you can see the problem: if there is not an expanding supply of energy, credit is less useful as credit cannot be paid back very easily in a future of either flat, or declining growth.Now that the return on the Fed’s credit provision has gone into decline, then its incumbent on the Federal Reserve to rethink its approach. But the Fed, governed by post-war economists, is apparently unable to learn from new information.

There is another limit to the Fed’s provision of money and credit: and that is the quantity of debt already being carried in the economy.  As debt levels rose in the US economy over past decades, the Federal Reserve simply kept repeating itself in a kind of argumentum ad infinitum, providing ever more money and credit as though completely unaware of the levels to which debt was rising. Now, presently, the Fed has declared a war on debt-deflation. But, the Fed indicates no understanding of the core thrust of debt-deflation. I’ll help out: there can be no kick-starting of economic activity, until debt levels are reduced significantly. What the Fed is looking for is not the effects of more credit provision, but instead, debt jubilee.

The Federal Reserve is now in permanent, irreversible decline because it has no tools to fight both the limits placed on the economy by oil, and, current debt levels.

Were the Fed to conduct debt jubilee on a scale sufficient to restart demand, that would vaporize the currency. But even if it were possible to manage a workable debt jubilee, then the economy would come more squarely back into confrontation with the energy limit. And there too the Fed would discover that its role as provider of money and credit was reduced, as credit itself relies on future growth.

The Federal Reserve came into existence during the fattest part of the abundance curve, made possible by the extraction of energy-dense fossil fuels. The early part of the last century was the moment when the world started to transition from Coal to Oil, with the fullness of oil’s resource spread out before the industrial economy like a broad forest.

As an artifact, not a creator, of this abundance the Fed was merely a mediator of wealth and performed (at best) a smoothing operation as the economy traded credits on future labor and future growth. Like most institutions in decline, the Fed can either reform itself now and embark on a substantially new mission, or, it can decay into irrelevance as it attracts lower quality intellects, and is dismembered of its power. Indeed, if you look around the edges, that process of decay in the Federal Reserve has already begun.
Link -
http://www.businessinsider.com/federal-reserve-enters-decline-2010-8
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It is certainly correct that the US Federal Reserve does not have the tools to overcome Energy Decline in isolation, let alone in concert with an Aging Global Population, which is set to go into actual decline within 20-30 years and current Global Debt simply exacerbates the situation! i

Oildrum Oilwatch

Non-OPEC supply has been boosted mainly by Russia, which has now over taken Saudi Arabia as the number 1 producing country.

There are indications that Russia is not far away from Peak production and when it levels off &/or starts to decline, we shall then see the truth of whether the fabled OPEC spare production capacity is there or not?

If or should I say when, the reported OPEC spare capacity does not eventuate, after Russia & others go into decline, then all bets are off!!!

Analysts warn of threat to oil price stability

The deteriorating global economic outlook and weakening OPEC discipline could force oil prices as low as US$50 per barrel within the next year, analysts say.

“We see both lower prices and a tighter range ahead but with increased risks,” Lawrence Eagles, an analyst at the US investment bank JPMorgan Chase, wrote in a recent report. “Weaker economic growth, energy efficiency and [OPEC] intransigence provide downside risks.



“If demand drops, the Gulf Trio [of] Saudi Arabia, Kuwait and the United Arab Emirates, are likely to demand cuts from ‘leaky’ [OPEC] members to rebalance the market, but any delay in response risks a fall in prices [to] as low as $50 a barrel.”

Late last month, the bank cut its forecast for New York oil prices for the rest of this year by 5.5 per cent to $77.25 per barrel. It also lowered its price forecast for next year to an average of $79.25 per barrel from $90.



That move has been followed by a flood of bearish economic reports from the US, Europe and Asia. The gloomy data triggered a sharp fall in equities last week as the US dollar strengthened, which combined to send crude prices south.

On Friday, crude dipped as low as $73.96 in New York as OPEC, Oman and Yemen cut exports to China on slowing demand.

