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June 2004 Contest Entries and Prize-Winners
What will the end
of cheap oil mean...
as a permanent state of affairs for the U.S. economy?
For the world economy? What will it mean for gold?
Boilermaker (6/24/04; 05:19:02MT - usagold.com msg#: 122461)
******The End of Cheap oil********
The end of cheap oil is at hand. For more than 100 years we have been the heirs of a wonderful store of wealth. Much of this wealth has been well used in the pursuit of improving man's life. However, like the spendthrift heirs to a large fortune we have used billions of barrels of this ancient gift in frivolous pursuits. Now the oil bank's reserves are dwindling and we will be forced to adapt to higher prices.
First let me establish what I mean by cheap oil. Cheap oil is a commodity that supports my transportation, heating, and hydrocarbon-based material lifestyle in the US at a relatively small fraction of my total expenses. The most obvious expenses are for gasoline, heating and diesel fuels but nearly all other products and services have an oil component. Americans have grown accustomed to "cheap" oil, natural gas and coal. The end of "cheap" oil (and its cousin, natural gas) means that we will need to devote a greater share of our income for oil and/or find ways to conserve and substitute other forms of energy.
Oil priced in US$ has been "cheap" for more than 100 years. Producers have been able to stay way ahead of demand on a global basis. Production has historically been limited by agencies such as the Texas Railroad Commission and more recently by OPEC as a way to secure more stable prices and prevent wastage and rapid depletion. Now we have OPEC calling for all-out production. This is reminiscent of The Texas Railroad Commission's similar order in 1971 when a test was conducted to demonstrate Texas's capacity to produce two million extra barrels a day. The test failed, revealing that the reserve capacity was only one-tenth that amount.
The dollar has been the world's reserve currency due to its perceived strength and the absence of an alternative "strong" currency. The dollar is used for most oil sales. There is ample evidence that the dollar's long rule is being challenged and that it will have to weaken substantially to bring the huge and growing trade deficit back into balance. The introduction of the Euro portends the alternate strong currency that will end the dollar's dominance and its unwarranted "value". This means that we face the double-edged sword of declining oil reserves and a declining dollar. The price of oil will be like a candle burning at both ends, fueled at one end a shrinking dollar and at the other end by a shrinking supply.
Oil and the other fossil energy resources are the result of the marvelous natural process of growth, concentration, refinement and entrapment of our planet's flora and fauna over countless millions of years. The source of all this stored energy is the sun. The sun rains energy on the Earth. This energy is the source of life that becomes stored energy. The release of this stored energy occurs when it is combusted. Oil and other forms of fossil energy are like bank accounts that do not draw interest. They are finite. There is a balance to be drawn upon but it cannot to be exceeded. We have been drawing down our accounts at an accelerating rate for more than a century with no regard for our heirs. The big, easily accessed accounts have been found and many of them are depleted. There's very little "easy" oil to be found.
Once combusted, oil and other fossil fuels are gone. They cannot be recycled like steel, copper, gold or paper. They cannot be grown like corn, wheat or soybeans. They are consumed and oxidized to water and carbon dioxide. Do not look for these by-products to be returned to oil in your lifetime. There are hydrocarbon-based materials such as plastics that can be recycled but these are a small fraction of oil consumption. The sun provides our daily dose of energy and we must learn to harness it and use it wisely.
Oil production in the US has been declining for more than 30 years. The North Slope Alaska pipeline started out at more than two million bbls/day in 1977. Now it's below one million bbls/day. North Sea oil, first discovered in the 1960's, has reached a peak and started its decline in 2000. Some OPEC producers are in decline and the others are nearing that point. Russia, the world's second largest oil exporter, may have undiscovered fields but their production may be nearing a peak. Recently the Russian Government reduced its forecast of 2004 production from an increase of 10% to 2.5%. Whatever the real situation is for Russian oil they are clearly beginning to husband their existing reserves presumably to support market prices and increase their life span.
One of the most disturbing facts regarding oil is that 45% of the world's known reserves are located in three of its most unstable and hostile countries, Iran, Iraq and Saudi Arabia. When the Saudi Kingdom falls to the Muslim militants there will be panic in the oil pits. This event could be days, weeks, months or at most a few years in the future. If the US steps in to support the existing regime they will face another guerilla war and more explosive retaliation from the Arab world.
War is the dark side reaction to the disappearance of cheap oil. Powerful oil consuming nations will be tempted to expropriate the reserves of weaker nations by force or by coercion. This could get ugly as we have already seen in the Middle East. The desire to keep oil prices at cheap levels may in fact lead to the death and destruction of many people and lands. The sooner we confront the need for higher oil prices the more likely we will achieve technical solutions and avoid the dark side solutions. The end of cheap oil is highly predictable and the market should be allowed to stimulate peaceful solutions. Make oil not war.
But the oil sky is not falling and we needn't panic at the thought of shivering in the dark. As the world's oil balance declines and the dollar shrinks the market will respond with increasing prices that will stifle demand. Consumers will conserve. Energy suppliers will apply old and new technologies for converting one fossil fuel to another. The production of alternative/renewable fuels such as ethanol will expand. Suppliers of energy consuming products will increase the efficiencies of their products. There will be oil and other fossil fuels for the rest of our lifetimes but it will become dearer in our family budget. We will adapt.
The challenge of finding ways to obtain oil and to make its use more efficient can be met. We have the example of Germany during WW2. With virtually no oil reserves they produced enough oil from their abundant coal resources to support their highly mechanized war machine. We also have the more recent example of South Africa. Sanctions applied by other nations to SA during the period of apartheid compelled this oil-poor but coal-rich country to utilize its coal resources to make oil and gas. The technology and investment illustrated by the examples above need to be applied on a worldwide basis and they will when the market price provides the incentives.
There will be no gap between oil production and consumption. The above ground oil inventory is only a few month's supply and it will not support an unbalanced market. We might assume that world oil consumption would grow at 2% per year under the "cheap" oil scenario. As it becomes relatively more "expensive" the growth rate will decline, production will be stimulated and the market will remain in balance. This is a simple economic supply-demand balancing function.
Oil in the ground is a form of wealth. As it is produced it is converted to fiat currency, mostly dollars, which is not a form of wealth. Producers will begin to prefer the Euro as that currency supplants the dollar. Producers who wish to convert their fiat to a reliable form of above ground wealth will look to the ancient numeraire of wealth, gold. In the Middle East and perhaps in Russia there will be an increasing desire to convert oil wealth into gold wealth. National oil companies recognize that their diminishing in-ground stores of oil must be converted to the age-old store of wealth, gold, else they be lost in the decline and fall of fiat currencies. As the in-ground stores of oil wealth are depleted some are being converted to gold. As the price of oil grows so will the demand for gold. Oil producer's revenue converted to gold is a strong catalyst for releasing gold from its paper harness.
Oil will cause the death of the dollar as we know it. Oil will cause the rise of gold to its historic standard of wealth. The transition will be extremely stressful for the US as its currency is devalued and its people adapt to a pay-as-you-go lifestyle. The transition will cause an economic upheaval at least as serious as the Great Depression. With good leadership the challenge can be met and the US will recover but it will take two decades or more. Without good leadership, all bets are off.
Anyone wanting to avoid the dollar "abyss" needs to make a substantial transition from fiat to gold. There will be no second chances when the dollar curtain closes.
Tevye (6/22/04; 20:48:06MT - usagold.com msg#: 122401)
**** The End of Cheap Oil ****
The end of cheap oil will reveal ourselves as we really are, just as the loss of any significant thing will highlight our values.
Those who believe that government is the solution will advocate Government programs
to ration oil according to their definition of fairness,
to 'recover' windfall profits from those that produce, trade or sell oil,
to raise taxes on oil so as to reduce consumption (this logic in particular escapes me),
generally tell somebody else what to do,
and perhaps if we are fortunate, will advocate tax incentives for those who rebuild city centers, so that less comuting is required, or invest in energy efficiency.
Those who work in the energy fields will shift their investments
to new sources of energy, including its delivery and merchandising,
to new exploration, driling, or recovery efforts
to recycling efforts
Those who believe in self reliance will
reduce consumption to match our means, be it carpooling or thermostats or telecomuting or mail-order / on-line shopping or victory gardening or turn out the lights when leaving the room or ...
purchase energy alternatives when the price and payback is right
produce products locally and revive local economies since they no longer have to compete with cheap transportation that "imports" lower cost labor,
help each other from the preparations we've made
What does the end of cheap oil mean to Gold? Not much directly. But all those dollars floating around the world will find a home at the oil producers. That may reduce impending dollar inflation effects. It may also cause a liquidity crunch and an economic slowdown. If those dollars purchase paper gold, then that trade may florish. If they seek metal they will be wiser. If they seek new energy technologies they will be wiser. If they seek to export enforced religion or values, then conflict will not end.
The end of cheap oil is a mirror unto our soul.
As for Tevye, I want to get my horse re-shod since I am tired of pulling the cart (and can't yet afford oil based motors). I want my 5 children to have a better life than I. And perhaps they will, by living closer together and closer to the land, and inheriting a few gold coins.
Gold. Its Tradition.
TheJuniorMiner (06/16/04; 17:37:18MT - usagold.com msg#: 122163)
******* The End of Cheap oil ***********
What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?
For the world economy? What will it mean for gold?
There will be much whining, grousing and gnashing of the teeth by the American public as the cost of energy rises. It will be blamed on Arabs, Oil Companies, Politicians and Environmentalists and few will understand that larger more powerful vehicles, bigger homes, decades of undervalued oil and natural gas and our carefree attitude toward energy, are to blame.
It will mean disruptions in our way of life and complete lifestyle changes. Real Estate prices will react, as homes in those distant subdivisions will be traded for ones close to the city. Smaller homes will be in vogue and cost of utilities will be a strong selling point. Vehicles must get smaller and more efficient and leisure travel will slow. Some will brag about gas mileage
The US economy will struggle as it copes with the never ending rising dollar price of oil. The public will be uncomfortable. Inflation will be a national topic.
World unrest, now high, will rise to a new level, as the Arab Nation's portion of world oil supply will grow. Many will try to prevent it and many will try to profit from it. Some may try and take it.
At some point China will have to let the dollar go and float their currency, as it will be the only way for them to alleviate the inflation pressure of rising dollar priced commodities.
The Japanese will finally get totally disgusted with supporting the dollar as they too need price relief in the commodity sector. They will have serious debates with what they must do with a half a trillion FRN's.
And the dollar price of gold and will keep rising. Expect extreme volatility, as this will be a power struggle not easily relinquished.
But I do not believe we are at the end of cheap oil yet. Though production will peak soon and world oil demand keeps rising, there is still a lot of oil sloshing around out there.
As long as we can print FRN's to trade for oil, oil will be cheap.The end of cheap oil won't come until those that produce it start demanding something real in return. What would happen if we really had to trade something worthwhile for our energy, gold, silver, copper, nickel and lead? When the producers wake up and realize they need something for their prized non-renewable resources besides a stack of worthless paper, then we will have The End of Cheap Oil.
Smeagol (6/17/04; 07:46:30MT - usagold.com msg#: 122187)
**** The End of Cheap Oil ****
Hold, precious... lissten... it's the Contesst-horn!... we'll fissh later!
Smeagol likes the Contessts and considers it a great honor to throw in sside by sside with such Great Ones here even if we doesn't win the Precious, precious... after all we DID win not one but TWO Silver Preciouses once (and if we can, anyone can! Thank you again Sir MK!!)...we always come away with worthy inssight to inspire us on the Trail, O yess...
So....what riddle does Sir Gandalf put to us now... yaiow! Three?
"What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?"
sss... it all very much depends on jusst how 'UN-cheap' Oil gets compared to everything else, eh? We will assume Oil will become worth many times its recent price in other... staple commodities (sstrange words if you look at them too long...).
Oil-use is sso long entrenched in the US country that it is involuntary...they MUSST have it, a great many would be losst without it... but even Hobbitses can give up their pipe-leaf in dire sstraits! Use of Oil mercilessly demands a certain fraction of capital, vasstly increases the rate of conssumption of other things, and affects every endeavor... Up until now, they have lived in halcyon days when that fraction was small and consisstent relatively...when the size of that fraction HURRTS it will irresisstibly force change to a more efficient or lesser Oil-use. The entire US economy is an awesome bubble, inflated by more than a century of Oil-use (and fiat besides)... and when it pops, O precious "watch out below!"
Ssome possibilities - Oil ssubstitutes that were far too expensive may become viable....much less consumptive motor-machines...more use of Oil-thrifty transsportation like bicycles. It will mean people living closer to where they work. More ssmall local farms and gardens as high Oil-cosst imposes sstiff penalties on food growth and transsport. More use of locally available resources, like building materials, for the same reason. More use of Man-power and Horse-power. More re-cycling. It will mean a return to a true appreciation of what it really takes to produce ssomething, or do work. It will mean 'cutting fat' and returning to a sstate more in keeping with reality and natural design. The US government musst either contract in size or become tyrannical to keep the Oil-habit...if the US country refuses to accept the neck-collar of high Oil-price; then it may do unthinkable things to and with its and the resst of the World's peoples and resources in an attempt to hold onto unsusstainable 'interessts' resulting from its Oil-addiction...and lie upon lie upon lie will be told to jusstify.
"For the world economy?"
