WHAT PRICE COLLAPSE?

As crude prices rise the breaking point draws near. Two years ago it had to reach $147 a barrel before the economy of not just America but the world ground to a halt. What's the magic number this time around?

"Fuel protests could be in the pipeline before the General Election as prices continue to soar at the pumps.

Prices have hit a record average of £1.20p a litre and industry experts have warned the price could rocket to £1.50p this summer due to the weak pound and increased cost of wholesale fuel.

It comes just days after the Government put fuel duty up by 1p a litre.

Andrew Spence, a farmer, who led Fuel Lobby protesters at the Shell UK plant in Jarrow in both 2000 and 2005, has warned that angry hauliers are prepared to launch action and make petrol prices a political issue once again.

The 42-year-old said feelings were running high in the haulage industry and blockades could be back before the General Election."
Daily Mail

PEAK OIL IS A WAY OF LIFE NOW

All quotes below come from the Financial Times:

"This week oil climbed to $87 a barrel, its highest level since October 2008 and prompted concerns that triple-digit crude was once again in the offing.

This was after a period of eight months when oil traded between $70 and $80, a narrow band that pleased oil producers without hurting consumers too much.

The latest surge seems to have been prompted by rising confidence in a global economic recovery, even if most traders and bankers are still cautious about supply and demand fundamentals."

In July of 2008 oil hit $147 a barrel and along with the collapsing real estate market nearly drove America to her knees. So what's the magic number this time; $100, $120, $130? I don't know but I'm sure it will be well below the $147 that did it last time.

"...Policymakers seem untroubled. Energy ministers at the International Energy Forum in Mexico last week embraced less volatility, not lower prices. Lawrence Summers, director of the US National Economic Council, in remarks this week bemoaned his country’s dependence on foreign oil supplies, but did not complain about prices.

Some economists do not view $80 oil as a threat to global growth, which the International Monetary Fund projects at 4 per cent this year. James Hamilton, an economist at the University of California, San Diego, is author of a paper that found oil’s 2008 surge to $147 a barrel helped tip a housing-led slowdown into a recession. This time, the relatively steady nature of the price rebound has allowed consumers to adjust.

“The shock value is gone now,” Prof Hamilton says."

Sure the shock value is gone. So what??!! It wasn't the shock that damned near destroyed us with the last go 'round, it was the cost! We haven't adjusted to higher prices, we just can't do anything about them. The only adjustment possible has been to drive a whole lot less and reallocate the money we have from food, clothing and entertainment to energy. And, as prices go up more will go to energy and the rest will be just forgotten. We're not alone with this which is why higher energy costs will destroy the economy and any chance of recovery.

...“If we were to move to $100 a barrel, economic growth would start to slow, but ‘derail’ is likely too strong a word,” Mr Allidina says.

A move to higher oil prices would not necessarily generate corresponding gains in retail fuel prices, as new refining capacity has made petrol markets more competitive. In the US, filling stations in most states still sell petrol for less than $3 a gallon, well below the peak of 2008. In the UK, however, petrol prices are close to record highs, even though crude is well below its peak."

I want to move into that ivory tower these guys live in because it is far removed from the rest of the world. Oil hasn't even gotten to $90 a barrel yet regular gas here is $2.89 a gallon. What the hell are these guys smoking? It's like the weatherman telling us we're going to have a sunny day without opening his window to see the rain.

"...When oil prices last surged to $100 a barrel in late 2007, US and other rich-country consumers blunted the impact by drawing on home-equity loans and credit cards to finance petrol purchases, says David Greely, energy economist at Goldman Sachs.

“It does raise the issue if we’re in a much more credit constrained world going forward, are consumers able to do that or will they be more sensitive?” he asks."

Let me answer that question for you; YES!!! We have no way to pay for higher fuel costs except to rob from Peter to pay Paul. Every additional dollar spent on energy will cause a drop in demand for something else. High energy costs will destroy this economy because it will destroy the people's purchasing power. It's not just the direct cost of energy, either. It's the higher cost of everything that is shipped by oil powered means or uses oil in manufacturing or contains oils as an ingredient. And that's just about everything. So we'll have less disposable income to spend on more expensive goods. I don't need a degree in economics to tell these morons that this just won't work.

