Correspondence.

Dear Chris,

now this is nasty, I couldn't agree with you more that the credit crunch has put a brake on investment in energy, and we will pay for it later on. Stupid is as stupid does, but then when you rely on the market what can you expect. All markets are short term or to be correct become short term because we morphed from an investment market too a trading market we don't have investors now we only have traders (gamblers), the result is what we see now, its called greed before need. Unfortunately for Britain the financial tail has been wagging the industrial dog since the last war. Our sorry lot after the last great war was that we came out of the war with our industrial base in tatters over use and lack of investment during the war. The whole lot basically collapsed during the winter of 1947, bit before you time I think, it was then the British empire collapsed It took us until 1956 with the Suez crisis that imperial hubris was finally quashed or at least realized by some of our more astute Politicians. I am a bit of an historical buff and it seems to me that many of our so called economists don't realise is that most of the changes in the financial sector came about because of the need of industry to get its hands on capital, joint stock companies, limited liability etc. etc. Now that is fine if you have a strong powerful industrial sector with plentiful energy, but peak coal hit Britain in 1913 and from that point on our influence has been going slowly down hill. From that point on we began substituting oil and didn't really notice the difference, energy is energy, although there is a difference between owning it and controlling it, most people didn't realize it.

The fascinating thing is that the financial system lorded over by Keynes during the war performed fantastically. In the first world war Inflation increased by 235% during the second world war by about 60% or there abouts put in other words the working and middle class didn't have to pay all the costs of it as they did in the first world war. Inflation does not affect the rich or the poor if you own nothing a 1000% inflation means a 1000% of nothing which is nothing and if you are rich and you own property then an estate is still an estate. I have sifted over the years through the garbage of Marxism Bullionism Socialism and Capitalism and come too the conclusion that any word ending in ism especial when it comes to economics is related to utopianism. Utopianism too me or Utopian theory has always been suspect . It always begins with, once upon a time and ends with they all lived happily ever after. If you are not suffering from an advanced case of juvenile delinquency like most of our so called elite, you tend to grow up and realize this.

The death of Keynes shortly after the war has been for me the greatest blow to Britain that we have ever suffered. Keynes to me has been one of the few economists that could juggle more than three economic variables in his head at the same time. Simplicity is always the mantra of the economically retarded, and for those who think they understand economic theory and don't, such as Bankers they reduce it down too one mantra, the market knows best, it aids there lack of thinking

Anyway to get back too what I was talking about the financial market came out of the war in fairly good shape because of Keynes and we tried with out the wisdom of Keynes to resurrect the economic system we had before the war, the way Winston Churchill when he was Chancellor in the 20s tried to resurrect the financial system as it was before the first world war by putting Britain back onto the gold standard. Like all Utopian schemes it failed and we are the poorer for it. It is not a problem when you have so much wealth to attract money too the city of London to cover any shortfalls but when you have sold off your patrimony and are broke, it is the hight of stupidity try and keep the financial tail wagging at the cost of the Industrial dog which produces real wealth. The policy of of keeping interest rates high to attract short term money too London so that the City could lend it long and therefore make a profit is the main reason our Industry has dissipatedly over the last few decades, and the reason we are in the predicament we are in now. There was no way British industry could compete when they had to pay high interest rates to gain capital when at the same time the Japanese made sure that there industry were cheaply capitalized and kept the price of the Yen low to improve competitiveness. I have always thought that the concept of invisible earning meant just that invisible. I had many delightful argument with my old Senior Lecture over that idea invisible earning meant just that invisible and therefore none existent, but then I would split hairs with a Jesuit just for the pleasure. How many angels can balance on the point of a pin and I am in my element.

The real point of this long verbal purge is to point out something that I have not noticed mentioned by all the articles I have read over this credit crunch debacle, and that is how do you pay for your oil imports if you are bankrupt. Let me try and put it this way, no oil for industry means no goods produced which means no goods sold which means no money which means no oil purchased Which means no goods produced. There seems to be an implied assumption in everything that I have read that we would be always be able to purchase oil. Iceland who have gone Bankrupt to me are not in the same boat as Britain because they are still basically energy independent and are therefore not going to starve. They have screwed themselves by thinking they could play the game with the the financial heavyweights. Common sense should have told them that if you are a flyweight don't fight a heavy weight. Cap in hand they went too the Russians, 4 billion they wanted. They balked, I wonder what the Russians wanted cod or a naval base, life gets interesting don't it.

Anyway Chris this is one of you better essays congratulations.

Deep Regards

Dave.


Dear Dave,

yes, this is potentially very nasty indeed! As I have noted in a couple of recent postings, the economic times are not looking too good for Britain.

There is an analysis that indicates that by 2013 Britain will be £500 billion in the red (annually) over its imported energy bill.

