Another graph proving Peak Oil

Take a look at this graph from The Oil Drum:

Those in the past who deny Peak Oil have tended to do one of two things. The first is to attack the actual science behind it, trying to disprove Hubbert's Curve. The second is to argue that there is plenty of slack within oil productive countries to meet demand. What the graph shows is that neither of these are true.

One of the basic tenets of economics - in fact the basic tenet - is that of supply and demand. If demand increases, so should price; if supply increases, prices should drop. What we see in this graph is that from about 2003 onwards, demand for oil was not met by supply. Despite the myriad sources of oil supply all over the world, not enough oil was produced to keep prices down. Between 2003 and 2008, prices essentially tripled. Yet over the same period, supply hardly moved.

So if Hubbert's Curve was wrong, and oil reservoirs can just keep pumping out as much oil as is needed, then why didn't oil producers simply increase production between 2003 and 2008? Moreover, why hasn't production increased since 2005?

And if there is plenty of slack for oil producers and so many new oil projects up and running to take advantage of the high price of oil (which is still historically high despite the worst recession since the 1930s), then why isn't production increasing?

This graph seems to clearly indicate that not only was the theory of Peak Oil correct, but that the peak has already occurred - in 2005.

OSO's pontifications at Reddit

I've realised that some of these are worthy of posting here:

In response to the GOP's "Pledge" about controlling the US budget:

I'm actually a person who has looked at the stats. I know how much the US budget deficit is. I know how much US public debt is. I know the proportions of spending by various government agencies.

So let me summarise from here what the biggest things in the budget are, in order of amount:

1. Department of Health and Human services. (Medicare and Medicaid).
2. Social Security.
3. Department of Defense.
4. Interest paid on money owed

So there are only these four places for the Federal Government to cut into. Everything else represents a very small proportion of government spending. Even if you completely cut funding to NASA, Homeland Security, the FBI, or Department of Education, the result will be negligible.

So what Americans need to ask the GOP is "What are you going to cut spending on to bring the budget back into balance?".

1. Is the GOP going to gut Health and Human services? This means less money for Medicare and Medicaid. Old people especially will be hit by this.
2. Is the GOP going to gut Social Security? Less money for retirees.
3. Is the GOP going to gut Defense? Yeah right I see that happening.
4. Is the GOP going to stop paying debt off? That would mean defaulting on treasuries.

In the end the only real solution is to increase tax revenue, which means increasing taxes. The GOP won't do that. In fact they'll probably cut taxes for the rich again, convinced that maybe this time it might work.

Which means that the GOP will simply put the Federal government further and further into debt. That's what they've been doing since 1981, so we can assume that they'll go with tradition on that one.

In response to predictions of the "end of the world" and the fact that so many have failed:

The thing is that history is replete with instances of societal collapse and population downturns. War, famine and disease have taken away huge proportions of human population.

The "end" is never the "end", unless you're talking about Jesus returning or a massive impact event. The Roman empire ended - slowly and painfully. But people still lived in Rome. Other empires came along and replaced them.

We have around 6 billion people living in the world at the moment. If global warming takes a turn for the worse and agricultural production drops by 95%, it will probably mean the deaths of billions. But it won't be the end. People will still survive. Countries will disappear, governments collapse, borders moved, but there will still be stable governments and healthy people for a minority of the people on earth. And it will be that minority that will eventually flourish to replace the collapse.

So it's not the end of the world, but an end of a chapter.

In response to a Conservative Redditor who is very concerned about radicals taking over the Republican Party:

As a Liberal/Progressive, I like you.

We disagree over spending: I'm happy to increase spending and increase taxes; you're happy to decrease spending and decrease taxes. Both of us, however, oppose the stupidity of continually running deficits.

Even though I'm a lefty I have, like most people, a foot in both camps. I may believe in increasing welfare but I also believe in personal responsibility; I may believe in wealth distribution but I also believe that the talented and the hard working should be rewarded; I may oppose corporate corruption and tyranny but I also oppose government corruption and tyranny.

What saddens me is that conservatives in the US have degenerated into anti-intellectualism, blind ideological adherence and an inability to think critically. Popular conservative commentators reflect this belief.

Conservatism as a set of political beliefs has a lot to offer - seriously it does. But conservatives in the US pose a net threat to America's safety and prosperity.

If the GOP and the Tea Party do not do as well as they hope during the 2010 mid terms (ie control one or both houses of congress) I can see violence resulting.

