The End of Oil Part 4

     In this post I will attempt to introduce the ground breaking methodology of the Hills Group who are a group of mining engineers and project managers who published a paper in December 2013 entitled “Depletion: A Determination for the world’s petroleum reserve: an exergy analysis employing the Etp model.” A second version was issued in March 2015  as an update with extensive graphs, data sets and equations explaining their methodology and that is the version I will refer to.  This report can be obtained as a 65 page monograph from their website.I believe their work is a uniquely original Nobel Prize quality effort to look at oil production and depletion from an entirely new perspective far superior to the work previously performed by economists, oil executives and corporations, energy organizations and journalists , analysts and geologists. The traditional approach has involved cataloging oil resources and reserves worldwide with production history and estimates of future supply and demand. Their metrics have included cost, volumetric and quantitative considerations primarily. Interestingly, depletion of world energy supplies has been to date a lesser consideration. Some analysts have looked at the energy side of things employing concepts  like EROEI, that is energy return on energy invested  stating an obvious point that to obtain energy, you will need to expend energy.  But to my knowledge no one has looked at oil production, processing and distribution from a strictly energy and cost analysis perspective attempting to show energy flows into the petroleum industry and energy flows into our industrial society.     Energy flows are exceedingly important in all manner of fields from ecology, astrophysics, meteorology, and economics and as it happens oil production. The Hills Group went outside the envelope and decided to use physics and thermodynamics to see if depletion could be estimated more accurately than previous methods.  They also wanted to look at how the energy flows might influence and predict cost and availability of oil going forward. It’s my guess that when they started their work developing their hypotheses they had no idea what they would find and the impact of their conclusions.  I should say at the outset that their report is highly detailed and complex employing a myriad of equations, graphs, and data sets and the serious reader  will need at least a college level understanding of physics, mathematics and calculus to truly understand their approach.  I have that background but found that I had to go back and refresh long forgotten concepts of thermodynamics to plow through the paper which I have read and reread. What I find extraordinary is that I have not seen any peer reviews or criticism of their work anywhere outside of a few excellent energy bloggers and YouTube videos. The silence has been deafening and I continue to scan the Net for commentary on their work. If necessary I will contact energy analysts with whom I am acquainted urging them to study the work of the Hills Group and see if they can spot flaws in their reasoning. My understanding is rudimentary at best but so far I find their conclusions largely accurate but I would urge caution totally accepting their grim conclusions without additional study and research. I have a few quibbles with some of their work. For example they use physics notation which clutters their rather crude graphs. Their explanations involving thermodynamic principles could be improved and their use of for example the BTU as their preferred unit of energy seems inappropriate given that the Joule is in most respects the more standard and useful metric. I have redrawn many of their graphs to improve readability for myself. They don’t state in their paper that energy consumption by the petroleum production system should be the energy of the marginal barrel although that is implied in their work. They also seem reluctant to address the greater implications of what their work might mean to an energy dependent Industrial civilization which could be profound to say the least. I have little doubt they are unaware of the impact of their preliminary conclusions. Their work by my understanding seems to predict the imminent demise of the International Oil companies. They don’t say that oil production will cease. They just say that when the energy cost of oil extraction matches the energy delivered that oil production could cease. They don’t mention that oil production could continue if subsidized by another energy source. There are some uses of oil that have no realistic substitutes. They also didn’t emphasize the overweening importance of oil energy to the rest of the worldwide energy infrastructure. For example The BP report of 2016 states that oil as a primary energy source supplies 32.9% of the world’s primary energy but the fact is that oil underpins and subsidizes to a huge extent the production from all the other energy sources. Most importantly for the world industrial economy, oil is the driving force of everything that moves and without oil, almost nothing would move, no trucks would deliver goods, few mines would function, industrial food production would cease and the automobile transportation system would largely collapse. These possible scenarios are whoppers. Now I’ve saved the worst for last. The Hills Group shows their Etp curve hitting a wall as early as 2030 or 2031! More on that conclusion in a future post after I have tried to describe in detail the methodology of their work. I will also address policy implications for the economy and society in general and my native Jackson Hole region in particular.

