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Ending a Century of Oil Addiction

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(( The following article is intended for publication on Financial Sense this week.

Any constructive comments from GEI readers would be greatly appreciated ))






Ending a Century of Oil Addiction

The Challenge of an outmoded transport and living infrastructure


Innovation has brought huge changes to our industrial landscape, and to our global economy. It has created, and decimated industries, encouraged new energy sources, and discouraged old ones. To see the background, it is useful to step back and look at the big picture. At a distance, it is easier to connect the dots, and put them in the context of long term cycles.


What is very clear is that America and other post-industrial countries are today facing a huge new challenge. The age of oil and the automobile is ending. Companies and countries which led in the 20th century are not likely to maintain their leadership in our current century. Past successes have bred complacency, and a resistance to change.


Of course, there were challenges in the transistion from the 19th to the 20th century. But we are seeing even bigger challenges in the early years of the 21st. Like then, the new global leaders of this century will be those that embrace innovations, and move to accept change, rather than staying mired in their existing ways, simply because they worked in the past. The US has been slow to face the facts- it needs to change its outmoded transportation and living infrastructure. What we are seeing instead is that a transition from old to new is being delayed by America, as it struggles to hold onto its comfortable old way of life. That has resulted in large and growing financial imbalances, and expensive military adventures. But current trends cannot persist indefinitely. At some stage, a tipping point will be reached, and a serious crisis will unfold. Then, the pain from the imbalances may trigger a new awareness and a transition towards new sources of energy, new forms of transport, and major changes in the ways people live and work. However, by then, leadership may have slipped away to emerging countries..



A great energy source for each Century

At the risk of over-simplifying complex historical processes, I want to suggest that the 200 or so years since the start of the Industrial Revolution can be divided into three major phases. The first two lasted approximately one century, and the third is just beginning. Each phase had important new innovations, a major source of energy, and new transportation methods which utilised that source of energy. And each century had a diffferent global leader, which in the first two centuries was the country that invented much of the new technology, developed its transport system around that technology, and built industries to exploit the changes. I summarise the three centuries as follows:


Century.... : Energy Form. : Transport Mode.............. : Leader

1800's...... : Coal.............. : Locomotives, Steamships : Britain

1900's...... : Oil................. : Cars, Aircraft................... : U.S.A.

Millennium : Low Emission : "Sustainable Transport"?. : BRIC countries?


The changes in global leadership did not happen by accident. There would not have been a British Empire in the nineteenth century without the invention of the steam power and the UK's huge reserves of coal. In the last century, American power grew with the rise of the Automobile. Big reserves provided an early lead by the US in oil production, and led to the eventual pre-eminence of American companies in developing global oil resources. These two countries were the home of the principle inventions, triggering the new age. They were blessed with huge reserves of the dominant energy, and were quick to exploit them, feeding capital into the companies which became the fast-growing industry leaders. However, leadership in one century did not persist long into the next. By the end of their centuries, both countries were left with a legacy of ill-investment in outmoded technologies and infrastructure. Mired in the past, they found it difficult to move forward, as new energy sources and infrastructure emerged.



The British century and King Coal

James Watt was a Scottish-born inventor and engineer who worked in England. In the later decades of the eighteenth century he produced a series of key enhancements to the steam engine. He developed an engine which had two chambers, including a main one that pressurised the steam to enhance its motive power. The second chamber captured the used steam, permitting it to condense back into water, and freed the main chamber to act as a pure power device. This addition improved the efficiency, the reliability, and the motive power. Within a few decades, the steam engine had been adopted and used to power locomotives, and ships. Britain, with its huge coal reserves, soon built the world's strongest industrial economy around these innovations. Railways connected all the major cities, and Britain was able to export machines and its manufactures around the world. Steam engines and coal powered its textile industries, and the ships which moved its goods to its far-flung colonies.


Today, we speak of peak oil. By the early years of the 20th century, it was beginning to be obvious that Britain's high grade, and easily exploitable coal reserves were not going to last forever. Output per coal worker peaked in the 1880's and began a long slow decline, from a peak of 310 tons in the early part of that decade, to 247 tons in the four years before the Great War, to only to just 199 tons in 1920–4. (*1 ).


Despite those nagging concerns about coal, at the end of the 19th century Britain was massively powerful. The saying was, "the sun never sets on the British Empire." And so it was, with a series of colonies around the world. The empire was supported and help together by a huge shipping fleet of military and merchant vessels. At the turn of the 20th century, about 50% of the gross tonnage of ships afloat was under the British flag. And the mighty British Pound was the reserve currency for the world.


Unfortunately, Britain was slow to give up its reliance on coal and switch oil for transport, and electricity and gas in home heating. By the time of the General Strike of 1926, it still had 1.2 million workers employed in coal mining. In 1973-74, just a few years before North Sea oil started flowing, there was a series of Miner's strikes, by Arthur Scargill's NUM, which put Britain into blackouts. There are many more examples of how old coal-based technologies lingered. Some may be unaware that London's famous "pea soup" smog, which lasted up until the late 1950's, was due to Britain's continuing burning of coal to heat residential homes. This practice only ended in London, with the Clean Air Act of 1956. It then took some years for the smog to fully dissipate.