A further comment on the same thread:

I don't even know who the "extreme radical left" are in the United States. There are certainly a few unreconstructed Marxists out there who still preach class warfare and the need for a people's revolution but they have, as far as I know, almost no influence upon the Democratic Party. Even Bernie Sanders is too right wing for these old Marxists.

There's a few anarcho-primitivists in the environmental movement, but they are too small.

I visit Daily Kos often - it's probably a good place to start in finding out the thoughts and beliefs of the young mainstream left in the United States. Although they support an expansion in government spending to fund universal health care, better public schools and better environmental policies, they are hardly trying to create a communist America. The policies of the Kossacks and those like them in the Democratic party is to move the US into more of a Western European social democracy. They may find the free market problematic and in need of change, but they are not preaching a complete government takeover of private businesses, wealth and property. By all means of measurement, the left in the US is moderate compared to historical progressive policy.

By contrast, the right wing in the US has no real precedent in history. The US right want the government to be turned into Minarchism while maintaining a series of very conservative social laws (eg against homosexuality & abortion, more censorship, etc). The America that the US right wing want is one in which the federal government runs the armed forces, state governments run law enforcement and the legal system is covered by both. Apart from that, the government should do nothing. Education will be run either as a private business or home schooling. The poor will receive no welfare except from the charitable giving of the wealthy. Health care will be provided entirely by private business and insurance agencies, with those who cannot afford it left uninsured or begging for charitable handouts. Social security should be eliminated and people should provide for their own retirement. These policies are a complete repudiation of all that has been learned in the last 150-200 years of Western Civilization. Thus the right wing in the US is historically very radical in its views and not moderate by any way of measuring political and economic beliefs.

And the more radical a belief is, the more likely that violence is to erupt. It erupted on the "left" when communism swept into Russia and China. It is likely to erupt on the "right" in the US due to the Tea Party.

And I finish by promoting Absolute Price Stability on a thread discussing the gold standard:

Fiat currencies are as inherently failure-prone as a car is - it depends upon the driver.

Car drivers can be stupid, they can be smart. If a car crashes it is oftentimes the fault of the driver.

When it comes to fiat currencies, it is up to central banks to control supply to ensure that it matches demand. When the demand for money increases so should its supply. When the demand for money decreases, so should its supply.

Money demand is called Money Velocity.

Basically it goes like this: Money velocity is sped up or slowed down according to the actions of the market and the government; Money supply is increased or decreased by the actions of the market and government when they respond to interest rates set by the central bank.

It is quite possible for a fiat currency to exist without any form of long term inflation. Japan since the early 1990s has had enough bouts of deflation and inflation to ensure that the Yen has neither gained nor fallen in value.

Of course Japan's economy during that period has not been the best, but what it does show is that an economy can function, GDP and GDP per capita can be raised and prices can remain stable even when a fiat currency is being used.

The key here is absolute price stability: ensuring that money neither rises nor falls in value over the long term.

Of course, by this argument, even low inflation targets are too high. The ECB, for example, tries to keep inflation under 2%. They should be keeping it just above or just below zero so that the average over the long term is zero.

As for gold... the problem with a gold standard is that for it to act as a currency it would need to not just retain its value but neither increase nor decrease in value, otherwise inflation or deflation would result. To increase gold supply would require more gold to be extracted from the ground (which would make mining companies de facto central banks) and, once it has been extracted, it cannot be "unextracted". By contrast a fiat currency can be created or "decreated" instantly by the actions of a central bank.

Listen to The Black Angels

When I returned to listening to new music a few years ago I was hooked by The Black Angels. With their name based upon the song name by The Velvet Underground and featuring the image of Nico on the drum kit, the Black Angels were one of the first bands that I was impressed by when listening to Last.fm's "sounds like" stream. Basically it goes like this:

1. I was a fan of Ride.
2. In the early 2000s, I discovered that Black Rebel Motorcycle Club were fans of Ride, so I became a fan of BRMC.
   
3. After subscribing to Last.fm, I played the streaming channel for bands that "sound like" Black Rebel Motorcycle Club.
4. I then became a fan of the following bands: The Black Angels, The Warlocks, The Brian Jonestown Massacre and Dead Meadow.
   

Of course as I searched backwards I discovered that Anton Newcombe founded the Brian Jonestown Massacre (BJM) partly upon the influence of British Shoegazing music, of which Ride was a major contributor. One member of BJM was Peter Hayes who left the band and formed BRMC. Another member of BJM was Bobby Hecksher who ended up forming the Warlocks. The Black Angels were influenced by BRMC and Dead Meadow were influenced by BJM. To top it all off, Mark Gardener, one of the members of Ride, wrote and performed on one of BJM's recent albums.