The End of Oil Part 3

In my previous posts dealing with oil energy and depletion I've tried to get a handle on many aspects of oil production and use along with projected supply and demand using the conventional tools of most energy analysts such as resources and reserves with new reserve growth, field depletion, cost estimates along with production costs in my attempt to try to discern future use, cost and availability projections. I now know that this method is flawed because it ignores fundamental properties of the oil production and processing system. The first barrel commercially processed in 1859 in Titusville PA was our cheapest barrel to produce and every barrel since has cost more and every barrel in the future will cost even more which as we will see is predicted by the Second Law of Thermodynamics.   One might look at  cumulative production over a long enough period of time and compare that to production cost and see what the relation might be. Might there be a way to see how much energy the production side of things uses and see how much energy or wealth is delivered to the greater society from the distribution of that oil energy. Could this be a way to predict future depletion?  As we will see later on, these were some of the issues that the Hills Group wrestled with while they were beginning a study on world oilfield depletion.                                                                                                                                                       We know that there is a correlation between energy consumption and economic activity which can be crudely measured in GDP. There are ways to measure how much GDP is generated by a unit amount of energy. For this analysis to proceed we will need first and foremost, accurate data sets. It turns out this is very difficult to acquire for many reasons. Among them are sloppy or absent record keeping, the desire of producers to conceal how much they produce or have as reserves and in some cases deliberate falsification of the figures for political or financial gain and so forth. It turns out that there are a few honest men who have made truth and transparency their goal. The best example is the Texas Railroad Commission who kept detailed records starting with the big oil boom in Texas earlier in the last century and there are other agencies which have done credible verifiable data collection. Another problem is there is a lot of data, a lot of DETAIL to handle and examine and for many reasons very few people bothered to look at this project. The first and most important person who did was M King Hubbert, a Shell geologist who presented a paper in Houston Texas in the late 50’s in which he showed a distribution function using a Gaussian curve showing oil production in the US up till then projected into the future. The most stunning part of his curve was he projected oil production in the US would peak in 1970 and world production would peak about the beginning of the 21^st century. Allegedly loud guffaws and snorts were heard throughout the oil patch. The so-called

Hubbert Curve was ridiculed and generally ignored by the oil executives and most petroleum geologists. But guess what happened? US production peaked in 1970 and world production peaked about the turn of century. This was in fact PEAK OIL, a term which can push some economists , executives,pundits and politicians into a lathering sputtering hissy fit at the sheer mention of the word.
Shortly after US Oil output peaked A group of systems analysts called the Club of Rome from MIT(?!) put out a book called “The Limits to Growth” in 1972 in which they laid out a model of future trends in the economy using a new invention which greatly facilitated their work, the digital computer. Their model examined a variety of parameters such as energy and resource growth, population, pollution, and projected them into the future. Some people were stunned, including myself and their lives were forever altered. Many others fumed and snorted and went into full denial and attack mode. To this day there are still plenty of people  who regard the book as rubbish and they likely are the same crowd who drink at the climate deniers bar and grill and who are card carrying members of the Flat Earth Society.
Meanwhile oil production when through wild gyrations in price and availability with oil shocks in the 70’s and 80’s, with huge new discoveries in Alaska and the North Sea leading to rising production and falling prices and an economic boom which lasted for 25 years. It turns out those were that last big field discoveries. But price gyrations in oil continued with a spurt to $147/barrel and a stomach churning plunge back to $30 and back up and down where it now sits at about $50 a barrel. Some people including a few intelligent analysts, bloggers and economists started to voice the opinion that prices too high killed economies and price too low killed oil companies. What should be the price that oil needed to trade at to hit that Goldilocks Sweet spot? When oil prices were over $100 five years ago Wall Street went on a spending spree throwing money at anyone with a pickup truck and a drill bit as the new or not so new technique of hydraulic Fracturing took off in a frantic search for new sources of what came to be called “Unconventional” oil. The US was to become Saudi America with huge supplies of Tight oil locked within tight rocks and there were mountains, MOUNTAINS I SAY! In the southern Rockies made of oil shale lying there for the taking. Saudi America was going to be Energy Independent ! We would export to the world which would again become our Oyster. America could be Great Again! Wall Street and petroleum pundits sprouted like flowers after a rain and no one seemed to notice that those fracking wells petered out way too fast and some whispering could be heard that some weren’t making money,even at over $100.. For a while money was made by a fortunate few buying up oil leases and peddling them to the suckers born every day. Even the CEO of Exxon, Rex Tillerson, said a lot of people “were losing their shirts”. But not Rex of course. And then starting in 2013-2014 all this expensive to produce frackoil hit the market along with a continuing recession and before long oil crashed back to $25 and then mercifully edged back slowly up but it came too late for a lot of under capitalized wildcatters. At around this time a group of Project managers and engineering whiz kids led by a guy by the name of B.W. Hill at what was called the Hills Group decided to take a new look at sorting out the conflicting data on Oil availability and production using an altogether different methodology, Thermodynamics. Thermodynamics you say? You remember thermodynamics, right? The first law, the second law, the third law….Was there a fourth law? Stay tuned in a future blog while we try to find out how thermodynamic principles might lead us out of the desert into the promised land of true knowledge.

