I like Bloomberg.com as a news site, because it aims at capitalists, and the USA is a capitalist country, so news pointed at them tends to be more accurate than most standard corporate mass media. This doesn’t mean you can turn off your critical thinking, but the news there is often real, and points to larger trends, since such trends are exactly what businessmen need to have a solid understanding of in order to hope to make good decisions.

So it struck me when I read Airline Era Ends as Carriers Cull 50-Seat Jets ‘Nobody Wants’ .

The 50-seat jets once prized by carriers such as Delta Air Lines Inc. are being culled from U.S. fleets as higher fuel and maintenance bills make them too expensive to fly.

By 2015, U.S. airlines will have about 200 jets with 50 or fewer seats, down from about 1,200, said Michael Boyd, president of consultant Boyd Group International Inc. in Evergreen, Colorado. More than 80 have been scrapped in 2010, he said.

Got that? I don’t know if you followed the airline industry when oil went to $147 a barrel, in 2008, but one prominent airline CEO stated that the global airline industry becomes non-viable at oil prices over $100 per barrel. This is because of economies of scale certain pricing models enable. In other words, airlines have basically three fixed costs: 1. the physical airplane, 2. fuel, and 3. labor/corporate. Debt costs would mainly be centered around the cost of the aircraft.

The cost of the physical airplanes don’t change much, the cost of labor has been cut about as far as it can be cut, as you should be able to notice if you fly routinely. So that leaves only one variable, fuel costs.

The airline industry is in precipitous decline – across all regions and categories, from the low-cost carriers to the legacy giants. Even the success stories are doing little more than treading water.
…
Particularly if fuel prices continue to climb while demand remains weak, Neidl believes one or two U.S. carriers could disappear or be taken over in the next few years. While previously it has “seemed that airlines never die,” tight credit markets could make it difficult for them to find the financing they would need to operate through Chapter 11 bankruptcy protection.
www.aviationweek.com

The primary premise of peak oil is not that we will run out, but rather that oil, being a fundamental component of our economy, will become increasingly unaffordable as drilling costs go up and up to try to maintain a plateau of global oil production, currently hovering at around 82 million barrels per day, total liquids, about 72 million petroleum.

We are deep inside this cycle (GAO 2007 Report to Congress: pdf) now, most solid estimates, based on reality, not wishful thinking, put the actual peak in oil production somewhere between 2005 and 2008. If you factor in how much energy is now required to bring new oil production to the market, ie, deep sea drilling rigs drilling down some 25k feet or more in the ocean, or oil sands that require massive amounts of natural gas to melt the bitumen enough to make it flow so you can extract it, some analysts say that the peak actually occurred some years earlier in terms of the actually available energy being added to the supply total.

My working hypotheses, which I evolved some time ago during a fairly unrewarding discussion with a somewhat prominent proponent of the ‘doomer’ position, is that you have two extremely reliable metrics of systemic failures: 1. global air travel, and 2. the global internet. Both systems are extremely complex, both require that basically the entire global system is working in order to function.

I came to this conclusion because there’s an annoying tendency to proclaim the end of all things, a few times per year, while the system continues to not end, but to grind slowly downhill, disappointing prominent prognosticators who are foolish enough to confuse their (I believe) flawed understanding of what money, finance, and the economy, actually are with reality. This mistake creates constant bad predictions.

I like, and read routinely, a lot of these bloggers/writers, but the fact remains, they are constantly wrong when they make concrete predictions, and they are consistently wrong. This doesn’t mean they are wrong on the overall direction, ie, down, but they are most certainly wrong on the fundamentals of what makes our modern societies tick. Here I’m referring to the Automatic Earth, from which I regret not having collected the roughly bi-annual proclamations of full and total economic collapse, or James Howard Kunstler, who confuses his well founded loathing for the status quo and its aesthetic outrage against all that is good and decent (thoough he too is largely on target with his longer term views, found in for example The Long Emergency) with the actual state of this world in terms of specific predictions of collapse/economic ruin and so on.

There’s a few other less prominent people not really worth mentioning unless you are really into doomer porn (aptly named term for such gleeful anticipations of total collapse), so I’m going to leave them to the side, where various people who find such reading amusing can pick at those bones. Hint: if you want to go off and farm, just do it, but do it because you love the soil, growing things, nature, and the entire cycle of life, not out of some absurd notion that you will magically be able to ride out whatever storm you believe is coming down the pike in your rural hideaway.

So I have come to prefer a much more solid set of standards to gauge the overall health of both global and national systems. The airline industry and the internet are the two strongest contenders, because they both track with fair accuracy the overall curves of our ascent up the side of the growth bubble, and they will track our decent as well.

Dmitri Orlov recently wrote a nice piece about what that downhill curve will look like, Peak Oil is History :

I feel that the time is ripe for me to weigh in on the subject and declare, unequivocally, that Peak Oil is indeed bunk. Not the part about global oil production reaching a peak sometime right around now then declining inexorably: that part seems true enough. Nor the part about oil production in any given province becoming constrained by geology and technology once the peak is reached: that part, under properly designed experimental conditions, seems predictive as well. In fact, the depletion model has been confirmed beautifully by the example of the continental United States minus Alaska since 1970. But the idea that this same depletion model can be applied to the planet as a whole, is, I feel, something that must be rejected as utterly and completely bogus.
…
Let us look at it another way. As I mentioned, Peak Oil theory has been quite good at predicting the depletion profile of certain stable and prosperous countries and provinces. But these predictions become meaningless when extrapolated to the world as a whole, for one very obvious reason: the world cannot import oil.
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Some might also wonder why a shortage of oil should automatically trigger a collapse. It turns out that, in an industrialized economy, a drop in oil consumption precipitates a proportional drop in overall economic activity. Oil is the feedstock used to make the vast majority of transportation fuels — which are used to move products and deliver services throughout the economy. In the US in particular, there is a very strong correlation between GDP and motor vehicle miles traveled. Thus, the US economy can be said to run on oil, in a rather direct and immediate way: less oil implies a smaller economy. At what point does the economy shrink so much that it can no longer meet its own maintenance requirements? In order to continue functioning, all sorts of infrastructure, plant and equipment must be maintained and replaced in a timely manner, or it stops functioning. Once that point is reached, economic activity becomes constrained not just by the availability of transportation fuels, but also by the availability of serviceable equipment. At some point the economy shrinks so much as to invalidate the financial assumptions on which it is based, making it impossible to continue importing oil on credit. Once that point is reached, the amount of transportation fuels available is no longer limited just by the availability of oil, but also constrained by the inability to finance oil imports.

And in the last paragraph I quote, you see where this starts to tie in with the topic of this posting. The airline industry operates under these same restrictions and rules.

Orlov is often tossed in the doomer crowd, but I don’t agree with this, even though he would tend to agree that he believes the US system is on a straight track to collapse. I hesitate to label him in this way because I think he’s simply too rational to be tossed in with the other people out there who promote such a viewpoint, generally based on very sloppy reasoning, and in my opinion deeply flawed understandings of what human nature and culture are.