So essentially it goes back to Ride and The Brian Jonestown Massacre - although both bands owe their existence to The Velvet Underground as well.

Anyway, The Black Angels' star has been rising recently and they have appeared on David Letterman. Here is a song from their latest album. Please listen to it and buy the album.

The USDX and US Real GDP: Has the US been in recession since December 2002?

I'm a big fan of tying down absolute values. For me, it is no reason to cheer GDP growth in the US if the US Dollar has dropped by enough to wipe out relative gain internationally. This is because I see currency value as an international way of valuing. Let me give you an example.

Let's pretend that Country A has a GDP of 100 while country B has a GDP of 100, and that both countries have parity in currency value. If the currency remains locked together, then any increase in GDP in either country can be compared to one another. So country A, for example, may increase their GDP to 102, while country B increases to 101. Thus country A has the better GDP.

But what happens if you take currency changes into account? Let's say the while Country A's GDP has increased as per above, what would happen if their currency had dropped during that same period? In order to make an accurate comparison between country A & B, this change of currency must be taken into account. So the equation would look like this:

(Change in Real GDP) x (Change in Currency Value) = (Actual GDP Change)

And here's a table that explains how the difference might work in practice:

So while Middle Earth's GDP has increased faster than Narnia, the devaluation of Middle Earth's currency ensures that, in comparison with Narnia, it has actually experienced economic decline while Narnia has grown.

This sort of activity is naturally the case when GDP is compared internationally. Of course this has been augmented by the use of "Purchasing Power Parity" to ensure that differences in GDP comparison are more realistic.

Anyway, a while back I began to add the uncertainty of currency value into the analysis of US GDP. The USDX is the index best used for comparing the US Dollar's value compared to other currencies. So into the spreadsheet I went, multiplying real GDP by the 12 month USDX average from 1981 Q4 until now. This is the graph that results:

Historically you can see the effects of the Plaza Accord in the mid 1980s, followed by the mid 90s expansion and the tail-off since the early 2000s. According to this graph, US GDP peaked in 1986 Q1 (170.89), bottomed out in 1991 Q1 (134.67), peaked again in 2003 Q3 (239.54), and bottomed out again in 2009 Q3 (189.34). Since then it has risen only slightly (currently 191.91).

Of course, population issues need to be added into the equation, which is where GDP per capita comes into play. Here is Real GDP per capita adjusted by the USDX in the same way:

This obviously follows the same trend as the graph before, but you can see that the effects of a higher population have led to even less of a growth in GDP per capita from 1981 until today. According to these figures, Real GDP per capita, adjusted by the USDX, is currently 143.03, which implies only a 43.03% gain since 1981. In fact the current situation is lower even than the mid 1980s peak that was brought down by the Plaza Accord. This graph shows that a peak was reached in 1986 Q1 (164.52), which bottomed out in 1993 Q1 (121.81), peaked again in 2002 Q4 (190.29), and bottomed out again in 2009 Q3 (142.02).

What is notable from these last two graphs is that the last peak goes back eight years. In other words, the recent downturn, extreme in nature, has been cushioned by a rise in the dollar. Conversely, the "mild" recession of the early 2000s has been made worse by a long term decline in the value of the US dollar. These two assertions fit into the USDX history.

It would be fair to say that if Real GDP and Real GDP per capita (both adjusted by the USDX for international - absolute - comparison) did advance and decline in the years shown on that graph, then surely that would've been felt at a national level. Without really giving any links, consider this:

• US GDP per capita adjusted by the USDX grew in the early 80s. This implies that between 1981 and 1986, there was a period which could be described as "a good economy". That certainly fits.
• US GDP per capita adjusted by the USDX declined between 1986 and 1993. This implies that the period that could be described as "a bad economy". That fits too.
• US GDP per capita adjusted by the USDX then grew between 1993 and 2002. This implies that the period could be described as "a good economy". Despite a few issues (notably the 2001 recession), that fits as well.
• US GDP per capita adjusted by the USDX has then declined between 2002 and 2009. This implies "a bad economy" which fits too, though the property bubble helped smooth out the 2005-2007 period. Certainly this period had below-average GDP growth.
  

