Friday, January 23, 2009

Titanic Metaphors

I continue to write forcefully on today's economic and social events as much to inform others as to clarify my own thinking and understanding of these events. I would urge any readers to seek out their own oracles and data sets and come to their own conclusions. Cast an especially wary eye at government and corporate leaders and believe no bankers. We are in the midst of what I will call today The Great Delamination. You may call it what you wish. This recession or depression seems to be worsening by the day both here and in the rest of the world. Social unrest and street protest is springing up in coutries with little history of that sort of activity. Like Iceland and Latvia for example. The street protests outside the Parliament in Reyjkavik have become larger and more virulent with fires and garbage and flying skyr , their local yoghurt. They have been
demanding accountability from their prime minister and their elected officials and new elections. Until today the parliament has ignored them. But 5000 skyr flinging citizens finally had an effect. Prine Minister Geir Haarde has announced he will step down and call for new elections in May. Over in the US Senate Chuck Schumer and Richard Shelby are calling for $110 Million to be spent on hiring new FBI and SEC staff to go after the obvious fraud of Wall Street and the banking industry officials who have brought the US to the brink of financial ruin. They will attempt a "claw back" of the hundreds of billions essentially looted from taxpayers , investors and depositors. This will not"fix" the current disaster but finding another way to fund bailouts beside stealing it from our children seems like a good first step. As I wrote in a previous blog:"Let them be known. Let them be hated. Let them be hunted for the remaining days of their miserable lives." I hope that the first person they subpoena will be our former Treasury Secretary.
An ominous statistic I read from Jim Jubak over at was sobering. The good old Federal Reserve is looking wobbly. On Jan, 16, 2008 the Fed had $868 Billion in "reserves" of which 84% represented T bills and notes which are even today considered pretty secure reserves. One year later on Jan 14th, 2009 the reserves had ballooned to $2.1 Trillion. T bills now had dropped to a paltry 23% of reserves. As you may know, the fed has been out buying up commercial paper and swapping T Bills for toilet paper in the form of CDO's from our insolvent banks.
However, I am beginning to see some hopeful signs . Some prominent academics and economists are suggesting that some of the banks may need to be nationalized. I continue to try to dig up more information on what I will term the Swedish Solution . I found a pdf from a symposium in 1998 at the FDIC which dealt with how the FDIC and RTC responded to the savings and loan debacle of the 1980's. Tucked into that meeting was a presentation by Arne Berggren, a consultant from Stockholm. Here is the link and his presentation starts on pg 3:
It seems that in the late 1980's, Sweden went through a deregulation of banks much like the US combined with a run up in debt and explosion in the property market. Sound familiar?
In just a 2 year period from 1989 to 1990 their percentage of debt to GDP went from 90% to 140%. Nordbanken, the largest bank had an asset base equal to 23% of GDP. The Swedish government fully nationalized Nordbanken and it took an amount equal to 3% of Sweden's GDP to fully recapitalize it. The important thing to remember is that it worked and eventually the bank was resold and privatized at almost no ultimate cost to the Swedish taxpayer. Keep in mind that at the time Sweden had no FDIC deposit equivalent and all countries are different and comparisons are odious but there are similarities between our two economies and lessons we could almost certainly use as we grope for solutions. I hope that some of Obama's advisers are looking at the Swedish Solution. But I fear the worst. I think there is a chance that events are proceeding at a pace faster than the Fed's printing presses can keep up.

1 comment:

Clifford J. Wirth, Ph.D. said...

Tis the Titanic indeed:

Global crude oil production peaked in 2008.

The media, governments, world leaders, and public should focus on this issue.

Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.

Then in August and September of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of "Oil Watch Monthly," December 2008, page 1)

Peak Oil is now.

Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):

* Association for the Study of Peak Oil (2007)

* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)

* Tony Eriksen, Oil stock analyst; Samuel Foucher, oil analyst; and Stuart Staniford, Physicist [Wikipedia Oil Megaprojects] (2008)

* Matthew Simmons, Energy investment banker, (2007)

* T. Boone Pickens, Oil and gas investor (2007)

* U.S. Army Corps of Engineers (2005)

* Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)

* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)

* Chris Skrebowski, Editor of “Petroleum Review” (2010)

* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)

* Energy Watch Group in Germany (2006)

* Fredrik Robelius, Oil analyst and author of "Giant Oil Fields" (2008 to 2018)

Oil production will now begin to decline terminally.

Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.

Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.

Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”

"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.

Documented here: