Good discussion guys…Ernest
[quote=robert essian]
John Mauldin has expressed today that he feels we are 5 or 6 years away from energy independence, and far be it for me to disagree but I wholeheartedly do. [/quote]
Mauldin is right. The US will become energy independent. But not in the way he thinks. Independence will be achieved by a substantial drop in our standard of living.
Nate
Glad I waited for the smarter folks here to say better, what I was thinking. How may economists and economic commentators are familiar with exponential growth? Back to "normal" in 6-7 years? I wish I was comfortable preparing for, or at least wishing for, that. Admitting I’m probably not the sharpest tool in the shed on this stuff, It seems that JM might be on a slightly different track than CM (not that there’s anything wrong with that…) Aloha, Steve.
I agree with everyone about growth. Just as an educated guess we would need $60-$80 oil max to get the economy growing fast enough and have enough left over wealth to grow our way out of this under present circumstances… He seems to have no understanding that finite (expensive) inputs decrease the extra wealth left to live better or pay down debt when needed, I’m sure he is quite well versed in the old paradigm, but we have entered a new set of equations and rules. We can cut expenses and programs to work in that direction, but there are other realities…
I said it before, too, but he seeems to have no understanding of our current political situation. Those guys would rather shoot each other rather than work together, and lets not forget the pledge the Republicans signed not to raise revenues. Without that option, there is NO deal. We don’t have the time despite his opinion. Political realities are tough.
The train is going too fast and is too close to the cliff to stop. Too many people want to live the way we always have.
Ernest
Safewrite, I agree John is a great read every week. I have a question though, and is meant as a thought process and NOT critisism. I have looked for him to write about Oil and its perilous future, and never a word until this podcast. Mr. Mauldin has had the ear of some very powerful people. He was sent for to council many powerful senators, congressmen, and such in Washington about the economy and End Game. This happened I think when we were debating the last budget request that our leaders completely punted on. If John doesn’t believe in Peak Oil (he does state cheap oil is finsihed to his credit), and he honestly feels that we can be oil independent in 4 to 5 years then his basic message is false, misleading, and counter productive. I wonder if he ever read the Hirsch (The Impending World Energy Mess) report. This book is a MUST read, a MUST. It would be 4 years just to set up a plan. His missed the boat in the podcast with Chris concerning the Peak Oil issue, he really did. This for me now makes his economics suspect. Sort of like knowing how to tear down and rebuild an engine (economy) and then have no gasoline (growth). BOB
First up, I agree with Estatesavr ‘s assessment of John Mauldin . The conclusion I draw is that he mixes too much with the elite and his views are tempered by that relationship. If we can point the finger at anyone, it surely is the financial and political elite that have brought the world to the straits we are in today.
I don’t want to get too carried away with finger-pointing though. Certainly the elite smoothed the path and encouraged the growth in debt based acquisitions (first in the dot.com boom, then housing but also accompanied by an extraordinary retail binge). They encouraged this mania by fostering the idea that such acquisitions were investments. People are not generally so stupid – that is why this behavior could be genuinely called a mania or a madness. In the final analysis we really have only ourselves to blame.
I don’t think JM has added anything useful to the conversation – in fact, he appeared to me to somewhat lost for words. The idea that the US will work its way through this in 5 or 6 years smacks of wishful thinking. The Great Depression took the best part of two decades and a world war before the world could fairly be described as on an upward path again. The earlier financial debacle, the South Sea Bubble, which I suspect has more affinity to this crisis took around 60 years before things began to pick up speed again.
I suspect that the destruction of wealth by deflation over the next 3-4 years will be so great that it will be years before there will be much enthusiasm for the financial markets again. I think Arthur and Mark_BC are much closer to the truth in their consideration of energy affordability and the limit to growth. I think there will have to be a far deeper debate about debt because it is debt that creates the need for growth. If you borrowed money and just paid back the principle the need for growth much beyond replacement would not exist. It is the interest requirement that creates the necessity to keep growing the money supply. It is a vicious circle which inevitably becomes accelerated by greed and delusions of new economic paradigms or the ”permanently high plateau” until it ends in a bust. This has been going on throughout history and the curve has been exponential. Exponential is not a concept that many people seem to understand, despite, ironically enough, many financial advisors preaching the wonders of compounding. It is not sustainable without catastrophic setbacks.
The wealth destruction will, I believe, be so intense that there will be no chance of hyperinflation.