The American age of oil in the 20th century

Henry Ford was born on a farm near Detroit. To escape a dreary life on the farm, he went to work in the city. He took various jobs, including one where he maintained steam engines, before settling into a position as an engineer with the Edison Illuminating Company. While in this postion, he began to tinker with gasoline engines, and used them to power small vehicles. In 1896, he launched his Quadricycle, a four-wheeler powered by a gasoline engine. This success helped catch the attention of potential investors, and in 1903, he founded the Ford Motor company with 11 outside investors. He continued to innovate across his business with such breakthroughs as a land speed record, mass production in manufacturing, and an astounishing $5 a day wage rate, so even his own workers could afford the car they produced. Ford's breakout product was the introduction of the Model T automobile in 1908. It was not only simple to drive, it was easy and cheap to repair. It's original cost was $825, and it fell every year after that, hitting $360 by 1916. Demand rocketed. Sales passed 250,000 in 1914, and by 1918 half of all cars in America were model T's.


America's love affair with the automobile, also brought an addiction to oil, and committed the country to building (with help from federal subsidies) a huge highway system to accomodate private cars. America now has about 250 million automobiles, and by far the world's largest network of national highways, with 6.43 million km. This network is present in every state and connects every major city, and has made possible "the American way of life" with its trademark suburban areas, with one or more cars in every driveway. Let's look at how this compares with the world's second largest highway system. China has 4.3 times as many people, a similar land area (3.7 million sq. km), and only 1.55 million km of highways. That's only 24 percent as much highway. America has 18 times as much highway per capita, and uses 14 times more oil per capita, when compared with the Chinese.


Meantime, America does not lead in everything related to transport. It has a much smaller mass transit system, and far fewer passenger railways than most other developed countries. (Perhaps this is one reason why Warren Buffett has begun to invest in US railways.) The Japanese are the world champions in travel by rail, with a per capita average of 1,900 km (*2). At 1,730 km, the Swiss are not far behind, and further back you will find France (1,060 km), Germany (890 km), and the United Kingdom (490 km). Three BRIC nations use a decent amount of rail, considering their less mature stage of economic development, with Russia tops (at 990 km), followed by China (504 km), and India (370 km). No data was available for Brazil, which has a much less mobile population than the other three. Where does the US fit in? Way behind all of those that I have listed, at only 140 kilometers annually per capita, sandwiched between Thailand and Pakistan. The average American has only 7% of the rail travel of Japanese passengers. These skewed statistics demonstrate a basic fact, the American transport infrastructure was built primarily in the 20th century, around the automobile, and has left America with a huge reliance on cheap oil, virtually the oil fuel used in America for cars. (Note: Ethanol is rising as a fuel source, but is less efficient, uses plenty of oil in its production, and so far is heavily reliant on tax subsidies- so it does not look like the long term answer.) This oil reliance is a critical vulnerability, which is known by all American politicians and military strategists. Unfortunately the problem of US oil import dependency is rarely addressed as a glaring inadequacy in the American transport system.


In understanding America's recent actions, and its future economic imperatives is useful to compare the increasingly outmoded US transportation system with the burden that Britain had in shaking off its coal dependency. I think of the American transportation infrastructure as a once-friendly beast of burden, which proved useful in building the economy in the 20th century. But now in the 21st, that beast is obsolete and has grown to become a voracious monster, crying out to be fed, and pushing America to act as a global bully to get what US consumers need. Unfortunately, it is not easy to get rid of such a beast. Huge capital expenditures have been made to build and sustain the system the way it is now. For example, the past 5-10 years have brought a huge increase in property prices, with new condos and suburban homes springing up across the country, all supported by a big jump in US mortgage debt. This has left America with two related and dangerous addictions: to cheap oil, and to cheap dollar debt. They are unlikely to stay cheap. America is uniquely and hugely vulnerable to a rise in oil prices and/or to rising interest rates.



America's gas-guzzling economy, implications

Let's take a look at America's energy usage, and see how it compares with the World, and some other major countries. Keep in mind that the transport sector is about one-quarter of America's total energy usage. And residential use of all forms of energy is another one quarter of total US enegy consumption:


- Energy Efficiency per capita -

COUNTRY............. Oil, daily.. : Electricity per Annum

United States..... 68.81 bbls. :. 12,187 kWh/year (2006)

Japan................. 42.01 bbls. :.. 7,424 kWh (2006)

France............... 32.43 bbls. :.. 7,142 kWh (2003)

United Kingdom. 30.18 bbls. :.. 5,784 kWh (2003)

Russia................ 17.66 bbls. :.. 5,674 kWh (2004)

World................ 12.55 bbls. :.. 2,215 kWh (2003 est.)

Brazil................. 11.67 bbls. :.. 1,975 kWh (2003)

China................... 4.97 bbls. :... 2,140 kWh (2006)

India.................... 2.18 bbls. :...... 481 kWh (2003)

source: Wikipedia: Petroleum#...consuming_countries, List_of_countries_by_electricity_consumption


For those who don't like dry statistics, here are some examples of how the US wastes oil, as reported recently in Hong Kong's South China Morning Post:


- 250 Million cars, and eight parking spots for every car in America

- Only 1% of American 4-wheel drive vehicles ever go off-road,

- Only 15% of the energy in a gallon reaches the wheels of an American car

- Americans use 14 times as much oil per capita as the Chinese

- If the US managed the same energy efficiency as Europe, it would not need oil from the Middle East


Suburban homes also waste plenty of energy, as individual dwellings are much less efficient to heat and light, as compared with apartment blocks in a city.


Despite all this waste and inefficiency, America often tries to dictate energy policies for the world. And this is happening at a time when the US has become the world's biggest debtor nation, and it relies "upon the kindness of strangers" in China and Japan to get the capital it needs to keep its gas-guzzling-economy growing.