End of the Oil Age Part 2

My post of Aug 11, 2016 entitled “the End of the Oil Age” laid out the probability that Oil Depletion is far more advanced than is generally assumed and that assumptions about how long the world’s oil supply will last may be severely erroneous. The Trump/Clinton election debacle included reams of what is now called “Fake News” put out by spurious sources in the media and the internet which was unverified, unresearched and untrue. It is my contention after reviewing data for many years on the world energy picture that there is fake news there as well. I have come to the conclusion that much of the information and opinions disseminated by economists, energy organizations, financial organizations and the mainstream media regarding the future of petroleum are at best misleading and incomplete and at worst completely wrong. It is not my intent to cast stones singling out particular people or organizations. My purpose is to point out what I perceive to be flawed assumptions, incomplete data and wishful thinking and to try to get at reliable methodologies in an attempt to determine how close we are to the End of the Oil Age.

     I will state right at the first that trying to get reliable, verifiable information on something as important as oil energy is exceedingly difficult and time consuming. The questions that have been asked are how much oil do we have in the world? Who has it? How much can we use and for how long and how much will it cost us now and in the future? These sound like straight forward enough questions but unfortunately the answers are rarely straightforward.  I recall a quotation which goes something like : ”If they can stop you from asking the right questions, you’ll never come up with the right answers.”

      Let’s start with the first question. How much oil is there in the world? Even that is the wrong question. What is oil? Well oil is a complex mixture of hydrocarbons with varying composition, purity, density and utility distributed within the world’s 48,000 oil fields.  The oil of greatest value is a specific variety of crude oil with a specific density described by the American Petroleum Institute as a density between 30 and 45 degrees . Light sweet crude oil is one of the names given to this valuable fraction. This variety of crude has the greatest deliverable energy, is easily refined and yields the most net energy after processing. It is unfortunately only about 40% of the world’s supply. It is the fraction that powers the transportation industry yielding the highest quantity of refined gasoline and diesel. There are lighter and heavier varieties of crude oil which can be refined into transport fuels but they need additional steps like dilution or combination, vacuum distillation or removal of undesirable contaminants like sulfur or heavy metals, and water, steps that add to the processing costs.. So there is oil and then, THERE IS OIL. I am talking about this premium variety of crude oil, 30-45 API, which has been called “conventional oil.” There are several varieties of “unconventional “oil, some of which are called oil but which are not, such as Oil Sands which contain bitumen, a tarry substance. There is  ”“tight” oil  which requires  fracking to release a very light oil trapped in rock of minimal porosity. Then there are synthetic biofuels derived from crops which can get grouped with oil supplies and production. Unless I state otherwise, my discussions are conventional oil and any associated lease condensate associated with crude API 30-45. I have and will probably use the term  “Peak Oil” when describing API 30-45 crude. Peak Oil has become a pejorative term by some segments of the media who deny that the world is “running out of oil.”  The very idea that the world could be running out of oil is anathema to them and the very mention of it is bad for business. The fact is the world has already hit a peak of conventional crude oil and we hit it about 2006 at around 72 million barrels per day(mbpd). Today when you read about oil production you will see far higher figures but they now include the unconventional oils, NGL’s(natural gas liquids such as propane and butane)), biofuels and the most absurd and misleading category “refinery gains”, a deliberately deceptive category which relates to the fact that after refining a 42 gallon barrel, you will get more than 42 gallons of gasoline and diesel. The energy content of course is unchanged, just the volume is different.