Basically the key point to grasp here is that we have had a fairly smooth, albeit bumpy, uphill climb, in pursuit of the mystical, and arithmetically impossible, perpetual growth we’ve grown to accept far too uncritically as one possible reality we can pursue, out of many. Ignoring, that is, the fact that nothing can grow for ever.

Bubble economics, what we’ve been bouncing around in now for many years, going from one to the next, is merely an attempt to keep a system running that has reached the end of its rope. Ie, when real growth stops, start inflating bubbles. This is basically what Alan Greenspan did his entire career. The more bubbles we allow the harder the descent will be. This is somewhat sad, since it suggests that were we to stop being so silly, we could smooth thing out a bit. Norway, for example, has been discussing increasing the capitalization requirements of its banks from 10 to 1 loans/assets to 6 to 1 (assets means real cash by the way, not weird exotic derivatives with no actual market value, you know, the ones that US banks hold as assets and that keep them from going technically bankrupt today). Read an interesting overview of Norway’s own banking collapse, and the Norges Bank analysis of this crisis.

Here in the US, including that funny money, it’s I believe over 12 to 1, and if you forced hard accounting, ie, only counting actual fully liquid cash, who knows what it would be, probably 50 or 100 to one I’d guess. In other words, it’s not an absolute requirement that corrupt financiers use political influence and blackmail on equally corrupt government officials to force bad policies.

So it’s useful to see some concrete pointers along the way while we’re riding up and down these speculative and ultimately doomed bubbles. The failure of the 50 seat jet for regional flights is precisely such a metric, and ties in neatly to a larger pattern of airline consolidations that have occurred since the oil price spikes of 2008. Here’s a few recent examples: British Airways CEO Sizes Up Next Deal After Iberia , Ryanair’s O’Leary Ponders One-Euro Toilets, Standing Passengers, and another interesting one, Shell in Talks to Sell Swedish, Finnish Refinery Units to St1 . Airlines merge because growth isn’t possible any way at this point, with oil prices hovering around $70 per barrel, despite some absurd predictions from our friends over at theAutomaticEarth for prices in the $20 per barrel range. Budget airlines, as you’ve noticed by now, are cutting closer and closer to the bone, to cut all non fuel related costs to the absolute minimum possible to get the planes flying and out of the red money losing zone they have all been hovering around, with a few exceptions, since 2008 (Airlines Predict $9 Billion Global Loss).

The last item, selling refineries, is most telling. What global oil companies know is very different from what they say, but what they do is based on what they know. And what they know is that they are basically now unable to increase the petroleum reserves held by their companies, which makes the entire idea of running in-house refining operations something with a finite future. So as in the stock market, the smart players get out first, leaving the small time operators to take the losses, or maybe sending assets to smaller operators who may actually be able to run them at a profit as oil depletion sets in more seriously, with constantly escalating and/or unstable prices.

So where does that leave us? Basically it leaves us peeking over the edges of that big bubble we’ve grown up with since the great depression really kicked us out of our last big growth spurt. Only this time there’s one huge difference, well, actually, there’s a lot of huge differences, but the main ones are finite resources now impeding growth, along with long range planning failures allowing things like outsourcing local production to China and other low cost countries.

To make that more clear, we won’t be able to produce our way out of this coming wind-down, though China believes they will be able to do it. We’ll see how they do, given not enough land or water to sustain their current population, I’m not going to hold my breath for their future though.

So the two metrics I am working with, air travel and the internet, are the signs I’m going to pay attention to. You can actually add any you want, simply see our current society, the industrialized version that is, as a big bubble, you can draw big rings around that bubble, though you can only, as Orlov points out, see the part we’ve gone up. Each big ring corresponds to a key resource, and the machinery it runs. For example, coal and steam engines, coal fired electric power, still the most common way of producing electricity globally, oil and cars, diesel engines, airplanes, and bunker fuel run shipping fleets, which form the very real, steel, backbone of that abstraction we call ‘globalization’. And that backbone runs on cheap bunker fuel, the lowest grade of all the fuel oils. The same thing, by the way, happened in global shipping in 2008 when oil prices skyrocketed as happened with air travel, but it didn’t hit the news as much because bunker fuel just isn’t very interesting.

The internet is a special case, because every single node of that web is a computer, requiring massively toxic, and expensive, and barely profitable, chip production plants that now cost in the billions to create, and which leave behind a toxic trail of garbage, things like all those CRT monitors, oceans of mice, keyboards, motherboards, and so on. And that web is connected using electricity, which must be always on, all the time, all along all of the strands of that web, which themselves are physical cables, dug under ground, spanning the oceans, but most certainly NOT virtual in any way, shape, or form. These pieces make the internet the most sensitive component of our modern industrial system, being as a whole the most complex.

Airplanes, on the other hand, are much more flexible, for example, you can wind down regional flights, focus all flights on regional hubs, like they do now, to adapt to higher fuel costs, rising ticket prices, lowered ticket sales, and so on.

This is why the airline executive put oil prices at $100 the point where the entire model fails. At that point, ticket prices are so high that too many flyers can’t afford to fly, which leaves airplanes unfilled, which forces fewer flights, which lowers income for the airline industry.

With fewer planes selling, the big airplane makers, Boeing, Airbus, and some new Asian contenders, are left fighting over a shrinking pie. These companies too rely on economies of scale to make their aircraft affordable. Fewer sales, prices have to rise per plane. Prices rising per plane, have to raise per seat ticket prices (for example, I’m taking a flight this week that cost about $120 round trip 3 years ago, it’s now $320). Higher ticket prices, fewer tickets sold. See how it spirals down? This is why the airline industry is such an excellent model and test case for actual collapse and decline.

So watching airlines is a great way to gauge the overall health of the global system.

The internet, however, is the most delicate, and the most fragile. The failures to look for there are smaller ruptures in the weaker nodes of the web, 2nd and 3rd world countries failing intermittently, local server farms going offline briefly. I haven’t seen any such signs yet, though I’m not following 2nd and 3rd world web sites, hosted in those countries. In many ways, you won’t see these signs, since as local data centers fail, many sites will simply re-situate themselves to more stable areas, like a Venezuelan site moving to US based hosting companies.

So let’s watch this, the movement is unfortunately below the speed that humans are designed to react to, and there’s too much data out there, and far too much gibberish being spread by the corporate media, the governments, and various other far more insidious entities, like the Koch Brothers.

So without further fuss, here’s a few tidbits to chew on while you contemplate where to put your retirement or kid’s college fund money…

Money, Capital, Credit, and Bubbles… and what really does happen to Capitalism when growth fails?

I don’t want to get too far into this matter here, but this first article I think really demonstrates a point I’ve come to believe explains our use of money much better than anything else can. In other words, it shows the largely illusory nature of what we believe to be a fixed thing, money, cash, banking, flow of funds, etc.