Crude’s recent retreat from above $82 per barrel to the middle of the $70 to $80 range that has prevailed for much of this year followed a recent OPEC forecast of anaemic growth in global oil demand next year.
Link -
http://www.thenational.ae/apps/pbcs.dll/article?AID=/20100821/BUSINESS/708219918...
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Oil Price is a reflection of US$ value rising, which is a reflection of concern of a declining world Economy,
which means less Oil is likely to be consummed, which means that the Oil Price will decline on the back of a lower demand,
unless Supply is actually in decline,
in which case the Price of Oil may actually rise substantially,
which would then precipitate another Economic Decline,
because the Energy to GDP ratio would rise rise too much,
causing the world Economy to decline further,
which would mean less Oil consumption
etc. etc

There are a number of major influencing factors in play, at present.

Whilst Politics is not one of those major influencing factors, it can make a difference at the margins, to improve the situation slightly, but it can not make those major influencing factors disappear!

perceptions_now wrote on Aug 20^th, 2010 at 6:15pm:


The two most important Energy generation technologies for the future are missing from that graph. They are Nuclear and Solar Thermal. Solar Thermal is much more cost effective than standard non-concentrated  Solar PV, and represents a larger market share in the US for example.

Nuclear is likely to rival crude oil in the Generation III power plants. The older technology averaged about 5:1. The new technology should be around 20:1 (conservative estimate). It's an American study, and it omits Sugar Cane derived Ethanol too. I suspect that the results are skewed because it was written for certain vested interests.

The Americans don't have as much Solar energy per square metre that we have in Australia either.

Sugar Cane derived ethanol has an EROI of between 8.3 (average) and 10 (best).

http://news.mongabay.com/bioenergy/2006/10/brazilian-ethanol-is-sustainable-and....

The other technology on the horizon is high efficiency concentrated triple cell PV and hybrid thermal/PV systems with concentrators.  These have tracking systems and they attain an overall efficiency of up to 75% for hybrid systems even with small scale installations.

Zenith Energy in Israel claim grid parity (4kW peak system), as do Green and Gold Energy in Adelaide Australia with their Solar cube technology (3kW peak).

The Americans (Soliant Energy) are also working hard on concentrated PV although all they offer at the moment are 330Watt peak units:

http://www.technologyreview.com/Energy/18718/
http://www.zenithsolar.com/

http://www.greenandgoldenergy.com.au/

Green technology key to future

GREEN, clean industries are the way of the future but Fraser Coast people must act now if the region's idyllic lifestyle is to be maintained, says Maggie John of Transition Towns.

“Oil has fuelled much of the massive population growth and the extraordinary achievements of the last 150 years. It is the lifeblood of industrial society,” Ms John said.

“According to a growing number of experts, soon the world will reach the ultimate peak in global oil production. After this point, production will begin its slow but terminal decline.

“Peak Oil represents an historical turning point, from an era of growth to an era of contraction. Peak Gas won't be far behind.”

Ms John said alternative energy sources could not fill the entire gap that oil and gas left behind and as a result, massive social changes were certain.

“There's not one of us who won't be touched by this in the next 10 years but there are things we can do to help ourselves,” she said.

“As oil prices rise there will be flow-on effect for transport, food, services, business and lifestyle. Tourism will suffer, supermarket food prices will skyrocket, vehicles will be used less, there will be less job security and a reduction in essential services.

“We have to learn to be much more energy efficient and technology can help.”

Link -
http://www.frasercoastchronicle.com.au/story/2010/08/26/green-clean-industries-f...

Peak Oil Update

World oil production (EIA Monthly) for crude oil + NGL. The median forecast is calculated from 15 models that are predicting a peak before 2020 (Bakhtiari, Smith, Staniford, Loglets, Shock model, GBM, ASPO-[70,58,45], Robelius Low/High, HSM,Duncan&Youngquist).

95% of the predictions  sees a production peak between 2008 and 2010 at 77.5 - 85.0 mbpd (The 95% forecast variability area in yellow is computed using a bootstrap technique). The magenta area is the 95% confidence interval for the population-based model.



World production (EIA data). Blue lines and pentagrams are indicating monthly maximum. Monthly data for CO from the EIA. Annual data for NGPL and Other Liquids from 1980 to 2001 have been upsampled to get monthly estimates.