I had read that, to the effect that only "rich" people paid significant tax until after WWII. But as the welfare state grew, more and more of us needed to.

There is a good book - "The Welfare State We're In" by James Bartholomew which gives an interesting perspective about it all.

Deep regards,

Chris.

Oil Production Falls by Nine Percent; Civilization Ends.

In the absence of new investment to increase oil production, oil output is set to decrease by 9.1% per annum. This is the conclusion of a report by the International Energy Agency. Now this is staggering. I have mentioned that figures of a 2 -3% decline following peak oil have been proposed before, but this is a real plummet off the peak. As a rule of thumb, a decline of 2% means painful adaptation, a 5% fall signifies very painful adjustments and 10% portends wholesale societal disintegration. The report suggests that due to steep declines in existing oil fields, mainly in the North Sea (as I noted earlier this week), Russia and Alaska, it will prove difficult to keep up with rising demand for oil. Thus, this is a projection more of the demand-supply gap for oil which relentless demand will inaugurate irrespective of whether oil peaks just yet, but when it does the situation will hardly be helped.

The recent fall in oil prices, in consequence of the credit crunch, has put the brakes on various development projects which does not help the prognosis for a sick oil world. It is noteworthy that the IEA also have a dig at peak oil enthusiasts, claiming that they say the world is running out of oil, and that this is wrong. Of course it is wrong and that is not what believers in peak oil are saying at all or have ever said. However, it is clear that the report's conclusion of a 9% fall in production does mean peak oil in all practical terms whether the Hubbert peak is followed explicitly or not.

The IEA emphasise the position that with sufficient investment in new small fields and exploitation of tar sands "oil", it will be possible to actually increase production. Saliently, it is precisely this kind of investment in new tar sands projects in Athabasca that has been hit by the falling price of oil, i.e. the incentive to produce it just now is far less than in the summer when a barrel of conventional crude bore a price-tag of nearly $150. Such investment will prove expensive, will not be able to keep the end up for overall production v. demand for more than a few years, and inevitably oil will become not just a more expensive but rarer commodity in future, whatever happens.

The blow of a 9% decrease would hit very hard indeed, and leave us all with no time to bring on or even devise much in the way of Plan B's. 9% is something like 7 million barrels a day of oil, and to put that into context the output from the whole of Saudi Arabia is about 10 million barrels daily, so that is what the IEA thinks will be wiped off the world oil balance sheet every year, over a timescale that is not worth considering for more than a couple of years because by then the oil-dependent, civilized world will have collapsed.

Related Reading.
"Nine Percent", By Richard Heinberg: http://postcarbon.org/nine_percent
"World will struggle to meet oil demand," By Carola Hoyos and Javier Bias. http://ft.onet.pl/0,16479,world_will_struggle_to_meet_oil_demand,artykul_ft.html

Plankton Indicators of Eathquakes?

I came across this information in passing which struck me as both fascinating and potentially useful. It is that blooms of plankton have been found to increase as a precursory response to earthquakes. The phenomenon is apparent from satellite images of ocean coastal areas close to the epicentres of four recent earthquakes. The blooming of the plankton is thought to be due to increases in chlorophyll, which they use as an essential part of their photosynthetic (light-harvesting) apparatus to provide the energy for them to grow.

It is speculated that the increase in chlorophyll is a result of a rise in temperature of the waters due to a release of heat energy immediately before an earthquake occurs. Concomitantly, there is an upwelling of cold water from the ocean depths, high in nutrients, to the surface. A combination of warmth and nourishment conspires to raise specifically concentrations of chlorophyll-a. It is interesting that one of the two common isomers of chlorophyll should be selected, over the other, namely chlorophyll-b. In nature, the two kinds of chlorophyll have different absorption wavelengths and the overlap of their absorption bands effectively widens the window of energy through which light can be harvested by plants, resulting in a greater photosynthetic efficiency.

As tectonic plates grind together, energy is released, thus thermally coupling the land and the sea and creating suitable conditions to encourage plankton growth. Dr Ramesh Singh, from the Indian Institute of Technology at Kanpur, said:

"I do not think scientists expected such anomalous behaviour of chlorophyll-a. If the epicentre of a quake lies very close to the coast, then anomalous chlorophyll-a concentrations are clearly visible along that coast."

For their study, the researchers chose four earthquakes: Gujarat, India, in 2001; Algeria, in 2002; the Andaman Islands, in 2002; Bam, Iran, in 2003. On the basis of satellite images and measurements of sea-temperatures, they noted a correspondence between peaks in chlorophyll concentration and an impending earthquake.

It is debatable just how much advance warning the method can provide, which seems to depend mainly on the precise distance from the epicentre and also on the ocean depth, but it is argued that the combined measurement of seawater temperature may provide an alternative means to detect an impending quake on those occasions when cloud-cover prevents good satellite measurements being made.

