A Drop of Rain

The title is somewhat tongue-in-cheek… but the stories are getting increasingly surreal, and I didn’t want to leave these rice stories alone.

As the chart makes clear, the ascent of the cost of rice to $24 from $10 per hundredweight over the past year tracks the declining value of the American dollar. The link between the declining parity of the US unit and the rising price of commodities, including oil as well as rice and other wares, is indisputable. China has bid aggressively for rice all year, and last week banned rice exports, along with Vietnam and several other producers.
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Never before in history has hunger become a global threat in a period of plentiful harvests. Global rice production will hit a record of 423 million tons in the 2007-2008 crop year, enough to satisfy global demand. The trouble is that only 7% of the world’s rice supply is exported, because local demand is met by local production. Any significant increase in rice stockpiles cuts deeply into available supply for export, leading to a spike in prices. Because such a small proportion of the global rice supply trades, the monetary shock from the weak dollar was sufficient to more than double its price.
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The George W Bush administration might as well have used the State Department as a set for the Jackass reality show. American arrogance has eroded the ground under many of the governments on which its foreign policy depends. It is hard to characterize what will come next, except, like the stunts on Jackass, that it is going to hurt.
Asia Times

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I was talking to some friends, the kind who are reasonably smart, well educated, but, sadly all too prone to repeat as fact what is in fact a myth. In this case, the myth that Peak commodity production was predicted in the 1970s (in books like The Limits to Growth [LTG]), and never happened. The Oil Drum had a nice article that analyzes how this myth came to be:

The success of the smear campaign against the LTG ideas shows the power of propaganda and of urban legends in shaping the public perception of the world, exploiting our innate tendency of rejecting bad news. Because of these tendencies, the world has chosen to ignore the warning of impending collapse that came from the LTG study. In so doing, we have lost more than 30 years. Now, there are signs that we may be starting to heed the warning, but it may be too late and we may still be doing too little. Cassandra’s curse may still be upon us.

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Well, it’s official, reality and the mainstream media have finally begun to have something to do with each other. Once the New York Times admits that the peak is here, everyone else should follow, even the lunatic right if you give them some extra time to digest this new reality, and to find a way to blame this on the Clintons.

To many experts, the steadily rising price underscored longer-term fears about the future of a system that has supplied cheap oil for more than a century.

“This is the market signaling there is a problem,” said Jan Stuart, global oil economist at UBS, “that there is a growing difficulty to meet demand with new supplies.”

Today’s tensions are only likely to get worse in coming years. Consider a few numbers: The planet’s population is expected to grow by 50 percent to nine billion by sometime in the middle of the century. The number of cars and trucks is projected to double in 30 years— to more than two billion — as developing nations rapidly modernize. And twice as many passenger jetliners, more than 36,000, will in all likelihood be crisscrossing the skies in 20 years.

All of that will require a lot more oil — enough that global oil consumption will jump by some 35 percent by the year 2030, according to the International Energy Agency, a leading global energy forecaster for the United States and other developed nations. For producers it will mean somehow finding and pumping an additional 11 billion barrels of oil every year.

And that’s only 22 years away, a heartbeat for the petroleum industry, where the pace of finding and tapping new supplies is measured in decades.
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“The country has been living beyond its means,” said Vaclav Smil, a prominent energy expert at the University of Manitoba. “The situation is dire. We need to do relative sacrifices. But people don’t realize how dire the situation is.”

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Well, finally Iran gets to laugh at the United States. Hopefully Israel will not get its wish for an invasion of Iran this year, and I think by next year this question will not really be very important anymore. And who knows, maybe the next US president might actually realize that’s it’s good policy to create strong international relations based on a degree of trust and good faith. Just a weird thought, excuse me if it’s off topic…

“The oil price of $115 a barrel in today’s global markets is a deceiving figure. Oil is a strategic commodity that needs to discover its real value,” the Web site quoted Ahmadinejad as saying.
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Ahmadinejad accused Western industrialized nations of “selfishness” in their quest for cheaper oil.

“When they get hold of oil, they assume that oil is a free commodity and belongs to them and has wrongly been placed in other territories. … This is the spirit of selfishness and arrogance,” Ahmadinejad was quoted as saying.
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A weaker dollar makes commodities such as oil less attractive to investors as a hedge against inflation, and it makes oil more expensive to investors overseas. Analysts believe the weaker dollar is the primary reason oil has soared this year. The effect tends to reverse when the greenback gains ground.
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Iran has stopped using the U.S. dollar in its oil transactions with the outside world, switching to currencies such as euro.

“The dollar is not money any longer but a handful of paper distributed in the world without commodity support,” the Web site quoted Ahmadinejad as saying.

Will the USA respond by asking its tired and over-reached military forces to attack Iran? Keep in mind what happened in 2000 when Iraq started to sell oil in Euros. Stay tuned, pick your favorite quality news source and you’ll know soon enough…

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Read a review of Reinventing Collapse by Dmitri Orlov. His stuff is slightly tongue-in-cheek, but only in terms of tone, in terms of reality, it’s pretty much what he sees.

Also check out Dmitri Orlov’s comparison between the former Soviet Union (USSR), and the United States of America (USA) in terms of the structural similarities and differences between pre-collapse USSR and USA.