The less a country depends on Oil... the closer it is to the land and to the old ways, the less the People there will be affected by Oil's wiles...sss...these days there are few countries that remain untouched. Like the US, developed countries will writhe in withdrawal as they adjusst... some may go to war for thinning slices of another's Oil-pie... The higher the Oil-price, the more volatile, and this will reflect in all aspects of Oil-use. Like the US country, the world economy will be forced awake from its dreams to seek a realisstic existence proportional to remaining Oil-use. Local production of food and things assumes more importance; though trade will sstill happen, unpredictable transport cosst will weigh on buying decisions (maybe the giant sailing-craft of old will rise again in a new form?). Decentralization will occur, as massive infra-sstructures are not ssmart. We thinks that control of what Oil is left will become paramount among corporate and government interests... like It, Oil is a Power, and who controls a Power controls those that use it...ach! sss...(shudder... sorry precious, this brings back memories of old bad times)..sss...and lives of Men are of no concern if it comes to that pass... the Elite consider Men peons, resources like Oil itsself, to be used up and cast aside by the millions... unless they wise up and ssay NO! in unison... but there are many on Earth now, perhaps more than can fit in an Oilless society...ssurvival of the fittest will be the law in many places. Only if Oil goes away ssslowwwly enough, over generations, then mayhaps we will return without war to a saner, if much less convenient, existence... but Smeagol doubts this.
"What will it mean for gold?"
Ach! Ssss...that Wizard knows how to assk a tough Quesstion!...if we could ssneak a look at that glass ball of his, we'd ssurely see things to ssay... but Spot and Spike guard it too well...sss... niiiiice doggies...sso we will jusst say...
...Gold is ancient... historically, Petro-Oil is a new thing to Gold-demand. We doesn't think a higher Oil-price as ssuch affects It... but Oil burnt is Oil gone, and society's REACTION to an interrupted Oil-habit/Oil-flow can certainly affect desire of It...sss... if there is Oil-shortage, and we mean a real one, precious... then this will cause many economic sysstems, powers and towers that were founded or benefit by Oil-use to collapse, and of course, whenever there is chaotic rearrangement in the world, people return to ancient realities, one of which is It. So... It will do what It has ever done... shield It's owner against wholesale wealth loss as a ssupreme wealth anchor in a stormy world... no matter It's price in paper, Oil, soy-beans... or pipe-leaf.
Liberty Head (6/15/04; 01:01:46MT - usagold.com msg#: 122095)
**** The End of Cheap Oil ****
Oil is a true commodity and dollars are not, so the cost of oil has no meaningful measure in dollars.
Oil will demand like for like, that is one commodity in exchange for another.
The most precious commodity of all, our blood and our children's blood, will increasingly factor into the price of oil.
Globally, freedoms will continue to erode, tyranny will continue to expand and economies will take on more debt.
The global nature of this predicament means there is nowhere hide.
So, if our response choices are limited to flight, fight and fraud, flight is no longer viable.
This leaves us with much more fighting and lying in the days ahead.
Ones survival will depend on fighting smart and discerning the truth from the lies.
This is where gold starts to shine. Gold is the truth. Paper is the lie.
Be smart, stay out of debt and get gold.
Topaz (6/15/04; 14:33:36MT - usagold.com msg#: 122117)
***The end of cheap Oil***
Those who look upon Mona Lisa or Guernica and see Canvas and paint are truly the ultimate realists. This realist viewpoint, when considering "the price of Oil", does not take into consideration the undeniable attachment Oil has with our current monetary universe.
RELATIVELY Cheap might be a more appropriate statement and given the obvious - every Barrel burned is a Barrel less - the "relative" price would be expected to rise.
Enter 'ol Buckaroo!
As part and parcel of this $US/Oil reserve currency fiat system, the "price" of Oil is quoted and traded through the mighty Greenback and as such, said price is dependant to a very large degree on monetary events rather than pragmatic S/D.
Let's revisit our "Artwork" and again gaze upon these two "Masterpieces"
One takes little or no interpretation and has been revered through the Ages as one of the top 3 artworks in history (akin to Gold/Standard) ... the other, a "surrealist" interpretation, takes far more effort understanding/interpretation but is nonetheless revered in the modern world (akin to Fiat/$/Oil)
Whether in 200 Yr's Picasso's masterpiece is held in similar awe as is the Mona-Lisa today is anyones' guess ...tho I'd be pretty safe in assuming our current monetary system will not gain too much favour when compared to Gold.
DryWasher (6/15/04; 16:21:12MT - usagold.com msg#: 122120)
**** The End of Cheap Oil ****
The Contest Question:
"What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?
For the world economy? What will it mean for gold?"
When history provides answers to the above questions it will fill volumes of books and will rank, in a negative way, on a level of importance with the industrial revolution in the history of mankind in my opinion.
Cheap abundant energy is an absolute requirement for our technological society, and as that energy continues to become more expensive and less available we will see corresponding negative changes in expectations and lifestyles. The ultimate long term impact will in large part be determined by how we all react to the situation.
In the most optimistic scenario, on a world wide basis, we will all tighten our belts and work together to make the best of a bad situation by sharing and making the best use of the remaining resources, curbing population growth, and in general cooperating and voluntarily curbing our life styles while working to develop new sources of energy to replace the dwindling hydrocarbon resources.
In the most pessimistic scenario, we will not develop new energy sources, we will continue to waste energy while looking out for our own immediate individual needs and wants, resorting to war, or even to nuclear war, to take and squander the remaining resources, and ultimately putting an end to world wide civilization as we know it.
What really happens will probably fall somewhere between the above two extreme scenarios and will be very much complicated by the impending financial debt crisis with the possible collapse of the Dollar and other currencies. As I see it, it could become the proverbial perfect storm.
As has been the case throughout history during bad times, those who have GOLD will be far better off than those who do not.
Sorry for being so pessimistic, but I must tell it as I see it.
Moegold (6/15/04; 20:07:28MT - usagold.com msg#: 122125)
**** The End of Cheap Oil ****
"What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?
For the world economy? What will it mean for gold?"
Since the dollar went off the gold standard, the dollar has been, de facto, priced in oil. The world knows what a barrel of oil costs in dollars and are able then to assign a value to the dollar. When the US was on a gold standard, it had to actually hand over gold that the US possessed; under the oil standard the US just had to print the dollars and they were redeemed by oil producing countries which in a magnanimous gesture delivered THEIR oil reserves. The end of cheap oil means the value of a dollar will rapidly deteriorate. It only had value when producers were willing to take a modest amount of them for oil because they grossly undervalued their oil. The oil producers will be unwilling to trade a barrel of oil for a barrel of dollars. The emperor's (dollar) clothes will be gone; the intrinsic value of the naked dollar will be apparent. A replacement currency will be sought. It will unlikely be another fiat currency; the oil producers have plenty of paper. Another currency will be sought and the history will point to the golden way. Gold won't be priced in dollars; most things will be priced in gold. This will have a profound effect on the world economic system.
Solomon Weaver (6/15/04; 20:58:41MT - usagold.com msg#: 122128)
******the end of cheap oil**********
The end (time) of cheap (value) oil (energy). And of course, what does that mean for Gold?
Mankind, beyond sharing the qualities of other mammals to seek appropriate shelter and safety, forage for food, mate, sleep, and spend idle hours sitting, has a number of important discoveries or developments which in rough order of appearance in history may be summarized as: The use of tools to extend the power of the hand, the use of fire to pre-digest caloric value (diminish forage time) and to reduce spoilage, the husbandry of animals and plants, the invention of trade and accordingly money, the invention of written word, the invention of civil government, and the promulgation of warfare. Actually, both language and warfare are probably first on the list, and have evolved accordingly.
One hidden aspect of all these developments is the ability of mankind to "understand" himself, his clan, his enemies, and the nature in which he is embedded.
The emergent use of gold as ornament and money may be a crowning achievement of early civilization, as it allowed the concept of a "unit of trade" to thrive and act. The power of gold to facilitate honest trade, and create "value" eventually creates a "value" of its own for gold, in each culture.
But although gold facilitates trade, it does not diminish the "toil" required to plant and harvest a crop, sew a cloth, or build a hut. Gold may pay armies to fight, but it does not lessen their pain in death, nor assure their victory.
Since earliest of human times, mankind has used fire as a tool. Fire does reduce the toil required to clear a forest, or the digestive toil in eating food. Fire is an efficient form of shelter and safety, and a potent tool in the hunt and warfare. After many hundreds of thousands of years of use of fire, primarily by burning wood, and in some cases coal, and after some brief flirtations with wood-fired steam as a motive force, the near simultaneous discoveries or inventions of oil deposits and the principles of electrical power, approximately 150 years ago, allowed the introduction of an age which has been predominantly an age in which the direct toil of mankind is uncoupled from the benefits of toil. One glaring example is that the poorest of America today live better than many royalty in the earlier eras of toil.
Humans chose to exploit gold as money because it was an efficient means to create useful, durable, concentrated purchasing power (due to the high level of toil to mine gold). Humans chose to exploit oil because it became the most efficient means to harvest useful, abundant, concentrated energy. Note the word choicefor Gold, durable..for oil, abundant. Gold is valuable because it is rare, oil is valuable because it is abundant. Unlimited supplies of gold will not reduce human toil, unlimited supplies of oil (energy) certainly would.
It might be worth noting that the amount of sunlight falling on the state of Texas on a sunny afternoon is just about the same as the total electrical generation capacity of the USA. Hydroelectric and nuclear power are already reasonable alternatives to natural gas and oil for power generation. Current developments in wind, tidal, and solar energy are still young but promising.
The "end" of cheap oil will lead to the beginning of "other forms of cheap energy". Of course we have an emerging energy crisis.but mankind will manage through. Of course energy conservation (per unit of non-toil) is an important half of the equation, but we will continue to be amazed by the capability of mankind to discover new ways to work with energy.to create (or harvest) it, and to conserve its use.
We all know of the hypothesis (by Another, FOA, and others) that the United States has been able to move from a gold backed currency to an oil backed currency.the so called black gold. The most likely longer term outcome of "the end of cheap oil" will be "even more abundant energy" from a multitude of sources. The problem facing humanity will not be how to distribute limited resources, and diminishing energy supplies, it will be how to distribute the abundant economic output of low-toil industries in an equitable manner (which does not resort to outright socialism).
Fiat monies are not simply a convenient unit of financial account (a good thing), they are also a now global system by which large and growing governments and associated elites are able to confiscate wealth through the hidden taxation of inflation (a bad thing). Most of the confiscated purchasing power that does return to the poor is returned because it buys votes. There is almost no country which has an own central bank where government is considered to deliver better "bang for your buck" than freely operating private industries. Governments are inherently pork politics and corrupt (even if many honest folk work in them). An emerging class of world citizens generating new wealth will demand their change.
Gold will return, mainly in digital trade units, to replace much of the fiat world. Oddly enough, it will be the "end of cheap oil" which, after a period of crisis and adaptation, will usher in the abundant globally economy where gold will once again return to center stage as a financial anchor.this is assured, as the emergent classes will demand a currency in which they can save.
I think of the old wisdom. "praise Allah, but tie your camel to the post". I say "toil for the true abundance of humanity, but keep some gold in your back pocket". Or perhaps a twist on the old American saying."Gold helps those who help themselves".
Goldendome (6/16/04; 00:58:24MT - usagold.com msg#: 122138)
********* The End of Cheap Oil ************
Impending declines in the production of crude oil, coupled with increasing demands for it's derived products, will pose serious challenges for the world's population, as we face further price increases in the near future. How mankind deals with the end of cheap oil may be as critical a challenge as any that we have faced since the Ice Ages, with the threat of war always lurking about, while desperate nations attempt to corner supply.
The modern world industrial economy has been fueled largely with cheap oil for over a century. And, it will be those nations, including the United States, most dependent upon cheap oil, that stand to suffer the greatest decline in living standards.
Will governments around the world ration the use of petroleum products as was done during World War 2? Determining for its citizens the greatest marginal utility for the increasingly rare commodity. Or, will market driven prices simply determine who or what group will use the oil, as it sees fit?
How these questions are answered, along with developments in new technologies that replace oil, will help determine where we live in relation to our work. The type of work that we do, and our general living and travel standards.
The continuing decline of marginal productivity (brought about by increasing oil prices) will likely continue the manufacturing drain from highly developed societies; placing increasing stress on government benefit programs in these countries. The United States will likely see increased competition from Asia, not only in easily manufactured items, but increasingly, from higher tech production.
Unless mankind is able to develop newer technologies for farming, heating cooling and lighting, and in transportation-everyone, around the world may face severe changes; including the very real possibilities of starving or freezing to death.
What will the end of cheap oil mean for Gold? I believe that we will see increasing inflation; both in monetary aggregates and in goods prices. With the dollar still the world reserve currency and oil still priced and paid for in U.S. dollars, we can rest assured that the United States will create as much free buying power as it can get away with, in order to- bring home the oil. As the public finally realizes that savings held in paper are decreasing rapidly in value, we are likely to see a larger movement away from paper assets and into Gold, as people attempt to conserve the dwindling value of their paper money savings and investments.
specie-man (6/16/04; 03:12:01MT - usagold.com msg#: 122141)
**** The End of Cheap Oil ****
What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?
For the world economy? What will it mean for gold?
USA gold will be used to buy oil.
No one will know until a few gold billion turn up missing.
The Sitting Buck will finally get picked off.
Bonds away !!!
Bush will be sent to the Bush League.
Kerry will be sorry he got the job, just like Carter.
Father Guido Sarducci will make sure of it.
Terrorism will continue unabated, and horrorism will grow unabashed.
The House of Saud will be forced into exile in Texas where they will start a ranch.
The media will call their spread "Howdy Arabia".
But as luck would have it, they'll discover the last remaining drops of US oil on their land.
The Middle Beast will rear it's ugly wellhead (again and again - but to no avail).
Japan will be in a no-gold situation.
Goldzilla will attack and destroy Tokyo unreal estate.
The Chinese will buy anything they can with their Federal Reserve NOTs.
A Stupid Trinkets (ST) factory will be set up in Newark.
It will manufacture endless unneccessities for the Chinese market.
But the Chinese won't buy any because they prefer to make their own and sell them to US.
But we will sell them scrap recycled plastic from toys made in China and sold years ago at Wal-Mart -
for 5 times what we paid for it.
