This is one of the most important Martenson Reports I will write this
year. In this report, I explain
why the global stimulus plan will not succeed at returning the global economy
to a path of sustainable growth or even to its former heights, seen in
2006/2007.
A snippet from the conclusion:
The assumption by the G20 that money printed out of thin air is both necessary and sufficient to return us to a renewed path of global economic growth is deeply flawed. Trillions of dollars in new stimulus money will soon “find their mark” and stampede off looking for something to do. The energy to support all this money does not exist, at least if the independent efforts of three diverse institutions that have studied the data are to be trusted (and I do because their conclusions are so similar).
The combination of rapid declines in existing fields and a collapse in oil field investment means that it is extremely unlikely that we’ll have enough oil to return the globe to robust growth.
While it is possible that we’ll close some of the energy gap with efficiency measures, a decade or more of lead-time sits between the development of more efficient technologies and their full market penetration, which means that efficiency is unlikely to play anything other than a bit part in this developing drama.
Any plan to stimulate growth that does not take this energy reality into account is highly suspect and is probably flawed. Why this most obvious of all connections is not being openly discussed will be for future historians to dissect. For now, it is up to each of us to define for ourselves how much importance we place in this line of thinking.
Thanks! This is what I was looking for…clarification of the type of information in my post below about the Oil "Wild Card" in your Where Do We Go From Here post.
LONDON:
The global financial crisis and collapse in the oil market have stalled vital
investment in oil exploration and production and are likely
soon to lead to a
sharp spike in prices, an energy consultant and financier says.
Matt
Simmons, founder of Houston-based investment bank Simmons & Co, argues the
underlying rate of decline of the world's ageing oilfields is as much as 20
percent a year and only high levels of investment can reduce that to single
digits.
With credit tight and oil prices almost $100 a barrel below
their highs last year, oil companies are unable to sustain previous levels of
spending and the result is falling production, he said in an interview on
Thursday.
"We are three, six, maybe nine months away from a price
shock. We are not talking about three to five years away -- it will be much
sooner," Simmons told Reuters in London.
"These prices now are
dangerously low. The lower prices fall, the less oil will be produced and the
greater the chance of an oil spike," he said.
Oil prices hit record
highs of almost $150 per barrel last July but have tumbled since then as the
global economic downturn has cut energy consumption by consumers and companies
alike.
Prices have rallied from lows below $35 a barrel in December
to above $50 but remain well below what many oil companies and producing
countries say they need to invest in new production.
Simmons is a
proponent of the "peak oil" theory, and has argued for years that world oil
output is in irreversible decline because oil industry infrastructure is getting
too old.
He says the cost of rebuilding the oil industry is colossal
-- "closer to $100 trillion than $50 trillion" over decades: "The industry's
asset base is beyond it's original design
life."
I highly disagree with Chris. There is plenty of energy on Earth. We just need to improve or promote allready existing but forgotten or censored technology to harness it.
Also, when country is facing a shortage or deflation of money, whats the problem with printing it out of thin air? How money came into a existence in the first place? Money is just a register or receipt that some work has been done or various goods delivered (or will be, if its in a form of state credit). I must emphasize state, because the main problem of western economies is privately created money system. Those who control the money issuance are controling everything else in a society, because money is a bloodstream of economy. To put control of money issuance to private banks is like letting vampire to suck your blood hoping it will not drain it all. Even so, you are still in slavery position to such parasite.
Money should be a gift created by Government (or Congress) and spent into the economy to promote general wellfare, rather than issued and lent by some privately control bank to cripple the society with debt and taxation.
Hello Malden:
I’d watch "A Crude Awakening," and I’ll try to recall which book had the story of the seashell currency and the gold miners who hired the natives and flew in plane loads of shells to pay them for their labor.
Take care
A sharp eyed reader caught a basic math error of mine that impact the tables on the oil production needed by level of economic growth. I have already fixed the errors in the version of the report on the site…but unfortunately the newsletter has already gone out.
