How then, do we move backwards? How does a society, with most of the people having no clue of future events, move from being dependent on a vast and intertwined network of goods and services produced by the indigenous people of whereever, to a local resource and renewable energy based society, and do so in the timeframe available (20-30 years using the most liberal extimates, 10-20 with resonable estimates, 5-10 with worst case scenarios), all the while prices on everything increasing, world politics getting more militaristic, governments continuously reducing civil liberties, shortages of goods on the market and weather patterns resembling bad Hollywood movies?
Will our economy survive continuous Oil/Energy decline?
Yes
13%
[ 36 ]
No
64%
[ 167 ]
maybe (see comments)
13%
[ 35 ]
I don't know
7%
[ 20 ]
Total Votes : 258
Author
Message
Whitecrab Heavy Crude
Joined: May 26, 2004 Posts: 309 Location: Ontario, Canada
Posted: Sun Sep 12, 2004 12:23 am Post subject:
Monte, This kind of thing make my head hurt, in particular these parts of that site you linked:
Quote:
The operation may be best understood if we use the example of checks. The Fed writes a check to a securities dealer. The dealer deposits the check at his commercial bank. The commercial bank credits the dealer’s account and returns the check to the Fed. The Fed credits the bank’s reserve account. New money has been created and can be circulated by the dealer writing checks to pay his bills.
The money created by this process has no corporeal existence other than numbers in a bank’s ledger. Keep in mind that no notes have been printed and no coins have been minted. This is the secret of understanding money mechanics which I call ledger entry legerdemain or ledger entry shell game. Also, keep in mind that if you or I did such a thing, we would be called federal although not Federal Reserve Bank officer. We would be called federal prisoner.
The deposit made by the securities dealer creates an addition to the commercial bank’s reserve account. Commercial banks may lend a portion of the value of the reserve account. The portion is determined by the specified fractional reserve requirement. If the specified fraction is 10%, the bank may lend 90% of its reserve account value.
and
Quote:
The foregoing is how our money is created. Money destruction is the rest of the story of money mechanics. The Fed can shrink basic bank reserves by taking the opposite action in the open market that it took to create reserves. That is, it sells securities. The buyer’s check is sent to the buyer’s commercial bank for debit of his deposit account and deposits and reserves are reduced. The reduction in reserves creates a reverse cascade or collapse of loans and deposits of up to 12 times the reduction in reserves. Money is thereby uncreated.
Commercial banks uncreate money corresponding to loan principle when a loan is repaid. In order to repay a loan, the money must come out of a deposit account. A reduction in deposits may leave the bank with reserves that supported the deposit and are now excess. To restore money to circulation, a new loan must be made. No reverse cascading effect occurs, because reserves are not reduced. Keep in mind that we are not talking about anything corporeal. We are talking about deposit money that only exists as numbers. It is all numbers and bookkeeping. Numbers can be created and erased with the touch of a computer button as easily as they can be transferred from one account to another.
Our money supply is a dynamic function of money creation by lending and cancellation by repayment. The money supply known as M1, M2, M3, and L commonly published in business and statistical literature is the total of liquid money in the pipeline at a given time. It is not a true representation of the dynamic money supply. The M’s obscure the dynamics of lending and paying back.
Could you try to explain those passages in another way?
MonteQuest wrote:
The Federal Reserve is a private entity with no oversight by either the president of Congress. Based upon the security assets the FED purchases from the government using a 10% reserve, the FED, not the govt can create $90 for every $10 in reserve. This is lent out to other banks who can do the same, based upon the 10% reserve. Sure , the govt knows and expects this to happen, but the federal government has no control over this, which you admit to in your last sentence. Either way, the money created is debt money. In my proposal the government would spend, not lend the money into existence. there is a big difference. Reread my post, I feel you missed something. Obviously, I was painting a broad picture, without stating necessary checks and balances to prevent your scenario. Do you not see that the present system cannot continue?
I'm probably wrong, but let me see if I can really dumb it down. Is this what you're saying?
"Right now, to create more money in the money supply the Fed creates debt. This is necessary because if a bank gives out a loan for $100, at 10% interest, then the economy will need $110 somewhere down the line.
I am proposing that instead, the government should physically print the $10 and spend it on worthy programs, instead of creating it via inevitably unservicable debt."
Am I sorta right or totally off? _________________ "Our forces are now closer to the center of Baghdad than most American commuters are to their downtown office."
--Defense Secretary Donald Rumsfeld, April 2003
Actions:
1. The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”
This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created." _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Could you try to explain those passages in another way??
It does drive one bonkers until you get the hang of it. Let's see. I just made a post here a minute ago that should explain the creation of the money.
Ok, you have borrowed $100,000 from a bank at basic 10% interest. That means you must pay back $110,000. The bank is only required to keep 10% of any loan it makes as reserve. So, based upon a $10,00 bank reserve deposit, it can lend, create, "pen" $90,000 out of thin air. When you go to the bank to make your monthly payment the bank changes a data entry in a ledger and uncreates your payment, putting that money back into the reserves which it can then lend out again 90% of that. This plays out about 10 times.
The drawback here is that the money to repay the interest on the loan is not created, so it must be borrowed. There is never enough money in the system to pay the principal and the interest. If we all went out and paid our debts, there would be no money in circulation except the change in your pocket.
Yes, if the govt spent the money into existence rather than lended it with interest, things would be different. Government could stop borrowing money at interest, and start creating it itself by spending it into the economy on public projects and services, at the same time creating jobs and stimulating the economy. There is nothing wrong with creating it out of nothing, because this is the only way to provide the means of exchange. The amount that is printed or created simply needs to be matched to the amount of economic activity that is taking place. What is wrong is that the right to do this has been allowed to pass to private interests who create it as loans for private profit.
Debt-free money, in quantities necessary for the nation's work can only be obtained from one source. That is the sovereign government, in our case the federal government, as provided in Article I, section 8, clause 5 of the Constitution. To be debt-free, money when issued must pay for something real, such as property, goods or services. There must be no debt owed to the money creator by the person who receives the payment, as there is when a person receives a loan. The person who receives debt-free money must give something immediately in return for the money. In other words it is a purchase transaction and it is completed. Only the government can spend enough money into circulation debt-free to satisfy the nation's need for money. Banks can not. Most of the money created by banks must be based on a debt owed to the bank by a borrower.
I'm not any kind of fan of Hitler, but he has the best known example of economic growth in history. Hitler had brought Germany back from the dead, creating full employment without inflation in just four years, from 1933 to 1937, Germany became almost completely self-sufficient in the production of steel, aluminum, chemicals, petroleum, and general industry. How did he do it?
He took Germany off the gold standard and based their monetary system on the productivity of the worker. Hitler then began exchanging goods with other poor countries. For example, with Argentina he exchanged locomotives for food. Instead of Argentina borrowing money at high interest rates to buy German locomotives and Germany borrowing money at high interest rates to buy Argentina’s meat, the two countries simply agreed upon an exchange index and bartered their goods.
Hitler had, in essence, created virtual money. Germany created its own credit. As Hitler told the Reichstag on January 30, 1937: “A Community does not live from the fictional worth of Money, but from its productivity, which in turn gives Money its real worth. This Productivity is what guarantees the worth of Money, not the Banks or Treasuries full of Gold.”
Has your head stopped hurting? _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Aug 14, 2004 Posts: 2063 Location: San Diego, Ca.
Posted: Sun Sep 12, 2004 2:13 am Post subject:
Quote:
but I haven't seen any research to suggest we are facing peak energy soon. Have you?
Not specifically. Just reading between the lines.
Once oil and natural gas peak, I don't think we can fill the depletion gap with coal, wind, solar & nuclear.
Additionally, peak oil may also be peak energy. Natural gas, coal, nuclear, solar & wind may not be able fill the gap.
LNG imports might help, but I am not holding my breath. _________________ "Peak oil isn't more than an interesting industry factoid and doesn't have anything to do with the hysterics speculated on ad nauseum around here!" ReserveGrowthRulz
but I haven't seen any research to suggest we are facing peak energy soon. Have you?
Not specifically.
So you admit your position is not backed by any evidence.
Quote:
Once oil and natural gas peak,
Even the pessimists put the gas peak in 2020, 16 years from now. That's 16 years of leeway, where the economy can grow based on NG and other non-peaking sources. What do you think we're going to be doing all that time? Making out our wills?
Quote:
I don't think we can fill the depletion gap with coal, wind, solar & nuclear.
That's an awfully big "I don't think". I think we need a little more substantial proof than that before everybody panics. Where does your pessimism come from? Do you have any reasoning at all to support it? All those sources have massive untapped reserves which will not be peaking for a very long time. Why wouldn't we tap them, when not doing so is suicide?
If I told you "I don't think" peak oil is going to be a problem, and expected you to accept that as an argument, I doubt you would. You wouldn't give me a free pass, so why should I give one to you?
Joined: Aug 12, 2004 Posts: 1180 Location: England
Posted: Sun Sep 12, 2004 7:14 am Post subject:
MonteQuest wrote:
Are you kidding? $7/gal gasoline would utterly destroy any economy. conditioners, and go on vacation when gas is $7.00 a gallon? This isn't a cold where you can take two aspirins to get over, this is a full blown raging virus. End of rant. :D
its already $7.00 in the UK, we are still growing .....
Joined: Aug 24, 2004 Posts: 397 Location: United Kingdom, Various
Posted: Sun Sep 12, 2004 8:36 am Post subject:
PB's right; crude is actually only 11% of the petrol price here in the UK. 76-79% of it is actually tax.
But it doesn't suggest that rising petrol prices won't be a problem in other countries - remember that the 79% goes directly to the government which is recirculated into public services. If there was no duty and 100% of the price was crude, at $7, that wouldn't go back into the UK economy, it would go straight to the oil companies.
The advantage here is that a 100% rise in the cost of crude oil will only mean an 11% rise in price here, for consumers. That doesn't include industry who don't pay so much tax on fuels.
Joined: Aug 22, 2004 Posts: 91 Location: Potsdam, Germany
Posted: Sun Sep 12, 2004 9:05 am Post subject:
The reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.
Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).
The reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.
Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).
Davidyson
Bingo! Our entire economy is geared to the cheap price of oil. 40% of our oil goes to gasoline. The big consumer of fuel is the airlines. Anything over $30/barrel and they can not operate at a profit. Passing on the increase to consumers at 10,000 flights/day would cascade through the economy. Look at how much effect 911 had. Like I said before, it is the canary in the mineshaft. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: Aug 12, 2004 Posts: 1180 Location: England
Posted: Sun Sep 12, 2004 11:45 am Post subject:
MonteQuest wrote:
davidyson wrote:
The reason why 7$ per gallon would be the death of the US economy seems to be that it is not used to this sort of price and therefore is much more dependant on a low price.
Probably even the US would eventuelly manage to adapt, but anly at a very high economic and social cost (given that the price crisis does not collapse the dollar, which might lead to a crisis so deep that it takes down the whole world).
Davidyson
Bingo! Our entire economy is geared to the cheap price of oil. 40% of our oil goes to gasoline. The big consumer of fuel is the airlines. Anything over $30/barrel and they can not operate at a profit. Passing on the increase to consumers at 10,000 flights/day would cascade through the economy. Look at how much effect 911 had. Like I said before, it is the canary in the mineshaft.
Thats a relief PO is only going to screw the US economy thank god ! _________________ Peak Oil? crap Happens !
Joined: May 22, 2004 Posts: 1415 Location: Ottawa, Ontario
Posted: Sun Sep 12, 2004 11:50 am Post subject:
MonteQuest wrote:
This is how I see it:
Actions:
1. The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”
This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created."
Hey I think we agree here on the mechanics. Don't you think? My 4 actions amount to the equivalent of the first 5 steps of your actions. I didn't include the 6th action cause we both understand how the banking system increases the apparent volume of money through lending with fractional reserves.
But you seem to not answer my point that the net effect is that the central bank gives the government free money to spend with the knowledge that it is never going to have to pay off that particular debt. If you don't have to ever pay a debt, it in effect in no longer a debt and we're back to the government having "created" money (as you want it to) by issuing debt to the central bank.
MonteQuest when you say :
Quote:
The drawback here is that the money to repay the interest on the loan is not created, so it must be borrowed. There is never enough money in the system to pay the principal and the interest. If we all went out and paid our debts, there would be no money in circulation except the change in your pocket.
you miss the point that there are some debts that are never going to be repaid ie the government debts held by the central bank. This debt is a polite fiction between the central bank and the federal government.
Joined: May 26, 2004 Posts: 309 Location: Ontario, Canada
Posted: Sun Sep 12, 2004 11:54 am Post subject:
Monte, thanks a lot. I think I kinda get everything. I understand what happens once we get to the level of the bank loaning me money, it's just the FED/Gov't dance that's still a bit bewildering.
MonteQuest wrote:
1. The gov. creates a Treasury Note and gives it the the FED
2. The FED receives the TN where it becomes a security assset.
3. The Fed issues a check to the US Govt
4. The govt deposits the check into a FED Reserve Bank where it can write checks to pay the govt's bills, Social Secuity, etc.
5. These govt checks are deposited into many Fed Reserve banks where they become reserves.
6. A bank can loan out this money while only holding 10% in reserve, thus for every $100 dollars created, the Fed can loan $90 dollars to other banks at interest, who in turn can do the same. So, when you borrow $100,000 to buy a home, actually only $10,000 of that loan actually exists in the bank, the other $90,000 is created out of “thin air.”
This is how the Federal Reserve "creates" the money supply. Individuals can buy securities, and so can central banks, but the Fed increases the money supply primarliy through the system I just explained. If you disagree, I invite you to go to your search engine and type in "How money is created."
Steps 1-5.
---
JohnDenver wrote:
Quote:
Once oil and natural gas peak,
Even the pessimists put the gas peak in 2020, 16 years from now. That's 16 years of leeway, where the economy can grow based on NG and other non-peaking sources. What do you think we're going to be doing all that time? Making out our wills?
Quote:
I don't think we can fill the depletion gap with coal, wind, solar & nuclear.
That's an awfully big "I don't think". I think we need a little more substantial proof than that before everybody panics. Where does your pessimism come from? Do you have any reasoning at all to support it? All those sources have massive untapped reserves which will not be peaking for a very long time. Why wouldn't we tap them, when not doing so is suicide?
If I told you "I don't think" peak oil is going to be a problem, and expected you to accept that as an argument, I doubt you would. You wouldn't give me a free pass, so why should I give one to you?
Natural gas is expceted to peak world-wide somewhere 2030, ± 10 years. First of all, that doesn't account for the fact that North America is desperately close to a gas crisis and LNG terminals are coming 2007 at the earliest, and even then may not be enough. Secondly, that is at current projections: if we start running vehciles on natural gas we will run out much, much more quickly. (Ignoring the fact that preparing to run on natural gas would likely take years if not a decade).
As for the "I don't think we can fill the gap" arugment, try the energy subforum. To put it briefly:
Coal: If we could mine it, and turn it into oil quickly enough (which we likely can't), it would last 1-2 generations before becoming energy negative. 40 years if we continued to have economic growth of 2%/year. Although in reality, I wonder if we can really mine it fast enough without physical crowding in coal mines.
Nuclear: Replacing the energy of oil with the energy of nuclear plants would require us to open a new plant somewhere in the world every 2 days. Plants cost billions and take 5-12 years to build, and only a small cadre of experts can build them.
