Power = power

February 28, 2005
    America is, after all, the world's most powerful nation.
     This sentiment has been boinging around the major media lately, especially in stories and columns about the health of the dollar. But what does it really mean?

     We have the world's biggest nuclear arsenal for sure. We could vaporize every world city if it came to that. But Russia has enough nuclear warheads and ICBMs to stop the world's clock, too (while standards of living and life expectancy there continue to decline). For that matter, Britain, France, Israel, and China have enough atomic military juice to seriously fuck up the current order of things.

     What America definitely doesn't have is enough oil and natural gas to run the nation's economy as it currently exists -- as a chain of realtors driving SUVs to tanning booths to impress house-buyers borrowing money from lenders who flip the mortgages to government sponsored entities who can't add up a column of figures, even with the help of computers.

     Speaking of math,  I did the oil figures a couple of weeks ago, and it's worth repeating. Of the the 80 million barrels a day the world burns, we burn one quarter of that, or 20 million barrels a day. Every five days we burn a hundred million barrels. Every fifty days America burns one billion barrels of oil. Every year we burn seven billion barrels. The US has 28 billion barrels of oil left. If we burned every last drop of our own oil, and somehow lost access to foreign imports, our oil would last four more years.

     Four more years of easy motoring, bargain shopping, RV vacations, and trading up to bigger houses farther out in the rural gloaming.

     If I was a young economist, I would reflect on this situation and perhaps conclude that the American economy doesn't have great long-term prospects. In fact, I'd have to imagine the American standard of living falling of a cliff within the lifetime of a TV sitcom. I'd have to wonder about American "power" and the actual value of the dollar.

     It's a good thing that friendly nations like Saudi Arabia, Russia, and Venezuela are willing to sell us oil. That way, we don't have to use up all our remaining oil in four years. And its a good thing we can pay for that oil in dollars. What else could we trade for it? Tanning booth hours? Back episodes of "Sex in the City?" Free day passes to Six Flags?

     Of course, the global oil peak implies that all the nations of the world will have less total energy to divvy up. I just don't see where the United States is in a particularly favorable position on this. Have you heard of any plans to reduce our extreme dependence on cars? I don't think our supreme leader has even uttered the world "railroad" since he came on the national scene. Are we going to subcontract the Jolly Green Giant to go around America moving things closer together so we don't have to burn so much gasoline?

       Excuse me for saying this, but I don't think we have any idea what we're going to do. It causes me to wonder how powerful we really are, apart from our ability to blow things up.

Comments

[Minuteman]

Not only is the Bush administration sticking its head in the sand, its sticking out its middle finger, dismantling what little rail system we have left, ignoring science and railing against those among us who are trying to raise the alarm. Do they WANT the world to fall apart? Do they have a scheme that involves a few of them blasting off in a space ship to a new, unspoiled land?

[JLA]

If we are an empire, it is a hollow empire. But, silly me, I am part of the "reality-based" community that the neocons love to dismiss. Perhaps attacking Iran will reassure everyone of our continued power in a (still?) unipolar world.

[karl with a k]

I don't think you intend to imply the end of the carbon age is so soon. As much as we would all like a restructuring of american priorities, there is still plenty of natural gas and coal. In the middle east they don't know what to do with all the natural gas that comes up in the oil extraction process. They burn it and it is one of the most visible things from space at night. Clearly, there are issues of putting middle eastern natural gas into our gas tanks. A big goose tanker of liquid natural gas makes for a pretty nice terror target. Also, coal doesn't just plop into our tanks. But, they are starting to refine coal so that we can.

Instead of waiting, like some cult and their meteor, for peak oil to bitch slap america, lets address the problems with liquid natural gas and coal gasification.

I am not saying these systems will rival cheap oil. The development of distribution will be costly. However, people are going to grip their steering wheels when the time comes. And one thing capitalism is good at is responding to demand. Our response to another form of fossil fuel should already be embedded into their minds. Our head start is a virtue.