Connecting the dots:

The British Empire, with its steam engines and coal had a century of dominance. In the same way, and after a similar time period, the age of autos and oil is reaching its own built-in limits. Tight supply (Peak Oil), and rising demand from fast growing countries like China and India, appear to have pushed oil prices into a long term upwards trend. More people have begun to talk about a coming shock (and a possible "end to Suburbia") as the American economy is forced to cope with the inevitable clash between its oil-dependent economy, and sharply rising oil prices. In the past few years, various short term factors, like rising house prices have provided a temporary fix, as many American merely refinanced their mortgages to cover higher energy costs. But now that the housing downturn has arrived, this solution doesnt work anymore. As Jim Puplava has pointed out on recent FS broadcasts, instead of tapping their equity, stretched American consumers are turning to expensive credit card debt. This looks like a dangerous last resort. Can a debt crisis be far away?


To understand how future events may play out, it is useful to consider three big trends and think about how they are inter-connected:

+ The weak US dollar

+ Rising Oil Prices

+ The increasing vulnerability of America's housing and transport infrastructure


It is easy to imagine how the future could play out...


+ Eventually, China, Japan, and the Middle East oil nations will reach a point where they are no longer willing to go on building their reserves of Dollars. They stop buying, or slow their purchases of dollars. For a dollar crisis, it is not necessary for them to sell dollars, they must simply stop adding to their reserves at the historic fast rate.


+ The Dollar will begin an irreversible decline, breaking the major support near DX-80, on its way to a fall of 10%, 20%, 30%, or more. In the 1970's and 80's, many countries reduced their holdings of Pounds, as it became a less popular reserve currency. But that did not happen without some extreme volatility. There was a particularly dramatic period of just over four years when oil slid off its peak, and Sterling's popularity as a possible petrocurrency waned.




From late 1980 to early 1985, Sterling fell by an eye-popping 67% from $2.45 to $1.05. A fall of a similar magnitude in the dollar is possible, and also in only a few short years. Afterall, the dollar is now much more widely held as a reserve currency than Sterling was when it plummetted. And if big dollar holders (like China and Japan) panic and sell, there will be few to stand in their way. Of course, a sharp drop need not start from current level. North Sea oil discoveries, and an oil price surge helped Sterling to rally by over 50% in the 4 years before its big drop. But poor fundamentals of people exiting Sterling as a reserve currency won out in the end, and buyers deserted Sterling. Sterling did later recover when the North Sea oil and Thatcher's revolution helped to restore its economy. By comparison, it is hard to imagine what macro factors could boost the dollar dramatically before its fundamental oversupply drives it lower.


+ Inflation will rise in the US because imports will become more expensive in terms of dollars. Oil will be the critical commodity to watch. For the US, there will be a vicious cycle, of a falling dollar, leading to rising oil prices and higher inflation. If rates are unchanged as inflation rises, then they will be evn more pressure on the dollar.


+ Oil is the largest US import, and there is increasingly fierce competition between the US and other rising energy consumers like China and India. Demand in the US may fall as dollar oil prices rise. But that may not be sufficient to drag global oil prices down, at least not in dollar terms. It is possible that the oil price may remain stable when calculated in renminbi or rupees. Within the oil market, rising demand from China and India may balance falls in the US. So do not expect dollar oil prices to fall much, even if the US heads into a severe recession.


+ Some think that as long as oil is priced in dollars, the currency will remain strong. That is only true if those who sell oil retain an important part of their reserves in dollars. If instead they unload the dollars, as soon as they receive them, the currency will not be stable. Once a falling trend in the dollar is widely perceived, those who buy oil in dollars can will tend to wait until the last moment to acquire the dollars needed for oil transactions. If the dollar falls faster than the dollar oil price rises, then waiting until the currency is actually needed will be a smart move. The weak American currency, will mean that countries holding strong currencies will have an easier time buying oil, even as the dollar price of oil rises,


+ Eventually, the oil price will reach a point ($100, $150, $200, or higher?) where the economic slowdown becomes a full-blown recession within the US. According to broadcasts on FS, Americans are already foregoing purchases of other goods, such as imported consumer items, to feed their gas tanks. At some stage, when oil prices are high enough, people will realise that they need to make permanent reductions in their oil consumption. They will think hard about how they use their cars, and where they live in relation to work. Politicians will start talking about the Federal subsidies (gasoline taxes, etc.) which helped pay for the building of highways, and how they can be diverted to paying for the construction of new mass transit systems. Expect some big adjustments in real estate prices, with suburban properties far away from public transport likely to lose value in relation to those that have mass transit connections. There will be more "urban" shopping malls, where shoppers visit by foot, train, or bus, rather than the suburban malls surrounded by parking lots.


+ The US will be between a rock and a hard place, where the inflationary pressures and the weak dollar may require a rise in interest rates, even though the economic pressure would have normally lead to rate cuts. If the Fed ignores the falling dollar and cuts rates, then inflation will just get worse, and hyperinflation will become a real possibility. And that would be followed by a worse economic disaster.


+ America's trading partners already see that the US is over-geared, and will be unable to continue its consuming binge, spending the world's savings. These countries have benefitted from that over-consumption by building their manufacturing capacity by selling to customers in the US. But that overconsumption has left them with a problem too- a heavy concentration of their FX reserves in dollars. To keep their factories humming, they kept their exchange rates competitive by recycling dollars into dollar securities. There's something like $2 Trillion of reserves held by Japan and the BRIC countries, and perhaps 60-65% of that is held in dollars. Now if the dollar falls, those reserves will lose purchasing power. So countries like China have recently begun to reinvest those dollars in assets like commodties, hedge funds, and private equity that they expect will hold value even if the US dollar falls. China has also been restructuring its own banks through tens of billions of dollars worth of equity issues done in the Hong Kong market. Chinese banks are preparing to channel more credit to their domestic consumers. And they will be joined by dozens of foreign banks, currently obtaining Chinese licenses and planning to build branches all over China. The middle classes of the BRIC countries are mostly under-levered, and their homes have appreciated in value too. So if the credit can be efficiently provided, to consumers better educated in how to use it, much of the business lost in America can be reallocated to consumers in their domestic economies, and to countries that have a smaller challenges built into their infrastructures.*