If higher costs don't spell the end of our economy they mark the transformation of it. America is going to be forced to reduce and reorient itself. We will buy locally from people in our communities. Eventually we will be buying locally produced goods from those people. We will be growing more of our own food and fixing what breaks instead of throwing it away and buying new. That means that we will all have to relearn the basic skills that mankind has relied on for 5000 years. Moving numbers around on a spreadsheet isn't going to be a useful skill much longer.

This is Peak Oil. If we don't have access to cheap and abundant oil we cannot live in the manner we have become accustomed to. We have refused to develop any other source of energy such as nuclear or natural gas, even going as far as to erect barriers against them, because our politicians have been bought and paid for by the oil producers. And now, it's too late.

We're caught in a vicious loop that we can't get out of. Any indication of economic recovery will cause energy prices to rise. Rising prices will kill the recovery. Because the failing economy will force oil prices down and energy prices will fall with them, the economy will start to recover once again, which will cause a rise in energy prices, which of course will end the recovery.

Each time we complete this cycle the price point at which energy will cause another collapse will be lower than the last time because each one of the cycles will progressively destroy the ability of the economy to recover. At some point, recovery will not be possible.

We are nearing the end of the second cycle which means that when the price of oil hits some magic number, the recovery (what there is of it, which ain't much) will fail and the economy will collapse, again. This time it will go a little deeper.

Start to view the world in light of this new reality and prepare for your future accordingly. Develop relationships with your neighbors and support local merchants. Begin to think and act as locally as you can. It may cost a bit more to shop with a local merchant than it does at the big retail discounter but the local guy will be the one that will stick with us in the end if we help him to stay alive. We need our little towns and our churches, our friends and families. Our world is in the process of shrinking to a walking distance as cheap and readily available energy fades away.

OIL AT $150 THIS SUMMER?

Santelli's argument is not without merit. The last time oil got to this level the economy nearly collapsed. The difference between now and then is that we went into high fuel cost two years ago with a strong economy just beginning to enter a depression. If fuel costs skyrocket again we will be faced with costs going through the roof in the middle of a depression. Personal credit is exhausted and so many high paying jobs have been lost only to be replaced by minimum wage subsistence employment. Can somebody making $8.50 an hour afford to drive 15 miles to work when gas is $4 a gallon? If all of our money is being spent feeding our vehicles how can we buy anything else?

Say goodbye to any chance of recovery.

OIL HITS NEW HIGH AS REAL ECONOMY COLLAPSES

So, do you want to see our "recovery" come to a screeching halt?

"U.S. crude futures hit an 18-month high on Monday, climbing toward $86 per barrel on expectations of faster-than-expected economic recovery and increasing demand for fuel.

Data on Friday showed U.S. employers created jobs in March at the fastest rate in three years. Non-farm payrolls rose 162,000, only the third increase since the U.S. economy fell into recession in late 2007 and the largest since March 2007.

U.S. manufacturing is also expanding at its fastest pace for more than five years, while Chinese manufacturing is picking up and Japanese business sentiment is also improving."
Reuters

"Rising factory output and a decline in the pace of layoffs are giving economists confidence that the recovery has staying power.

The government is expected to report Friday that the economy added jobs in March for only the second time since December 2007.

Still, job creation is likely to remain weak for years to come, in part because U.S. factories have become more efficient, producing more goods with fewer workers. On top of that, the sector's contribution to the overall economy has been shrinking for decades due to competition from China and other countries where factory workers are paid much less.
Another reason the job-growth engine is stuck in a low gear is that the building sector remains extremely weak in the aftermath of the housing bust.