Related Reading.
http://news.bbc.co.uk/2/hi/science/nature/4750557.stm

U.K. Oil to Run-out in 6 Years.

It is reckoned that the UK's share of the North Sea oil will run-out in six years. The Norwegians have less than nine years before their provision of North Sea oil is used-up. In its heyday, in the latter part of the 1970's, Britain produced around 3 million barrels of oil a day, and now just one million. It is increasingly less meaningful to speak of a world oil peak since peak oil will strike each producing nation and moreover each oil field at different times. Those countries that can hang-on longest will have supreme power within a world so utterly dependent on plentiful cheap crude oil, for fuel and as a raw material for making products ranging from plastics to pharmaceuticals and for modern mechanised agriculture, which is pretty well everything.

Let's see how the broad picture stacks-up. The United States imports around two thirds of its oil but remains the world's third largest producer; however, its fields are expected to fail in just under twelve years.

Canada has 23 years to go before its reserves are gone. Canada and the U.S. have around 2.3% of the world's reserves each but the U.S. pumps out about twice as much as Canada does.

China has enough for 11 years before it needs to rely completely on oil imports (from where, one wonders?).

Russia produces almost as much oil as Saudi Arabia, at 3.6 billion barrels a year, but is expected to deplete its oil reserves in 22 years. Saudi is thought to have three times as much oil as Russia, but there is speculation about this and how much of it can be recovered.

Venezuela's reserves are costed as being enough for 91 years, since it holds 7% of the world's total at 87 billion barrels. However, this is mostly ultra-heavy oil, high in sulphur and other contaminants, and more difficult both to recover and to refine.

Mexico is thought to have 10 years worth left of oil. Oil accounts for 40% of the country's GDP and so once the oil is gone so is the economy.

While commonly quoted, statistics like these are rather simplistic, since oil production does not run steadily and then stop (nor does it for any other resource), but it reaches a peak, and can then fall rapidly or slowly depending on the geology and extraction-technologies employed. It is not a simple matter of draining a well to bottom at a steady rate (unlike a water-well, say), hence "time left" as determined from R/P ratios (Reserve volume/Production rate per annum) is overoptimistic - i.e. the pinch in supply will come before then, followed by a longer tail of ever-diminishing recovery.

Nonetheless, these figures are salient indicators of an imminent shift in world power, and along with the current credit-crunch fallout, the rising cost of social benefits and complete dependence on imported oil in less than six years, the time does seem to be up for Britain.

Related Reading.
"Who will run out first?" http://thechronicleherald.ca/print_article.html?story=1086888

Scottish Wave Farm Stirs-up Nuclear Risk.

It is proposed to build the world's biggest tidal-farm off the north of Scotland. While this sounds worthily "green" and "renewable", an independent nuclear consultant Dr John Large has warned that the cables that will need to be run along the seabed may disturb thousands of radioactive particles that originated from the Dounreay nuclear power plant, the world's first commercial fast-breeder facility which opened in 1955, its first reactor achieving criticality in 1958.

Since the principle of a fast breeder reactor is that it converts the majority isotope of uranium (238) to plutonium-239, there have been worries voiced before when plutonium containing particles were washed-up on the neighbouring beaches to Dounreay. It is an odd irony that the potential stirring-up of that old nuclear legacy and its attendant putative health-problems, might be used as a reason not to build the giant renewable wave-farm, and to extend the use of nuclear power instead, albeit of the fission-reactor kind that produces less plutonium in its operation.

Interestingly, one third of the power output from a fission reactor is derived from the fission of plutonium that is produced "accidentally" by breeding from uranium-238, since only around 3.5% of the uranium that is fabricated into nuclear fuel rods is actually the fissile uranium-235 (the rest being uranium-238), enriched from the natural level of 0.7% which is insufficient to fuel a light water reactor, although it can be used per se in heavy water reactors.

The particles are about the size of grains of sand and have leaked from the Dounreay facility, ten miles away. They are capable of burning holes in the skin, should someone come into contact with them, where they can cause ulceration and cancers. These particles, thousands in number, are thought to have leaked since the 1960s from a disused waste shaft which projects some 600 metres out to sea. The nuclear plant was closed in 1994.

The wave-power scheme would involve running hundreds of underwater tidal turbines, linked by cables buried around two meters in depth to an electrical sub-station on the Caithness mainland. By harnessing the tides of the Pentland Firth, it is estimated that enough electricity could be produced to run a city the size of Edinburgh.


Related Reading.
[1] "SNP wave farm could generate "nuclear threat". http://www.timesonline.co.uk/tol/news/uk/scotland/article4881909.ece
[2] http://en.wikipedia.org/wiki/Dounreay

Better to Light a Single Candle than to Sit and Curse the Darkness.