I really do not see how hyperinflation could happen anyway because most people are using electronic money and such transactions could be very quickly shut down. This so called wealth will just disappear in massive bankruptcies thus reducing the stock of electronic dollars. The US has been at essentially zero interest rate for 6 years. If hyperinflation was the threat that so many people believe it to be, then gold and silver would already be out of the ball park. It has not happened. Precious metals have been firm because at such low rates gold certainly represents as good a way as any of storing a surplus. The trouble is that there is not much real surplus because there is still a ferocious amount of debt festering on balance sheets. The animal spirits have waned, the speculative fever is over and the retail rampage is history. The one very sensible point that John Mauldin made was that he was advising funds to aim for 0% gain which is a cute way of saying that if they can avoid loss, then they will be doing very well. Of course, very few of them will avoid loss unless they are able to go 100% into cash. The funds are a herd and like all herds they spend most of their time looking to see what the others in the herd are doing so one way or another they will be trying to not be outdone by the others. They don’t have the culture or the constitution to aim for zero.
John lives in Texas, and perhaps he’s biased, maybe not. At the turn of the last century you could stick a straw into the ground, spend $1 dollar and make $100. Today you stick a straw in the ground, angle it, send it a mile or so, frac the rock, and draw your oil. Costs, for every $1 dollar spent you get $7 to $10 bucks. 20 years from now, hell, 10 years from now you get $4 to $5 bucks profit. This is the area where you better be darn certain you want to stick those straws in the ground because any dry hole could bankrupt the company. Who, what, financier will want to take that risk? Not mentioned much is the infrastructure, laid down 50/60 (or more) years ago in open fields that have passed their useful life. They will need to be replaced. Enter the EPA! These costs are going to be monumental.
A simpler life is where we are headed for sure but with that the transition will be challenging. Lots of social chaos, and then hopefully some balance. I see the future, and personally I have lived in that futuristic backwardization. What I don’t see, and have to prepare for are the ones that want what I have meagerly set aside because they are unprepared. This means violence folks ,it always has. History is filled with examples of tribes attacking tribes for their winter stores. Then oil came along and we built a complex society that is really going to be challenged. I get the economics now where’s the energy?!
…I like this Lady, and if you don’t know her please listen to the video at the end of the article. She does a nice job.http://theautomaticearth.blogspot.com/
…out there can dismiss Peak Oil, but he does (Mauldin). At least he makes a nod to Peak Cheap Oil…
Even so, IMO his most valuable thoughts in this podcast were on the bond bubble/government financing (debt) crisis. Outside of those boundaries, he and I part ways (although I do get his e-newsletter and I read it each week).
As other folks have written: Mauldin’s just a piece of the information & data puzzle. Even if a given data input is noisy or conflicts with my beliefs/convictions, I never know when it’s going to deliver an awesome nugget of novel information. So I keep my mind (and eyes & ears) open.
Thanks Dr. Chris for having Mauldin on.
Viva – Sager
Robert E wrote: "if I could just convert my carburetor in my truck to use natural gas (I think it’s illegal and I’m sure the warranty would be voided). A couple thousand dollar investment that would pay itself off in no time. But I can’t. Congress and the President won’t let me so I’m stuck using a fuel source I want to conserve"
It is legal to convert to propane or gas, so buy a kit and convert - not all our problems can be blamed on Congress - just not quite that easy on our newer vehicles with all the electronics and pollution control systems. And yes the warranty is probably void it you were to convert. If we are going to do conversions on a large scale, it needs to start with the car manufacturers so that the design will really work. Remember that the fuel delivery system is not in place, especially with natural gas which has to be kept under high pressure (propane is a low pressure system), so that means a national decision to make the change. Out here in Arizona the State had a (failed) incentive program to install propane or natural gas system on vehicles. The State paid most of the cost of the modifications and of course the fuel cost was far less than gasoline so economically it was great. Quite a few gas stations installed propane refuelling, but we had to find one and they had to have a person dedicated to doing the refuelling for you rather than doing it yourself .
I installed a propane system on my pickup and it worked well at first, however the design (State approved) was faulty and it blew up - even buckled the hood and broke a number of manifold pieces. Needless to say I quit using propane aftet that experience, As a proof of concept at a cost of 1/2 a billion State dollars, we did prove that it could work if properly planned. One side effect was that the price of propane increased to the point where gasoline was about the same as propane - so the unfettered market works, however not always as hoped for.