Construction spending fell sharply in February to its lowest level in eight years, the Commerce Department said Thursday. Spending fell particularly hard in commercial ventures, such as hotels and office buildings."
Yahoo

So here's my question: if construction is in the toilet and we aren't building that many cars, what are all of these manufacturers making? I don't trust the numbers that the government is supplying because common sense tells me that the underlying economic activity that is needed to drive all of the stated activity just doesn't exist. And now, using numbers that I believe are falsified for political reasons, speculators are causing the price of crude to jump, thus insuring that those of us that can't find a decent job, and believe me that number is north of 20%, will be forced to pay higher costs for everything, further eroding our purchasing power and negatively impacting America's GDP which is based nearly completely on consumer activity.

How can demand for manufactured goods be rising in Asia when their primary market, the U.S., just isn't buying much? I know that their economies have grown and that some internal demand exists but, really, without the American consumer how large can the overall need for finished goods produced in Asia be?

I'm just a carpenter and as such I claim no expertise in matters economic. That being said, I follow the economy as a point if interest and read a lot of economic reports. Too many numbers say too many different things. It seems as though if the truth were being told by all parties involved there would be some sense of order; but there isn't, or at least I can't see it.

Manufacturing is supposed to be up while the two industries that support it most, houses and cars, are way down. More people are supposedly employed, yet the true unemployment number keeps creeping up. I read the want ads every week and the only area that I see consistently hiring is nursing. There are a few adds for truck driving schools and that's about it. I've been applying for jobs and finding that the few that are available pay minimum wage for part time work and the employer has more applications than they know what to do with.

What I think is happening is that we are seeing a minor surge in manufacturing to replenish inventory. This is temporary. If no one is buying the products once the inventory levels are back to where they need to be the surge in manufacturing will be over. That's why we don't see any hiring. The manufacturers are producing with as few people as they can get by with. They aren't going to hire people and spend the money to train them when they probably will have to be laid off in the near future. Layoffs are slowing down, but not stopping. We are seeing a small respite just to get us through this rebuilding of inventory.

Oil is being traded at an artificially high level which will drive up the cost of everything. As more and more people realize that the only job they can get, if they're lucky, will pay a fraction of the wage they have become accustomed too their spending levels will decrease, permanently. This is creating a situation where America is facing falling wages and much higher prices for consumer goods. How is that going to work? The value of our houses will continue to fall and many people, even those that have traditional loans and played by the rules will find themselves underwater. They won't be able to sell their homes for what they owe on them, if they can sell them at all, and because wages have fallen they won't be able to make the payments. How is that going to cause a recovery?

Taxes are going to rise sharply because politicians won't cut programs. As cities, counties and states have more costs imposed on them by the federal government they will go bankrupt. They can raise taxes all they want but if the people don't have the money they won't be able to collect. And then what? Does some guy from the government show up at your door, if you still have one, and demand payment, or else? What if you say no?

We have entered a dual feed back loop. One the one side we have the stock market, constantly moving upward on hopes and the taxpayers money. On the other side we have the real economy, contracting on the basis of the housing collapse, the jobs market and the rising cost of goods such as food and energy. Both loops are moving apart, causing destructive tension which will, I believe, cause an economic collapse unlike any we've seen before.

On one side we have the federal government and the bankers, printing money and investing, creating rights and Ponzi schemes, entitlements and investment scams like the credit card has absolutely no limit. On the other side we have the states and the citizens, caught in a never ending whirlpool of demands and obligations to the federal government and the bankers with our savings exhausted and our credit cards way past the limit and shut off.

Something has to give. It's sort of like that thing we talk about when we're kids; the immovable object being struck by the unstoppable force. As adults, we realize that there can only be one infinite thing and so this question establishes a false dichotomy. One of these two forces will overpower the other.

I think that a confrontation is inevitable and has already begun with the various lawsuits and legislation relating to the Tenth Amendment. I believe, hope and pray that the people and the states can overcome the federal government and it's printing presses. We'll see. I think that the federal government intends to use the power to tax to destroy the sovereign states and to force them to bow before Caesar. Will we stand up to it? Will we refuse to bend our knee but instead take up our arms?

I don't know the answer to any of this, I just see the confrontation on the horizon.

Prepare.