+ China and India have so far shown some willingness to follow the US model in building an oil-and-auto transport sector, but it is not too late for them to seek alternatives. Where the streets of Chinese cities like Shanghai and Beijing were once filled by bicycles, they are now choked with private cars, and the air is polluted with excess emissions. This has now become a hot topic of political debate in China, and a real sense of urgency is developing. Shanghai has built one of the world's first Maglev trains to carry passengers from its airport to the city center without crowding its highways. The world's largest eco-city is being designed by UK architects to be built at Dongtan, an island near Shanghai. Inner Mongolia is building some of the world's largest windfarms. And China has 40 nuclear power stations approved or under-construction, as does India. Meanwhile, the US continues to debate the merits of nuclear power. In short, the BRIC countries seem to be the ones to look to for leadership on low emissions energy, and new forms of transport for the 21st century.


+ With growing domestic demand in China and India, there will be less need to recycle dollars back to tapped-out consumers in the US. The US could slide into a vicious cycle of falling exchange rates and rising inflation, while the BRIC countries would see the virtue of their stronger currencies delivering stable or even cheaper oil. The US may then slide into a serious recession, or while much of the rest of the world enjoys a more stable economy. The US would go on paying for the inefficiencies of its oil infrastructure through years of impaired growth, or even a depression.


...At some point, a more positive scenario may appear:

+ I certainly hope that the US gets truly serious about its dilemma, and hit upon its new and healthier mission: to become the global leader in finding energy alternatives, and in rebuilding its economy so that it effectively conserves energy, using it more efficiently. Such a dawning would be a great relief to many other countries, who have tired of seeing the US as a global policemen, and a country which uses bully-boy tactics to protect its so-called "strategic interests", projecting its military power to give it preferred access to world's oil and energy assets.


+ Despite my hopes for this conclusion, there is a long way to go. We are just over 500 days away from the next Presidential election, and the politicians are continuing to speak to voters showing their usual favoritism to suburban interests, rather than identifying the suburbs and the current transport infrastructure as part of the problem. Perhaps a more enlightened politics can only dawn after a severe crisis, and when a new leader is in place in Washington.




The US has created a 20th century living standard, the suburban lifestyle, which consumes oil with a voracious appetite. The US must put itself on a diet, and perform radical surgery on its energy consumption, its housing arrangements, and its transport infrastructure. If it fails to do so, the the rest of the world will force a diet upon it. For some years a crisis has been delayed, as the exporting nations bought dollars to keep their curerencies weak, and to buy time to make changes of their own. But the US is approaching the end of its consumption orgy. House price appreciation has reversed, and will no longer readily accomodate refinancing, and foreign exporters are nearly ready to stimulate consumption by their own growing middle classes.


As the dollar recycling slows, the dollar will fall. And this will have mixed effects outside the US. The exporting countries will lose an important percentage of their main customer market. The global economy may slow down for a few years. However, if other countries boost consumption in their domestic markets, they will find they have more control of their customers, and experience less overt political pressure from the US. Another important benefit is that they will gain a competitive edge over the US in their future oil buying. As the dollar falls, the dollar price of oil will rise, and perhaps very dramatically. Countries with stronger currencies will find that oil priced in their own currencies does not rise so quickly, and it may even get cheaper. Oil exporters will be less willing to take dollars, and may insist on denominating oil sales in alternative currencies, or even gold equivalents.


The winners in this brave new world, will be the countries that embrace the change, innovate their sources of energy, and reconfigure their transport infrastructure away from oil, the automobile, and a suburban way of living. Meantime, countries that behave like the US and maintain an oil and auto infrastructure will find that more and more of their wealth is burnt up by this outmoded and expensive way of living. And the apparent free-lunch of over-consumption, will not be free much longer. Instead of being innovators, they may find themselves left trailing behind, reacting in a world where the important changes are wrought by others.







*US consumer spending is almost 30% of global GNP. Chinese consumers cannot pick up the burden on their own. At least not for many years to come. The annual spend of urban Chinese consumers in 2005 was estimated to be only $200 billion- that's only 1/43th of US household spending of $8.7 trillion in 2005. Japan and the Eurozone together were a similar amount to the US. So there will be an inevitable loss in sale for Chinese factories and Indian software companies, until a new mix of customers can be found, and the domestic consumers in those companies will only be a part of the solution. The ability of the Chinese, the Russians, and other to draw on their massive reserves, means that a solution is eventually likely, even if they must operate on a vendor-finance basis, lending money to those who buy - just as they did with America.


(*1: http://en.wikipedia.org/wiki/UK_General_Strike_of_1926 ).


(*2: http://en.wikipedia.org/wiki/Rail_usage_st...tics_by_country ).







= = = = =


JH Kunstler's website............. : http://www.kunstler.com/

Twilight of American Suburbia : http://www.youtube.com/watch?v=7PM0ZP9RvMg

OrionMag / Kunstler Series.... : http://www.orionmagazine.org/i/video/Kunstler/Kunstler1.html

Planetizen / Kunstler Podcast : http://www.planetizen.com/node/20211

Smallworld/ Kunstler Podcast : http://smallworldpodcast.com/?p=435

Post-Car Culture Podcasts..... : http://postcarculture.libsyn.com/rss

Peak Oil forums..................... : http://www.peakoil.com/forums.html

Amazon Book Review............ : http://www.amazon.com/gp/product/customer-...customerReviews

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Leeb's book from last year:



...makes talk of $200 oil seem not so freakish.

