[JohnDenver]

In one of the Orlov threads, we have:

A price spike in oil, as a result of economic recovery attempts, above 25% of GDP creates a crash, the GDP shrinks, the next crash comes at a lower oil price...its a feedback loop, and has already begun.

This has become a very common collapse scenario, but I don't see it happening for one simple reason: If volatility begins to get disruptive, oil will be rationed. => No more loop.

If you want to present a credible collapse scenario, I believe you have to show the collapse occurring in the context of rationing.

Personally, I think rationing is a great idea, even today, and can be presented in a trendy, environmental format as cap-and-trade. Consumers and businesses should adapt to cap-and-trade fairly easily considering the alternative of wildly volatile prices. It will also take wall street speculators and profiteers out of the process, and that should be popular.

So I'd like to hear comments on why economic collapse will occur in the context of rationing. Or, alternatively, why you believe rationing will not occur.

Note to kpeavey: Orlov's 25% figure which you quote is wrong. He misread Cellier's paper, and made a large arithmetic mistake. Details

[vision-master]

Note to kpeavey: Orlov's 25% figure which you quote is wrong. He misread Cellier's paper, and made a large arithmetic mistake. Details

I have to contact my spirits for a reading 1st.

[threadbear]

There will definitely be rationing, if we ever have actual shortages again. Other forms of govt. intervention in the oil exchanges, will be applied, if hedge funds, banks, etc...start bidding up the price of oil, in a way that drives the country further into depression. And that is a GOOD thing. Free marketeers need to give their heads a good shake on this one. When supply far exceeds demand, and the price still rises, that's not free market dynamics, and govt.intervention is remedial.

I have a feeling that's what is keeping the price from skying again. It's reluctance on the part of large intstitutional investors to game the market, as they know there will be a swift govt response. There's reason to believe that's what caused the massive pullout of energy, last year. Some large investors freaked, when govt threatened to intervene. Quickly thereafter there was a cascading effect that sent oil prices spiraling down.

The big hedge funds, sovereign funds, banks, who hadn't pulled out by that time, got stung. It wasn't necessarily the rise in oil price that triggered the economic collapse, but the subprime fiasco, together with plummeting oil prices that destroyed the energy desks of major banks and financial companies. That has to have been where a lot of their capital was derived from.

Too many people get this completely ass-backwards.

[MonteQuest]

So I'd like to hear comments on why economic collapse will occur in the context of rationing.

Why will a motor sputter when it is starved for fuel?

[threadbear]

So I'd like to hear comments on why economic collapse will occur in the context of rationing.

Why will a motor sputter when it is starved for fuel?

Rationing is more likely to keep the motor running.

[kpeavey]

Thanks for the detail link. Looking at the events of the last year, it would seem that the upper threshold price for oil is 6.6% of GDP rather than 25%.

Some things you will need to account for in your rationing/volatility control plan:
-black market energy trading
-crime
-Equitable Rationing

I get my ration, conserve as best I can, I have spare gas to offer for sale/trade. Joe the plumber needs extra gas to make more plumbing stops. Suzy Soccermom, who makes a fortune selling Mary Kay on the side, is unconcerned with the price of gas, but needs more to pump into her H3 Hummer. How does rationing control demand and hence the price?

I got my car parked behind a locked garage door. Some stealthy Lex Luthor type gets into my garage, drains away my ration from the tank, makes off like D B Cooper. Would this serve as an increase in supply for the market? Can I recover a bonus ration to make up for my loss? What if I simply report my ration as stolen in order to get more (Ration Fraud).

My mother owns a car but is too old and lame to drive it anymore. Does she get a ration?

I've got 2 trucks. Do I get 2 rations? 1 is diesel, gets used on the farm. The other is gas, is used for general purpose transportation and light loads.

My neighbor has no car. Is it just that others get a ration when she does not? Maybe we can give her a box of gubmint cheese to make up for it.

Clearly we'll need a means of determining the ration. Some will get more than others. This does not solve the core problem of a growing population. Kids get older, they want a car. Does everyones ration shrink to account for an increase in demand? How about the gas runs out at the ration depot because of a broken down delivery truck? Gonna be a lot of anxious people out there sooner or later.

As a whole, a nations gas consumption, even if rationed in a fair and equitable manner, competes with the gas consumption of every other country out there. All rationing would do is level out consumption in the country doing the rationing. While it may help to keep prices down in the short term, it simply makes it more affordable in the nations not doing the rationing. The global population and demand growth will not be stopped. Rationing is therefore futile and only serves to punish the nation doing the rationing.

Still, the politicians must do something, even if it is the wrong thing. They'll send themselves off to committee and come up with a rationing plan. They''ll proclaim it as vital to save the climate. It will be implemented, the people will fuss and fume. If all the nations in the world were to successfully implement a fair and balanced rationing system, it does nothing to alter the geological structure of oil wells. The wells will go into decline. A shrinking supply with a steady demand still will send prices higher until they reach the economic collapse price ceiling.
The economy is crippled again. Rations are reduced to bring down the price and stimulate the economy, albeit a smaller economy. Repeat this a few times, with the price ceiling getting lower each time, you will reach a point where the cost of producing the oil is higher than the price the global economy can pay.

That's when the shooting starts.

[threadbear]

Clearly we'll need a means of determining the ration. Some will get more than others. This does not solve the core problem of a growing population. Kids get older, they want a car.

Rationing, though far from perfect, will prevent far more shooting wars than it causes. You make it sound as if kids getting older and wanting a car, will have some impact. This is clearly a "desire", that WILL not translate into real demand. Not at all. Those days are gone, gone, gone.

[Schmuto]

At oil price X, the government "does something."

The something is nothing.

At oil price 1.2X, the government acts to limit "speculation."

At oil price 1.7X, the government limits all trading to those taking physical delivery or selling actual oil.

At oil price 2.1X the government stops all trading of oil futures and enters the market to "ration" oil. This will exacerbate the negative economic effects of peak oil.

At oil price 3.0X it's the EOTWASKI.

I'd say X is about 120 right now.

[MonteQuest]

Rationing is more likely to keep the motor running.

But hitting on only a few cylinders unable to carry any kind of load. Can't service the debt if you can't increase production.

[MonteQuest]

Rationing, though far from perfect, will prevent far more shooting wars than it causes.

Rationing aka conservation, is a self-induced economic recession.

Some energy consumers have no leeway in consumption. It takes what it takes to do business.

[sittinguy]

Even before the spike I wasn't useing excess gas. my fuel needs never changed. I have to get to work and home 5 days a week, and I always try to pick things up on the way home to avoid extra trips. The price of gas means nothing to me, Every 2 weeks I need to fill up.

I don't see how they can ration with any real success.
People will always find a work around, unless they only let you fill up if your tank is empty, but I would just go home, empty it and go to a different station.

So I don't think it could be done.

I have 4 cars so do i get 4 rations, oh yeh and a motorcycle, thats 5

[kpeavey]

Gubmint issued ration coupons similar to WWII can be designed to keep you from getting more than your allotted share. This would be countered with better computer software and printers. The gubmint would respond with embedded security devices in the stamps or computer scanning of vehicles/licenses/id tags or whatever else is needed to nanny the sheep. It wont be free, it wont be simple, and it wont solve the problem.

[MonteQuest]

The topic title should read:

"Standard of living decline to counter volatility."

Or:

"Unemployment rise to counter volatility"

Or:

"Self-induced recession to counter volatility"

[Graeme]

La Revolucion Energetica: Cuba's Energy Revolution

Just a few years ago Cuba’s energy situation was bleak. The country had 11 large, and quite inefficient, thermoelectric plants generating electricity for the entire island. Most of the plants were 25 years old and only functioning 60% of the time. There were frequent blackouts, especially during peak demand periods. There was also a high percentage of transmission losses along the electrical distribution grid. To add to the energy crisis, most Cuban households had inefficient appliances, 75% of the population was cooking with kerosene, and the residential electrical rates did not encourage conservation.