I value accuracy and regret the error…I dropped a critical "$" sign in the excel table and didn’t catch it in time.
The fundamental conclusions of the article are unaffected.
Davos, I will certainly watch that movie, but oil is not the only source of energy on Eart. Oil means monopoly, and monopoly means power, it is so simple.
And for the other part, i must say it is not a good analogy. Shells are easy to counterfeit (colect) and also those natives were completlly unaware of a real nature of money, but Government or Congress created money and educated people are totally different story. Amount of money in circulation should be consistent with demand. In that way there would be no inflation or much worse - shortage or deflation of money like we have today. It shouldn`t be confused with price inflation, because reason for that is interest on privately issued money (continual debt) which push some prices up even in the period of deflation (shortage of money).
Total debt is allways higher than existing amount of money in circulation because of interest charge, and also we have harsh taxation. No wonder prices goes up.
The question of "quantity of energy" ignores the more important issue of the rate of production. The so-called alternatives make up a pidling percentage of the whole. It will be years and possibly decades before any of them make up a significant portion of the whole energy budget. Going over the peak on the Hubbert’s curve means production rates in conventional hydrocarbons will begin to diminish. Coal is only one, possibly two, decades away from the same dilema. Since the 1970’s, exploding human populations have forced global per capita energy consumption on a downward slide. The era of growth in energy production rates has ended. And the rate of energy production is key. All else depends on it. There can be no economic growth in the conventional sense without a coresponding growth in the rate of energy production. Debt based currencies depend on a promise of greater future wealth in order to service the debt obligation, that is, the repayment of the principle plus interest. Future weath is tied to future energy production. No matter how much Monopoly(R) money the G20 spill into the system, it can’t revive a depleted resource in and of itself. Moreover, as the rates of discovery have fallen ahead of the rates of production, the probability of finding more diminishes accordingly. The tree huggers and bird watchers are not keeping us from solving our energy dilema. They are not keeping us from oil that isn’t there. Even the unconventional kerogen and bitumen, quantities notwithstanding, cannot fill in the gaps. The capitalization required and the comparatively small production rates are a roadblock to the rescue. Capitalization is an important issue in another sense. The oil companies realize that hydrocarbon energy is a sunset industry. They see no point in building multibillion dollar facilities that will never return a profit. By the time a new refinery comes on line, oil production may fall by 12%*. It’s cheaper and easier to buy refined gasoline abroad rather than build another refinery here. There is no rare butterfly or toad keeping a new refinery from being built. It’s simple economics. It’s rates of production, not the quantity of produceable hydrocarbons that provide the incentives. Unfortunately for the plans of the G20, geology rules.
Hello Malden:
I’d be most interested in hearing what you think about "A Crude Awakening." For me, the fundamental problem with our dependency on oil is that, as the movie and Chris point out, it is engrained in everything and not only in the transportation of everything but in the actual production of everything.
I think we will see many new techknologies very soon with respect to transportation and energy. How we make things is my greatest fear. Seeing an administration say build roads to get 4 million jobs just makes me say $140 a barrel oil will be cheap - do these guys have any idea how many gallons of oil it takes to do a foot of road? When that oil price domino falls on the consumer who is filling up his/her SUV what will that do - again - to the economy?
I enjoyed reading your inflation perspective. I respect your opinion even though I don’t agree with it. I do agree that inflation and deflation should just apply to the amount of money in circulation. I think your point about debt creating money is a valid one, of which I have read only once before via an email. I don’t see any difference between shells and Ben’s printing press and I question the education level, many well educated folks I talk to think the dollar is backed by gold. Time shall tell. Take care.
PS Chris, great read, one of the best to date. As always, thank you!
Malden, yes there are other forms of energy on Earth besides oil but none are as convenient as oil and, as Chris has noted in the past, none seem to pass the tests of time, scale, or cost in terms of being ready in time to offset the decline in oil supply rate. Just to build alternative energy systems will take enormous amounts of oil. Show me a plan that might work and I’ll review it; I truly hope one is possible. I can only conclude today that massive reduction in energy use and changes in our way of living must be main components of the long term solution.