     But now back to the first question: How much oil is in the world? If you do a Google search you will find a huge disparity of estimates. The highest I have seen is 4300 BILLION barrels in oil Resources. The terms resources and reserves are bandied around to serve the biases of the particular pundits or organizations.  You include in world resources all types of hydrocarbons in all   locations in all types of rocks at all depths…..Everywhere. With unlimited energy and if cost were no object, there might be 4300 billion barrels. But cost is an object and the category of RESERVES  is a much smaller figure because it includes all the oil that is known  and can be economically extracted. The BP Statistical Review of World Energy 2016 states that world reserves in 2015 were 1697.6 Billion barrels. BP also states that to date we have used 1290 billion barrels. As new oil is discovered those reserves are added to the figure but new discoveries have dwindled for decades. Last year discoveries were less than 3 billion barrels and the chance of finding a really big field like the supergiant fields of the Middle East are probably remote.  One important fact that is rarely mentioned in the media is that discoveries of new oil have been below world oil consumption since the 1960’s. For example last year the world used about 33 Billion barrels and discovered less than 3 billion, a pattern which has persisted for decades. Are we then running out of oil? Of course we will eventually run out of oil that is cheap and accessible. We live on a finite planet and there are finite quantities of oil and other resources. Right now the world has a temporary glut of oil but in the not too distant future there won’t be a glut of cheap oil. In fact the world will never run out of oil but at some point the cost of extraction will exceed the value. When the amount of energy invested to extract and process the oil exceeds the amount of energy in the oil, the party will be over. It will be over unless we can use other energy sources to extract the oil.  In future posts as will my attempt to answer the other questions I posed about oil at the outset. I will also try to amplify and explain how the newer methodologies around oil production and depletion offer a potentially more reliable answer to these questions. I will attempt to amplify and explain the work of the Hills Group which I have alluded to previously.

               Could this be the Beginning of the End of the Oil Age? 

The End of the Oil Age

 It is impossible for and unsophisticated observer to understand the dynamics of what is going on in the petroleum market and extremely difficult for a sophisticated observer to follow the trends in supply/demand given the sheer number of voices reporting their opinions.

      In this post I want to announce a stunning new opinion first reported on the blog “Cassandra’s Legacy” authored by Ugo Bardi who resides in Florence. See: http://cassandralegacy.blogspot.com/2016/07/some-reflections-on-twilight-of-oil-age.html.

In his July 12 2016 blog, Ugo reported on the work by the Hills group

(http://www.thehillsgroup.org).   , who are a group of engineers who have been studying the decline in net delivered energy to society from petroleum. They posit the shocking opinion that the end of the oil age as we know it could be upon us in just a decade. They base their opinion of the steady decline in net energy available since the first well was drilled in Pennsylvania in 1859 to where we are now with various unconventional sources of oil whose extraction and delivery are demanding ever more energy to deliver the end product to the consumers. Simply put, it takes oil energy to get oil energy and when we reach the point where the amount of energy expended matches the energy obtained, the game is over. Let me post a segment from Ugo’s first of three posts from the Hills group which illustrates their alarming conclusion:

The end of the Oil Age is now

If we had a whole century ahead of us to transition, it would be comparatively easy.  Unfortunately, we no longer have that leisure since the second key challenge is the remaining timeframe for whole system replacement.  What most people miss is that the rapid end of the Oil Age began in 2012 and will be over within some 10 years.  To the best of my knowledge, the most advanced material in this matter is the thermodynamic analysis of the oil industry taken as a whole system (OI) produced by The Hill's Group (THG) over the last two years or so (http://www.thehillsgroup.org). 

THG are seasoned US oil industry engineers led by B.W. Hill.  I find its analysis elegant and rock hard.  For example, one of its outputs concerns oil prices.  Over a 56 year time period, its correlation factor with historical data is 0.995.  In consequence, they began to warn in 2013 about the oil price crash that began late 2014 (see: http://www.thehillsgroup.org/depletion2_022.htm).  In what follows I rely on THG’s report and my own work.

Three figures summarize the situation we are in rather well, in my view.

Figure 1 – End Game

For purely thermodynamic reasons net energy delivered to the globalised industrial world (GIW) per barrel by the oil industry (OI) is rapidly trending to zero.  By net energy we mean here what the OI delivers to the GIW, essentially in the form of transport fuels, after the energy used by the OI for exploration, production, transport, refining and end products delivery have been deducted. 

However, things break down well before reaching “ground zero”; i.e. within 10 years the OI as we know it will have disintegrated. Actually, a number of analysts from entities like Deloitte or Chatham House, reading financial tealeaves, are progressively reaching the same kind of conclusions.[1][1]

The Oil Age is finishing now, not in a slow, smooth, long slide down from “Peak Oil”, but in a rapid fizzling out of net energy.  This is now combining with things like climate change and the global debt issues to generate what I call a “Perfect Storm” big enough to bring the GIW to its knees.

   I would urge the interested reader to read the posts and  go to the Hills group website to explore the details of their methodology. To say that their conclusions are earth shattering would be an understatement.