[seebee]

I think the people are going to have to see the necessity of the railroad and push for it themselves. I've read Congressional complaints about the anti-Amtrak tact the government is taking, so BushCo might not get away with dismantling it all the way. One of the big peakist points is that things will have to be done locally if they're to get done at all. Perhaps a grassroots campaign to start getting things connected with rail is the only way to get it done? But, will the easy riders see the wisdom in spending money on public transportation, or will they (more likely) cling to their cars? Don't forget: public transportation is for minorities and poor people! We can't be havin' that!

[orionoir]

my wife and i are pre-approved for $400,000 in mortgage debt. she teaches, i'm disabled.

figure the forward p/e of the s&p is seventeen; black scholes says capital accumulated or blown is worth precisely one human generation. a generation in my book is fifteen years. reverse percolate (backward amortize) $400k for this period and take my word for it, the bank believes we're good for a whole lot more than a couple pints of blood.

this wonderful situation is courtesy alan greenspan, he's an ugly old bird isn't he? the real cost of money is negative and it's been this way for a while. i contend that energy has nothing to do with this state of affairs.

in the future energy will become irrelevant. electricity will be for electronics only, petroleum will be as whale oil. we will no longer be impelled to move. the usa with its magnificent housing stock will reign supreme.

[lisa]

This past weekend I found myself on a ridiculously epic bicycle ride between Chicago and Milwaukee. On the way north, we rode over some rail tracks, to our right a stopped train of coal containers as far as we could see. Over the tracks, we made a turn and rode parallel to the tracks for what seemed at least a mile, our view of the train blocked by scrub and various agri-industro-wasteland scenes. When the view cleared and I sent up a "holy shit!" the rest of the group was also amazed to see, to our right, the same coal train we had passed so long ago...car after car after car of the black stuff, heading south to burn so that I could burn it now to write this.

Out in that little-discussed backyard of agriculture and office park hell that Kunstler so often describes, I was reminded of the phrase "places not worth saving, or fighting for." High points were whenever we saw actual living beings OUTSIDE of cars. In a driveway in an area of houses spread apart by miles of fields and warehouses, two pre-teen boys jumped furiously on an old-school pogo stick. I wondered if the longer-haired, laughing one would make it to adulthood, or if he'd have to go fight somewhere for more coal to fuel our non-negotiable ways of life.

[One Salient Oversight]

Jim has raised a very important issue. Given that the Peak Oil theory is true, America faces a future of increased energy expenses alongside a consumerist economy.

We have to remember that in free-market economics, everything balances out. Everything that is consumed must be produced; and everything that is produced should be for consumption.

I am one who believes that the problems of peak oil will be long and drawn out, rather than being a sudden collapse.

While the price of oil will always fluctuate according to demand and the whims of those who buy it wholesale, the only possibility that can exist for dwindling oil supplies and increasing oil demand is an overall price increase.

Economists will argue that with the increase in price will come a commensurate decrease in demand. Since energy is an integral part of the modern economy, we can expect the price of everything to rise. This is called inflation.

The Fed should respond in the only way it knows how - by raising interest rates. Raising interest rates increases the demand for money, and inflation is controlled.

But what would be the effects of this on the current US economy?

Increased interest rates will lead to a dampening of the economy. The higher the rates, the more the economic downturn. We can expect another stock-market crash, a huge housing downturn as current mortgages become unpayable and future mortgages become unaffordable. Lending for business startups will also drop, and there will be huge numbers of corporate and personal bankruptcies.

Added to this is the problem of America's external debt. Already, the world is getting jittery about the US economy and the US Dollar has dropped accordingly. Even if Peak oil were a fantasy, eventually the US Dollar would go into freefall, increasing inflation and forcing the Fed to increase rates.

Add these two together and you get a pretty bad picture of the future. Peak Oil plus a rebalancing of the international monetary framework will lead to a world-wide recession - one in which America will suffer the most.

[Mike Harrington]

2005 oil outlook: Is this the year when demand outstrips supply?

Matthew R. Simmons, Chairman and CEO, Simmons & Company International, Houston

http://www.worldoil.com/Magazine/MAGAZINE_DETAIL.asp?ART_ID=2486&MONTH_YEAR=Feb-2005

Could be an "interesting" year.