Toro D'Oro will run rampant in the China shop.
The NAS-DAQ stock exchange will be NAS-TY.
The DOWn Industrial Average will go way down - it won't even be "average" any more.
The DOW will be positively Dour.
Toilet paper investments will get flushed.
They'll pull the peg on the Dollar.
No one will want to buy US Tragedy Bonds.
When convicted of "GSE" (Government-Sponsored Embezzlement),
Freddie & Fannie executives will go directly to jail.
Do not pass gold.
Diesels will be scrapped in favor of donkeys. Donkey carts will be big.
Genetically-engineered donkeys will be able to pull 25% more than ever before.
But they'll be 50% more stubborn.
The Baby Doomers will not be able to retire on time (if at all).
Many will have to get jobs riding shotgun on donkey carts (or cleaning up after them).
American cities will smell like everyone is passing the gas (pumps).
"Road Rage" will take on a decidedly different tone.
Everyone will finally realize that the Soylent Greenback is made out of people's debt.
And Americans and Asians will be forced to eat Soylent Greenspam for years to come.
But in the Gold Folks home we'll still eat real strawberry preserves -
which will cost $500 in Federal Reserve Nots (or two silver quarters) per jar.
He who has lots of "stuff" will prevail.
We all have a gold mind in the back of our heads.
But only a select few listen to it.
Thing King will rule.
For he is the "Dude Uncommon" who now holds gold.
specie-man (6/23/04; 15:34:03MT - usagold.com msg#: 122446)
The End of Cheap Oil - part two
Cut off the supply of oil lubrication to an engine and it will grind to a destructive halt. The economy will do the same.
And when it does, all the TV financial pundits will be left shaking in their mute. All the really important economic facts will slip through the quacks. Stock cheerleaders will choke on their pom-poms. The S & Pindex will leave investors Stranded & Poor.
Interest rate derivatives will vaporize. Insurers will sue. Counter-parties will counter-sue. James Bond Vigilantes will not help matters.
Checks can not be cashed. The issuance of cash can not be checked.
Trash will be burned in empty 55-gallon oil drums to generate heat for increasing numbers living on the street. The Snow job will just make it worse. Cash will be like trash. "Throw it all in the cash can".
The government-issued medium of exchange will become almost all digital. The new refrain on the street will be: "your imperial credits are no good out here !". Digital petrodollars will be about as popular as diesel fumes.
A nefarious mastermind will increase the value of oil even further - simply by not selling. The few remaining oil suppliers (including this "Oilfinger") will desire something more substantial for their crude - like gold. Or platinum. Or palladium. Or plutonium.
Talk of a renewed Gold Standard will increase. "Opportunity [Ft.] Knox !" Some Gold Certificates will be issued (secretly). Then too many will be issued (secretly). Gold reserves are mobilized to cover commitments. Then the velocity of gold increases to hide the shortfall. Velocities increase until the tangible world of gold collides with the intangible world of digital credits. Here stops the Buck.
The Credit Suisse First Boston bank (CSFB) will be given a new nickname - the "Commercial Signal Failure Bank"
In the competition for scarce oil, the good (desired) money will push aside the bad. Digital credits are like a static charge. When they come up against a good economic conductor like gold, they discharge into nothingness.
The Argent at Arms will run the Fiat off a cliff.
Dislocation pressures are building, due to continued manipulations of all markets in the name of "stability". The result will instability. The "Big One", when it comes, will rip like a perfect 10.0 on the San Andreas.
We will find out if "deficits don't matter". Oil deficits matter.
slingshot (06/17/04; 00:36:15MT - usagold.com msg#: 122174)
******* The End of Cheap Oil *******
" EVERYTHING IS GOING TO COST MORE!"
More for cars. More for Televisions. More for food.
I do not want to take away from this contest, but this is very elementary for those who have been here awhile reading Sir Black Blade's posts and the many who have supported his veiws. Oh! Oil is forever. Like water from the tap to be consumed at our leisure. The Europeans can teach the Americans a few tricks on this subject. To extoll the difference between the US and world economy is futile for it is too interdependent. Yes , some will go to war to claim finite oil fields only to extend their economies a few years out and they will resort to other forms of energy.
How much FIAT will be printed to finance these OIL WARS?
Shall we say,"These be the good old days" when everything was plentiful and cheap? Including, GOLD!
Very basic and I hope Joe Sixpack will understand what I have said here.
NTgeo (06/17/04; 21:55:22MT - usagold.com msg#: 122209)
*****The end of cheap oil*****
The proposition to be discussed is what will be the effect of higher oil prices on the US and World economies, and on the price of oil. Perhaps a more important question is what will the increasing scarcity of oil reserves mean for the world economic order. None of the major world economies have sufficient indigenous oil reserves to satisfy their needs. They will need to import a growing portion of their requirements. The new economic powerhouses of India and China will require increasing amounts of imported oil and will have to source this resource from oil producing regions in competition with the US, Japan and Europe. A lot of smaller poorer countries are going to suffer from the higher prices and reduced availability of oil. This will cause increasing resentment against the larger richer countries. Although there may be some reduction in oil demand in the developed world as prices rise with the introduction of fuel-cell and solar powered vehicles, in the developing world it is doubtful whether any significant substitution will occur.
The oil-rich countries will be under great pressure from the competing blocs for their oil production. One can envisage scenarios where bilateral agreements may occur between countries to tie-up oil production. As the supply of oil gets tighter wars may be fought over significant oil reserves which are located in border zones. Economic warfare may also be fought to force oil producing countries to supply certain countries.
The higher oil prices will cause increased research into alternatives to oil. Further success in developing fuel cell and solar technology may lead to the development of greener vehicles.
On the economic front the rising oil prices will lead to increased price inflation in all countries. This will cause the price of gold to rise.
Life,Liberty,Property (6/18/04; 21:13:42MT - usagold.com msg#: 122247)
**** The End of Cheap Oil ****
I am going to take a stab at this out of left field (or perhaps not, since I don't always have time to peruse these pages). The end of cheap oil may just mean the return of coal's prominence for power generation. Though it has lost the cache it held from the beginning of the industrial revolution, in part because of the cheapness of oil and the pollution it generates, it has the attraction of being far more plentiful. Especially in the United States, in areas that are currently out of bounds for mining (thanks to the same administration that received donations from Indonesian coal interests. Also made oil reserves out of bound as another hint). New advances in software and controls is increasing power generation in OLD plants by 10%. Improved scrubbers, and catalytic converters are even cleaning emissions. The end of cheap oil? Look for the rise of existing alternative energy resources. You can't run a car on them, but power generation is a significant part of the oil equation.
Nomad (6/19/04; 20:57:09MT - usagold.com msg#: 122266)
Peak Oil Contest Essay - Part I
Peak Oil Landmarks
(with no apologies to 'HomeLand' Insecurity)
(to be laminated and placed in your wallet :)
crude oil price: $ 50 / barrel
US gas/diesel price: $ 3 / gallon
condition Green symptoms
reported US govt inflation rate: 3 percent
gold price: $ 430 US$ / oz
reported US govt unemployment rate: 6 percent
real estate bubble: average US house price drops 5 percent
stock market bubble: DOW 9000
10 year US Treasuries: 6 percent
crude oil price: above $ 70 / barrel
US gas/diesel price: above $ 4 / gallon
condition Blue symptoms
reported US govt inflation rate: 5 percent
gold price: $ 600 US$ / oz
reported US govt unemployment rate: 8 percent
real estate bubble: average US house price drops 10 percent
stock market bubble: DOW 8000
10 year US Treasuries: 8 percent
crude oil price: above $ 90 / barrel
US gas/diesel price: above $ 5 / gallon
condition Yellow symptoms
reported US govt inflation rate: 7 percent
gold price: $ 800 US$ / oz
reported US govt unemployment rate: 10 percent
real estate bubble: average US house price drops 20 percent
stock market bubble: DOW 7000
10 year US Treasuries: 10 percent
crude oil price: $ 110 / barrel
US gas/diesel price: $ 6 / gallon
condition Orange symptoms
reported US govt inflation rate: 9 percent
gold price: $ 1000 US$ / oz
reported US govt unemployment rate: 12 percent
real estate bubble: average US house price drops 35 percent
stock market bubble: DOW 6000
10 year US Treasuries: 12 percent
crude oil price: $ 130 / barrel
US gas/diesel price: $ 7 / gallon
condition Red symptoms
reported US govt inflation rate: 12 percent
gold price: $ 1500 US$ / oz
reported US govt unemployment rate: 15 percent
real estate bubble: average US house price drops 50 percent
stock market bubble: DOW 5000
10 year US Treasuries: 15 percent
Nomad (6/19/04; 22:46:13MT - usagold.com msg#: 122269)
Peak Oil Contest Essay - Part II
For decades, the Texas Railroad Commission was primarily responsible for setting US oil production quotas. In 1970 (perfectly in line with King Hubbert's prediction of a domestic US oil production peak) the TRC, for the first time, lifted production quotas completely. Those of us who lived through the 1970's (remember WIN buttons ? :) KNOW that this single event clearly signalled to anyone with half a brain, that the era of cheap domestic oil was offically over.
In 2005, worldwide oil demand of 80 mbd has, for the first time, matched maximum worldwide oil production, thanks to violence in Iraq and Saudi Arabia, and the rise of American-style consumerist lifestyles in China and India. OPEC announced recently that they will continue to 'limit' members' production by setting oil production quotas equal to the maximum amount of oil each OPEC member is physically capable of delivering to the market. In other words, OPEC quotas are a thing of the past. Again, a clear signal has just been sent to those of higher intellectual function that the era of cheap WORLDWIDE oil production is over.
Of course the question we all want answered is what will the future bring ? The chart I posted in Part I consists of my personal, basic, educated-guess scorecard. While it may be fashionable to quibble about the details, I think the bottom line is that the fat lady, has in fact, taken her spot center-stage.
I have posted before about the importance of the book, 'The Fourth Turning' (http:///www.fourthturning.com) and how it provides a blueprint for making such educated guesses for the future. I have been gratified in seeing others take up the torch in support, both in this forum and the Peak Oil forums which I frequent.
I believe that we will see two primary areas of fallout from Peak Oil. The first and most obvious will be in the financial arena. Undoubtedly, inflation, unemployment, and gold prices will rise, while real estate prices will fall. In many ways it will mirror the Great Depression, but for the great mass of sheeple it will be much worse this time around. In the 1930's the US general population was still concentrated on farms and had the capability (if all else failed) to feed, clothe and house themselves. Can you imagine what the reaction of the SUV-driving, road-raging, TV-addicted public will be if even a fraction of their 'quality-of life' is compromised ?
4T notes that when the highly self-absorbed Boomer generation reaches the peak of it's political power, they will wreak havoc on all around them in their effort to hang on to the life they have come to expect as their birthright. The Iraq Quagmire is just a taste of what they are truly capable of. And this brings us to the second area of Peak Oil fallout, military empire building in a doomed effort to sustain the greedy, energy-sucking American 'lifestyle'. Look for 'interventions' to continue in all areas of the Middle East for decades to come.
One of the funniest thing I hear in the media and the Internet is the idea that Democrats and Republicans constitute the 'left' and the 'right' wing. Just different shades of Boomer gray, you know. Clearly Bush and the neo-cons are committed to the 'War on Terror'. And what is our 'other' choice ? Why a presidential 'left-wing' candidate whose stated goal is to DOUBLE the number of American troops in the Middle East. A choice between dumb and dumber.
To add fuel to the fire, the first of the Boomers is beginning to move out to pasture. As they move through their retirement years, this generation (like any other) will unload as many of their assets as possible, both to keep their heads above water and in an effort to live out their Snowbird dreams before passing on to the big TV network in the sky. In the federal government, estimates are that more than 20 percent of federal workers are planning on retiring within the next 5 years. Remembering that the Boomers were both the largest and (are still) the richest generation in Amercan history, consider that their efforts to unload their incredible store of assets could easily turn a fairly asset fire-sale into a blind panic. Those with gold and other hard assets should be able to pick the cream of the crop. One clear sign of the impending flood of retiring Boomers is the announcement by Winnebago of record sales and profits. Onward to Arizona, old-timers.
Peak Oil also has much in common with Y2K. While I think that a lot of people might be embarrassed to admit that they took Y2k seriously, I consider it to have been a watershed event in several ways. It was the first event in my lifetime that I remember so many people making serious preparations for what they thought might be a serious social/economic problem. I, personally, learned a lot, not just about the basics and importance of being prepared, but also about my own personality and anxiety levels :)
I have the distinct feeling that many of the people who feel they got burned by Y2K will let their personal anxiety pendulum swing to the other extreme and do their level best to convince themselves that Peak Oil is Y2K the re-run (boy who cried wolf and all that). I admit that I prepared VERY seriously for Y2K and when I found out I was WRONG, I drove a rather large truck to a food bank and helped feed a whole lot of people. Then I went on a long vacation. In September, 2001, thanks to 4T, I knew that the Catalyst had arrived and I began to rearrange my personal and professional life. I have a solid job, multiple sources of financial assets and live in a small, very isolated, relatively warm weather city, with a tradition of hard-working, independent-thinking people (no I won't tell you where it is :) I also have a spouse who supports my efforts to secure our life in every way possible. In other words, I put as many of my ducks in a row as I could possibly manage.
While the fixed date (no pun intended) aspect of Y2K could be compared to a frog getting hit by a sledgehammer, I believe Peak Oil is going to be much more like the famous slow-boiling frog experiment. By the time most people realize that they are in serious trouble, I think it's going to be too late for them to do much about it. For Y2K we had the incredible luxury of having a concrete date to prove/disprove our theories.
Peak Oil is NOT Y2K.
I hope the 4th Turning Crisis/Peak Oil finds each of you in a comfortable place, with lots of economic, social and emotional support.