The statistics are impressive, the country is currently consuming 34% of the kerosene, 40% of the LPG (liquefied petroleum gas) and 80% of the gasoline it used to consume before the implementation of the Energy Revolution a mere two years earlier. Cuba’s per capita energy consumption is now at a level one-eighth of that in the US, while access to health services, education levels, and life expectancy are still some of the top ranking in the world, as Table 1, below shows.

energybulletin

renewableenergyworld

[TonyPrep]

If volatility begins to get disruptive, oil will be rationed. => No more loop. If you want to present a credible collapse scenario, I believe you have to show the collapse occurring in the context of rationing.
Personally, I think rationing is a great idea, even today, and can be presented in a trendy, environmental format as cap-and-trade. Consumers and businesses should adapt to cap-and-trade fairly easily considering the alternative of wildly volatile prices. It will also take wall street speculators and profiteers out of the process, and that should be popular.

I'm not sure oil will be rationed because of volatility. It will be rationed if there are extensive shortages. However, rationing, itself, is a form of shortage, since it implies that people and businesses will not be able to get all they want.

We've already seen a possible collapse scenario that doesn't involve rationing. As oil become scarce again, the price will get to a level that will induce another recession, a fall in consumption and, thus, an apparent glut of oil, but at a lower level. This undulation could probably go on for quite a long time, without rationing being seriously considered. After all, recessions are part of the normal economic cycle and may occur at random intervals.

This ultimately downward spiral could be viewed as a collapse, though it might take a long time to be seen as such.

[rangerone314]

Rationing implies prioritizing... likely to be:

1) Military
2) Agricultural
3) Trucking/trains
4) Carpooling

[kpeavey]

Some systems and organizations would continue to get all the fuel needed
1 Military
2 Federal government
3 State government: National Guard, Troopers
4 County: Sherrif, Emergency Services
5 Municipal: Police, Fire, Rescue
6 Critical Industrial Systems, electricity, key resource processing
7 Agriculture
8 Transportation in support of the above systems

Whatever is left would be rationed.

[mattduke]

Don't forget what they've told you your entire life: driving is a priviledge, revocable at any time.

[Arthur75]

Personnally I think that the concept of a "fully redistributed carbon tax" (or not fully but a big part redistributed) would be much better than rationing and any cap and trade schema.

A rising carbon price is essential to "decarbonize" the economy, i.e., to move the nation toward the era beyond fossil fuels. The most effective way to achieve this is a carbon tax (on oil, gas, and coal) at the well-head or port of entry. The tax will then appropriately affect all products and activities that use fossil fuels. The public's near-term, mid-term, and long-term lifestyle choices will be affected by knowledge that the carbon tax rate will be rising.
The public will support the tax if it is returned to them, equal shares on a per capita basis (half shares for children up to a maximum of two child-shares per family), deposited monthly in bank accounts. No large bureaucracy is needed. A person reducing his carbon footprint more than average makes money. A person with large cars and a big house will pay a tax much higher than the dividend. Not one cent goes to Washington. No lobbyists will be supported. Unlike cap-and-trade, no millionaires would be made at the expense of the public.

Guardian

And as such a tax should be based on volume and not price, it would also "smoothen" the primary products price variations. It is also fully anonymous (no good and bad citizens)

And "solutions agnostic" except that it pushed everything in the direction of less fossile fuels use. It would also be much less prone to black market, and most probably much cheaper to set up.

[rangerone314]

Some systems and organizations would continue to get all the fuel needed
1 Military
2 Federal government
3 State government: National Guard, Troopers
4 County: Sherrif, Emergency Services
5 Municipal: Police, Fire, Rescue
6 Critical Industrial Systems, electricity, key resource processing
7 Agriculture
8 Transportation in support of the above systems

Whatever is left would be rationed.

The question is, what happens if/when the amount used by 1->8 equals amount supplied and there is no more left to be rationed...