= = = =


The Coming Economic Collapse

Reviewed by Susan Witty

$200 Oil?


HE'S BAAACK. Stephen Leeb, derisively dubbed "the $100 oil guy," for the price prediction in his 2004 book The Oil Factor, ups both his petro-price forecast and the urgency of his message about a swiftly oncoming oil shortfall in his new work, The Coming Economic Collapse.


While just a few years ago he was somewhat of a lone voice crying in the wilderness, Leeb -- who edits the Complete Investor newsletter and holds degrees in economics, mathematics and psychology -- no longer can be depicted as a total Cassandra: As escalating oil prices and their consequences are becoming less dismissible, the relevance of his viewpoint, and of this his latest book, becomes inescapable.


We don't know whether President Bush, a.k.a. the oil-industry president, speed-read an advance copy of The Current Economic Collapse before encouraging development of alternative-energy sources in his State of the Union address. But Leeb's warnings certainly are timely in view of recent political events -- the disruption of oil-production in Nigeria; the ongoing insurgent attacks on Iraq's oil infrastructure; the U.S. standoff with Iran, home to 10% of the world's proven oil reserves; its deteriorating relations with Venezuela, currently its fourth-largest oil supplier; its increasingly ambivalent relations with Saudi Arabia, responsible for 15% of its crude, and competition with ever-growing China and India for depleting commodities.


America's prosperous lifestyle, Leeb and co-author Glen Strathy note, has depended on maintaining access to an unlimited supply of inexpensive oil. But, they claim, America has "burned through more than half of foreign oil reserves," and "for the past 35 years" has witnessed a decline in domestic production. Worse yet, despite every evidence that "the earth's crust contains only so much oil that can be extracted for a reasonable cost," Wall Street and the media are mired in myopia and our leaders, "basking in over-confidence," continue to mislead the public.


The common wisdom that upswings in oil prices will remain mild and are temporary is simply sleepy dust, the authors maintain. As a result of this misguided "groupthink," there is no plan in place to deal with a shortfall in oil production and very little chance of avoiding it. It is "entirely probable," the authors say, that oil will hit $200 per barrel by the decade's end. And the economic fallout, they state, will be devastating.


The worst-case scenario: stagnant economic growth with sky-high inflation. The best scenario, for which Leeb hopes, is that The Coming Economic Collapse will jolt people out of Lotus Land into calling for the solution he advocates: an all-out national effort, comparable to the one the U.S. marshaled for producing armaments in WWII, to speed the development of alternative-energy sources.


It's a welcome relief when the book switches from the scary stuff to Leeb's advice for the individual investor on how to make money when energy costs and inflation soar. Have the guts to separate from the herd, he says. Rule out cash and all but a few stocks and bonds; go for gold, oil and oil-service shares, the right real-estate investment trusts, and get into the next hot investment sector, alternative energy, with an emphasis on wind. Supported by fortifying factoids, these prescriptions and others Leeb puts forward are not simply hot air, but well worth considering.


In the final chapter, the authors, cautioning us that over the course of the next 10 years, investors will either become much poorer or much wealthier, assert: "We want you to get on the right side of the trends, to become wealthy, not just for wealth's sake, but for the survival of yourself and your family." If you are of like mind and consider that goal admirable, this book -- which includes a model port-folio -- is for you. If you aren't of like mind, it nonetheless will challenge your assumptions.


SUSAN WITTY is a copy editor at Barron's.


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- - -

The Wind recommendation is mostly hot air IMHO

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THIS seems to be a common attitude amongst some Peak Oil folks:


"Oil will not hit $200 next year if you are using today's currency.


If the dollar declines by 50%, it may be possible to see $200 oil ($100 in today's currency).

However, if the price of oil continue to soar and if it takes general inflation up with it, watch the Federal Reserve smack that inflation down with double digit interest rates.

The Federal Reserve has a responsiblity to keep the US Dollar from falling drastically in value, at least in theory.


Some dollar devaluation is acceptable but a 50% decline in 1 year? That would be too much of a shock to the international economy, sending us into a depression."


-see: http://www.peakoil.com/fortopic21699.html


= =


But we saw a 65% drop in Sterling in about 4 years- and the UK survived.

Why must there be a "global depression"? Argentina went through a wrenching few years without dragging down

the rest of teh world, or even its neighbors


= =


TRIGGERING RECESSION - will 7% do it??


"There was a talking head on CNBC the other day (sorry but did not catch exactly who it was) who said that the previous energy crashes (1973 and 1980-82) happened when energy costs exceeded 7% of disposable income (this includes home heating, electricity, and gasoline). At the moment, according to his calculations, it's at 6%.


We will (finally) get the recession when oil exceeds some amount over which people will not pay. We obviously have not reached that point yet, and I am personally baffled as to why, except the idea which has been commonly posted to the effect that they are borrowing the money on credit cards and home equity loans to keep the game going for a little longer than normal this time. "


-see / same source

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KUNSTLER'S VIEW of the future is much grimmer than Stephen Leeb's...



This book contains Kunstler's prediction for the post cheap oil age. He believes civilization will devolve back into a way of life similar to the 18th century. He goes into great detail explaining why wind, nuclear, hydro-electric, biomass, solar or any other possible source of energy will have a negligble effect. He throws in climate change, some horror stories about AIDs and the bird flu. Then he describes a painful and deeply troubling picture of life in the coming decades filled with wars, pestilence, starvation and lawlessness.