Black Blade (6/20/04; 21:19:17MT - usagold.com msg#: 122289)
**** The End of Cheap Oil ****
Crude oil prices have rebounded within striking distance of new record highs (unadjusted for inflation of course). Still US manufacturers, businesses, and consumers are quaking in their boots as they are becoming aware that prices will not be retreating significantly anytime soon (if ever). Last week there where four major explosions on Iraqi pipelines and attempts to disrupt domestic power generation in that country by foreign terrorists. The President of the Governing Iraqi Council was assassinated on May 17th and there were several attempts on the lives of other Council members since.
This disruption of over 1.5 million bbl/day has been mitigated some by Saudi Arabia's Minister of Petroleum and Mineral Resources Ali I. al-Naim's "jawboning" that his nation's paper reserves (mot known to most outside the Ministry as it's a state secret). The simple fact is that the Middle East has been producing "flat out" (OPEC quota cheating) since reaching "peak-production" over two years ago and rising decline rates. According to the OPEC 10 conference president Purnomo Yusgiantoro, OPEC has been running at 2 million bbl/day over the 25-million bbl/day quota. The same is said of the North Sea and the Caspian Play has been a bust so far in spite of high expectations.
The IEA Paris-based International Energy Agency recently revised their worldwide demand estimates from 77 million bbl/day in 2004 to 80.6 million bbl/day. The first quarter demand from China alone increased 1 million bbl/day according to the IEA May report. The IEA stated that suppliers must increase investment and drilling to secure production for tomorrow.
Cambridge Energy Research Associates claimed, "Global oil demand is not being dampened by these prices primarily because the strong euro (and high tax component on major fuels) is insulating European countries from their effects. And the strongest growth market -- China which has a huge surplus in its balance of payments -- is not materially affected by high dollar-denominated prices because it has the financial reserves to off-set them".
Analyst Douglas-Westwood ltd., Canterbury, England said that depleting oil reserves, coupled with growing energy demand, will result in sustained oil prices near the $40/bbl level with greater investment in Natural Gas. China's rising oil demand will likely continue and has five times the U.S. population and is industrializing rapidly with vehicle demand rising as well (but we already knew that over two years ago). Westwood supply specialist Michael R. Smith added that 52 of 99 producing countries have passed "peak production", 16 are at 'peak production" and the rest are rapidly drawing down resources. Once oil supplies approach peak and scarcity prevails, prices will double within 3-4 years as they did during the shocks of the 1970's.
In the US there are a mere 146 operating refineries with some in the process of closing down due to high maintenance costs and ever-changing environmental regulation impossible for some to maintani profitable margins - even at current prices. There are also several grades of oil specific to certain refineries. As those crude oil supplies deplete so will some of those refineries.
The "real" inflation rate of 12%+ (not the BLS cover-up of 3-4%) is highly dependent on high petroleum prices and the prices of other staples. The higher prices will wipe out the savings of many and devalue the US dollar more and more. Meanwhile, hard assets like Gold and Silver have always been a form of portfolio insurance even as equities and the fiat currencies devalue, the precious metals (an alternative hard currency without government "faith and credit") have always moved higher.
- Black Blade
Buongiorno! (6/21/04; 09:06:29MT - usagold.com msg#: 122293)
*****THE END OF CHEAP OIL*****
"Nothing cures high prices--like high prices."
(What is high? IMO, $4.00 per gallon is still less than our European friends pay, and they get along.)
The shock of higher oil (energy) prices has not yet really hit the average American, IMO. We just put it on the credit card, write a check and go on. Can't be bothered (at this level).
However, give it three months at $3.00 per gallon or more, with no relief in sight, and we will become serious. There could be an easy 10-15% reduction in energy use by just doing common-sense things like combining shopping trips, car pooling, and turning down the heat. Permit "jitney cabs" to operate (An SUV looks great with five persons inside, going to work), and encourage telecommuting. Easy stuff. Price rationing works! Perhaps production companies would find more resources, increasing supply some...perhaps.
Now the hard stuff--Cities will be designed to permit citizens to live close to work. Schools will be down-sized and located within walking distance of most students. Efficient transportation (steel-on-steel) will be stressed. The five car family with motorboat and powered bikes needs to go. Much of this stuff, we just do to ourselves....
The world will realize less relative advantage for cheap labor. Higher shipping costs on that China-made sofa will make it less, though still, competitive. Produce, which needs quick shipment, along with any bulk, low value items may become very much less profitable. (That "victory garden" is looking better!)
"Inflationary Depression" is a tough concept to understand, tougher still to live with. Basically it means that "much of what we must buy is gaining in price, while much of what we own is worth less". Government will neglect many duties except that of printing money--trying to make it all "seem OK".
As our dear mentors, Another, FOA, MK, Black Blade and others have stated--it all gets down to oil and gold and dollars and euros--and a world which will desperately seek a medium which is a store of value, unit of exchange, and means of accounting. Government will, as usual, subsidize energy prices for our benefit--and hammer at the price of gold--BUT NOT FOR LONG!
Lady Liberty (6/21/04; 13:29:50MT - usagold.com msg#: 122311)
**** The End of Cheap Oil ****
"Think gas is expensive now? Just wait. You've heard it before but this time its for real: We're at the beginning of the end of cheap oil."
What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy? For the world economy? What will it mean for gold?
I will put on my rose-colored glasses. The end of cheap oil will translate into increased usage of solar power, wind power, water power, hydrogen fuel cells and the like. We will be hurtled into the future with the wonderful advantageous uses of these "new" technology feats and Earth will get cleaner since oil-related emissions have been cut out. The US Government and the rest of the world (read: developed countries, actually) will have no choice but to embrace a new power, whatever that be, once the oil supply is exhausted. They may be dragged into this kicking and screaming but they'll adopt a new strategy and a new fuel power to exploit yet again.
Camel (6/22/04; 09:31:55MT - usagold.com msg#: 122348)
***** End of Cheap Oil *****
The end of cheap oil is not necessarily something to be feared. Most of us have despaired at seeing the endless lines of traffic more numerous than the buffalo ever were, urbanization devouring the remaining countryside, and solitude only possible for a few.
What would it be like with a President that asked the American people to reduce its population or an environmentally aware Pope urging the large Catholic population of Latin America to curb its birth rate?
Other parts of the world such as China have had population reduction measures for years and Japan's population has started a slow decline .When the Soviet Union imploded in the late 1980's its population growth stalled dramatically and while there was hardship there was not a wide spread die off.
Except for the the huge influx of Middle Eastern minorities growth rates in Europe have been declining for years and the US might well have achieved stability except for so many new immigrants with a high birth rate.
With instantaneous global communication the world will finally stop its runaway growth in a much more rapid rate than any thought possible bringing it down from its current 6 billion to a much smaller number that is sustainable and does nor exhaust the remaining resources so rapidly.Surely the world would then be a better place.
We will see solar collectors on every roof heating our water and golf cart type electric vehicles able to get the equivalent of 200 miles per gallon. The streets will be full of bicycles and we will live a healthier more easy going lifestyle. Food grown in our front yards with water captured from our roofs will supplement what has been lost due to higher costs of fertilizer and transportation We will.live more in harmony with nature as in ages past.Gold will soar in value as all countries borrow and print in a vein attempt to maintain the status quo.
mamoose (6/22/04; 16:40:37MT - usagold.com msg#: 122379)
************The end of cheap oil*************
Firstly, it might be argued that in inflation adjusted numbers, the price of oil has been steadily declining (not-with-standing the recent price surge), however, the title presupposes that the Hubbert's curve is inherently accurate, and total supplies of oil (or oil equivalents, which when I use the word oil, I mean.) will decline. So effectively we are asking what the world will be like when we have much less oil than we now have?
First, let us look at those industries that rely on oil. In fact, directly and indirectly, almost every facet of modern life, with the exception of certain aspects of the less developed areas, relies heavily on energies existence. And a great percentage of energy available today, directly and indirectly, is obtained through oil and oil equivalent use. A few of the greater users of oil/energy are;
1) The transportation industry
2) Chemicals (including Pharmaceuticals, fertilizers, and especially plastics)
3) Metals refining (such as pure copper, pure aluminum, etc., etc.)
4) Any of the large heat users, such as smelters, glass making, concrete making, paper making, home heating, year round food production, etc., etc.
5) Food production and processing.
6) War, domination, and the administration of power.
So, if these industries were to disappear, what would life be like? Two models where energy levels used are way down from present spring to mind. 1) Life in "less developed" countries, in areas where energy per capita use is minimal. 2) Life in the late 1800's.
When you look at both, they are remarkably similar.
When you look at 1890 vs today, some differences immediately jump out. Population density was much less, and the percentage of the population was much more heavily skewed toward food production. When you think about this, it makes a lot of sense. Every great civilization in history was built on the backs of slaves, and this time our slaves were energy and the computer chip. (Not human or animal.) Take away our energy slave, even in part, and conditions must trend back to what they were before we gained that slave, ie, the 1890's, and more reliance on at least animal slaves. Either that or replace the oil based energy slave with something else. While we may be able to do so, it will not happen overnight, since little infrastructure exists for the new thing, and infrastructure building takes time, and other input.
These population shifts have come about over the years, largely because of our enhanced ability to produce and transport food and other items. Population has become more concentrated in the cities, ensconced in hi-rise apartments. Even in the 1930's and 40's, half a century later, nearly every family had a backyard garden. Mini farmers, as it were.
To see the effect, let's assume that oil availability falls to half overnight. Immediately the production and processing of food is going to go way up in price, because surely the price of fuel to do these things is going to go up. In fact, if one considers a loaf of bread, and disregarding the amount of energy included in the production of the grains, the price of a loaf of bread is going to skyrocket because so much of the price of a loaf of bread is made up of the processing and distribution. Surely as well, the price of grains will also skyrocket, further complicating the issue.
Further, the transportation/distribution system is now geared towards "just in time" delivery. And we rely on 'just in time' hugely. Think of mama in her hi-rise apartment. She needs milk for her baby. If milk and other essential commodities have suddenly quadrupled in price, how will she be able to re allocate a sufficient portion of her disposable income toward these basic necessities? And that question does not even consider the questions of 1) food for herself, since she may not even have a balcony on which to grow a garden, 2) the now much less efficient farmer, and his ability to produce, using the same acreage, but augmented by fertilizers and equipment, an equal or greater amount of food product. Nor does it consider that the transportation sector may not be able, at any price, to deliver 'just in time'. (or even at all.)
This too is interwoven into some of the other ills of society.
*The American consumer is tapped out with debt. If mama has to allocate substantially increased percentages of income toward survival, how will she service the astronomical debt that has been accumulated? How will 'en mass' default on a massive scale affect the financial system? How much is pesonal debt now? 8 or 9 TRILLION dollars.
*Will the far flung administration of power by the US government be possible at a distance, or will the several hundred or so foreign armed forces bases scattered around the world have to be closed? How will this affect the administration of power? How will American society cope with a flood of new unemployed workers, whose only training is to hurry up and wait, and how to kill?
*Will the rape of our planet accelerate as survival will take precedence over abstract notions such as ecology, and the now protected wildlife preserves, etc., are opened up for development?
*Will we be able to build the high tech plastic and metal and concrete aids to the better life that increasingly exacting specifications for purer metals, etc., require just to maintain our current population and standards of living?
*And, speaking of AIDS, where will 'the powers that be' find resources to throw at a possible cure for some of the new super and exponentially growing diseases? Or will mankind shrug and go about the process of trying to survive today, leaving whatever does not kill us right away, (just as smokers do.) for someone else to solve? (and the disease expands unchecked.)
*Will the instant services such as information survive? Will enough power to serve a small city be diverted toward some internet farm, or will that energy be judged to be more necessary for other uses, more essential to survival? How will slower or non communication of information affect our ability to cope with increasing problems elsewhere?
*How will the mass of the obese, under achieving, populace react to having it's comfortable life style interrupted, especially those trained to assume that "gummint" has all answers to all problems, (and that if I want something, I need it, and if I need it, and if I cannot obtain it myself, then somebody, preferably the 'gummint', should give it to me.)? Will civil disturbance or even civil war be possible? Just how will the populace react to negative change? If there is civil disturbance, how will this aid in a solution to the various problems facing us?
*Is there any development currently in the works, that promises to be developed enough, easy and cheap enough to install, to take the place of our current infrastructure and reliance on cheap energy? And if so, WHY is it not taking over the energy field by storm now? Yes, we can talk of solar power, and wind power, etc., etc., but what percentage of our current energy needs are currently being met in that manner now? At what cost will development of alternative delivery of energy come?
*Can our system survive if not fed ever increasing amounts of energy, or even the current amount?
All of these potential answers point towards a vastly changing world as we know it. By and large, that change will not be pleasant. Deaths will occur. Our financial and economic system will collapse. What exactly will take its place? My crystal ball is murky.
Historically, mankind has always run towards precious metals as a store of value, and medium of exchange in times of turmoil. Is there any reason to assume they will not again?
mamoose (6/25/04; 07:12:36MT - usagold.com msg#: 122515)
****End of cheap oil**** Codicil to my post # 122379
I am astounded by the generally mild reaction to the looming oil crisis. The price of oil and oil equivalents will indeed rise, but that is because oil is running out. The world supply of oil was finite. Huge, but FINITE. For practical purposes, we are approaching the end of supply. There will indeed be more things like bicycles in use, but that will effectively be not because the choice was voluntary. However, it must be noted that even the supply of bicycles will be somewhat limited, because steel making is a very energy intensive business.
Oil and oil equivalents are interwoven into every aspect of our life. Unlike our financial system crisis, where problems are systemic and could be changed, albeit with great difficulty, much of the worlds current population is fed and clothed courtesy of oil. If we only consider the massive decline in food production that will occur as fertilizer becomes unavailable, there will be no doubt that food production will decline. Given the worlds population, some (many) people will starve. As we consider more factors, such as the farmers abilty to cultivate what is now huge acerages, the future looks worse.