RUSSIA DRILLS IN THE GULF

"The Obama administration is poised to ban offshore oil drilling on the outer continental shelf until 2012 or beyond. Meanwhile, Russia is making a bold strategic leap to begin drilling for oil in the Gulf of Mexico. While the United States attempts to shift gears to alternative fuels to battle the purported evils of carbon emissions, Russia will erect oil derricks off the Cuban coast.

Offshore oil production makes economic sense. It creates jobs and helps fulfill America's vast energy needs. It contributes to the gross domestic product and does not increase the trade deficit. Higher oil supply helps keep a lid on rising prices, and greater American production gives the United States more influence over the global market."
Washington Times

Why? Why won't we drill for oil? I think alternative energy sources need to be found. I think we should be using nuclear as much as possible. If solar or wind or some other fantasy energy source can be made workable, do it. However, right now we need oil. And lots of it.

The only way to get to better sources of energy is to survive to create them. Without oil we won't survive. We won't be able to do anything. Our economy will grind to a halt.

Maybe that's the idea. Never let a good crisis go to waste.

WE COULD EAT CAKE BUT WE CAN'T AFFORD THE FUEL TO GO BUY IT

On the hopes of a minor improvement in the rate of job loss, investors raise the price of crude, a move guaranteed to bring any illusion of economic growth crashing to the ground.

The rich continue to profit at the expense of everyone else. Nobody minds when somebody makes a buck but this is taking food out of peoples mouths and the roofs from over their heads. This is taking money from the blind mans cup.

"Oil prices rose to near $81 a barrel Friday in Asia as crude traders followed equity markets higher ahead of a key U.S. jobs report.

Benchmark crude for April delivery was up 48 cents to $80.69 a barrel at late afternoon Singapore time in electronic trading on the New York Mercantile Exchange. The contract fell 66 cents to settle at $80.21 on Thursday.

U.S. stock markets rose Thursday on investor optimism that the February unemployment rate, scheduled to be released by the Labor Department later Friday, will show the economy is recovering. The jobless rate in January was 9.7 percent."
AP

OIL OVER $80 PER BARREL-WHY?

"Oil prices rose above $80 a barrel Monday in Asia, extending a three-week rally as investors expect the U.S. central bank to keep interest rates near zero to help fuel economic growth, which would boost crude consumption."
AP News

Is it just me or does there exist some sort of disconnect between common sense and the investor class? If the price of crude goes up the price of fuel will go up with it. In America and from what I've seen, most of the world, we are in a depression. People can barely afford the basics. If the price of fuel goes up, don't these financial geniuses understand that demand will fall? And along with demand will go the rest of the economy?

This investors are looking to make short term profit at the expense of the long term good. This is not only unsound from a common sense standpoint but I would also argue it is immoral. The world is awash in oil. There is no reason, besides greed, that it should be at $80 per barrel. Right or wrong, the fact is the world depends on reasonably priced oil to function. Without it we collapse. And a few will profit from the suffering.

This is Peak Oil in action.

SUGGESTED READING FOR THE DAY

Read James Kunstlers article at Cluster**** Nation. He is one of the few people that I read that seems to "get it". He understands the fundamental shift that is occurring in our world and sees the solution clearly; smaller, self sustaining communities and a return to life as it used to be, before the explosion of oil. As he calls it, "A World Made by Hand".

ENERGY COSTS BEGIN THEIR UPWARD MARCH

It doesn't take a Nobel Laureate to figure this out. If those of us that aren't making the kind of money we used to have to spend more on energy, what do you think is going to happen to all of our other spending?

This could be the final nail in the coffin if they can keep the prices up. With low demand on the transportation side it would seem that a free market would cause prices to fall. Makes you wonder just how "free" the market is.

Peak Oil in action. We don't have to run out of energy; pricing us out of the market has the same effect.