While I do believe in the premise about peak oil I found this book to be a little too much doom & gloom. Kunstler's argument is very black. There are no shades of gray. He discounts each alternate enregy source in turn but does not allow that each might help in some small but significant way. If oil is $200/barrel will we not start to build more nuclear plants, wind farms, solar panels, energy efficient homes etc. He points out that most of the fertilizers we use for farming are made from or with cheap oil. Perhaps there are alternatives out there that would cost twice as much today but would be viable in the new economy. He does not examine these kinds of possibilites.


My main criticism is that there is almost no constructive advice


(review march 30, 2007):


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June 13. Arthur Kroeber, AB'84, director of the economic research firm Dragonomics, will present its findings that the "Chinese middle class" today is both smaller and poorer than often reported.


Chinese Middle Class :



"There has been much talk about a consumption boom in China, fuelled by the explosive growth of an urban middle class which some forecasts predict will exceed 500m people by 2015. Arthur Kroeber, AB'84, director of the economic research firm Dragonomics, will present its findings that the "Chinese middle class" today is both smaller and poorer than often reported. Total expenditure by China's consuming urban residents will grow from about US$200bn in 2005 to US$1 trillion in 2015, but it will be hard to wring profits from this fast-expanding market because of cut-throat competition and rampant price cutting."


Mr. Kroeber has been a financial journalist and economic researcher in Asia since 1987, writing articles on China and India for publications including the Economist, the Far Eastern Economic Review, and Wired. He spent several years as an analyst for the Economist Intelligence Unit, covering Taiwan, China and South Asia, before joining Dragonomics in 2002. He is a frequent contributor to the opinion page of the Financial Times and a consultant to Oxford Analytica.


= = = = =

@: http://www.rbs.com/content/economic/downlo...US_consumer.pdf


"US household spending in 2005 was $8.7 trillion, around 40% of

total consumer spending in the world’s advanced economies. At $8.1 trillion, Eurozone

and Japanese household spending combined amounts to less than this."

// vs. maybe $300 billion now for Chinese households - that's 30:1. so a 1% drop in the US needs,

30% growth in china to pick up the slack, that shows the huge imbalance

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I met a very good friend of mine when he was the instructor on a navigation course that I attended. I still remember his very first words to me:


"You can't get lost in the UK. It's too small. Pick any direction and walk. Before your body fat runs out, you'll be at the edge."


This is one of the most striking things about the US, when visited by us Brits. It is simply immense.


Furthermore, the political culture of much of the heartland of the US despises big government and esteems self reliance.


The internal combustion engine has served the development of US civilisation within this vast space. Without it, the space could easily turn from an asset into a liability, requiring intense localisation of economic activity and collective transport provisions.


This will represent a huge cultural and political shift for the heartlands of the US.

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Hi Bubb


A minor historical correction with regards to the 1984 miner's strike. It was the strike of 1973/4 that caused the blackouts in the UK. In 1984, Scargill stupidly led the miners out on strike at the beginning of summer, and at a time of a large stockpile of coal.


As for the dependency of coal to the UK: such a dependency still exists, although it is lower than in 1990.




By 2004, total electricity production stood at 382.7 TWh (up 23.7% compared to 309.4 TWh in 1990), generated from the following sources:[12]


gas – 39.93% (0.05% in 1990)

coal – 33.08% (67.22% in 1990) nuclear – 19.26% (18.97% in 1990)

renewables – 3.55% (0% in 1990)

hydroelectric – 1.10% (2.55% in 1990)

imports – 1.96% (3.85% in 1990)

oil – 1.12% (6.82% in 1990)


As you can see, there was largely a switch from coal to gas, despite British gas reserves being lower than coal. Also, the cuts to mining were made greater as now coal is imported into the UK (from Poland IIRC). So the mistake in the UK was not cutting down on coal, but rather in dashing to gas. The gas option obviously did not exist in 1974, as IIRC North Sea Gas did not come on stream until about 1980. Prior to then, the UK used coal "town" gas, even for domestic use. (As an aside, this is where the phrase "stick your head in the gas oven" comes from: Town gas is toxic and it was a popular from of suicide.)


I hope that is of help. :blink:

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A minor historical correction with regards to the 1984 miner's strike. It was the strike of 1973/4 that caused the blackouts in the UK. In 1984, Scargill stupidly led the miners out on strike at the beginning of summer, and at a time of a large stockpile of coal.


thanks for those clarifications, and corrections.


were the miners on strike during the 1973/4 blackouts?

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This will represent a huge cultural and political shift for the heartlands of the US.


The heartlands tend to believe there politicians more also.

Partly because they are surrounded by many basically honest people. The cities are different.


The crisis, when it hits, will be a huge shock


= = =


In Feb.2007, Matt Simmons said, "we've hit Peak oil" (thnx to the decline of Mexico's Cantarelle)

Video :


here's some of the pessimism this video generated:

madraven06 (1 month ago) :

"Everything we've known since 1850, when petroleum started fueling our society, is false. What looked so boyant in the mid-20th Century has made a sickening mess of our planet and induced to procreate to unsustainable numbers. The world's human population can only survive on cheap oil and, with that gone, we risk a descent into chaos and eventual contraction as a species.

What to do, what to do?"

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thanks for those clarifications, and corrections.


were the miners on strike during the 1973/4 blackouts?


Yes, miner's strikes were the cause of the blackouts.


Brief history:


In 1968, the then Labour Government tried to bring in legislation to bring in some restrictions to trade unionism (this was "In Place of Strife"). These restrictions were ones that were consistent with a reasonably open society, unlike the more Stalinist restrictions brought in by Thatcher. The minister in charge was Barbara Castle (who I have met and was sharp as a tack right up to her death BTW - amazing woman. I heard her tear strips off Brown's pension policy back in 1999).