The reaction that "something" will develop in our high tech world is simply wishful thinking. Anything that could develop will take decades to become a fully blown system, and Hubbert, who has made some pretty accurate predictions, says we will hit the steep down part of the curve in 2007. If the world is in crisis, from this or other reasons, we will be unlikely to have neither the will nor the means to quickly develop new technology, even if one is discovered. Even wind and solar generators are very energy intensive to create. Consider the towers for a wind generator. All steel and concrete, both high energy users to manufacture. Even today, in a cheap energy world, that tower is one of the most expensive components of a wind generator.
This does not consider the lubricating properties of petro products that keep the wheels of the world turning. Yes, there are alternatives, such as graphite, also energy intensive to produce.
In fact, for some essentials, for which we used to use things like whale fat, price is almost irrelevant.
Some have dismissed the oil crisis by suggesting such things as coal, grain alcohol, and steam. Most coal production is by now difficult to produce, and ultimately, no matter whether one uses newer techniques such as coal bed methane, or other techniques, the supply is not only smaller than the supply of oil WAS, but has been mined for centuries. Like the oil sands, shales, etc, the supply is again, FINITE. Can you imagine how many mines would have to be producing to generate the some energy that is now used from oil? And how long they would last?
I once did a back of the envelope calculation to determine the amount of oil sands that would have to be mined to produce as much oil as the US IMPORTS annually. Assuming the oil sands are 12 a kilometer deep, (a very liberal estimate,) you would have to mine 19&1/2 square kilometers PER YEAR. And that only considers what the US IMPORTS, not China, or anywhere else.
Steam used to use coal or wood to generate heat. Since we have denuded our forests, that leaves coal, with the problems discussed above.
Alcohol derived from grain will take food producing acres away from food production, discussed above.
We as a species, have been lured into VERY short term thinking. "Humanity does not start bailing the boat till our asses get wet" The time to start acting urgently on the oil question was in the early 70's, at the time of the first oil crisis. We might have been able to stretch our oil supplies out for 100 years then. Now, according to Hubbert, for practical purposes we have at most, 10 years. In the 70's, the neat gas guzzlers like the SUV, 4 wheel drive which never leaves the pavement, were not the style. True some effort was made in that direction. But how long did it last? Only as long as it was fashionable. No concentrated effort was made to do something, just a concentrated effort to pay lip service to doing something. $5-$10 a gallon gas cannot come soon enough to do much to help now.
So, I refer you back to the questions posited in my earlier post, message 122379.
Cometose (6/22/04; 20:31:18MT - usagold.com msg#: 122398)
********the end of cheap oil********
The end of cheap oil is also the end of Freedom because Corporations and Government as we know it ran easily and efficiently .
Because there is so much pressure to stay on top and to manage after bureaucracies get out of control , as in Corporate Life during a recession we will have downsizing.
where Control of the power in Government and maintaining the Status Quo will be paramount with those that are in control that want to stay in control . They will continue taking care of their corporate partners , vote themselves payraises and pass on more legislation limiting the rights of the people while the people go through another depression . A large chunck of the middle class will evaporate. Feudalism will return . This is not the environment where great innovation occurs and inventions spawned. Fearfilled , freedomless , depressed environments may perhaps not be wise places to spawn great innovation....Hope is a prerequisite for incentive to dream and to plan and to invent....Hope is at stake in
the Policy and Current diplomacy vacuum created by
Representatives who think for their personal financial gain first and Corporate associates second before thinking
about TOMORROW's AMERICA and WORLD.....
Great innovation may surface in a cleaner , less noisy ,
environment that will answer today's questions on energy .
I spoke with someone today who has a rich and diverse cultural background . Her ancestors were German Immigrants to Russia at the time of Catherine the Great (George Washington). THey homesteaded in the Ukraine. Prior to WWI since the Germans had been their long enough , the Russians decided to Conscript all these new landowner's sons into Russian military service....The writing was on the wall ....THe family in question left to go visit (with papers) relatives in Germany on the premise they would be returning in six months . They left everything they had established with the shirts on their backs and went to Hamburg ,got on a boat and came to the U S settling in IDAHO. Their first year there was spent living in a CAVE.
History tells us what happened after that with the beginning of WWI. Most of the German men in the UKRAINE were conscripted to fight the Germans in WWI with the Russian ARMY and the rest went to GULAGS. THey pretty much essentially all died.
Jim Rogers says the actions going to be in CHINA , Someone also said that the usually before and during the emergence of new World Economic Power , the GOLD GOES IN THE DIRECTION OF THAT ECONOMY ..Because the environment is necessarily going to be business freindly there and in Geographic areas adjacent to CHINA, that may be where the great innovations of the 21st century come from and areas where that type environment/ atmosphere (forward looking progressive , future oriented ) spawns hope . Big trading partners with China for her Imports in south America may also be areas of innovation and prosperity because or their participation in the events precipitating the birth of a new world absent the new world order.
Toolie (6/22/04; 20:37:57MT - usagold.com msg#: 122399)
**** The End of Cheap Oil ****
What will the end of cheap oil mean as a permanent state of affairs for the U.S. economy?
It will mean different thing to different people. Today's shunned power generation will become tomorrow's gold mine. Renewed opportunity in coal mining. Wind, wave, solar, nuclear power will displace oil and natural gas in heating and cooling of buildings. A Marshall plan will be developed for the re-electrification of America.
Oil and natural gas will be appreciated for the perishable and highly transportable energy that they are.
What will the end of cheap oil mean as a permanent state of affairs for the world economy?
Those nations with a dense population centers will gain a productivity edge as the efficient use of all energy becomes paramount to prosperity.
Copper exporting regions will flourish, as the world becomes more dependent on electricity, look for Ocuec (Organization of Copper exporting countries) in the not too distant future.
As a matter of national security, all major oil producing countries will find it necessary to covertly acquire nuclear weapons.
What will it mean for gold?
The fate of fiat is known. The white-hot printing presses that seek the remaining oil will bring an end to the paper games. Gold takes it rightful place as the money of free trade (sorry Ari).
wehappyfew (6/22/04; 21:08:58MT - usagold.com msg#: 122407)
**** The End of Cheap Oil ****
Cheap oil is not actually cheap. The subsidy of about $300 billion required to militarily defend our access to "cheap" oil means the current full price paid by American taxpayers is about $140/barrel. When this expensive, inefficient and cumbersome system collapses, the dollar price for oil will probably go up, but not by much. For the rest of the world, the price may even go down - for a while at least.
When the last major new discoveries are brought on line in 2008, and demand has recovered somewhat from the deflationary/inflationary recession of 2005-2006, THEN the price will go up for all. It will keep going up until demand is reduced, and agriculturally based subsititues supply enough of our liquid fuel requirements to balance the 5%/yr decline in petroleum after 2010.
The unfortunate side-effect of all this is a substantial decline in available food per capita. Fertilizer shortages, diversion of cropland to biodiesel vegetable oils, and continuing loss of topsoil, phosphates reserves, and groundwater will reverse the Green Revolution. People will die. Global stocks of grain will run out at about the same time as oil peaks (2008-2010) - coincidence? I think not.
Ultimately (by 2050 or so), the price of gold will fall, as a slowly increasing stock of gold is available to a declining population - classic monetary inflation.
otish mountain (6/23/04; 23:52:37MT - usagold.com msg#: 122455)
*****The End Of Cheap Oil*****
What will the end of cheap oil mean as a permanent state of affairs for the US economy? For the world economy? What will it mean for gold?
Firstly to answer the above questions one should first ask why is there an end of cheap oil? Increased demand by nation states, with added supply constraints, resulting in political unrest. Never mind the questionable currency that oil is denominated with. The world is now cresting on peak oil production and increasing demand is causing nations to position for continued and increased supplies.
Oil=Energy. Nations with available cheap abundant energy enjoy "growth" and reap the exuberances that growth provides, as apposed to a static or depressed state. To this extent then one could say that world growth has crested with the peak of oil production.
Optimism is misplaced with the concept that alternate energies will be available with the advancement of new technologies for the future. Denial florishes in our society. Nothing can replace the quality of energy that oil provides us. We live in a finite world with finite resources
and oil (energy) is a finite resource.
"Growth" for the USA and for the world is peaking at this juncture in time. Few realize the implications of this phenomena and the ramifications that await us in the future. Governments will mask the real reason citing a natural economic recession, which will be cured with futher injections of currency (debasement). Growth will be recorded but will be nothing more than inflation of currency. A massive inflationary cycle looms ahead.
The economy of nations will fight a long downward economic spiral. Financial markets will be in turmoil while inflation rules our daily lives for the basic needs we require. Disillusionment for the finacial system,a displaced and redundant work force, wars fought over the remaining resources, and distrust of fiat currencies will force gold to resume its role as the primary tangible king of wealth.
Rocky (6/24/04; 08:42:16MT - usagold.com msg#: 122468)
****The End of Cheap Oil****
Q: What will the end of cheap oil mean as a permanent state of affairs for the United States economy?
A: Oil is a non-renewable resource with a finite limit on availability. That statement alone exposes the fact that oil should never have been cheap. Kenneth Galbraith has argued that Americans now live in an affluent society. Taken literally, abundance means that for every consumer and for all products, demand has figuratively fallen to a low level. As long as the supply pipeline is wide-open, the price remains at whatever levels the consumer can be induced to pay while keeping the consumers wants well satisfied.
Elasticity of demand can be judged simply by looking at the demand curve. Elasticity just means responsiveness. If a cut in price increases sales, demand is highly elastic. Inelastic demand is where the good is sold regardless of price. Obviously this cannot go on forever; prices cannot rise indefinitely without having some effect on sales. Generally, fuel is the least elastic product for the consumer. It ranks below food and is regarded as an absolute necessity by most consumers. Little change in consumption has been noted with regard to the current price increase of gasoline.
Consumers continue to make their choice and will buy oil-based products, consisting of fuel, clothing, plastics, and food, as long as they have the ability to pay. The state of affairs for the American consumer simply becomes a matter of how much each family can budget for their real and perceived necessities. Until the cost becomes so prohibitive that the consumer can no longer justify the expense, the economy will continue to absorb the cost of oil at the expense of other goods. Therefore, the consumer can expect to see a greater portion of their funds expended into heat, electricity, food, gasoline and plastics, which are all a direct product of oil.
Q: What will the end of cheap oil mean as a permanent state of affairs for the world economy?
A: The world economy will, however, become desperate in its search for reasonably priced energy. Goods exported from the United States will dry up as more funds are directed into fuel and oil-based products produced by local energy-using economies outside the United States. In most countries, imported goods are in competition with locally produced goods and the imported goods either have to be perceived as superior in quality or less expensive in order to sell. As US exports subside, the dollar declines in value and as the dollar falls, the supply of dollars will also fall.
International trading and financial relations require a foreign exchange market in which the currency of one country can be converted into that of another. A country's foreign transactions are summarized in its balance of payments. Deficits in a country's balance of payments are met by transfers of gold or other reserve assets. If the country has too large a deficit, the central bank must intervene and raise interest rates thus dropping the value of the dollar. Revaluation of major world currencies relative to the dollar also de-emphasizes the dollar.
The paper dollars have, in the past, provided about three quarters of the increase in world reserves. Gold has always been considered an international reserve for currency transactions. This national asset is dwindling and this means that the United States is obliged to run a balance of payment deficit. As the deficit increases, the value of the paper dollar declines even more. The result to the world economic community is that higher oil prices will reduce the value of the dollar and will force economic hardships on all countries, excepting the oil producing states.
Q: What will the end of cheap oil mean as a permanent state of affairs for gold?
A: Based upon the decline in value of the US dollar and the impact on international trade due to greatly increased costs of oil products, the end result is that gold will rise well above its current level of valuation, quite likely reaching the $500 level in the near future.
7nomads (6/24/04; 09:56:49MT - usagold.com msg#: 122470)
**********End of Cheap Oil*************
The end of cheap oil.
Supply and Demand
Demand is increasing to some 80 million barrels a day. The U.S. is importing some 65% of its oil. China has increasing demand. That's all bad for cheap oil, but the worst is that even at best supply is not growing. Most likely oil supply will continue to decrease, as major finds of oil reserves are non-existent.
Discounted Oil prices by discounted Gold prices -- no more.
Those who have read "The Gold Trail" at USAGold understand the link between European Gold Sales and cheap oil. These days are drawing to an end. Even Germany is back peddling on their commitment to these sales.
Decline of the Dollar in value -- rise in quantity
Two major event are yet to occur, but soon will. The first is China's yuan will be revalued, most likely in stages, by 50%. The second is the East's refusal to continue to subsidize America's debt and high standard of living.
Displacement of the Dollar
This process has already begun with Russia dealing with Europe in Euros, Japan and China dealing directly, and the Gold dinar coming into use. Oil will sell against a basket of currencies.
Iraq-mire and other forms of Russian roulette.
Beyond the good intentions of our leadership and the noble efforts of our troops and their commanders, the reality hasn't measure up to the promises. I guess one could say that the oil brought out of Iraq has cost billions of dollars, hundreds of American lives, and thousands of Iraqi ones.
I figured we have pulled the trigger three times. The first, the invasion, the second was the destruction of Muslim holy places, and the third the abuse on Iraqis by a few of our soldiers. The last one will be when we refuse to bring our troops home.
Perhaps expert analysists could learn a few things from the words of Bob Dylan. "Democracy don't rule this world, this world is run by violence, but I guess that's better left unsaid."
For free a few predictions of global adjustment to the end of cheap oil. Europe will keep on going as the Euro increases in value and their taxes can always be reduced to keep petrol about the same. Japan will deal directly with Russia. China will revalue their currency or go back to the bicycle. America will pay up, the tap is dry and the tab is due, party over, it was fun while it lasted.