Jim
PS - IMHO I agree that John missed the boat on peak oil
I think people have made some very good points about many things Mauldin misses. He did spend most of the podcast, I believe, talking about getting the debt under control and growing out of it. He did not, however, make any mention of what would happen if interest rates rose to a reasonable level of say 5%-6%, and at this point I’m not so sure the market would allow that low a rate. The interest on $15.5 Trillion would be around $775 Billion. I know the Fed can print money and all that, but there comes a time when markets seek equilibrium. That is just a law of nature, there is always a breaking point.
.
Ernest
…I am aware that conversions can take place but I am not certain that I want to go through the hassles with the EPA.
http://certificationservicesinternational.com/myths-vs-facts/
As one of our most sage members, you point out an important facet of truth seeking;"Mauldin’s just a piece of the information & data puzzle. Even if a given data input is noisy or conflicts with my beliefs/convictions, I never know when it’s going to deliver an awesome nugget of novel information. So I keep my mind (and eyes & ears) open."
Several times in quoting sources on this site, people have come back at me with quips like, "I stopped reading when you linked to Kingworldnews" or such… as if a given source, or singular blogger, becomes useless once they take a stand against some part of the belief system or worldview that the responder espouses. That is silly, and terribly limiting. I also get the Mauldin newsletter, and I have his book… but I have to say I don’t get too many nuggets from him anymore myself. I will read many other regular sources before I read his stuff… but I don’t write him off for sure.
Most here know that I am a strong advocate of PM’s, and hence I do often refer to Kingworldnews articles, and Dave from Denver, and Harvey Organ, and so forth. But I also read (and love) Denninger… and he writes off Gold as being useless… in his worldview the Gov’t will just tax the hell out of it’s sale, and take it from you that way… and I can’t say for sure that won’t happen… so I have Silver too, and friends with sailboats that know their way to other countries that might not have punative taxes… etc. I also read Theautomaticearth regularly, and they also assume Gold will be of little utility in what in their view will be a deflationary collapse. Just as an example, here was Illargi’s latest comment from just last week;
"Ilargi: Ironically and unfortunately, the economic growth faith delusion is too strong to make people, even if they acknowledge that harder times lie ahead, understand that they need to focus some place other than how much their gold is worth today, or their pension. That things other than monetary items will be much more important to their survival and well-being.
That land and community and practical skills will in the future trump all the things they’ve ever seen as valuable. And, to be honest, how can you be expected to change your myopic points of view when everyone around you holds on to them in the exact same way that you do? You look around, and everything seems alright, nothing a spoonful of austerity and hard work can’t cure. "
source: http://theautomaticearth.blogspot.com/2012/01/january-25-2012-occupy-your-own-space.html
That is just a dumb line… I am not even sure what he is trying to express… I for sure have no economic growth delusions, and yet I do very much track the price of Gold, as viewed through an informed filter of the level of manipulation happening, as one true measure of how hated fiat currencies are becoming. And yeah Illargi… I see the need for all the other prep’s you mention.
My point is, almost ever blogger or writer has what we would percieve as blind spots, or even just plain wrong thinking. It does not mean that they don’t have other thoughts that might be quite illuminating.
In pursuing interview guests, we don’t screen for 100% likemindedness with our views. Since we embrace an empirical approach, where we may pivot our position if compelling new data or logic enteres the picture, we seek minds that very often see the world differently.
Looking at the names we’re calling on to be guests in 2012, I can guarantee there will be future guests who fundamentally disagree with the conculsions of the Crash Course framework. But if they can provide us with an intelligently presented counter-argument or useful new perspective, we’re the better off for it.
I’m really pleased with the conscientious and open-minded discussion this interview is generating. This is exactly the kind of thinking-exchange we want this site to foster.
T Boone Pickins has been working on putting the LNG gas system around the country. Look at Clean Energy Fuels and Westport Engineering. He has made great progress.
Aw shucks, man. You say the nicest things. C’mon, let’s HUG IT OUT!!!
I think of it in terms of my mind having an immune system: if I don’t expose it to perspectives that differ from my own, it’ll get weak and soft. And lordy are we going to need superior discernment skills when things start getting hairy. Imagine a 3-5 year period where it’s like Fall of 2008 ALL THE TIME. Zoinks!
Viva – Sager
…it is sort of like keep your friends close and enemies closer. Jim H. is a bright mind, and argues his points as it fits his professional/personal structure. He has conviction, and is always moving forward. I gravitate towards Men like that. I find the value of everyone if their content adds to my knowledge base. Clarity is what I am seeking, and with this interview with Mr. Mauldin he adds to my lack of economics understanding with each article he prints. However, if he had all the answers then hell he would actually understand Peak Oil ,which of course he DOES NOT!. Personally it is wise to take the pain of reading the alternate point of view too, because the alternate point of view DOES have some truths behind their words. Yin-Yang with a slight bias as more information is gathered. Plus it’s fun argueing or yelling at the material you are reading (hopefully when no one is around).