KUNSTLER, PEAK OIL AND THE TRUTH

Cluster**** Nation  posted its 2010 forecast on Monday. Kunstler is one of my favorite writers. He drifts off into knee jerk left wing calumny from time to time but I don't care. His ideas about where we are heading as a country and as a people are, I believe, uncannily accurate. Some will quibble with his insistence on the accuracy of Peak Oil; I don't. I think that Peak Oil is here. There are a number of different ways for the scenario to play out, none of which has to involve the actual depletion of oil. We are seeing the effects all around us, politically, economically and in our day to day existence. Anyone notice how prices of food are starting to climb? Peak Oil is part of this dynamic. The price of fuel is directly related to Peak Oil and this price is a huge part of the cost of food with the average meal traveling 1500 miles to your plate.

We are at the beginning of the end as far as cheap and readily available energy is concerned. With the disappearance of cheap energy goes our entire way of life. Our government has decided to inflate one last huge bubble in hopes of keeping us drugged on technology and comfort just long enough to siphon off whatever wealth is left. We are entering a long period of diminishing standards of living which will move us back to the 1880-90's. The sooner we plan for this and accept it the faster we can start to prepare.

Most don't believe it, don't want to hear it and will not prepare for it. And many, maybe most, will not survive.

Unless we begin to reestablish local markets and sources of supply we will not be able to weather the coming storm. It is vital that we learn how to live within our means and our local economy. This will require rethinking our entire idea of money. Money will cease to be a fiat currency backed by nothing and will become something issued by local banks, as it used to be. These paper bills will be redeemable for gold or silver, just like they used to be. We are going to return to barter. This means that if you don’t have a useful skill, you need to learn one. Your worth will be based on your ability to contribute, not the car you drive or the house you live in. Cars will be monuments to a life no longer possible and houses will be practical means of staying under cover, not testimonials to your job status.

If you don’t believe this is possible, look at the news today. YRC is struggling to stay alive. The deadline for their survival has been extended another 24 hours to 11:59 p.m. today. If they cannot get the money they need they will go bankrupt. This seems to be what the end result will be since Goldman-Sachs will profit from their demise. Who is YRC, you ask? It’s Yellow Freight and Roadway, the largest trucking company in the country; and this on the heels of the collapse of Arrow Trucking a few days ago. In an economy based on just in time delivery, with most products shipped from great distances to the shelves in your neighborhood store, how long do you think we can keep things together without trucks?

This is Peak Oil in action. The slowdown in the economy that was started by the run up in fuel prices that culminated in oil at $147.00 per barrel has led to the collapse of trucking in this country. Along with trucking goes the supply chain. This takes out your shipments of fuel, food, medicine, clothing, building materials and everything else that you can’t get within walking distance. And, because of just in time delivery, there is no inventory of these goods at the retail level. When the trucks stop it will be only a matter of days before you can’t buy the most basic necessities.

This will happen with the speed of flipping a light switch. Soon, some vital support will be removed from the economy and everything will collapse like a house of cards. Is the imminent possibility of the loss of the two largest carriers in the country that support? I don’t know. But, if it is, what are you going to do? Have you prepared? No access to food, fuel, money, energy, medicine or damned near anything else? Have you prepared physically, mentally and spiritually?

I pray to God that you have. Because, if you haven’t you’re going to show up at the door of those who have looking for help. Some of us will do what we can because it is our duty but many won’t. And then, what? You’ll have to kill to survive. You’ll just be one of millions, clawing and murdering your way to an ugly, hungry, thirsty deranged death. Because you didn’t prepare. You laughed at people that told you it was ending. You were to smart to fall for the “conspiracy”.

Remove the blinders and the biases and do your homework. Look at the numbers and do the math. We are in a corner that we cannot extricate ourselves from. This isn’t some (fill in the blank) wing conspiracy. This is plain, simple logic. Both parties have been involved, along with all of us. We put the gun to our own heads and we are about to pull the trigger.

2010 is going to be unlike anything we have ever seen. Everything is on the table; anything is possible. Except going back to the way it was before. We will never, ever live in the full blown hedonistic orgy that we have lived in the past 20 years. It’s not coming back. Quit living as though it will. Face facts and prepare. You owe it to yourself, your family and the rest of us. We’re going to have it hard enough keeping ourselves alive without having to carry you, too.