[JLA]

This should probably be posted under last week's entry, but I just discovered that part of the End Times crowd has developed a Rapture Index, which includes the supply/price of oil. I don't know whether to laugh or shriek in horror.

http://www.raptureready.com/rap2.html

[Ken]

"I wondered if the longer-haired, laughing one would make it to adulthood, or if he'd have to go fight somewhere for more coal to fuel our non-negotiable ways of life."

Well, no one is allowed into the military to fight for coal, oil, or anything else until he's already made it to adulthood. Also, the only way that anyone in this country will ever fight for coal is if the Chinese invade - we've got scads of coal. We don't really want to use it all because it doesn't burn as cleanly as oil or gas, but if the alternative is the post-oil economy that our host speaks of, I say burn the damned coal...

[lisa]

Ken,
The law aside, I personally do not consider 18 yrs. of age to be adulthood -- it's barely young adulthood -- thus I stand by my wording.

And sure burn the damn coal, as long as I and the people I love don't have to live near the power plants, eh? Nevermind. There is so much utter useless selfish waste in this country, the majority of Americans could stand a wee taste of the post-oil economy of which our host speaks.

[Eric]

Great article in the NY Times today:

http://www.nytimes.com/2005/03/03/business/03houston.html

[george]

the real tragedy of the cheap-oil economy is not the way people in America and Canada will be inconvenienced once it ends, it's the way we collectively threw away decades of learned knowledge in the pursuit of a bankrupt way of life.

[Mike Harrington]

Re: New York Times article

It looks like it might be a dry hole. Ballard filed papers with the Texas Railroad Commission to abandon the well. It is unusual that the exploratory well is pretty close to the center of Houston, however. Hasn't been any exploration in the city proper in decades.

http://www.chron.com/cs/CDA/ssistory.mpl/business/energy/3067848

Mike in Pearland, TX

[Weaseldog]

I love it when folks say we have 'plenty' of something. I've gotten in the habit of asking, "Plenty for what? What number is 'plenty'?

The DOE estimates we have 200 years of coal left at current usage rates. If we started a massive gasification program to replace natural gas and oil, we'd need to increase the usage rate by maybe what, 20 fold? That gives us ten years of coal, if we could suck it out of the earth at that rate. So we dump 20 years worth of coal in the atmosphere every year for a decade, then what do we burn?

And if you have more optimistic coal numbers, what do they really mean? How much faster is it even possible to get coal out of the ground and burn it? What limits will we see there?

After all, we burn oil to get the coal out now. So once we start burning coal again, to mine coal, we'll need to burn coal even faster to stand still.

As to importing natural gas, we use it at such a rate that there's no way we could build such a giant fleet of tankers to keep us satiated. There's just no way that liquified gas could be shipped in thousands of tankers to hundred of US ports and make the stuff affordable for the common man to use. And forget making hydrogen from the stuff to burn in daily commutes as the Bush plan says we will.

And after all of this, don't expect anyone to attempt to massively upscale these efforts while the war in the ME continues. So not while Bush is in office. And probably not for 8 years after that as the next couple of presidents will have to maintain the war while natural gas, oil and coal shortages hit the US. So maybe in 2016, when it's to late?

And finally, it's stress between supply and demand that causes the price to go up. Technically demand can never exceed supply as it's cut down when it tries. We call this 'Demand Destruction'. That's the law of supply and demand in action. When demand exceeds supply, price goes up. When demand is less than supply, price goes down.

So anytime we see the price of oil rise, it's because demand has attempted to exceed supply.

We can dream that someone will sacrifice their time and money to fix things, so we don't have to chane our lives, but it won't happen. It's because no one will make that sacrifice, we're all waiting for others to fix it. And no one is the only one that can do it.

We'll just keep going as we are and hope for the best. And the best is gonna be real bad. Enjoy the circus, there's a game on somewhere.

[jtaylor118]

The stock market cannot see this?

[jtaylor118]

The stock market cannot see this?

[Weaseldog]

Tell me more about the predictive power of the Stock Market.

From watching it, it seems more reactive than pro-active.

Though oil prices spiked and the economy started taking a dive in January 2001, the market didn't correct until March. Clearly the market couldn't even see what had already happened. It had to wait on earnings reports.

[David]

Gold, anyone?

Will gold still retain any value? It has always gone up in times of depression, but could that change when the real need is fuel?