To cut a long story short, the trade unionist wing of the Labour Party, heading by James Callaghan pulled the rug from under the legislation. Ironically, his stupidity led to his own downfall in the late 1970s.


So in short, the 1973/4 strike actually worked, and destroyed Ted Heath's government. Scargill tried to pull a similar trick (IMO) but failed as times had changed with regards to energy. Scargill is a shady character, Paul Routledge (an "Old" Labour columnist in the Daily Mirror) wrote an excellent hatchet job. I have also met Routledge, and he REALLY hates Scargill (as do an awful lot of traditional Labour types). Scargill is just an egomaniac IMHO.


It is probably important that you put that in, as British readers would know this very well. :)


EDIT: In Place of Strife was in 1969, not 1968. :)




A shame it never went through (Thatcher went too far), IMHO we would be on a par with Scandinavia had moderate Labour policies prevaled in the 1960s. :blink:

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Thanks. Interesting background


The revised article has gone off to FS now. Fingers crossed.

I may submit it to Safe Haven also

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The article has now been published:



- -

Clones here:

HPC- : http://www.housepricecrash.co.uk/forum/ind...showtopic=48201

GHPC : http://forum.globalhousepricecrash.com/ind...showtopic=18744


- -

also picked up here:




John Rubino listed it as one of...

Best of the Web

Destruction of the Middle Class! – Ty Andros

Greenspan Turns Bearish – Gary Dorsch

Has the Fed Lost its Groove? – Richard Williams

Mystery of the Flatlining XAU – John Hathaway

Real Homes of Genius – Dr. Housing Bubble

Don't Cry for the U.S. Dollar – Jim Willie CB

Signs of the Times Part II – Bob Hoye

Derivatives: Bernanke is Wrong – Paul Lamont

A Century of Oil Addiction– Michael Hampton

Tales of a Rolling Boulder – Frank Barbera

Countdown to a Meltdown – James Fallows

The Raptors – Ted Butler

Asset-Dependent World – Stephen Roach

Are We There Yet? – John Mauldin

Ignoring the Lessons of 1929 – Bill Fleckenstein


...that's good company to be in

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oh well...


fixed it in the header version anyway

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Dr Bubb,

This is too late to matter, but I'll say it anyway. You state:


"Unfortunately, Britain was slow to give up its reliance on coal and switch oil for transport, and electricity and gas in home heating. By the time of the General Strike of 1926, it still had 1.2 million workers employed in coal mining. In 1973-74, just a few years before North Sea oil started flowing, there was a series of Miner's strikes, by Arthur Scargill's NUM, which put Britain into blackouts. There are many more examples of how old coal-based technologies lingered. Some may be unaware that London's famous "pea soup" smog, which lasted up until the late 1950's, was due to Britain's continuing burning of coal to heat residential homes. This practice only ended in London, with the Clean Air Act of 1956. It then took some years for the smog to fully dissipate."


This is not quite true. The Royal Navy switched to fuel oil very quickly. I think I am right in saying that Britain was the first country in the world to commission oil-fired capital ships, in the form of the "Royal Sovereign" class. These ships very nearly wiped out Hipper's battlecruisers at the Battle of Jutland, and one of them, the Malaya, got hammered when its steering jammed and it veered toward the High Seas Fleet. If you visit the moving Royal Navy cemetary at Lyness, Scapa Flow in the Orkneys, you will find line after line of dead from the Malaya. The decision to convert the Royal navy to oil was made by Winston Churchill. It was controversial at the time, because it meant that the Royal Navy would be reliant on imports from Persia and the USA. Also, Britain was fairly quick to ape the USA in adopting autocentric suburban policies as early as the 1930s. There are plenty of "garden suburbs" around Britain that were built in the 1920s and 1930s specifically with mass motoring in mind. The Great Depression and WW2 delayed the process by 20 years or so, so it was not until the early 1960s that mass motoring really took off in the UK. Britain's basic problem was lack of domestic oil supplies, until the late 1970s. It would not have mattered had we had competent industries to gain export income, as Japan and Germany had, but we did not have those competent industries. We had bungling, slovenly run industries that died like flies and now no longer exist. Germany is the greatest exporter in the world. Perhaps the British were too concerned about being polite to kick ass as you need to to make a company run well. "Brash Yanks" have an advantage there.


So far as coal for domestic fuel goes, I think you will find that was pretty universal at the time - as were the filthy cities. I don't suppose Paris or Berlin were an awful lot better - the Ruhr was an awful lot worse. What else were we suppsed to use? Town gas was more expensive then, and the supply along rickety cast iron pipes was not as safe as now with plastic pipes. So far coal for power generation goes, the US still gets most of its electricity from coal, but that has hardly held it back from being the great power of the post-war era.


A final point on the US. The US created the most efficient and technically creative industrial base the world has ever seen. The US corporations are still the best-run companies in the world. Their efforts are admittedly misdirected at the moment due to perverse monetary circumstances that make the dollar grossly overvalued, but as you point out, that will not last forever. I am not a fan of the US way of life. For all that, my money is on the US remaining a powerful nation for many decades to come.

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Britain was fairly quick to ape the USA in adopting autocentric suburban policies as early as the 1930s. There are plenty of "garden suburbs" around Britain that were built in the 1920s and 1930s specifically with mass motoring in mind. The Great Depression and WW2 delayed the process by 20 years or so, so it was not until the early 1960s that mass motoring really took off in the UK.

. . .

For all that, my money is on the US remaining a powerful nation for many decades to come.


Thnx for those comments.