One final thought (haha), Mauldin says cheap energy is gone, OK, true, but Oil at $120 a barrel is an economy breaker, it really is. So he says he don’t really believe in Peak Oil!? What!!!? He understands all things economics, and that bit of alpha uno news/research doesn’t factor into his numbers? Really! Debt cannot be serviced without growth we all know this, so we wash, rinse, and repeat this crap every few years then if Peak Oil isn’t understood (good for us and our investmets, and ongoing preparations). The middle class and below just bankrupts their debt away, live in their homes for three years (free) while they await foreclosure, and collect the windfall from not paying a mortgage, interests, taxes, homeowner insurance, Then buy a crashed housing market home on the cheap, with cash they stashed away the last 3 years from the bank they were just foreclosed on (crazy stuff). Everyone can play the game when moral hazards, and the rule of law have been consciously side aside because the elite actually invent new laws as they move along. Rip off Billion dollar segregated accounts, and then throws a $35,000 a plate dinner for the Prez! That evening!!! Then!!!, is out looking to buy a home outside the country!!! Honest, you can’t make this stuff up.
Adam, you folks are doing a nice job then because it gets no better than Chris and Mish or Martinson and Mauldin (I jumped out at my screen when I seen Chris was interviewing John). I would love for Mauldin to join in here, and get the grass roots concerns that are equally as valid as his chums like Rosenberg. My beloved Tigers picked up Fielder. Yeah baby!!! Peace
Thanks John - the problem was borrowing money to deficit spend in the first place.
Instead of borrowing to pay social security and health - the govt simply needs to credit the bank accounts of those entitled to receive a payment. It could also pay all the govt workers including defense personnel in this way.
Don’t need to borrow to do this, don’t need to print money either (there’s bloody heaps of stuff in circulation).
But the accounting entries are needed shout the accountants!!!
Rubbish, don’t listen to the accountants, everything’s black and white to them (and the ends justify the means, but I digress).
The USA is a sovereign nation with its own fiat currency.
Stop borrowing, just spend.
Over time of course, the US$ will depreciate, but you’re doing that anyway on current policies.
Wake up USA, or it will be too late.
Where were you all when this was happening???
[quote]
Where were you all when this was happening???[/quote]
First, welcome to CM. I’m sure you’ll benefit from the collection of talent and brains on this site.
In answer to your question, right here.
https://peakprosperity.com/crashcourse/chapter-7-money-creation
Take the whole Crash Course. It does an excellent job explaining how we got here and what we can do about it.
Doug
[quote]
Start with oil. In 1971, the Limits to Growth team forecast that the world’s supply would run out 10 years from today. And yet according to renowned oil analyst Daniel Yergin, technology advances and new discoveries have allowed oil reserves worldwide to keep growing. For every barrel of oil produced in the world from 2007 to 2009, 1.6 barrels of new reserves were added. The World Energy Council reports that global proven recoverable reserves of natural gas liquids and crude oil amounted to 1.2 trillion barrels in 2010. That’s enough to last another 38 years at current usage. Add in shale oil, and that’s an additional 4.8 trillion barrels, or a century and a half’s worth of supply at present usage rates. Tar sands, including some huge Canadian deposits, add perhaps 6 trillion barrels more.
We’re awash in more than oil. One British study from the 1930s predicted an acute global shortage of copper “within a generation.” Not so much. The U.S. Geological Survey estimates global land-based copper resources to be 3 billion tons or more—the equivalent of 185,000 years at current production. That’s almost double the estimate of resources from 11 years ago, which means the number may have further to climb. And when we do finally run out of land-based supplies, there are still the undersea sources to use up.[/quote]
What are we to believe? Does Yergin fiddle the numbers or misunderstand the nature of resource depletion? Or, are the numbers just another manifestation of hopium? Or, is Mauldin correct that we are just running out of cheap oil? If the latter, how expensive will it get? At what point will the cost of oil drag the world economy into a pit that is inescapable?
We’ve all seen the peak oil charts and they paint a gloomy picture. Has Yergin and his ilk found something to dispute what I have assumed are pretty objective data? It would be interesting to get Yergin or a representative of his perspective on CM’s blog to explore what his assumptions are.
Doug