If you want a quick summary, the USA is in serious trouble if collapse happens, we have invested too much in the wrong areas, given too much power to the corrupt state/business entity, and have grown too lazy ourselves, as well as simply having put our money, time, and energy into the wrong places for too long.

Think James Kunstler’s The Long Emergency, for example.

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If you haven’t checked out Jim Rogers, ex partner of George Soros, here’s some good interview videos of him. The first one is from March 2007.

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These news items are extremely important to understand, because this is a clear indicator that the current group of industry supported politicians will not be the ones who finally begin to lead the world to any meaningful solution to the energy supply issue, or probably any other major issues facing us for that matter, especially climate change.

In fact, I am having stronger and stronger doubts that any US or British politician in the current political climate will lead anywhere that points away from enabling industry to try to squeeze out a few more quarters of profits before the inevitable happens.

This is not what real leadship looks like, but it is what we deserve for having glued our collective minds to the television screens for decades while politicians and industry have formed increasingly incestuous bonds, to a degree not seen since Soviet Russia or Nazi Germany.

Britain calls for OPEC to increase production:

Oil prices jumped to a new peak near $114 a barrel on Tuesday amid lingering supply worries and weakness in the U.S. dollar, deepening concern in world consumer nations that a spike in energy costs could cause severe economic damage.

Britain’s prime minister, Gordon Brown, on Tuesday called on OPEC members to boost production to counter rapidly rising oil prices, which have shot up 80 percent since a year ago, adding his voice to similar requests from the administration of U.S. President George W. Bush.

“We are not producing enough oil … and we can take collective action to persuade OPEC and others to get the oil price down,” Brown said in an interview on Sky Television.

Not a single word about the destruction of the US dollar by the US government/banking industry. Not a single word about the need to conserve more and more as global supplies begin to peak while demand is rising.

USA and Britain blame OPEC for high oil prices

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Please check out this recent VBS.tv series on the Pacific Ocean’s ‘garbage island’ if you do not yet have a sense of just how massively human beings are screwing up the Earth’s ecosystem.

For years we’ve been reading about a patch of garbage the size of Texas floating in the middle of the Pacific Ocean, ingeniously dubbed the Great Pacific Garbage Patch. Basically, any trash that gets dumped in the water rides the currents to this one spot and joins an ever-increasing flotilla of crap. For all the breathless accounts of the mess and its impact on the area’s sealife, however, no one seemed to have a picture of the buildup.

In order to sate our own curiosity, VBS joined the crew of a research vessel studying the trash and sailed out into one of the most remote spots of open water in the world, the North Pacific Gyre, in search of this mythical garbage island. What we discovered once we got there was an ecological disaster beyond any of our expectations and possibly the single worst thing human beings have done to the planet and ourselves. Hope you’re into cancer and sex-reversal!

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For a while now, people who really do not want to admit to themselves what is happening have allowed themselves to get lulled into the fantasies that fantastically complex and difficult oil finds in deep waters and various highly unstable and barely controllable parts of the world are somehow going to do more than barely make up for the already existing decline rates. Even with oil prices hitting US $112 per barrel…

Today’s news should help put a damper on such unbridled, and utterly foundationless, optimism.

Russian oil production has peaked and may never return to current levels, one of the country’s top energy executives has warned, fuelling concerns that the world’s biggest oil producers cannot keep up with rampant Asian demand.
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Leonid Fedun, the 52-year-old vice-president of Lukoil, Russia’s largest independent oil company, told the Financial Times he believed last year’s Russian oil production of about 10m barrels a day was the highest he would see “in his lifetime”. Russia is the world’s second biggest oil producer.

Mr Fedun compared Russia with the North Sea and Mexico, where oil production is declining dramatically, saying that in the oil-rich region of western Siberia, the mainstay of Russian output, “the period of intense oil production [growth] is over”.
Financial Times

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The predictions about the results of oil price increases are hard to really get a sense of, though I found an interesting analysis of this matter, from I think about 2003, though it’s not dated:

Conventional economic reasoning, embodied in the notion of ‘price elasticity’ of demand, is that large oil price rises will necessarily cut oil demand and economic growth, perhaps resulting in zero economic growth, or recession. The higher the rise of oil prices, the faster it is assumed that ‘price elastic’ responses will play. Higher oil prices will “of course” reduce economic growth, may generate stock exchange panics and will produce inflation, leading to monetary and financial instability. Higher interest rates, and even a plunge into recession will then be needed to combat this through rapidly ‘decompressing’ the economy, thus cutting world oil demand, and reducing its price in a context where oil supply is always thought of as growing as fast, or faster than demand.

No received wisdom has any utility unless it can be demonstrated and proved, if it is have any more than the status of belief. The relation between oil prices and economic growth is in fact complex. The notion that price elastic responses describe inevitable, real and worldwide responses, and that any oil price rise necessarily and immediately reduces economic growth is in fact a travesty of the facts. From today’s price levels for oil (around $30/barrel in the USA for light crudes), ‘extreme’ price levels would be needed before world economic growth fell. Until very elevated oil prices are achieved - probably well above $70/barrel in 2003 dollars - world economic adjustment mechanisms will always result in higher oil demand through the economic expansion, with or without inflation, that higher oil prices bring about at the world, or ‘composite global’ economic level.
GasAndOil.com

It’s interesting to see how the world is scrambling to try to figure out what is happening and fit it into some model or other when the sad fact is there is no model to fit it into, because nothing like this has every happened on a global scale before.

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