Though this issue has been on my mind for some months now, I am not fully convinced that my logic or argument is correct, which is why I am writing a disclaimer here. Part of my thinking is that a 1% growth in the value of a currency is the same as a 1% growth in the value of GDP, which may be in error. Certainly there is clear evidence that a GDP decline results in higher unemployment while a drop in currency value may not result in such an event. It is also affected by my opinion that common currencies like the Euro should be a logical economic goal, or at least have fixed currency rates governed by a currency board and operating by international standards.

Anyway, tell me where I'm wrong on this... if I am wrong.

Recession over; recovery still in progress.

The NBER has officially called the end of the recession: June 2009.

Of course the recession is measured from peak to trough, and crawling up the other side takes time. So just how bad is it currently, now that the Germans have stopped bombing and London has begun to be rebuilt?

The above graph shows that real GDP per capita peaked in 2007 Q4 at $44,062.22, plunged to $41,698.40 in 2009 Q2, and is currently $42,576.71. The peak and trough of real GDP per capita here matches the beginning and end of the NBER-defined recession. The current level of GDP per capita is the same as it was in 2005 Q3, so nearly five years of GDP have been wiped.

How the US performs from now on will be the real determiner of the recession's effect. While the recession was underway, many commentators (including Paul Krugman) wondered whether this would be an "L" shaped recession - a crash followed by a long period of low growth. The graph above shows the "L" beginning to form, though it may also be the beginnings of a "U" or "V".

My opinion is naturally quite negative. Total credit market debt for 2010 Q2 was 357.15% of GDP ($52.0545 Trillion), down from the peak of 374.15% ($52.5097 Trillion) in 2009 Q2 but still massively high in comparison with the rest of America's financial history. This means that much of the 30 year debt bubble accrued by US financial companies has a long way to go before it returns to normal. I can foresee very slow growth in GDP over the next few years for the US with the continual possibility of capital flight.

US CPI August 2010 and real interest rates

These charts are important:

Commentators I have read seem a little concerned that yearly inflation (chart 2) is still too low for comfort, but the first graph (chart 1) clearly shows that prices for July and August have increased significantly after a three month deflationary period through April to June. The July and August price changes actually represent annualised inflation of 3.70% and 3.05% respectively and are the highest recorded since August 2009. I wouldn't be surprised if US GDP in Q3 was positive now, though there is still room for a decline in Q4.

Download the CPI release here.

My own charts:

The Real Interest Rate chart above (10 year bond rates minus annual inflation) shows that interest rates have declined faster than inflation in the past two months, so while bond rates are historically very low, deflationary effects have been minimised. This means that real interest rates continue to be expansionary.

The spread between 10 year bond rates and the Federal Funds Rate can be used to determine recessionary environments. When the Federal Funds Rate exceeds 10 year bond rates, and the spread is negative (as shown in the middle region of the graph), historical data indicates that a recession will follow, which of course it did in December 2007. In August the spread fell to 251 basis points (10 Year bonds averaged 2.70% while the Federal Funds Rate averaged 0.19%), which indicates a movement towards contraction. Assuming that the Fed won't raise rates and can't lower rates any more than what they already are, any reduction in this spread will be due to a further fall in 10 year bond rates.

What about the Ozone Layer?

One of the complaints that Global Warming deniers point to is the ozone layer. They will say "Back in the 1980s everyone was worried about the ozone layer. There were dire predictions of global problems as a result of the growing hole in the ozone layer! Now what is happening? The ozone layer is growing back! If they were wrong in the 1980s about the ozone layer, they are likely to be wrong now when it comes to global warming!".

Today I read this:

The protective ozone layer in the earth's upper atmosphere has stopped thinning and should largely be restored by mid century thanks to a ban on harmful chemicals, UN scientists said on Thursday.

The "Scientific Assessment of Ozone Depletion 2010" report said a 1987 international treaty that phased out chlorofluorocarbons (CFC) -- substances used in refrigerators, aerosol sprays and some packing foams --- had been successful.

Ozone provides a natural protective filter against harmful ultra-violet rays from the sun, which can cause sunburn, cataracts and skin cancer as well as damage vegetation.

First observations of a seasonal ozone hole appearing over the Antarctic occurred in the 1970s and the alarm was raised in the 1980s after it was found to be worsening under the onslaught of CFCs, prompting 196 countries to join the Montreal Protocol.

"The Montreal Protocol signed in 1987 to control ozone depleting substances is working, it has protected us from further ozone deplation over the past decades," said World Meteorological Organisation head of research Len Barrie.