Wind/solar: They are intermitant and demand isn't. They make electricity, currently fairly useless for transportation. We would need to scale them up ~1000x to be a solution, and they take oil to build and maintain.
Again, go to the energy subforums for detailed discussions, but those are some back-of-the-envelope calculations that give you an idea how hard it is just to replace the energy lost. So I was pretending that a nuclear plant can somehow gas up my car. _________________ "Our forces are now closer to the center of Baghdad than most American commuters are to their downtown office."
--Defense Secretary Donald Rumsfeld, April 2003
Hey I think we agree here on the mechanics. Don't you think? My 4 actions amount to the equivalent of the first 5 steps of your actions. I didn't include the 6th action cause we both understand how the banking system increases the apparent volume of money through lending with fractional reserves.
But you seem to not answer my point that the net effect is that the central bank gives the government free money to spend with the knowledge that it is never going to have to pay off that particular debt. you miss the point that there are some debts that are never going to be repaid ie the government debts held by the central bank. This debt is a polite fiction between the central bank and the federal government.
Yes, I think we are on the same page as to mechanics, you just had a rather round about way of expressing it, so I posted for clarity between us. Oh, and the fact that much of the debt won't be paid back is not lost on me. I'm not advocating the govt issue debt to the central bank. Read my last post to WhiteCrab. I am saying the govt should spend the money into existence for its own needs 10%, while the Fed does the rest. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Monte, thanks a lot. I think I kinda get everything. I understand what happens once we get to the level of the bank loaning me money, it's just the FED/Gov't dance that's still a bit bewildering.
You are welcome. What aspect of the FED/Govt dance still makes your head hurt? Be glad to try and explain further.
Quote:
Coal: If we could mine it, and turn it into oil quickly enough (which we likely can't), it would last 1-2 generations before becoming energy negative. 40 years if we continued to have economic growth of 2%/year. Although in reality, I wonder if we can really mine it fast enough without physical crowding in coal mines.
I read somewhere that China is building a coal-fired plant every two weeks and can not keep up with current demand. Much of the coal has arsenic in it and it is causing skin lesions among the people using and handling it. _________________ A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
Live in Arizona? Check out: http://sustainablearizona.org and read my blog.
Joined: May 22, 2004 Posts: 1415 Location: Ottawa, Ontario
Posted: Sun Sep 12, 2004 12:18 pm Post subject:
nero wrote:
This investment in improved efficiency however will drag on people's standard of living. Eg. The money spent improving energy efficiency won't be spent making the latest and greatest gizmo. The extra money spent buying the new energy efficient fridge means you won't get the one with the automatic mug froster.
JohnDenver wrote:
I often read articles saying similar things about retailing, i.e. Wal-Mart's sales are dropping because people are spending more at the pump. But why would that have any effect on GDP or growth (which is measured with GDP)? There is still a transaction, and money still changes hands. The value of goods and services does not decline, just the nature of the good/service purchased.
The standard of living doesn't increase the GDP does. They're not synonymous.
nero wrote:
Perversely the headline number nominal GDP can grow while people's standard of living drops. This is clearly the case if the rate of inflation is greater than the rate GDP. The improvements in efficiency will be a hidden cause of inflation. Say all new small cars were mandated to be hybrids. with current technology hybrids cost more so hey presto we have inflation in the price of cars.
JohnDenver wrote:
My understanding is that improved functionality of products is factored into the inflation statistics. For example, computers consistently cost the same, but they get more and more powerful, and that is why computers are deflating. So the inflation can be massaged away be claiming that people are paying more for a more functional product, and thus not paying more at all.
The improved fule eficiency isn't an improvement in functionality it is a decrease in the cost of operating the vehicle. The two examples are therefore not equivalent. The increase in the cost of the hybrid should be folded into the inflation rate.
I grant you though that the example of the computer makes it hard to calculate the actual inflation rate. Economists argue about the amount of over estimation of the inflation rate all the time. (At least its a common point brought up when explaining why it is a good thing to have an inflation rate of at least 2%.)
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