Link -
http://www.theoildrum.com/node/5521#more
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As can be seen, Production has plateaued and the best concensus is that we are beginning to decline & depart away from Population Growth Demands!  

perceptions_now wrote on Aug 31^st, 2010 at 9:07pm:


Agreed, but there is just a chance that it could peak again (higher). I agree that there will be a drop off around 2015. In my view, we have to start replacing current energy with renewables and nuclear as a priority. If we can do that, we might be able to avert a really major economic crash.

The Peak Oil Crisis: Prospects for China

Headlines were made recently when it was announced that in July China's GDP surpassed that of Japan to become the world's second largest economy. This was immediately followed by a passel of stories speculating on how long it would take China's domestic output to surpass that of the U.S. and thus become the world's largest and by inference most influential economy. The mean estimate of the prognosticators seems to be about 20 years so that by 2030 China could be #1. This estimate is derived, of course, by assuming that China's economy will continue to grow at circa 10 percent each year and that the U.S. in turn will suffer from decades of stagnation.

If only it were so simple.

There is no question that China has had 40 good years. Once the Chinese got over celebrating their revolution, the cult of the personality (Mao worship), and the more onerous features of Marxism-Maoism (such as shooting capitalists), they came up with a political-economic system, which while not democratic, served well to harness the country's strengths and set it on the way to rapid economic growth. Blessed with a good endowment of natural resources, a long tradition of selecting and educating the best and the brightest for leadership, a reasonably homogeneous population, and the developed world as an example of where they would like to go, China has assembled a mixture of capitalism and socialism that undeniably yielded decades of impressive economic growth.

By moving tens of millions of peasant farmers into industrial enterprises where they worked long hours, under harsh discipline, for poor wages, China soon became the world's preeminent factory producing an inordinate share of the globe's manufactured goods. The question of the day is "How much longer can this last?" Rapid economic growth requires every increasing quantities of fossil fuels and other minerals. After forty years of hyper-exploitation of its domestic mineral deposits, China is now in a position where it must import half of its daily oil demand and is starting to import coal and other minerals as domestic sources become thinner and more difficult to produce.

Recent events suggest that China may suffer disproportionally from the effects of global warming.
The key question in all this is how much longer China's economic miracle can continue before the realities of finite mineral resources force a slowdown? Another five years of 10 percent annual economic growth will result in Beijing increasing its oil consumption by another 2.5-3 million barrels per day. This alone would likely mop up much of the world's spare capacity to produce oil and result in very large price increases. When China's ever growing demand is added to that of India, Brazil and the oil exporting states, the likelihood that we will see a substantial increase in oil prices within the next five years becomes very high.

Although China still has large reserves of coal, they have now begun importing which suggests they are having trouble producing it fast enough from deeper, aging mines to keep up with demand. Some believe that Beijing will only be able to keep increasing production for another 15 or 20 years before peak coal production is reached.

Recent events suggest that China may suffer disproportionally from the effects of global warming. This year the country was ravished by droughts, dust storms, and floods as increasing global temperatures worked their way on the weather patterns affecting China. If these changed patterns prove to be permanent feature of China's weather, droughts, floods, tropical storms, falling water tables and the melting of the Himalayan glaciers may force China into a survival mode where the struggle for food and water will trump industrial growth.

Although, climate change, decreasing exports, and depleting mineral resources will all eventually impact China's ability to grow economically, the availability and affordability of oil is still likely to impact first. Despite the current oil glut, all indicators suggest that global oil supplies are likely to start running short in the next three to five years. Although China Incorporated may be in better shape to weather the initial stages of a price spike than the average American consumer, it is doubtful if China can grow its economy at 10 percent annually without increasing supplies of oil.

Beijing clearly recognizes all this and is moving to build a more efficient, less energy-intensive economy that can grow with less fossil fuel. Moreover, China's leaders are catching onto the notion that the costs of ignoring air and water pollution may eventually be prohibitive. The precept that China can keep growing its emissions until they reach the per capita level of the industrial nations may eventually fall as climate aberrations start to take an unacceptable toll on economic growth.

There are many unknowns and variables in all this, but it is a good bet that China's miracle of 10 percent annual economic growth has a half-life far shorter than many suspect.
Link -
http://www.fcnp.com/commentary/national/7242-the-peak-oil-crisis-prospects-for-c...
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China is still linked to the same Global Macro Economic factors that all other nations are linked to and they are still interlocked with the USA!