Rimh (6/24/04; 10:43:12MT - usagold.com msg#: 122474)
******* The End of Cheap Oil *******
The latest price jumps in the price of crude oil (or more specifically, big gasoline and diesel price jumps at the pump) has forced a great many to dust off their crystal balls to try and see the future.
While we can't see to what heights oil may reach, I can only say, bring it on. For years we have been lulled into a state of malaise due to "cheap oil". This slumbering has driven our oil exploration activity to all time lows, attempts at real conservation minimal, and our desire to use renewable resources, like ground heat, solar and wind energy, on the "back burner". Cudos to those scientists and industrialists who have persisted in developing new technologies for alternate energy when there has been little incentive to do so!
The free market will be the great balancer of oil price, consumption levels and the ripple down effects in the economy. As the price rises it will be matched, at some point, by curtailing of consumption, more efficient equipment and switching to alternate energy sources whose technologies are now better and cheaper.
The evolution of world energy systems will probably be years to decades in the making, and not without a certain level of pain. Our world has been geared for so long to the use of oil and its "abundance" that to shift gears will be very difficult. It will take a whole new mindset, born of necessity. Economies will suffer setbacks and we the people in the street will have to adapt, each in our own situation, to "The End of Cheap Oil".
SteveH (6/24/04; 14:16:11MT - usagold.com msg#: 122485)
******* The End of Cheap Oil *******
Unlike the heart, which allows the owner to exercise to slow the long-term rate down, the heartbeat of the World's oil demand can not be exercised to slow down its consumption, because the corpus demands nothing but more beats -- this despite its inability to keep up. A beat or two now, will be a beat or two lost from the end-of-life as it now more quickly approaches.
CoBra(too) (6/24/04; 15:07:27MT - usagold.com msg#: 122488)
*** End of Cheap Oil ***
Definetely! - Not that it's expensive in real and constant Dollars. Huh, did I say real dollars? - There's nothing real about dollars anymore - at least since 1971 - and it was only 2 years later that we've experienced the first of two major oil crises.
The future of energy is going to be "dirty" - as coal is making a big comeback. The SE-Asian economic progress is taking its toll on energy consumption. While the West's consumption is somewhat stagnant the SE-Asian (and Africa) energy demand is going through the roof, growing at more than 7% annually.
According to a symposium of IEA (Int'l. Energy Agency), BP and Exxon, just wrapped up in Vienna, the world oil reserves have kept pace with demand and consumption since the 70's of the last century - and are still adequate for another 40 years. Wow, kind'a lovely as the above experts have come to the conclusion that since the 1980's oil reserves have doubled to 1.2 Trillion bbls!
Tsk, I personally wonder what kind of technological miracle has pulled this hedonic rabbit out of the Stetson.
Even extrapolating, for instance China's insatiable hunger for new cars - now 25 million and expected to grow to 125 million in 10 to 15 more years. - That's not really the problem, as China and the rest of SE-Asia will produce all and everything and will not stop to use whatever energy, raw meterial and commodity they may be able to lay their hands on. Just look at todays statistics of the Chinese consumption of basic commodities...
... And yes it's going to become dirty! As the EU was at least trying to subsidize alternate and renewable energy sources, the rest of the globe doesn't even give a thought to destroying their seed, uh base! The Chinese can't even care less to make headway to prosperity ... and forget TAO!
Looks like we're creamed in the West - even gold is set to go towards the real productivity - the producers of real goods - as in contrast to Greenspan's productivity miracle of a hedonic and solely financially based debt bubblemania!
Anyway, I'm wondering why gold and as it's less rich man's proxy is still trading way below any equilibrium of its real worth? As we all know this phantasy world is drawing near its end, it might be prudent to protect yourself with some real substance and some "deep storage" for leverage -and I'm talking of firewood, of course (Aspen,Col. has pretty stringent rules as to when you can fire up your coals).
Now, we got coal, Oil and Gas, Nuclear, Water and wind and sun power - and the first three polluters make up anbout 95% of the total. 30 years ago we thought about alternates and forgot, or didn't really care or whatever! Now we're back to the same issue. The only response was to occupy the # 2 oil country as a base to control ... the uncontrollable ...
Go dirty and use coal, tar sands, shale, nukes and bovine gases ... love my steaks rare - cb2
Henri (6/24/04; 16:35:05MT - usagold.com msg#: 122492)
*******The End of Cheap Oil*********
The US dollar global reserve status depended upon a stable currency and the continuing flow of oil to world markets. Another has pointed out that recently (5-10 years) maintenance of this status also depended upon a continuing and increasing flow of gold to ME oil interests. Increasing as the finite nature of the resource when matched to the global growth engine indicates a rapidly dwindling supply of that which no one works to create but everyone wants. In short, a natural resource.
In order to accommodate this increased flow of gold and still maintain a stable currency, agents of US govt interests and others interested in global financial stability have not only colluded in the increase of the daily volume of the London bullion market beyond supply potential, but have also corrupted the other paper gold markets and nearly driven some major goldminers into receivership with tempting forward sales perhaps ultimately destined for the ME interests.
It only stands to reason that these stop gap measures were instituted (institutionalized) presumably only to buy time while other global change initiatives came to fruition. Isn't it just fitting that meddling with such sensitive matters sometimes is like walking through a minefield without a mine detector. Obviously the thing that needed to be accomplished is the deposement of those insisting on gold for payment and replacing them with fellows of a more accommodating nature.
Keeping the ME in political turmoil presumably served a purpose. A recurrent theme being containment of rumored new supply (Caspian sea/Russian oil/gas) to southeast asian markets that bypasses the Persian gulf (through Afganistan/Pakistan pipeline) as a bargaining chip to keep the ME interests in line while simultaneously arranging for their deposement. The supply of arms to Saudi insurgents in Afganistan (Osama) to prevent Russia from capitalizing on the bypass served the muslim cause as well. Keep the ME interests on the receiving end of global largess and befuddle the others (Col/Ven) with insurrection so that their economic bases are always considered weak and undependable. Was Saudi money at work here as well?
They even almost suceeded in instigating a "limited nuclear exchange" between India and Pakistan for urban renwal purposes and clearing the way for the bypass to reach the sea without all those troubling population displacement issues. Thank God that India is basically a peace loving group full of admirable restraint.
Then Russia became a partner after a brief fling at going it alone. Russia and European partners in pipeline prevents the alternative China/Russia partnership in pipeline. And these things too shall come to pass and alleviate the strain of unconstrained ME turmoil. To topple the House of Saud from within a prime objective to the release of accumulated gold to those who will harbor the fugitives, one can only be acting in a very friendly manner while plunging in the dagger.
On the global front, pressure of the financial partners to remove the unbalanced circumstance of cheap oil for the US and all others debase the buck at their own peril leads to an accommodation of a new kid on the block (Euro) to absorb the backlash of financial destabilization. A controlled slide that brings overindulgent US economy back into fiscal reality with a lower buck. Lower buck stimulates the rebuilding of the American manufacturing base and with time the flow of gold back toward US shores. Meanwhile maintaining the illusion that the US still holds 8000 tonnes, is paramount to smooth transition of financial shenanigans into a whole new game. This one has been over for awhileif they are lucky, no one will notice when the new game begins and who got onboard first.
The end of cheap oil? You betcha! But only from a perspective of global harmonization and equilibration of the cost of oil amongst competitors by agreement.
Caradoc (6/25/04; 04:57:09MT - usagold.com msg#: 122511)
****The End of Cheap Oil****
Since corporations and governments are staffed by human beings, it's no surprise that corporate and governmental decisions are marked by the same shortsightedness that we've been warned of ever since Aesop told the tale of the grasshopper and the ant; i.e., tactical decisions for the near term rather than strategic decisions for the long term. True, some Asian corporations try to look five years into the future and certain European governments require new construction to include energy-related features that just don't pencil out at current energy prices, but those two cases are exceptions to the rule that decisions are made based upon the next quarterly statement and the most recent poll or -- in the best case -- the current fiscal year and the next election.
Faced with a tightening of oil supply (only "the beginning of the end of cheap oil"), one might hope that the US government would invest 3 or 4 years and a few tens of billions of dollars in cash or tax incentives on strategic effort to reduce/eliminate dependence on foreign energy sources:
* most importantly, establish sufficient grain production and distillery capability to be able to use alcohol rather than gasoline for our internal combustion engines. (Most people don't know that when US forces took the Phillipines during WWII, all those barrels of aviation fuel and truck fuel left behind by the Japanese were of no use because our engines ran on fuel produced by Standard Oil rather than by farmers.)
* distributed across agricultural areas, set up facilities for anaerobic composting of crop residues and manure. These produce methane (CH4), the active ingredient of natural gas and 88 to 90% of its volume. In addition to its use in heating homes and generating electricity, natural gas can also be compressed and used to fuel our vehicles.
* again distributed but across desert areas, set up photovoltaic facilities to tap solar energy with the electricity used directly or to electrolyze water into oxygen and hydrogen. High tech version would be two-pronged: (1) on-orbit facilities with power beamed to receiving antennas in those same desert areas and (2) with expensive solar panels at 16% efficiency and super expensive ones approaching 20%, we'd implement a Manhatten style project to put our best and brightest at work coming up with a cheap photovoltaic film of maybe 3 or 4% efficiency that could be squeegeed onto flat surfaces across thousands of acres of sunlit desert.
* possibly pursue similar efforts to tap wind, geothermal, and tidal energy sources.
These efforts would lead toward a future where a world population measured in billions comes to adopt the Western mindset that light comes from flipping a switch, drinking water comes from twisting a faucet tap, and to go faster you just push down on the pedal. They might even lead to a future where a kid born in Iowa could hope to go where no man has gone before.
But gasoline packs more BTUs per cubic inch than any of the alternatives so even if/when oil goes to $100 per barrel none of these efforts can show a profit this quarter or this year or even before the next election. What's worse, they don't fit with the unspoken assumption that what's good for the "awl bidness" is good for the USA. So, instead of those tens of billions being strategically invested over the next few years we got a short term tactical decision based on what's good for the oil business. With Saudia Arabia (the #1 oil source) already on board as one of the best friends that money can buy, with the Taliban unwilling to have a new pipeline across Afghanistan, and with Saddam (the #2 oil source) threatening to price oil in Euros rather than dollars, we chose to spend a year (2003) and $84 billion to assure "the free flow of oil at market prices." Which also assures that Japan, Germany, and other non- oil producers will continue to have to swap their currency for dollars in order to buy oil. It turns out that pursuing the free flow of oil takes more than a year and a lot more than $84 billion even though no oil flows from Iraq and even though Saudi pipelines are now under attack, but there's no indication of reversing course no matter who resides at 1600 Pennsylvania Avenue.
Cheap oil means cheap food. As gasoline and diesel fuel pass four or five dollars per gallon (and gold passes $1,500 per ounce), the biggest change in North America will be that wholesale food markets in urban areas will no longer see trucks arriving with loads of vegetables from California, fruit from Chile, or wine and cheese from Europe. In the first place, fertilizers and pesticides are oil based so food will no longer be cheap even at the source. And whether paying the freight for a ship from South America or a truck from California, our current food sources will become prohibitively expensive compared to eating what grows within several miles of your kitchen.
Cheap oil also means cheap heat and cheap transportation. When North Americans can no longer afford to heat their atrium-entried McMansions or commute from suburbia to their urban jobs, we'll see a initial period of workers sleeping in the parking lot and commuting once a week to join their families in huddling around the woodburning stove they installed in the family room after putting up plastic sheeting to separate that area from the rest of their unheated house. During this initial period, when it gets warm they'll be planting vegetables in the back yard and hoping their drafted son lives to come back from Venezuela. Depending on how long it takes for them to realize that the pension they've thought they were earning is imaginary (or will be so diluted by inflation as to be meaningless), they may or may not harvest that first backyard crop before they quit going to work and simply begin trying to survive. The words "social disorder" don't begin to describe what life will be like as gold goes from two or three thousand dollars per ounce to being recognized as a store of value not to be measured in dollars.
When the dust settles (maybe two years after what's left of US central government gives up on pursuing what's good for the "awl bidness"), the North American economy will be the same as the rest of the world:
* local populations using mostly local resources
* worldwide population the same as in 1850 plus however many more can be supported by the extent to which local populations succeed in (a) recreating the age of the coal-fired steam engine and (b) establishing alternative renewable energy resources
* an ounce of gold approximates the annual wage of a skilled worker.
PS: Perhaps going beyond the essay contest, I'll admit the above paints a glum picture. But note that it's the outcome of shortsighted decisions made by organizations, both corporate and governmental. At the level of the individual, there's nothing to prohibit each of us from heeding the lesson Aesop taught more than two thousand years ago. Be an ant rather than a grasshopper. Instead of doing what feels good today, do what's smart for tomorrow. Put away some food for the coming economic "winter." Learn some useful skills and acquire the tools to go with them. Consider moving to an area where your new neighbors will already have such skills. With less than one ounce of gold per person on the planet, buy a few ounces of real wealth instead of that plasma television. Finally, if you like flush plumbing, look into having a couple solar panels and a 24-volt pump in your well.
Remarx (6/25/04; 06:27:31MT - usagold.com msg#: 122513)
****** End of Cheap Oil *****
In contrast to many who learned of Peak Oil from BlackBlade in this forum, I am indebted to him for introducing me to the concept of Gold Ownership in a petroleum markets discussion forum!
There is an urgency to the "what will happen" questions set for this essay. The more people that come to understand the questions, and the sooner they reach their realizations, the lesser the impact of Peak Oil might be on the US and global economies, and on the subsequent use and price of gold. Yet, without some basic agreement on direction and lacking trustworthy leadership, our collective realizations will be worthless.
So, what will be the extent of the impacts? It is tempting to think of worst, middle and best possible cases, but I find it difficult to construct a plausible middle case.