    I have spent time analyzing their data and conclusions and implicit in their work is that it applies on the margin for new supply. There are legacy oil fields where the energy expended to deliver the oil is low because of sunk costs and infrastructure constructed decades ago but for new sources it is a different  story. The Hills Group does not say that we will have no oil in 10 years. They just state that the energy costs of acquiring new oil are steadily climbing and as time goes on society gets less and less energy and less exergy, or the ability to perform work from each bbl of oil.

     From my reading I understand that they are talking about the energy available just in oil to get oil energy. Other energy sources like coal or gas or nuclear energy can and is utilized to obtain oil. Their point is  on the net oil energy available after expending oil energy to explore, drill, process and distribute that oil. In most cases oil energy is the only feasible energy available.

   I would like to add a few points some of which were covered in the Cassandra’s Legacy blog and some not. Fossil fuels supply 86 % of world energy and the Hills group state that 88% of oil energy is “wasted”.  The percentage breakdown of that “waste” was not broken down in any of the data I was able to examine but the largest waste was unavoidable  thermodynamic waste inherent in the conversion from the chemical energy in the oil into thermal energy and mechanical energy as it is burned or oxidized. I assume that the thermodynamic losses relate to the enthalpy of the reaction combusting the hydrocarbons. Energy is consumed breaking bonds and energy is released forming new bonds in the products of combustion. For example cleaving the carbon/hydrogen bond is an endothermic process. It requires energy to break that bond. The products are CO2 and H20 which bond formation releases more energy than breaking the C/H bonds. Most of the energy consumed in an engine or power plant is wasted and dissipated as heat. Gas engines can be as low as 20% efficient and diesel engines  only slightly better. It is much the same with power plants whether burning oil or coal. Older coal plants are as low as 30% efficient and as high as 40% . The latest generation of natural gas power plants called combined cycle gas turbines(CCGT) can approach 60% at full output.  After exploration, production, refining, and delivery energy costs have been deducted, then that oil is burned in engines wasting 70-80% of the fuel's energy. It is pretty shocking how much we waste. In the case of a 4000 lb automobile, most of the energy is used to get the mass of the car down the road with the human occupants only a tiny percentage of that car’s mass.  The blog and the monographs also failed to mention the fact that since about the mid 60’s, the amount of new discoveries of oil failed to keep pace with world consumption. In 2015, the world used about 32 billion bbls of oil and new discoveries totaled  only 2.7 billion bbls. The cost of finding those new marginal has been going up about 7% a year since about 2000. Source: Bloomberg. Clearly business as usual(BAU) cannot continue with these numbers. Either we are going to have to use a whole lot less oil or find a whole lot more. If what new oil we find is too expensive for society, it will crash the economy. But sustained low oil prices will crash the oil industry. If the Hills group conclusions are right that the loss of this resource will be driven by thermodynamics and not financial or debt factors. It is likely we are entering a new paradigm.  My draw from the work of the Hills group is that oil availability will be rapidly diminishing in the next 10-15 years and if net energy declines as they propose, this rodeo will be over. The end of the oil age may be sooner than we think.

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Managing Financial Risk:Why Cyprus is Important

      The looting of Cyprus bank deposits by EU financial authorities  sent a shiver down my financial nervous system. You know the anatomy, right? There is the central nervous system(CNS), the autonomic nervous system(ANS), and the financial nervous system(FNS). I don't want to get into the complex anatomy and function of the three systems. I'm not even sure where the FNS lives but I suspect it is  in the left brain somewhere. Regardless, I know a shiver when I feel one.
    In case you haven't been paying attention, EU banking authorities as part of a rescue package of  the insolvent Cypriot banking system, a subset of the insolvent Greek banking system, has seized a portion of depositor assets in those banks above a certain level. The level and the proportion varies from day to day but everything above a 100,000 or 200,000 Euros will be subject to a levy of a variable amount from 30 to 90 %. The banks were closed to prevent a run and capital controls instituted. Now a pensioner can just get a few hundred Euros a day to buy a herring and a bottle of Retsina, or whatever it is that Cypriots drink. It is a very confusing and malreported story and to say that this so called rescue package has been bungled is putting it mildly. We were initially told that most of the money was Russian hot money from the mob, or wealthy oligarchs hiding it from tax  authorities in Moscow. They were just getting what they deserved. The true story is of course a lot more nuanced but I would like to not get into the details, however interesting. An expat oligarch  losing some spare change is not what gave me the shiver. What gave me the shiver was the connection I made to a report that went viral in the New Zealand blogosphere a week or so   back as reported by Mish Shedlock in his blog. A reader in NZ had written Mish that the Reserve Bank of NZ had announced that depositors could be tapped to bail out the banking system. What was unique was that the NZ Central bank laid it out in clear language to the public. Here is a portion of the text:
"The OBR policy is designed to ensure that first losses are borne by the bank’s existing shareholders. In addition, a portion of depositors’ and other unsecured creditors’ funds will be frozen to bear any remaining losses." BTW, the Bank of NZ does not have so called deposit insurance.