The UK built automobile suburbs, just as the US did. But those suburbs were built AFTER a massive rail transport system was already in place. For much of the UK, particularly around London, it is possible to do at least part of the daily commute by rail. That is not so easy in the UK, And this is one important reason way the daily oil use per capita is so massively different


The US will stay powerful. But... as I said on a similar thread on HPC:


There are three spheres of power:

+ Economic power

+ Political power

+ Military power


When you rely on the last one alone, you are perceived as a bully. Right now, China is using the first two, and the USA is relying mainly upon the third. This is not making America popular. And China gains political power (ie the power to persuade), when it uses its rising economic power effectively.


The other problem is, America's military power will fade away slowly, as its economic power fades. Remember the fate of the Soviet Union? There is a riskthe USA will go into collapse as its economic power continues to wane.


The imperial over-reach led by Bush, and assisted by Blair, greatly speeded up the decline of the American Empire. Dark days lie just ahead, i fear


-see also: http://www.housepricecrash.co.uk/forum/ind...15&start=15

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yes. it could be the same chart, with an arrow removed??

= =


The Darfur article:

"“West Africa’s oil has become of national strategic interest to us,” stated US Assistant Secretary of State for Africa, Walter Kansteiner already back in 2002. Darfur and Chad are but an extension of the US Iraq policy “with other means”—control of oil everywhere. China is challenging that control “everywhere,” especially in Africa. It amounts to a new undeclared Cold War over oil."


The two countries with the world's largest highway systems, battling it out.


Why not battle over who can be the first to ditch the car?

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Why not battle over who can be the first to ditch the car?

Sadly, I think that the car is the fundamtal instrument of power in non-totalitarian states. If the state restricts its power to intimidate its citizens into doing what it wants them to do, then it has to appease them, since the People then hold power over the state. The powerful can only maintain their power by serving the wants of the masses. This leads inevitably to the "Tyranny of Indulgence" that John Stuart Mill warned would result from universal suffrage. Every democratic state in the world by now must realise that it is democracy that is the main obstacle to dealing with every major challenge that the world faces. Dubbya knows perfectly well that America's gas-guzzling habits are the biggest headache in his life, and he indicates this, but he's just one guy. He serves the indulgence of the ignorant masses through militarism.


It seems to me highly unlikely that democracy will endure unless there is a truly radical change of popular temperament. I do not see any real promise of that on any scale. People aren't "getting it" just because they buy a Prius, they are being suckers to Toyata marketing.


If democracy failed in the US and UK, I wonder how many countries would happily slide back into old habits of rule by bureaucratic or party dictat. Most European countries are not all that democratic anyway - look at France. Very few European countries have a tradition of sustained democracy. China is just playing along with consumerism - and doing a mighty skilfull job of surviving as a one party state. It is still run by the same lot that did Tianneman Square. These are clever survivors.


I think I see bad times ahead too.

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The powerful can only maintain their power by serving the wants of the masses. This leads inevitably to the "Tyranny of Indulgence" that John Stuart Mill warned would result from universal suffrage. Every democratic state in the world by now must realise that it is democracy that is the main obstacle to dealing with every major challenge that the world faces.


The "Consumer Economy" by a different name?


I suppose we must wait for the-shock-and-the-pain, before we see how our various countries will react.

Meantime, I want to take various precautions:


+ Learn to live without a car, (done)

+ Seek to live somewhere that has decent public transport,

+ Live with little or no debt, in case we see a sustained rise in rates

+ Learn and keep learning about the nature of the problems we are facing- to minimise surprises,

+ Seek the company of people who are nor rabid consumers / avoid those that are

+ Support politicians that speak sense (like Ron Paul?)

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21st Century Oil Source - are the Chinese building it??


This EXCERPT suggests that they may be:


Anonymous said...

People arguing for wind energy as a consistent source of power are completely ignorant or intentionally misleading about the mathematics, physics, and geography that goes into electricity generation.


Solar energy is a far better long-term solution for zero-emissions electrical generation; in the mean time, there are nuclear options that have a near-zero danger threshold being developed (Chinese models that physically cannot overheat) that are incredibly cheap and very safe.


@: http://seanbraisted.blogspot.com/2006/10/c...dependence.html


= =

Anyone know more about this??

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21st Century Oil Source - are the Chinese building it??


.... there are nuclear options that have a near-zero danger threshold being developed (Chinese models that physically cannot overheat) that are incredibly cheap and very safe.


@: http://seanbraisted.blogspot.com/2006/10/c...dependence.html


Anyone know more about this??


No high-pressure, high-temperature machine is "absolutely safe". Modern reactor designs seek to ensure negative feedback. Say the core temperature goes up, then this causes a reduction in the nuclear reaction and the temperatur falls again. Natural circulation is another feature that reduces risks.


As machines, nuclear plant can be engineered to be acceptably safe by any sensible definition. I see the main problem as being their heritage of nuclear waste, which will remain dangerous for thousands of years. Say the Ancient Egyptians had built nuclear plant and buried the waste in the Nile Valley. Who could have predicted at that time what the politics of the country would be thousands of years down the road? Squirrelling away dumps of lethal radioactive waste is going to make an awful lot of trouble for the future, to provide a not-very-enormous amount of power today. For all the controversy that surounds it, nuclear provides less than 7% of the world's energy. We could do without that 7% and not miss it. It ain't worth the candle in my view.


What they say about wind is true enough, but it could be combined with hydro storage, like tidal barrages and flooded valleys, to even out a lot of the bumps. I'd sooner put up with dim lights every now and again than all the hassle (and hidden costs) that goes with nuclear.

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ultimately, we can shoot it into space, back to the sun, i suppose

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