There is a proverb, I believe of Chinese origin, that it is "better to light a single candle than to sit and curse the darkness." The world is shocked by the clear exposure of the shaky foundations of the financial miracle that seems to go back to the Reagan/Thatcher years. So many packages have been sold as safe, even when their contents are so convoluted that even their salesman in a nice suit doesn't really understand what he is selling and has no more predictive intelligence about the stockmarket than his client. Still, I have been topping-up my ISA like a good investor for a few years now and rather feel short-changed by the whole bloody business of investments of this kind.

Whatever I do in future it will not involve buying shares in the stockmarket. Even now, we are weakly told that such investments are "still a good bet in the longer term" - 10 years was mentioned this morning - but how does anyone know this to be true? It is just that - "a bet" - and it was all along. Perhaps it took a fall of this magnitude into some of the blithely overlooked holes in the whole charade to bring the matter home. Worst of all is the "news" that pension funds are likely to pay-out at far less than near-pensioners had hoped, because much of their holdings are in fact invested in the stockmarket.

It is very easy to become despondent about the present world situation, since not only have we probably passed peak-finance, we have peak-oil to look forward to, and I suspect the latter (and the huge recent surge in the price of oil to nearly $150 a barrel) is tied-into the global economic turn-down. The consequence is in fact a reduced demand for oil. A global recession can only make matters worse both for the markets and for individuals on the daily basis, certainly within a system of global economics. Rising unemployment is predicted, and small businesses are facing tough times. It seems clear to me that there will never be a "recovery" per se, and those good times, if they were that, have gone for good.

Now this is the moment to light my first candle, amid such relentlessly thickening darkness. What will never be restored is the level of global financial wealth as we have seen during the past 25 years or so, i.e. back to Reagan/Thatcher. Not that this wealth has been distributed with equity across the world or even within individual nations. But does this mean that happy times are gone? No, I don't believe so, but we do need to consider more carefully what we mean by wealth. If wealth is simply virtual money in computers then there is little to be upbeat about.

On the other hand, and here my match strikes, if we begin to tie our expectations to real things, like growing food on a local basis, establishing local economies that are subject far less to massive global atomic detonations, teaching kids to do useful things like bricklaying, plumbing, welding, rather than putting them on degree-level (so say) courses in Media, Psychology, Football Studies, etc. etc. to get the bums on seats funding for the former polytechnics, who lost their real role and purpose, beginning in the UK with the fall of manufacturing industry under the Thatcher government, then we may begin to build a society that can reconstruct the physical new-nations of the world on a local level. But now this would be underpinned by solid communities.

We have lost more than we ever gained in the economic diffusion of financial wealth into some ethereal and uncontrollable state of matter, and much feeling of community and family has dispersed into a similar sense of self-isolation. In all respects, becoming active in the local community feels good and bestows more than money, but real wealth. At least you meet your neighbours! Many candles once lit can drive away the gloom, and our present darkness can only be overcome by the combined efforts of individual billions of us, in action and in spirit, working to light the new age.

Cheap Oil but Financial Meltdown!

Nice to see that oil is back to $86 a barrel, and falling... trouble is it took a global stock market crash to accomplish it. This morning the British Chancellor, Alistair Darling, announced that £50 billion would be made available to banks who want some of it to help assist in the flow of money. That is of course exactly what money is - currency. In a spirit of distrust over viability of individual banks, it is individual banks who are hanging-on to their money, refusing to lend it to other banks or more generally in loans to small businesses, which will slow down the economy further.

Written-into this red-cross package are apparently guarantees and regulations to prevent rogue financiers from screwing the system again for their own gain, and bringing it to its knees at some later date, needing yet another food-parcel drop. If the British tax-payer has to bail a bank out, he or she should not be expected to pay millions in bonuses to the chairman.

It is nothing less than the national economy, and ultimately the world economy that is at stake. All investors and anyone with money in a bank account somewhere, waited with bated breath for this morning's announcement, promised last night. It is an incredibly complex issue, such is the intermingled and interconnected nature of global finance. James Kunstler's latest podcast (link given in Karen Blakeman's comment bleow) is pretty blunt, and he accuses the financial sector of all kinds of chicanery and dodgy packaging, repackaging and selling-on of financial packages with names and neat acronyms that belie what is really going on. Where in reality is our money, and maybe it doesn't exist at all, beyond pixels on a computer somewhere?

I for one will never invest money in the stockmarket again. It is difficult to avoid putting money in banks short of keeping it under the bed, and the "cashless economy" concept periodically rears its head - although I doubt it will again in any sincerity. We have been encouraged to believe in a new god - credit - and it may be that only the real God can get us out of this mess.