Read more at http://globaleconomicanalysis.blogspot.com/2013/03/fraudulent-guarantees-fictional-reserve.html#K9PqArSCbOCPOq72.99 .

    Today Mish reported that The Bank of Canada  has announced a similar policy. Here is the quote:

"The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital." Did you notice:?Bail in? That is of course bankese for BAIL OUT.!

 Here is the link to that ominous sentence, buried deep in a ponderous report. AS Mish notes, it is on pg 145.

   So depositors got tapped to bail out the criminal ponzi banks in Cyprus. But it couldn't happen here. Right? Wrong. It obviously can happen in NZ and Canada. But in the US? The cradle of liberty. The home of the brave?  yup. It does appear so. I found it rather easily by simple searches of my favorite financial bloggers, among them Yves Smith, Steve Keen, Tyler Durden, and particularly Ellen Brown. 
    Ellen turned up a paper from last December . This was a joint FDIC, Bank of England position paper just restating what had already been discussed   at the G20 Financial Stability Board in Basel, Switzerland. Here are a few choice sentences from that document translated by Ellen Brown:

"An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself—thus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution."
 Can't happen here , huh? What it says is that one of these TBTF banks can seize depositor assets and convert it to BANK STOCK (!), obviously against your will. You thought you had a nice safe FDIC insured deposit in say the Bank of Amerika. Sorry buster. Now you are a happy shareholder. And bank shareholders are not under the FDIC umbrella.
      Now it just gets worse. If you have deposits in one of these TBTF banks, you might be under the impression that those deposits are your money, assets to the bank, right?  Not quite. In bank legalese, your money is not classified as a bank asset. It is actually a liability. Go figure? It is unsecured debt, and what is particularly evil, it is not senior to a lot of other claims that the bank might have. And guess what is senior to your deposits(oops: sorry: liabilities): Derivatives exposure. These banks have moved their derivatives in effect mingling with your CD's. Here is how Yves Smith puts it:
"The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders. Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation its depositary in late 2011. As Bloomberg reported:

Bank of America Corp. (BAC), hit by a credit downgrade last month, has moved derivatives from its Merrill Lynch unit to a subsidiary flush with insured deposits, according to people with direct knowledge of the situation…
Bank of America’s holding company — the parent of both the retail bank and the Merrill Lynch securities unit — held almost $75 trillion of derivatives at the end of June, according to data compiled by the OCC. About $53 trillion, or 71 percent, were within Bank of America NA, according to the data, which represent the notional values of the trades.

And Bank of America is hardly unique. Bloomberg again:

That compares with JPMorgan’s deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm’s $79 trillion of notional derivatives, the OCC data show."

Read more at http://www.nakedcapitalism.com/2013/03/when-you-werent-looking-democrat-bank-stooges-launch-bills-to-permit-bailouts-deregulate-derivatives.html#CAkdbWkBT4HfKUVv.99

    Whew!!! Can it really be this bad? Remember we are dealing with the Big banks and the TBTF Federal Reserve, a cartel of those banks. These banks are called TBTF banks for a reason..

   I have no idea what the likelihood of such a scenario like this occurring. But if in fact savers deposits are in effect, unsecured deposits, then taking these deposits out of these banks seems prudent. And I don't just mean CDs. In the 30's Gold was confiscated by the government and the government already has authority under homeland security to seize safe deposit boxes and confiscate what is in those boxes whether it is gold, silver, guns or whatever. In a bank run or similar collapse scenario, there would not be access anyway.

      The key point to get from this post is that the big banks and the big Central banks are all in the same fraternity worldwide. They are globalized just as the problems are globalized. If it happened it Cyprus, it can happen in Spain, in Italy,in the Commonwealth countries and certainly here in the US, the birthplace of Derivatives. The best  financial strategy  has always been to panic early.