Second, the problem with printing money out of thin air seems to me to be when there are not corresponding increases in goods for it to represent. More money chasing the same number of goods means money loses value and prices rise. It’s a hidden tax by government that does not help us in the end.
I spent this entire past weekend at home planning and expanding my veggie garden this year and after reading this report am glad I am!
You might also try reading Richard Heinberg’s "Peak Everything". It is very much a compliment to some of the things Dr. Martenson discusses in the crash course. Heinberg goes much deeper into the environmental impact of peak oil and many of the associated environmental issues that overuse of oil has wrought. According to Heinberg, we’re going to have a lot more to worry about than the loss of our money. Try not enough food, predictable weather, and lack of good, clean water supplies. To round things out, Heinberg also has suggestions for ways that we might begin to deal with the coming decline.
Davos excellent recommendation of "Crude Awakening" will scare the living bee-jeebers out of you.
There are three things that should be added to this thread:
Think of what a currency collapse would mean for the price of oil. Add that to the "risk of high oil prices" equation…
Living in an urban area, I wonder what it would take to set off the spark of civil unrest. At the top of my list is a sudden spike in gasoline prices which, to date, has been the only "ray of light" in this economy. If gas prices trippled in a few months, I don’t think it would go over too well.
Chris, are you confident enough of an impending oil shock that you would put you rmoney where your mouth is and buy oil futures?
I would also recommend ‘The Dollar Crisis’ by Richard Duncan. This will hit on all problems with printing, and then some. This book is one that was written before things got really crazy (many graphs and stats in the book are from 2002 and prior) but I must say about 99% of it has come to light, and been surpassed.
we were just reccomending a few items for maldin to look over. He seems to not agree with multipul reports/math (which is ok) and thought I would add a book for the currency side of the house.
Dr.Martenson,
Great report as always, I am looking forward to the follow up. To be honest, I wasn’t sure I’d be happy paying for the special reports, but I plan on renewing on at least a 6 month subscription (year if I can afford it, lol).
I’m trying to put together the complex relationship between energy and the economy.
I note the IEA estimate of a 1.5% drop in global oil demand is for 2009 compared to 2008, but we won’t know the actual numbers for another year. Also, the IEA estimates there was a 0.4% drop in 2008 vs 2007. I don’t see final numbers for 2008 available yet at sites like www.bp.com but will be interested to see.
I accept that global GDP growth is tied with oil consumption. These oil consumption estimates indicate we are not headed for a recovery anytime soon!
In contrast, I hear from a lot of folks "the stock market leads the coming economy, alway has always will". We’ve seen in the last four weeks a stock market market rally, albiet small compared to the big drops last year. Is it a Bear market rally just fueled by invester sentiment, and is energy the better indicator for the future economy?
1.5% drop in demand vs 4% to 6% drop in oil supply capacity of existing sources plus declining investment in new sources suggests to me the supply and demand curves are going to cross soon and high oil prices will spike. But the relationship between energy and economy is complex; e.g. which comes first?, hence the undulations Chris anticipates seem likely to me. We saw a big one already in 2008.
as always, great questions and observations. All are worth hunting down and staying on top of.
I am exceptionally critical of the notion of the stock market being some all-knowing, infallible "great discounting machine".
Below I post a chart of the Dow Jones marking two events. The box shows the start of the recession (now that the NBER has finally, a year late and a dollar short backdated the recession start to 4Q 07).
The arrow shows the period 6 months prior to the start of the recession which is when any decent discounting machine worth its salt should have begun to signal ‘reality’.
Instead we might note that it rose into the start of the recession and then failed, utterly, to predict the severity of the the recession/depression. It almost seems to be following, not leading.
Given this, I don’t put much stock in what the Dow is now telling us because it hasn’t proven to be all that reliable lately.