So the answer is simple: there was a serious problem with the ozone layer in the 1980s and the scientific community did warn everyone that problems would result. But a 1987 agreement resulted in a serious reduction in the amount of CFCs entering the atmosphere. As a result of this action, the world was saved.

Now scientists are saying that carbon dioxide emissions by humanity is causing global warming. Perhaps we need to listen to them, and act accordingly.

BHP makes the right call

From the ABC:

In a luncheon hosted by the Australian British Chamber of Commerce in Sydney today, BHP Billiton chief executive Marius Kloppers said that there was no single silver bullet to reducing emissions and the Government has to incorporate a number of variables.

"It is a long-dated problem and the nature of long-dated problems normally means that a single silver bullet does not exist to cure the ills," he told the audience.

...

He cautions that Australia's energy supply is particularly carbon intensive, with about 90 per cent of carbon emissions coming from the electricity sector originating from coal-fired power stations.

"Reducing Australia's carbon emissions footprint will require substantial changes in consumer behaviour," Mr Kloppers said.

He encouraged consumers to favour low carbon alternatives and to recognise that making a difference comes at a price.

BHP Billiton is, of course, the largest mining company in the world. Moreover, while it has diverse mining interests, it does own and operate a number of coal mines around the world.

The encouraging thing about Kloppers' statements is that they reflect the thinking and attitude of BHP's top management towards the issue of climate change. It has always been my belief that companies involved in hydrocarbon-for-energy extraction should be the ones taking the lead in producing alternatives to carbon emissions, rather than setting up disinformation campaigns against scientific consensus.

Terry Jones and American Christianity

It's been a long time since I've written anything remotely theological at this blog but today I felt compelled to quickly discuss the Terry Jones Qur'an burning issue. And to be even more amazing, I am responding to something I read by my arch-nemesis Dan Phillips at Pyromaniacs, whose blog "Biblical Christianity" is often just another anti-Obama boilerplate. Surprisingly I agree with Dan on this issue:

According to associate pastor Wayne Sapp — yes, evidently a church with around 50 people has an associate pastor; go figure — said that God told them to do it.

"God is leading us right up to the moment. It's no different than Abraham and his son. God didn't tell him, 'Go right up to the point where you might sacrifice him.' He wanted him to be fully committed. We're prepared to do what we're called to do."

As a Reformed Christian, I believe the Bible clearly teaches Sola Scriptura - that the Bible contains all that Christians need to know about God, about the Christian faith, and about how to live their lives. Dan Phillips, despite his own political baggage (which means that he somehow thinks that Social welfare policies are forbidden by scripture; go figure) hits the nail right on the head at this point:

God told them to do it, then God told them not to do it. But when God told them to do it, they built in the wiggle that God might change His mind. Yet then when God tells them not to do it, there is no wiggle-room: "Not today, not ever. We're not going to go back and do it." Sounds final. Nice that "God" seems to have settled His mind on the issue, finally (I speak as a leaky-Canoneer).

.........

Let's be more specific: the Wayne Grudem type of Charismatics — and everyone who gives Grudem cover — "own" Pastor Jones.

How so? They give Jones cover by their desperate re-defining and Clintoning-down of the Biblical gift of prophecy. What is prophecy, to Grudem? He explains it as the errant reporting of inerrant revelation. It is precisely like the old liberal redefinition of Biblical inspiration: the writers of Scripture received inerrant inspiration from God, but they wrote it down errantly. Grudem simply transfers this to NT prophets, instead of the writers of Scripture: they give errant reporting of spontaneous inerrant revelation. The message they receive is right, but it may be garbled in transmission.

And that is the issue. When Christians focus upon what God is supposedly trying to say to them, they often forget what God is actually saying. When a Christian spends his or her life trying to discern the Holy Spirit's secret messages via their own faulty radio transceiver, they will forget what God is trying to actually say in the Spirit inspired Word of God.

In many ways the Jones kerfuffle is no different from Christians who try to discern what special plan God has for them, while forgetting the most obvious plan of eternal life through Christ. In the end it is a reliance upon the subjective, which is interpreted and acted upon according to the amount of power that person has. If shut-in Joe Bloggs from dumpsville felt compelled to burn Qur'ans then no one would care; but a pastor with power over people in his church, that's a different issue.

So Dan Phillips is right, even though he's terribly and embarrassingly wrong on so many other issues. God can certainly speak through an Ass.

Hark! A Vagrant