The worst case scenario, of course, is one of total economic and political collapse. As Joseph Tainter illustrates in his book "The Collapse of Complex Societies", the reasons for collapse historically have centered around declining marginal returns on investment of energy due to loss of a key resource that has been used to build a society in the first place. This is true for oil in our culture, as was arable land for some cultures of the past.
Civilizations bloom and die, starting out slowly, then growing along an exponential path, much as ever widening generations of microorganisms do within a petri-dish. When the medium for growth is consumed, they begin to die off.
The insidious nature of exponential growth is described best by the Club of Rome in "Limits to Growth" and "Beyond the Limits to Growth". Simply put, exponential growth means increasingly faster doublings in value. The example of a pond filling with lily pads daily, doubling each day, is a good analogy. On the day before the last doubling, the pond seems only half full! As these doublings occur with respect to environmental decay, financial decline, energy depletion and political disorder, they go similarly unnoticed until it is too late. The massive last doubling of debt, for example, seems to be happening now without much mainstream attention. On Wall Street and in real estate, market signals will be too late; too many people have failed to notice the bubbles. Many still believe that global warming is nonexistent or harmless, yet its curve is definitely exponential. Most do not realize that world grain production peaked in the late 1990's. And so on, literally ad nauseum.
What will make the case the worst is the interrelations between the exponential curves of all the global variables affecting our lives. Maxing out in some areas will exacerbate the problems in others. Having large national debts, for example, will make it even more difficult to bring alternative energies on line after oil has peaked. Having already added substantially to the greenhouse gases, it will be harder to use coal as a temporary alternative without triggering significant environmental problems.
What makes the worst case likely is the fact that US culture, and much of the rest of the world, embraces wholeheartedly the idea that growth is somehow both good and necessary. Local town council members, nationalist neocons and global neoliberals all agree on that one point. Yet it is our economic growth that is largely responsible for the exponential growth curves of many of the other variables, especially the production and consumption of oil.
It is relatively straightforward to spell out the general worst case scenario based on the numerous historical examples in Tainter's book. We can foretell some of the specific impacts on the US and global economies by taking a look at 20th century experimentation with fiat currencies. People of all ilks write about "the coming fall" in websites around the net: global dieoff of about two thirds of the world's population over a couple of decades due to the lack of hydrocarbon-derived nitrogen for crops; economic catastrophe in the US due initially to hyperinflation induced by the high cost of the oil, then deflation and a subsequent Greater Depression due to the fact that trade nearly ceases because the oil lubricating its economic engine runs low; domino economic catastrophe in developed countries around the globe, which have become dependent on the consumption in the US; personal security and national sovereignty jeopardized by the powerful seeking to hoard the remaining energy resources. Add to this the complications of dealing with global warming and pollution effects, stir well and simmer.
In such a scenario, the US economy might never recover and the global Depression would be broad and deep, an inverse of the preceding run upward. China and Japan, dependent on mass production for the US consumer, will likely decline along with the US. Other countries not as strongly addicted to oil might fare better than the US in the long run. Euroland, which has been investing heavily in alternative energy research and deployment, and which does not have staggering debts, may look to be the source of stability in the future. For the duration, gold would have a good chance of becoming a safe global currency, if the Euro does not take the seat first. Although in deflationary times currency is held most dear in the hope that it will continue to gain in value, fiat currencies may lose all credibility, and it may be gold that is held in trust.
To my mind, the only possibility for a best case scenario would be one in which all the economic preconceptions and habits we have accumulated are simply thrown away - one in which we apply our ingenuity to rethinking our historically competitive approach to survival and prosperity. Although the physical limits of oil cannot be ignored, our perceived economic limits are self-imposed relics of our socio-economic heritage. By throwing them away and starting fresh --by discarding the worship of growth in particular-- we may create a way out where none now exists.
The best case scenario would be one in which people come to understand very soon the insatiable appetite of the market economy engine and the flaws in the concept of infinite economic expansion. They may ask why oil was consumed with such speed in the first place and wonder what alternatives might exist to the consumption/production growth engine. Looking back over a couple of centuries of industrialization and ever increasing efficiency in exploiting resources, people could come to value stability, sustainability and social justice over and above acquisition and control. Looking forward to the predicted growth in China and India, they may see a frightening parallel, with all those new consumers vying for limited resources.
People might come to appreciate slower paced use and re-use of the Earth's resources and the benefits of not exploiting other humans as resources. They may see that corporations should not be treated like individual people with rights, but as powerful collective entities that have responsibilities and that must be kept on short leashes.
People might choose something like the "Powerdown" approach to long-term survival suggested by Richard Heinberg. Or perhaps something more akin to E. F. Schumacher's "Small is Beautiful" plan for a world of small sustainable communities. They could physically reorganize their communities to minimize work commutes, maximize the use of mass transit, incorporate natural areas in urban planning, and make their environs more healthy. They might see that corporations should serve people, that they are now really de facto small totalitarian governments that should and could be run democratically. They might choose to learn how to work together toward common goals in a Participatory Economy (see ParEcon.org), rather than with the failed 'each-for-whatever-he-can-acquire-for-his-own-good' model.
In such a scenario, the meaning of the term "economy" would be wholly different. The metric for economic health would be based on the wellbeing achieved for all of its people rather than on their level of consumption, or the power and control it brings to the very few at the top. Quantitative numeric measurements such as GDP would be irrelevant. The price of gold would be irrelevant, and holding gold would be obsolete. The US economy could be a self-sustaining role model for the world, without a need to reach out and control it. It could withdraw its military bases from the 3/4 of the countries in the world in which they are located, transforming its military-industrial economy into a positive socio-economic force.
The worst case is nearly inevitable to my mind; it will occur if radical and enduring cultural and economic changes are not made soon.
The best case is a Utopian fantasy, constructed here along the lines of John Lennon's anarchist lyrics to "Imagine", but one which I hope will continue to be articulated by as many people as possible, each in their own way contributing toward a view of a better, possible, post-hydrocarbon world.
Although I remain vaguely hopeful, I am pragmatic. That is why I own physical gold and silver.
Clink! (6/25/04; 09:48:51MT - usagold.com msg#: 122521)
**** The end of cheap oil ****
Oh ! The superb essays that have been written for this competition -- by far the best in my opinion. I almost copped out by writing a haiku in protest at the long prose which I am attempting to compete with, but pride (and total lack of skill in the art) wouldn't let me.
It's very easy to be gloomy about what is going to happen when things change, and this has always been the case. (Even nostalgia isn't what it used to be !) Fear of the unknown has always been a major motivating factor in human existence, and for good reason -- it's a fundamental survival mechanism. It takes a lot more courage, faith or blind ignorance to embrace Schumpeter's creative destruction -- constant change is here to stay, and with the end of the Age of Oil, there are going to be major changes.
What effect is the end of cheap oil going to have ? Well, why not see how life is different in a place where oil is much more expensive? I spent my summer vacation in France this year. In Paris, we were pleasantly surprised at the ease with which we could seamlessly change from underground, to bus to suburban railway (all with the same ticket) to get within a few hundred yards of wherever we needed to get to. And then we walked. Regular gas is around E1.10/l, so about $5.30/gal. Expensive enough for you ? I rented a typical family vehicle, a Renault Scenic, which is a roomy five-seater which took Mrs Clink! And the two Clinkets plus our luggage for two weeks. While it was not as roomy as our Chrysler Voyager back home, there were no complaints about lack of space. The big difference is that it was powered by a 1.5l diesel engine with a manual gearbox. Not only did this give it (much) more performance than our Chrysler with an engine of over twice the capacity, but in the 500km (310mi) which we covered, it consumed only 35l of fuel. Diesel is only E0.90/l, so the trip cost me about $38. The same trip in the US (18mpg and $1.95/gal) would have cost me around $34.
So what does this tell us ?
1/ When individual transportation gets to be too difficult, cities are forced by their inhabitants to do something about it. In the US, this resulted in things like Boston's Big Dig, but future proposals are more likely to be along the lines (no pun intended) of Florida's constitutional amendment to instigate a new rail system.
2/ People will always choose cheaper alternatives. Don't absolutely need a 7-seater when you only have 4 or 5 in the family ? Get a 5-seater. If diesel is cheaper than gas, use diesel. Don't need to support your flagging manhood with a 5.3l V8 throbbing in front of you ? A little diesel gets you from traffic light to traffic light in exactly the same time. Is motoring more expensive in Europe than the US ? Only marginally.
3/ Industry will supply whatever they can sell at a profit. The best example of this is the smart, a two-seater car which is about the size and shape of a golf cart (here the similarity stops, because these babies have a top speed of over 80mph !!) . It is not cheap at around , but its dual selling features of park-ability and fuel consumption of 36mpg (US) urban and 56mpg(US) highway are allowing it to make significant headway in the marketplace. Never in the US, say ?! Think again. The parent corporation, Daimler-Chrysler, is bringing it to these shores in 2006. We at this forum are not the only ones to realize that cheap oil is a thing of the past.
I have concentrated on personal transport here, but there are significantly more energy efficient units available of virtually anything you care to mention. A case in point : my pool pump broke after only seven years of service. I went to the supply shop and bought a replacement for about $120. I talked with the sales assistant, lamenting what I thought was an appallingly short life span for a big hefty item like that. He said that they used to stock another, premium range from the same manufacturer too, which would usually last about 20 years. Their increased life was greatly due to the significantly lower operating temperature occasioned by their higher efficiency. "Great!", I said, "where can I get one ?" "Er, I don't know. Maybe we could order one for you. The trouble was that no-one would pay the extra, so we don't stock them anymore."
This attitude of looking at the sticker price, and to heck with the running costs and replacement costs is going to change. Another lesson from Europe -- it is very difficult to buy really cheap stuff which only lasts a couple of years before having to be replaced (again). Look for this attitude to become more widespread over this side of the Atlantic soon. This may not be so negative for what remains of the US manufacturing industry, as the increasing cost of shipping a cheaply-built, marginal-quality item from China may no longer be able to compete with a better-quality locally-built item.
Lastly, I don't want to be too flippant because it's not a laughing matter, but can you think of anything better that could happen than a limited food supply to a country where 30% of the adult population is obese ?!
Gold is (06/25/04; 12:01:18MT - usagold.com msg#: 122526)
****The End of Cheap Oil****
What does it mean fo U.S economy, world economy and gold. I believe more expensive oil will certainly increase the value of gold, most likely to levels I have difficulty comprehending.
The U.S economy is alredy begining to crumble, more expensive oil should help exellerate this process. Certainly the U.S. domination of the world economy will come to an end, at least as we know it. The world economy will have to undergo huge changes as the wealthiest nations, economies compete more and more ruthlessly for the remaining supplies of oil that we have built the devoloped world with. In the end of our current oil culture this world will undergo many changes. Many will be difficult, some will be for the better. This oil culture we have built may well go down as one of the greatest human dissasters of all time. Get some gold, times are changing. Gold is
Steve22 (06/25/04; 14:29:38MT - usagold.com msg#: 122542)
***The End of Cheap Oil*** EDIT
- I am praying that this is admissable - I did not proof read enough last night -
Part I -- Introduction
In this essay, we will examine the effect of the end of cheap Oil on the world's
economic and political relationships through the lens of Scientific (which includes the often overlooked Political Economics) Economics. I am substituting the word "Scientific" for the word "Austrian", because the Austrian theory of interest rates is the scientific study of the historically perfect record of bust following boom in the credit cycle. This essay will show how the US Dollar Financial System, i.e. Petrol-Dollar based expansion of credit, has resulted in the US Military-Consumer Complex being the engine of economic expansion for the world economy. During the crash phase of the Dollar-Economy Gold will be will be shown to be a rapidly appreciating asset; then, all will depreciate relative to oil -- even hard money.
Say the words "hard money" in conjunction with economics and it immediately conjures up visions of scientifically minded Economists quoting Thomas Jefferson on the ills of banking,
"I believe that banking institutions are more dangerous to our liberties than standing armies. Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power should be taken from the banks and restored to the people to whom it properly belongs." -T.J.
The main principle behind Scientific Economics (and the source of Jefferson's dire warning) is that the extension of credit via fractional lending results in two distinct periods of property reallocation -- boom and bust. Modern economic debate has been dominated by the Keynesian inflationary paradigm. The Scientistific perspective is pushed to the side in favor or elementary rationalizations.
In fact, Scientific Economics has been right all along, but the gigantic mal-investment known as the world economy, built around the extension of credit from and subsequently back to the US have gone on so long that even some Science minded thinkers fail to see the world as it exists before them. After reading this essay, I hope to make Keynesians question their very existence, and anyone on the fence about Scientific Economic Principles smack their head and go, "Where did I get the gall to question the scientific method?" I think that most Economic-Scientists already know much of this but to see it worded in a more specific manner will be illuminating.
Part II -- The World Oil Trade As We Know It
The functioning of the world economy today is built on Dollar volume expansion (with US Dollar debt growth as its corollary), and energy reserve growth. A cessation of reserve growth would destroy the growth based monetary system and thus the world economy as we know it. To understand the structural undervaluing of Gold, let's look at the historical forces going up against Gold in terms of the structure of the monetary system.
Immediately after the Second World War an agreement at Bretton Woods (hence it's namesake) was made to agree to transact international Oil payments in Dollars. This gave the USA the privilege to print money in return for oil. It was not as simple as this, however, because the Dollar was still officially tied to Gold. For 35 Dollars a foreign Central Bank (but not a US citizen) could buy an ounce of Gold from the USA. The result of this was that a country could either maintain a negative trade balance with the USA (positive Dollar flow to them) or they could sell Gold for 35 Dollars to pay for Oil.
In 1971, Nixon announced that Dollar clams on Gold would not be redeemed anymore -- at any price! This admission of Dollar bankruptcy could have caused major Oil producing nations in the Middle East to bid on Oil for Gold directly thus ruining the Dollar and the world economy, but they didn't. Why? Because they knew this: when faced with the options of life and death for the quintessential Dollar and by extension the United States' World Empire, the choice would have been for the USA to secure fields physically. The vast majority of military interventions by the US since World War II have been to secure the flow of Oil. It is no secret. Iraq was one such digresser -- Saddam's decision to shift into Euros was literally the first warning shot of World War III. Some already know this but are afraid to say it.
So, the US Dollar Monopoly finances current consumption while the Energy Reserves of the world function as backing for the US Dollar system. This is common knowledge, but the parallel and mirror-like Gold system behind it is not as well understood. We will examine this in a moment. First an analogy,
-The world, particularly Saudi Arabia, is to saving as the US is to consuming.-
What does this mean? It means that Saudi Arabia is like the biggest of the banks -- with the World's Energy as its reserves and the best Gold price as its reward -- It is the best single representative of the World Energy Bank that the US draws on because it is in the highest political position among the Oil-Banks. It achieves this power because it has fully One-Quarter of the known Oil reserves in the world. Tellingly, Saudi Arabia is one of the few countries in the world with no US military presence whatsoever.
In addition to the political evidence of the Saudi's position as pick of the litter, let us consider the monetary evidence.
The Bank of International Settlements is the "Central Bank's Bank". Their purpose is to facilitate transactions of reserves between Central Banks. Gold is a part of Bank Reserves, in fact, as the only "true" money; the B.I.S.'s most important function is to manage the exchange of monetary Gold. The only Middle Eastern Oil-Producing nation that is a member of the B.I.S. is Saudi Arabia.
This suggests that they are the only Middle Eastern Oil Producing Nation that is in a political position to demand the most Gold in return for their Oil. The remaining Oil States would have to settle for lower prices. Part of the effectiveness of the overall system comes from the fact that in order to buy in bulk quantities, i.e. any portion of market available (monetary) Gold; they would have to buy from the main holders, the Central Banks. The choice then for an Oil State (besides one in a politically convenient position -- like Saudi Arabia) would be either to accept the Dollar Standard and whatever Gold they could get from the Military-Industrial Complex, or to risk the use of force. -- If an Oil State had sought receive direct payment in Gold or another Currency it would risk being taken over by the United States. Iraq was the first to break rank and shift to the Euro, in 2002.
Let us backtrack for a moment in regards to the specific effects of pricing Oil in a certain currency. Remember, whichever country's currency prices oil is the currency that all other currencies must "chase". In 1944, the Bretton Woods Agreement gave this power to the US Dollar, and since then all other countries have needed to accumulate US dollars in order to buy Oil and to protect from current attacks.
Every Country in the world has a Central Bank and every Central Bank holds Dollars as the bulk of their reserves. What it boils down to is that the US got the privilege of sending Dollars abroad and the rest of the world sends us back whatever they are good at making. I only mention that last part because it's the type of thing that becomes easy to see in everyday life once you know what to look for. The US Consumer is it and it is the US Consumer.
The US-Oil Dollar Monopoly as the Energy-Credit Distribution System to the world has resulted in the economic structure of the non-Dollar printing countries to be that of Dollar acquisition to gain energy for growth. The demand that the Dollar created caused proportionally larger and larger investments in production capacity geared toward satisfying US Military/Consumer demands.
The evidence of this is not hard to find. For example, the two hundred and forty million people that inhabit the economic architecture of the USA consume 95% of the world's resources, including 40% (!!!) of the world's daily Oil production. In return, the USA exports paper at the point of a gun. (True, we are one of the few net exporters of food in the world, but this is not statistically significant.)
Part III -- Scientific Theory of the Future of the World Economy
Let us now examine the world economy more thoroughly by shining our light through the lens of Scientific (Austrian) Economics. Let us apply its main principle - otherwise known as the Monetary Theory of the Trade Cycle. The Monetary Theory of the Trade Cycle states that overinvestment in capital goods results in overcapacity which causes prices to fall, which depresses profits. The economy must painfully restructure itself in a liquidation phase to better reflect the true nature of demand in a country or on a globe.
The world economy as based around the US consumer is shown by the gargantuan structural trade deficits that the US runs with the world. This shows that the US economy is specifically the consumer, or debtor portion of the world mal-investment. The flip side of this coin is the rest of the creditor-producer world who in total make up the mal-investments known as the World-Economy.
In other words, the entire world economy is in for a crash with the US economy attempting to restructure toward actually making things, and the world economy towards satisfying new, different, non-US demand. Also, the restructuring that is necessary is not a simple trade deficit -- it is worse than that. The structure of a country's economy is based largely on their relationships to the big power, the Dollar. Since the new countries will definitely seek to restructure around hard money -- likely in a rapidly destabilizing situation -- gold will fare very well.
Gold is one of the currencies that the dollar will be competing with; and some venture to say that is the only real currency. Others, including the renowned J.P. Morgan, simply refer to it as money. Part III is a re-examination of Gold's past and is necessary before we proceed in the discussion. After we are certain of its past we can understand its true nature and therefore its eventual fate in terms of its relationship to Oil.
Part IV -- Gold's Past
As mentioned previously, the US dollar began pricing Oil immediately following World War II. Foreigners receiving US dollars in payment for Oil could redeem 35 Dollars for one ounce of Gold until 1971. In 1971, Nixon announced that the US government would no longer be selling Gold for 35 dollars an ounce. Therefore, the Gold in the treasury was either running out or had already run out. Thus, a clever plan was formulated in order to "set free" the Gold of the world to support the continued of Petrol-Dollar System.
The period between 1945 and 1971 was the clever first step in the arrangement of the World Petrol-Dollar System. The Bretton Woods Agreement in 1945 stipulated that all countries would sell their oil in terms of Dollars, and Dollars only. This meant that the Oil States were receiving US Dollars that were supposedly all redeemable at the then set-rate of 35 Dollars per ounce. The effect of this arrangement was that any country wishing to purchase Oil could do so in two ways. One, a country could send Gold to the US to buy Dollars (as well as being the driver of the structure of the world economy -- but we already discussed that), and then turning around to use those dollars to buy oil. Two, it could maintain a positive balance of payments with the US -- but we already discussed this in the context of the structure of the world economy.
By 1971, just the US M1 Money Supply (the smallest measure) stood at just over 200 Billion Dollars, which, at the rate of $35 an ounce would have been enough to buy more than three times as much Gold as existed on the face of the earth in 1971. Acting on this, Nixon did two things. One, he disavowed payment in specie, and two, he "set free" the formerly government dictated Gold price, i.e. allowed an apparently free market in bullion.
During the 9 years after 1971 and the "setting free" of the Gold price, it moved it's way upward, even in the face of an increasing number of Gold derivatives (literally, paper promises to deliver gold, tradable in dollars) originating from Central Banks flooded onto the market.
What happened between the Dollar/Gold price peak in 1980 and the late 1980s producer Gold hedging deals is somewhat unknown. It is possible that mined Gold hedging deals were in place starting in 1980, or even earlier, but these deals were not made public until the late 80s.
A Gold hedging deal is when a mining Company agrees to sell a certain amount of as yet un-mined Gold, at a certain Dollar price, on a certain future date. This type of deal helps to assure Oil States a source of future savings and thus support the current credit: the Dollar.
Besides hedging and leasing, there is a third way by which Gold found its way to Oil producers, and it is somewhat counterintuitive. Private bullion owners, upon seeing the declining dollar price of Gold (as a result of hedging and leasing) and the corresponding huge availability of paper profits available in the markets, sold off Gold in favor of trading it on leveraged futures markets.
The US government, in the 80s, kept Bond rates high to attract private individuals into buying US debt. The purchase of US debt by the Federal Reserve is what creates money through the fractional-lending system, and thus US dollar inflation. It was therefore a self-reinforcing process of high interest rates and high purchases of debt by individuals. People were smartly setting themselves up for the US-Treasury Bill/USD bull market.
Before I continue, I must point out that it is possible to look at the Gold-leasing-hedging program and the high levels of private US-Treasury debt purchases in the 80s as two edges of the same sword. People had Dollars to invest, and upon seeing the declining Gold prices opted instead for the bait - high interest rates on US debt.
With that said, let us turn our attention back to the ever expanding Gold system behind the Dollar. Its support caused the Petrol-Dollar system to prosper enormously. So the ever expanding Gold movement system allowed the apparently un-backed US dollar to enter an incredible bull market versus energy, even with no apparent hard money backing! Uncle Al was now free to juice the credit supply to support the blow off top of the US-Dollar structured world economy's overall flight.
It becomes clear to see now how the Gold system supports the energy Dollar as the linchpin of the world economy. When the pin is pulled the world economy will come crashing down to its hard foundation -- Gold. The incredible success of the Dollar is the same as saying the incredible success of suppressing building credit on Oil and therefore undervaluing money in general. It is interesting to note that money (Gold) is essentially soaked up into the huge Oil-Credit framework and it's true value hidden behind the curtain of false promises.
To get back to the main point, that being that when the world is forced to restructure the economy -- either by the will of the system's creators or by the collision of increased credit and decreased energy based - Oil will seek to bid for large quantities of Gold (and possibly Gold's whiter younger brother) overtly. This is another way of saying -- the price of money -- Gold -- will be known to all. When this happens, the price of money (Gold) relative to energy will be breathtaking and unbelievably volatile -- volatile because fear acts much faster than greed. In other words, it takes much longer to build confidence up than it does to destroy it. Let us now examine Gold's likely role in the future world economy to try to make an educated guess at the likely future prices.
Part V -- Gold's Future in the World Economy
The question of the future Oil/Gold price will be very complicated as it will involve countless future currency devaluations (i.e. a failed attempt to add a kicker to the energy price of one's currency) and also be based on military politics. (Interestingly, currency inflations often drive military decisions as much as vice versa.) It must be said, though, that in times of chaos and war in the past people have consistently turned to Gold for stability. In addition, a military power would most likely find it difficult to sustain much debt-currency issuance in the face of a declining energy reservoir. As much as the US dollar has surprised in staying power during growth, debt-currencies will disappoint during contraction.
Clearly, Oil producing nations will fare the worst as superpowers steam roll them for the remainders of the pie. They will also be a target because data (and common sense) suggest that their role as Oil Banks to the world implies a large degree of Gold acquisition. Gold is the profit that is reaped from the issuance of credit. Viewed in this light, it is easy to see why banker J.P. Morgan took his particular stance on Gold. It was the real driver of credit issuance in his time, until Oil displaced Gold as the foundation of the world economy and forced it to take on a more catalytic role. Gold flowed cheaply in the background to Oil producers at varying prices based on power politics -- and Oil acted as the reserve base for Dollar credit creation.
According to Bill Murphy's Gold-Anti Trust Action Group, Central Banks themselves may now be in possession of less than half of the world's monetary Gold. This amounts to about 15,000 tons. Therefore, the Oil States could already have more than half of the total currently available 33,000 tons. This suggests a higher momentary Gold price, but for arguments sake let's assume that there is more monetary gold available in the future than there is now, say, 45,000 tons of monetary Gold -- versus approximately 1,000 billion barrels of Oil left (at CURRENT reserve estimates) -- times the percentage of world energy generated from oil (40%) or .4 -- gives you an estimate of 280 barrels oil/1 oz. gold.
Currently, through the US dollar system Oil costs about 10 barrels an ounce. So, using numbers biased against gold we have calculated a 2800% increase. The ownership of Gold will also have a large effect on the restructuring of the world economy. Oil states will be largely disbanded, somewhat similar to Iraq but probably more chaotic, wherein they will be conquered as superpowers scramble for control over the last few barrels. If there is any sort of world recovery in 50 years after the Oil decline, China may end up recovering more rapidly because of its position as net money creditor/large manufacturer to the world, particularly relative to the USA. (As a net creditor leftover from its role in the last boom phase, China has available capital within the country for building new economic structures to meet new demands which could quickly control market share.)
I must add, gloomily, that some of us regard World War III as more of a question of "when" than "if". This is not unreasonable to consider, particularly in view of the real problem of feeding the world population versus depleting arable land and depleting oil supplies. Unfortunately for most of the world's population, the sustainable population level is likely to be significantly lower than the current one. Wars have been fought over much lesser complaints than starvation.
Part VI - Conclusion
The world economy faces a miserable restructuring. The destabilizing effects of over half a century of mal-investments induced by the US Debt/Oil Driven World Economy have set events on a one way road to bust. With Gold suppressed in the background the world Dollar system morphed the global economy into one big sweatshop -- with the US Dollar Empire as the main reaper of reward -- and other countries fighting for the scraps.
History has shown every time that boom inevitably follows bust, so it is safe to predict that this time is going to be no exception. The Monetary Theory of the Trade Cycle shows us the specific mechanisms by which boom will inevitably lead to bust, subsequently leading to a complete shift in the world economy away from the US Military-Consumer Complex. As the world economy implodes, Gold's historically strong value in times of change demand that it will step into the ring in an overt manner and experience a bull market of historically unprecedented proportion and therefore. Also, as Oil reserves decline Gold will re-acquire market share in terms of credit issuance. It's role as catalyst will likely change rapidly back to it's role as a foundation, not so much stealing the spotlight from oil, instead Gold will be stealing the spotlight from Debt-Currency. Gold and Oil will find a public value that, for some, has been known behind closed doors for years.
Evidence of this - Gold's structural undervaluation because of its past role in the Oil trade - have been discussed in this essay, so that, combined with the generosity of the numbers against Gold in the above example, one is safe in assuming that the Oil/Gold ratio will exceed most people's expectations in terms of the expensiveness of Gold. Truly, this Gold Bull market will be like no other ever before experienced in history. The Peak Oil ride will truly be no fun, but it is best to look on the Golden side of things and take free gifts as they are being so generously given away.