Bloomberg, Currency Collapse May Stimulate Economic Expansion, BIS Says – June 14

Currency collapses tend to spur a resumption of economic growth rather than fueling a decline in gross domestic product, according to the Bank for International Settlements.
…
The positive effects of a weaker currency on GDP, including making local products cheaper than imported goods, may outweigh the negative ones, such as rising inflation. Currency collapses occur when the annual exchange rate drops by about 22 percent, according to the BIS, which identified 79 such episodes, “more commonly in Africa than in Asia or Latin America,” since 1960, Tovar said.

I don’t know about you, but to me this is just weird. It’s like, we’ve created a house built on air, and when we don’t like how high or low our house is, we lower or raise it by huffing and puffing a bit (ie, deflation/inflation of money supply). Again, this is weird. I get the strong feeling I am looking at the Emperor’s New Clothes, ie, there’s actually nothing there at all in that entire global flow of funds, balance of payments, etc.

But I’ve had a sneaking suspicion for a while now that since all this finance stuff is actually just an abstraction, at some point, if the game looks like it’s about to blowup, they might just change the rules of the game. That can look a lot of ways, but it will probably have to happen more or less in relative harmony with the other major players in the first world. In other words, if everyone owes everyone so much money they can’t possibly pay it off, maybe it’s just time to start over. They won’t say this of course. And China will certainly continue on its global buying spree before those dollars lose their value.

My guess is the above story is a trial balloon for some re-evaluation of values. That certainly won’t help you any, but it might stretch this global financial collapse story out a bit longer than it should have run.

And while that story unfolds, hovering around the most elevated parts of the economic stratosphere, there’s a few guys who more or less thought they had a handle on the entire financial game, and thought they could surf any wave that came. Not a bad assumption, by the way, given past performance. I know most of these guys understand that money, capital, is primarily a tool to achieve one’s goals, but especially with Soros lately, it looks like he’s actually getting a bit worried, or confused.

Bloomberg, Soros Says ‘We Have Just Entered Act II’ of Crisis (Update2) – June 10

Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen and governments are pressured to curb budget deficits that may push the global economy back into recession.

“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”

Soros, 79, said the current situation in the world economy is “eerily” reminiscent of the 1930s with governments under pressure to narrow their budget deficits at a time when the economic recovery is weak.
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“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
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Credit default swaps, which aim to protect bondholders against the risk of a default, are dangerous and a “license to kill,” Soros said today. CDSs should only be allowed if there is an insurable interest, he said.

And Soros isn’t the only guy who sees big warning signs ahead.

marketwatch.com, Warning: Crash dead ahead. Sell. Get liquid. Now. – May 25

But will Main Street exit? Will we ever learn? No. The Wall Street casino makes mega-billions for insiders like Blankfein and the Goldman Conspiracy. Yet “The Casino” is still below the 2000 record of 11,722. So after accounting for inflation, Wall Street lost over 20% of Main Street’s 401(k) retirement money between 2000 and 2010. Yes, Wall Street’s a big loser the past decade. Their advice is self-serving. Period.

Given their miserable track record, only a fool would bet with Wall Street. Betting odds are Wall Street will lose another 20% in the next decade from 2010-2020. Yes, today’s market is a “buying opportunity,” but only for Wall Street casino insiders like Biggs, Blankfein and even low-level staffers inside “The Casino.” But not for our 95 million Main Street investors, there’s more pain ahead, this market’s dropping.

Correction? New crash imminent, worse than 2008
More proof: Earlier economist Gary Shilling said price-to-earnings ratios are at a “nosebleed 22.5 level.” The Dow was around 11,000. Money manager Jeremy Grantham recently said the market’s overvalued 40%. That could mean a collapse to 6,600. Last week in Reuters’ “Markets Could Be Derailed Again,” George Soros echoed a “game over” warning with a “stark warning … that the financial world is on the wrong track and that we may be hurtling towards an even bigger boom and bust than in the credit crisis.”

Now Dow Theory’s Richard Russell is warning the public of an imminent crash: “Sell … get liquid … by the end of this year they won’t recognize the country.”

A bigger meltdown than the credit crisis? Yes, Bush’s team drove America into a ditch. But now Obama and his money men, Summers, Geithner, Bernanke, are digging the hole deeper. Soros says we have not learned “the lessons that markets are inherently unstable.” As a result, “the success in bailing out the system on the previous occasion led to a super-bubble.” Now “we are facing a yet larger bubble.” Worse than 2008?

This is just one guy writing, but people like Soros have a certain track record of being largely right. Definitely more than you or I. Not always, not invariably, but certainly more than the Ivy league types Obama has sadly decided to surround himself with. And noting that we have created nothing more than a ‘super bubble’ of government debt, fulfilling its role as debtor of last resort (that’s before the game ends, the play finishes, and the curtain drops, that is) is hardly new, Doug Noland’s Credit Bubble Bulletin has been pushing that point for years now, ever since the bailouts and government guarantees of risky/ bad / dangerous debt started around 2008.

Over the years, I’ve emphasized the prominent role “Wall Street alchemy” played in fueling Credit Bubble excess. The Street’s astounding capacity to transform risky loans into perceived safe and liquid securities was absolutely fundamental to the Credit Bubble. The OTC derivatives markets – including collateralized debt obligations, asset-backed securities, Credit default swaps, auction-rate securities, etc. – were critical for the intermediation of risky, high-yielding loans into “money”-like securities. This brand of risk intermediation and distortion was instrumental to the historic boom and bust – and this week it returned to the regulation spotlight.

As I’ve attempted to explain over the years, risk intermediation invariably becomes a central issue inherent to protracted Credit Bubbles and their resulting Bubble Economies. The amount of Credit necessary to sustain the Bubbles rises each year. And each passing year requires an increasing (exponentially-rising) amount of riskier Credit. Our government’s massive injection of Credit/purchasing power coupled with interest rate and market liquidity intervention sustained the existing economic structure. As they say, “that’s the good news.”

For the private-sector Credit mechanism to supplant government Credit will require an enormous expansion of risky loans. These risky Credits must then either be held directly by the financial sector or intermediated and sold into the marketplace. Admittedly, this may not be much of an issue today – with government Credit expansion and monetary stimulus abounding. But there is no escaping the harsh reality that acute Credit vulnerability is only held at bay by Trillion dollar deficits and ultra-loose financial conditions. I am skeptical of notions of shrinking deficits and a graceful Fed exit.
Doug Noland, Deficits and Private-Sector Credit, April 23 2010

Thomas Jefferson had something to say on these types of problems as well.

“And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”
Thomas Jefferson to John Taylor, Monticello, 28 May 1816. Ford 11:533.
Jefferson Encyclopedia, wiki.monticello.org – Private Banks

“A spirit… of gambling in our public paper has seized on too many of our citizens, and we fear it will check our commerce, arts, manufactures, and agriculture, unless stopped.” –Thomas Jefferson to William Carmichael, 1791. ME 8:230

“Our public credit is good, but the abundance of paper has produced a spirit of gambling in the funds, which has laid up our ships at the wharves as too slow instruments of profit, and has even disarmed the hand of the tailor of his needle and thimble. They say the evil will cure itself. I wish it may; but I have rarely seen a gamester cured, even by the disasters of his vocation.” –Thomas Jefferson to Gouverneur Morris, 1791. ME 8:241

“All the capital employed in paper speculation is barren and useless, producing, like that on a gaming table, no accession to itself, and is withdrawn from commerce and agriculture where it would have produced addition to the common mass… It nourishes in our citizens habits of vice and idleness instead of industry and morality… It has furnished effectual means of corrupting such a portion of the legislature as turns the balance between the honest voters whichever way it is directed.” –Thomas Jefferson to George Washington, 1792. ME 8:344

“We are now taught to believe that legerdemain tricks upon paper can produce as solid wealth as hard labor in the earth. It is vain for common sense to urge that nothing can produce but nothing; that it is an idle dream to believe in a philosopher’s stone which is to turn everything into gold, and to redeem man from the original sentence of his Maker, ‘in the sweat of his brow shall he eat his bread.’” –Thomas Jefferson to Charles Yancey, 1816. ME 14:381
etext.lib.virginia.edu/jefferson/quotations – Money & Banking

Soros, like Jefferson, is an interesting guy, and I’ve enjoyed reading his thoughts over the years. But as I get older and see how these economic games play out, I am increasingly reminded of that simple statement in the Bible, Timothy: the love of money is the root of all evil.

Note the ‘the love of’ part. Most people put this as just ‘money is the…’, thus missing the key active ingredient required to generate the evil, the pursuit and love of money, an actor, carrying out an action, that is. Note further that it’s extremely unlikely that you would end up being a mega-billionaire like Soros if you did not love money. Unless you were just doing it because you find it to be a fun game, which I will admit is quite possible as well. Or some combination of the two, which is probably the closet to the truth.

I like that quote, by the way, because it seems to be quite accurate, and it’s in the Bible, so our local religious types can’t really argue with it. It is also supported by thousands of years of human tradition, at least the parts of our tradition where we lived in smaller tribal units (that’s probably about 99% of our history in most cases), where excessive collection of private property was generally discouraged via taboo and other strong social restrictions.

In fact, I’d hazard the guess that the observation that the love of money is the root of all evil is a surviving fragment of a much earlier world view. One where an excess of wealth, or more importantly, putting one’s own needs as primary in front of the needs of the social body, was not seen as a positive, but rather as a mark of insanity, or at least sociopathic behavior, to be punished by severe penalties. This doesn’t mean there weren’t rich men, big men, in our societies, just that their primary obligation was to their tribe, not themselves.

Hard concept I know for us to get in our modern world, where we’ve made virtues of vices to greater and greater degrees. For example, few methods would be more successful than a rigorous application of the 7 cardinal sins, at least if one’s goal is to successfully climb the corporate ladder(s) of ones choice.

BP and the financial world – ripples and repercussions spread

Whatever your views of Biblical topics is, one thing’s for certain: we are certainly doing a terrible job taking care of our environment. You know, the place you live? The only place you have to live in fact, no matter how far you drive, fly, ride, bus, sail, submarine, or just plain walk.

This problem is being highlighted by the BP Gulf Oil Spill, which is starting to send some ripples down into the fundamental fabrics of the web that generates our daily lives, especially in that surreal zone known as the financial sector.

BP has come to illustrate a single very disturbing thing to me, namely that during the financial crisis, the Bush/Obama administrations maintained that there was nothing they could do, they had to bail out the financial industries (sic – calling these things industries when they produce nothing is an obscene abuse of language) in question, etc, because our system couldn’t survive without them. Also discussion of the nature of contract law was brought up repeatedly, ie, it was not possible to violate the terms of existing contracts, so creditors had to be paid off.

Apparently, when it comes to concrete, material problems, we can do whatever we want, however we want in terms of government taking control of, and even possibly dismantling, offending corporate entities such as BP. Entities, I might add, that produce the life blood of our system, oil. At least such talk is certainly not off the table at this point. Odd that such options magically wouldn’t apply to something far more ephemeral, in fact, I’d argue, illusory, not to mention parasitically worthless, like the massive groups engaging in high risk financial speculations of the most arcane, indeed, metaphysical sorts (Credit Default Swaps, Securitized mortages, etc…), eg. AIG, Goldman Sachs, BofA, Chase, Citibank… kind of makes you think, no?

If you’ll recall, above I questioned a bit how we view things like money. No matter how you decide to view this yourself, one thing is for certain: a certain amount of money in general gives you access to a certain amount of resources, or control over them.

So watching BP as it stumbles around like a boxer getting his face slammed by an invisible opponent is pretty interesting. As is watching the system that the oil they produced for in the first place try to handle a failure of this magnitude. I’d call this a game changer, in fact, even though the term ‘Black Swan‘ is massively overused, I’d have to say if anything qualifies for a Black Swan event, the BP blowout/oil spill has to be that.

Just watch the stuff unfold, in real time, piece by piece.

Bloomberg, BP Bankruptcy Would Offer No Protection From Costs – June 15

June 15 (Bloomberg) –BP Plc, whose potential liability for the Gulf of Mexico oil spill has lawmakers and analysts raising the specter of bankruptcy, would be unlikely to avoid paying claims by seeking court protection, restructuring experts said.
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The U.K. energy company faces more than 200 lawsuits, and the U.S. is assessing the cost of restoring natural resources destroyed or fouled by the spill. BP’s liabilities include $37 billion in cleanup and potential litigation expenses, according to a June 2 Credit Suisse report. While a U.S. bankruptcy may halt many claims, it wouldn’t allow BP to avoid paying for most of the cleanup and damages, said New York bankruptcy lawyer Martin Bienenstock of Dewey & LeBoeuf LLP.
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BP said it won’t seek court protection. “We categorically deny those rumors,” said David Nicholas, a company spokesman.
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BP, the largest oil and gas producer in the Gulf of Mexico, may put all or part of the company into Chapter 11 bankruptcy, said Lynn Lopucki, a law professor at the University of California, Los Angeles. That would immediately halt spill litigation against it and place all claims under the control of the bankruptcy judge, he said.

Now, I don’t know about you, but everytime I see a company or politician categorically deny rumour x or y, that rumour is almost always true. Almost doesn’t mean always, but it’s very common, especially when such rumours hit the corporate type media. If you haven’t noticed this, my guess is you just haven’t been paying attention.

But wait a moment, what’s that we hear in the distance? It’s the cavalry, thundering up on their mighty steeds to restore peace and order.

In other words, BP has a lot to lose if they try to weasel out of their debts and obligations. If, that is, they determine that in fact they must strive to maximize shareholder value, the essential requirement of all corporations, especially the ones operating in the USA. In other words, if they try to cut and run. But watch how this game plays out, it’s interesting. Keep in mind the global big picture. The US consumes about 20-25% of global oil production, and has about 2% of global oil reserves. And has to import about 50% of their oil. Big market. Big profits. Wouldn’t want to lose such a market, now would we?

Bloomberg, BP May Lose U.S. Oil Leases, Contracts After Spill – June 14

BP Plc may lose control of its U.S. oil and natural gas wells and be barred from doing business with the federal government as punishment for the worst oil spill in U.S. history, industry and regulatory analysts said.

President Barack Obama and lawmakers are debating penalties that would cripple the company’s ability to do business in the U.S. as public outrage intensifies. In addition to BP’s culpability in the Gulf of Mexico spill, a 2005 explosion at BP’s Texas City refinery that killed 15 workers and a 2006 pipeline leak that dumped 200,000 gallons of crude at Prudhoe Bay, Alaska, will figure in the debate, said Michael Wara, associate professor of environmental law at Stanford University in Palo Alto, California.

“The government weighs whether there is a pattern and practice,” Wara said. “They’ll consider whether BP runs these incredibly complicated systems, where accidents can and sometimes do happen, or whether the company has a culture that disfavors safety and environmental compliance.”

And it’s not just about a few contracts, threats are being floated left and right as well, looks like the government really wants to get BP’s attention. That’s my take on it anyway.

news.com.au, BP executives could face 15 years’ jail – June 14

BP executives could face up to 15 years in jail for their role in the Deepwater Horizon oil disaster, legal experts say.

The advice from US legal experts came as executives from the world’s other major oil companies separately claimed the accident “was preventable,” reports said.

Jody Freeman, Professor of Environmental Law at Harvard Law School, told The (London) Times that if criminal negligence could be proved then “the law certainly provides for prison for environmental crimes”.
…
The warning came as executives from Exxon-Mobil, Shell, Chevron and ConocoPhillips prepared to distance themselves from BP, according to planned statements seen by Financial Times sources.

The oil industry leaders were planning to testify in front of a subcommittee of the US House energy and commerce committee tomorrow that the oil spill in the Gulf of Mexico would have been “preventable” if BP had followed the industry’s “best practices,” the sources said.

The rest of the oil industry is more than happy to sacrifice BP at the altar to save their own skins. And to pick over the that delectable corpse of BP. All that lovely oil, all those resources, all those oil leases… Talk about jackals circling in for the kill.

Interesting, no? You can see the game unfolding, more and more rapidly. Remember, inside BP, there are guys who want to win the game. They don’t care about anything outside winning. Those guys have power in the company, you can rest assured of that, they wouldn’t be who they were if they didn’t. And they are watching that power get dismantled as BP stock value plummets almost daily. Every major company has these guys, some are so good at the game they become their own game, like Soros, Warren Buffet, Jim Rogers.

So these guys, sitting in BP, are going to try to do something to preserve their power and status. And wealth, of course. This is why they play the game, they don’t care about you or me, the game is everything to them.

And other big players are taking note as well, as you can see here:

Reuters, BofA to limit duration of trades with BP – June 15

Bank of America Merrill Lynch (BAC.N) has ordered its traders not to enter into oil trades with BP Plc (BP.L) that extend beyond June 2011, a market source familiar with the directive told Reuters.

The order to the bank’s traders came from a high-level executive and was made on Monday, according to a source familiar with it. It told traders not to engage in trade with BP for contracts beyond one year from this month.
…
Limiting the duration of trades with a counterparty is one way in which banks can seek to protect themselves against risk that a company will be unable to meet its long-term obligations.

A BofA spokesman declined comment.

Groovy, no? Big games among the big boys. Translation: Bank of America sees a high probability of BP exiting the play stage right (or left, the precise scenario still remains to be worked out). So high, in fact, that they no longer want to play along.

So of course, BP gets the biggest boys on the block in their corner, Goldman Sachs highlighted as if they needed further highlighting. When the going gets tough, hire Goldman and anyone else you can find. I don’t know about you, but I think Goldman Sachs needs to be dismantled, now. It has its fingers in too many pies, and it does nothing to make this world a better place. In fact, when it comes to loving money, they have to be front and center.

NY Times, BP Hires Financial Advisers as Pressure Mounts – June 14

BP has hired several investment banks, including Goldman Sachs, the Blackstone Group and Credit Suisse, to advise on its options as it faces financial and political pressure over the Gulf of Mexico oil spill, people briefed on the matter told DealBook on Monday.

Among the matters the advisers have been asked to study are ways to handle BP’s mounting liabilities, one of these people said. The Obama administration has put pressure on the company to set aside money in escrow to finance potential liability claims and to withhold paying out its dividend.

BP has also been the subject of takeover speculation on Wall Street, another possibility that the advisers may be asked to consider.

Note especially the takeover rumours. Such takeover rumors aren’t rocket science. Just add cost to buy company stocks, then compare to value of company assets, oil in this case, then subtract debt, liabilities, etc. You know, the stuff BP will try to get rid of using some financial gimics and devices like splitting itself into new entities.

NY Times, Imagining the Worst in BP’s Future – June 8

The idea that BP might one day file for bankruptcy, particularly as part of a merger that would enable it to cordon off its liabilities from the spill, is starting to percolate on Wall Street. Bankers and lawyers are already sizing up potential deals (and counting their potential fees).

Given the plunge in BP’s share price — the company has lost more than a third of its value since Deepwater Horizon blew — some bankers and analysts say BP is starting to look like takeover bait. The question is, who would buy BP, given its enormous potential liabilities?

Shell and Exxon Mobil are both said to be licking their chops. And already, flinty legal minds are dreaming up scenarios in which BP would file a prepackaged bankruptcy and separate the costs of the cleanup — and potentially billions of dollars in legal claims — into a separate corporate entity.

Tony Hayward, BP’s chief executive, has insisted that his giant will weather this storm. BP is indeed a money machine: it turned a profit of nearly $17 billion last year.

Remember also why we even have corporations: to minimize risk to investors / creditors / and, most important, company officers, CEOs, boards, and so on. Maybe it’s time to let those people carry a bit more of the risk. When you look back at the history of corporations, they didn’t have this type of power or control over policy/politics in the past, and they don’t need to have it today.

And on and on it goes. Where it stops, nobody knows.

And if that wasn’t bad enough, Worst Locust Plague in Two Decades Threatens Australian Harvest! Sometimes you just can’t win, but you just have to keep going anyway, as if you had a choice in the matter.

The real problem, of course, is that most currently producing large fields are in a state of decline, forcing oil companies to go offshore to get new sources of oil. Drill baby Drill simply allows a tiny bit more high risk offshore drilling to take place. Remember, initial estimates of the recoverable reserves in the Macondo reservoir (the one that is spewing out oil into the Gulf of Mexico now, that is) put them at about 50 million barrels. That’s 2.5 days supply for the USA, give or take, or about 0.6 days supply for the planet.

BP spokesman Jon Pack said it’s still possible there will be oil produced in the area. The reservoir may have held about 50 million barrels of crude, he said. www.businessweek.com

Once global production goes into serious decline, an event slated to being around 2012 or so by the US military panel who just put out their report on this, no amount of new oil fields put online will be able to overcome the existing 5-7% yearly decline rates of currently producing fields. Do the math. 5% decline, the current conservative estimate, out of about 75 million barrels per day petroleum (the rest of the 85 or so million barrels per day is other liquids, including, oddly enough, stuff like ethanol I believe. So 5% of 75 million is 3.75 million barrels per day of new production, or increased production (read that as: pump out the oil faster) from existing fields.

Saudi Arabia claims 12 million barrels per day (bpd), is actually pumping I think around 8 or 9, which expert commentators believe is the actual real amount they can pump realistically except for short bursts of more heavy oil production. So in 3 years we need to add, now, as we speak, one new Saudi Arabia of production. That simply is not going to happen. And that’s at the lower 5% number. The higher, 7%, makes it closer to 2 years a new Saudi Arabia.

Let me put this clearly: no such oil pools have been discovered, and it takes decades in most cases to bring online oil fields after discovery. Discoveries peaked about 40 years ago, and have been declining ever since. This is the basic reality of global oil production peaks, and it’s why peak oil is called peak oil. No amount of politics can do anything more than add a very small bump to the downward trajectory of the production numbers. So I really suggest Fox news and the Republican party begin preparing their loyal support base for this reality, the blame game isn’t going to go over well and it just makes you sound stupid if you say things that have nothing to do with reality.

The true cost of drilling

While we’re shocked by the spill in the Gulf, the sad fact is in the third world, big oil spills constantly, and often fails to properly clean it up.

What the industry dreads more than anything else is being made fully accountable to developing countries for the mess it has made and the oil it has spilt in the forests, creeks, seas and deserts of the world.

There are more than 2,000 major spillage sites in the Niger delta that have never been cleaned up; there are vast areas of the Colombian, Ecuadorian and Peruvian Amazon that have been devastated by spillages, the dumping of toxic materials and blowouts. Rivers and wells in Venezuela, Angola, Chad, Gabon, Equatorial Guinea, Uganda and Sudan have been badly polluted. Occidental, BP, Chevron, Shell and most other oil companies together face hundreds of outstanding lawsuits. Ecuador alone is seeking $30bn from Texaco.

The only reason oil costs $70-$100 a barrel today, and not $200, is because the industry has managed to pass on the real costs of extracting the oil. If the developing world applied the same pressure on the companies as Obama and the US senators are now doing, and if the industry were forced to really clean up the myriad messes it causes, the price would jump and the switch to clean energy would be swift.

If the billions of dollars of annual subsidies and the many tax breaks the industry gets were withdrawn, and the cost of protecting oil companies in developing countries were added, then most of the world’s oil would almost certainly be left in the ground.

The real cost of cheap oil

And there you have it. I’m not sure people understand just how precarious our current consumption levels, and the economy that depends on them, are. There is no guarantee that we have some inalienable right to shop at WalMart buying garbage made in China, shipped in huge container ships, running toxic bunker oil.

[Updated Monday, June 7]
James Howard Kunstler just posted his weekly rant, which had this nice little comment, which puts it about as clearly as you can hope to do:

The obvious remedy for the oil-and-car problem would be to live in walkable towns and neighborhoods served by the kind of public transit that people are not ashamed to ride in. But it may be too late for that. We’re going to be a much poorer society from now on. We squandered the financial resources for that transition on too many other things. We’re stuck with our investments in houses and their commercial accessories, built where they were built, and no Jolly Green Giant is going to pick them up and move them closer together in an artful way that adds up to real towns. A reorganization of American life will occur, but now it will be on much less deliberate terms, a much messier and more destructive operation, a default to the smaller scale by extreme necessity, with a lot of losses along the way. The Deepwater Horizon incident only hastens the process.

Kunstler isn’t always that great, but he does sometimes pull out a good set of words when he’s feeling inspired by something or other. As always, ignore his comment threads, they are unmoderated mostly, and pretty much useless in terms of worthwhile statements that add to the discussion.

Here’s a site with multiple live camera shots from different sources, deepwaterbp.com. Same site, their wall of ROV videos (takes a long time to load, click on any video to see it full size, esc to return).

Some of these are I think windows media, not sure, some are flash.

1. denial—”We are not lost! The ski lodge is just over the next ridge, or the next, or the next…”
2. anger—”We are wasting time! Shut up and keep trotting!”
3. bargaining—”The map must be wrong; either that or someone has dynamited the giant boulder that should be right there…”
4. depression—”We’ll never get there! We’re all going to die out here!” and
5. acceptance—”We are not lost; we are right here, wherever it is. We better find some shelter and start a campfire before it gets dark and cold.”

If you need this made explicit:

1. We’re not running out of oil, we can get plenty from Deepwater, Oil Sands, and assorted other strange sources that are riskier to use than anything we’ve developed before, in one way or another. If those pesky environmentalists would just let us produce all the energy that American ingenuity is capable of, then we’d have no problems at all. Damned liberals.

2. Drill baby Drill, teach those bad Arabs that we don’t need them (ignore that we can only produce, at our currently depressed US consumption of about 19 or 20 million barrels per day (bpd), roughly 50% of our current requirements.) Open Arctic sources to drilling, anything, just so we don’t have to change. Sure, we can vote for change, but forget about actual change, that’s too difficult. Damned neo-cons, damned liberals (pick which, or both).

3. We’re in this now: once we apply the right technologies, and fix the broken oil thing in the Gulf, well then, it will all be OK, and we can commence drilling, driving, and consuming cheap plastic garbage shipped in from China.

4. Gas stations start running out of gasoline, and/or, prices begin to rise again, up and up, increasing steadily at the pump as global oil production begins to enter into permanent and irreversible decline. You remember, that’s what happens when you’ve been using more oil than you’ve been discovering now for over 40 years or so, give or take a few.

Our way of life begins to disintegrate, especially since we did almost nothing besides building more highways and trying to re-ignite stagnant suburban housing development as our housing bubble popped and the economy went into a nosedive in 2008. You remember, the way of life Dick Cheney said was not negotiable. Right, that one. I assume Cheney was/is a really bad business man too.

5. Don’t worry, the younger people out there will do this naturally, the kids will start riding bikes, in fact, riding bikes will become cool. That’s already happening. It’s the older people, and the people who totally locked into the previous failing system of corporate careering and suburban bliss that are going to have the most problem.

What does real change look like? What is acceptance?

All that happens when you dump cars is that you begin to slow down and approach sane normal living speeds. Big deal. That will do you good, nothing is gained by going faster and faster, it’s just spinning the old wheel around and around, you don’t get anywhere, just ask your hamster as he runs round and round in his little wheel in his cage.

Stage 4 is where it gets risky, a lot of people are simply unable to think of these systems as globally restricted, and have grown up with the notion that consumption, especially pointlessly excessive consumption, has any actual value. These people will not adjust well, though again, their kids will, since they will be growing up in reality, not in an idea of reality.

It’s the idea of reality that we carry around with us that is the problem, the one that James Howard Kunstler correctly notes has created a country not worth fighting or dying for. That’s the one that has to provide its soldiers in Iraq with shopping centers filled with franchise stores so they can consume even while allegedly at war, occupying a large foreign OPEC country for no particular reason except inertia.

Don’t blame the oil companies too quickly…

Blowouts, huge spills spreading like cancers across the Gulf of Mexico, which was already filled with toxic by-products of our non-negotiable way of life.

That’s how it goes, we tell ourselves. Better improve the regulations, make better oversight, fix the broken system to make it work normally again. But get this straight, we can’t blame the oil companies for producing what we demand, what we use. That’s like blaming Columbians for producing the cocaine we buy and create a demand for.

Sure we can regulate them better, that goes without saying. And we can disconnect the cozy business/government relationships that exist in the MMS.

And we can force all companies to follow best practices, not cheapest.

But none of that changes for one millisecond the reality that they would not be out there if we weren’t buying the gas and plastic trinkets and other stuff made with petrochemicals in the first place. And they are out there because there is no other there to find oil at, that’s where the last reasonably affordable, and available, stuff is.

And focus on that phrase, last reasonably affordable. That’s the last of the plentiful new supplies. When it’s gone, what’s left will be even harder to extract, more dangerous, more risky, more toxic, and more damaging to the overall ecosystem. Like the tar sands in Canada are now.

So really, that’s about it, when oil hits about 80 a barrel, I’d say that’s about what the global economy can handle without going into convultions, that’s about the production cost per barrel to bring new supplies online. Maybe a bit less, maybe more, depends.

And that’s because we are out of easy to extract oil. The old fields are running out, the new fields are smaller and more complicated and expensive to develop.

The estimates for the BP field that just blew out was about 50 million barrels, that’s about 2.5 days of US consumption. And about 0.6 days global consumption. High price for a few day’s more driving wouldn’t you say?

They’ve worked out that when nations spend more than X% of their GDP on oil, I think it’s about 2-4%, then they will suffer economic failures and disruptions. And when oil goes over about $90 to $100 a barrel, that percentage is hit. That’s why oil has been lingering right at the balance point now since it spiked to $147 then dropped to $30. At $30, they can’t afford new drilling, and start canceling projects already planned.

At $80 it works, for now. When it pushes to $90 or $100, things start to crack and fail. This is what peak oil production globally looks like. The economists, who seem dead set on demonstrating that they simply have zero clue about reality at all, kept saying that oil would just go up and up until supply / demand balanced again. But there’s a finite limit to that process, and we’ve already hit it.

A lot of consuming countries, which are for us out of sight, out of mind – Kenya, Bangladesh, Pakistan for example – have already passed this limit (ie, they really can’t afford $80 a barrel oil in the first place). They are the ones who are balancing demand by not buying more. And the USA of course, consuming about 25% of the planet’s total, dropped a few percent of their total as well (mostly I would guess because people are shopping less, and thus, driving less, or not commuting to work because they got laid off), but that’s about as much as we can drop without actually changing our society to get away from car based culture.

So things are going to be precarious for the coming few years, you’ll see more volatility, more tests to find the top prices the market can support, more unpredictability. Then one day, here and there, gas stations will start to run out of oil.

Forget about prices, they aren’t the real indicator. Look at gas/oil availability in the real production / consumption markets.

You may even hear excuses, like, oh, that station just wasn’t economical to run.

Speaking of which, I just remembered, in my neighborhood, 2 stations were closed down over the last year already. Guess they weren’t economical to run….

Don’t go looking for the future when it’s already here, that’s my advice.

But as the article Barack Hoover Obama – By Ken Silverstein (Harper’s Magazine) put it so well, there’s no real option, since there is no real power promoting the change that we actually need.

And when individuals refuse to modify their own behaviors, and insist on driving, maintaining a car-centric life (and I admit, it’s not easy living without a car in much of the United States), it’s hard to see just where changes will come from. Especially given the massive power and entrenched corporate interests of the growth based economic system we are forced to see as our only option for the future.

It will be a while longer before you read a speech like Roosevelt gave about the banksters before he was elected:

For out of this modern civilization economic royalists carved new dynasties. New kingdoms were built upon concentration of control over material things. Through new uses of corporations, banks and securities, new machinery of industry and agriculture, of labor and capital – all undreamed of by the Fathers – the whole structure of modern life was impressed into this royal service.

There was no place among this royalty for our many thousands of small-businessmen and merchants who sought to make a worthy use of the American system of initiative and profit. They were no more free than the worker or the farmer. Even honest and progressive-minded men of wealth, aware of their obligation to their generation, could never know just where they fitted into this dynastic scheme of things.

It was natural and perhaps human that the privileged princes of these new economic dynasties, thirsting for power, reached out for control over government itself. They created a new despotism and wrapped it in the robes of legal sanction. In its service new mercenaries sought to regiment the people, their labor, and their property. And as a result the average man once more confronts the problem that faced the Minute Man.

Or like the one he gave two years after his election:

“Unhappy events abroad have re-taught us two simple truths about the liberty of a democratic people. The first truth is that the liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic State itself. That, in its essence, is fascism –ownership of government by an individual, by a group or by any other controlling private power.

The second truth is that the liberty of a democracy is not safe if its business system does not provide employment and produce and distribute goods in such a way as to sustain an acceptable standard of living.”

I’ve wasted a few bytes of typing trying to point out this simple reality to a few bloggers around the web, but I gave up. Either you understand what Roosevelt was saying here or you don’t, I guess. It’s the power of private interests over government that is the essence of fascism, not the superficial signs of authoritarianism, which aren’t required in many advanced industrial societies becuase… well because people voluntarily subject themselves to television viewing, and happily absorb the consumerist message without much resistance.

But there’s a huge trap, a trick almost, or a form of blackmail, rapidly evolving globally, and it’s about some very raw crude realities, beyond the realities of exploding oil drilling platforms.

Without industrial corporate agribusiness, and their petro-chemical based pesticides and fertilyzers, it’s very unlikely the population of the planet can survive at its present bloated levels more than a year or two at most after the first major disruption to it occurs. I don’t say that to promote industrial corporate agriculture, but rather to point out the obvious, unsustainable agriculture is not a solution to over-population and over-consumption. And if over-population depends on non-sustainable agriculture, over-population will not be sustained.

Same goes for global food distribution, and the infamous 5000 mile salad, which is a metaphor for our current non-localized, non-in season food production system in the United States. In other words, the ingredients for your salad could well have travelled 5000 miles, or more, before they reached your local store.

Since non-sustainable meeans can’t be sustained, look for very fast population declines in the coming years, food water oil are going to crack very soon, at least in the more at-risk sectors of the global system. I’ve never seen an elegant or clean decline done unwillingly, have you?

What we’re seeing today, with these technical problems in oil production in deep seas, is merely a symptom of the larger problem, the inability to change direction no matter how much evidence exists about why we should do just that. Now you know why the captain of the Titanic wouldn’t change course or heed the iceberg warnings he recieved. Events like this Deepwater Horizon blowout are just very large canaries singing out the warnings to the coal miners, only they are too busy listening to their iPods and talking on their cell phones to hear the danger call.

So what we’re looking at is a rapidly expanding cache-22, and it might just be time to step out of it, if we still can.

And that’s it for today’s overview of where we are headed, both as a people/culture, and in regards to this latest little bump in the downhill road to curtailed then failed growth.

If the solution to a problem is unsufficiently scaled to the size of the problem, then at best we can say it’s a token solution. And token solutions are what the US has been trying out for 40 years, on the matter of energy. 8 billion for High Speed Rail? Sorry, but the restoration of rail in this country is an 800 billion dollar project and that would be just for the first wave. Adoption of electric vehicles, as part of some cultural need to maintain US car culture? Sure, at realistic adoption rates you might be running mostly on EVs in 150-200 years. Switch the powergrid to 100% renewable resources like Wind and Solar in ten years? Not likely. But maybe if you are willing to withdraw the entirety of US armed services from overseas, devote the entire military budget for 10 years, and match that workforce with highly skilled workers from the private sector, then maybe you can make a dent by 2020.

When a politician tells you they want to solve for climate change while investing heavily in automobiles and highways, rest assured that is decidedly unserious. When former politicians claim you can have an all renewable powergrid in ten years, that is not helping anyone. When academics tell you that we can be operating in an all renewable world by 2030, but have nothing in their model to account for the energy needed to build that new world, that is simply not good enough. Nota bene: nearly all energy transition plans and especially plans to transition to alternative energy depend on economic growth. All those models assume there will be a sufficient inventory of growth that can be redirected to a different energy architecture. As you contemplate this, also realize that to construct a lower carbon-emitting future poses a question: what is the energy source that will be used, to conduct energy transition?

“When a politician tells you they want to solve for climate change while investing heavily in automobiles and highways, rest assured that is decidedly unserious.” Yes, indeed. Decidedly not serious is exactly how I would put our current response to global warming, soon to be declining global oil supplies, coal extraction, etc.

Here’s just a small part of why such proposals are not serious. Say for electric cars, or even plug-in hybrids. Say use increases. Roads are paid for with gas taxes mostly. You saw a small example of this when gasoline started going over $4 a gallon here. As prices rose, gallon sales dropped, ie, less gas was purchased. As gallon sales dropped, gas tax revenues dropped, and road work deteriorated. It was almost an instant feed-back loop.

As James Howard Kunstler has repeatedly stated, it is sheer lunacy to continue injecting our future revenues into a project that has no future (as he puts it, the biggest misallocation of resources in human history).

But there’s very little that can be done to change this, the US population simply is not able to visualize life without cars and excessive consumption, in fact, such consumption patterns appear to have largely replaced most normal human social actions and systems. Not everyone, not everywhere, but it’s pretty difficult to find major, or more importantly, significant, exceptions.

Since there are not many (but not none, please note, there are instances of groups of people reversing possibly suicidal behavior patterns in history) examples of people, especially large groups of people, leaving negative behaviors behind by actual choice and personal change, that idea is something we can hope for, but only if we realize how unusual it would be if we actually started engaging in drawdowns of consumption, population expansion, resource abuse and overuse, and began to actually examine what a sustainable world might look like.

The weird thing about living in a sustainable world is it’s going to happen one way or the other, living unsustainably just is not one of the options we have. Though we can certainly resist this certainty as long as possible, thus consuming even more of our future in the process.

It’s no accident, given the current mindsets governing us, that our solutions to all our current major issues, especially financial, are to borrow more. We just can’t visualize living with less, after all, so the only logical outcome is to borrow more. It’s really sad to watch this, tragic more than anything else. In the future I guess people will look back and ask themselves, what were they thinking? They had all the information, the evidence was there, but they still kept setting up new big box stores with huge parking lots, then pretending that what they bought there was a substitute for any life that was actually worth living.

Government magic indeed. Debt magic. Credit card magic. Bond magic. Corporate magic. Isn’t it time to start looking for the wizard behind the curtain, pull them back a bit, and expose him for who he really is?

This is (youtube version) the verse that made me think a bit:

Chorus: Government magic.
Fela: dem go da baru (borrow) everything;
Chorus: Government magic.
Fela: dem go turn green into white
Chorus: Government magic.

Indeed… dem dey baru everything… but who is lending?

Or this, from Authority Stealing:

Armed robber him need gun
Authority man him need pen
Authority man in charge of money
Him no need gun, him need pen
Pen got power gun no get
If gun steal eighty thousand naira
Pen go steal two billion naira

Are we actually different at this stage? Borrowing from our futures to pay off bankers who are receiving record bonuses almost yearly? Time to switch magics, there are better ways forward, a magic that benefits only the magician is not a good magic, go back as far as you want, the only worthwhile magics benefit the community.

Unknown Soldier

— Fela Anikulapo Kuti

Fela: Make you no go when you hear.
Just wait there, make I tell you something

Chorus: Fela you go come again

Fela: I never come again. I stay for far away.
Make you wait till I reach where I dey go

Chorus: where you dey go? (3 times)
Fela: Make I reach.

Chorus: where you dey go? (2 times)
Fela: don’t ask me

Chorus: where you dey go? (2 times)
Fela: Wait and see.

Fela: I say… This thing wey happened, happened for my country.
Nah big-big thing, first time in the whole world.
If you hear the name, you go know.
Goverment magic.
Tell me the name now:

Chorus: Government magic.
Fela: dem go da baru everything;
Chorus: Government magic.
Fela: dem go turn green into white
Chorus: Government magic.
Fela: dem dey turn red into blue
Chorus: Government magic.
Fela: Water dey go water dey come ( 2 times)
Chorus: Government magic.
Fela: dem dey turn electric to candle (2 times)
Chorus: Government magic.
Fela: Goverment magic
Chorus: Government magic.

Fela: I say I dey come… small, small

Fela: Look oh! Look oh!
Chorus: Left, right, left, right…

Fela: one thousand soldiers, dem dey come,
Chorus: Left, right, left, right…

Fela: People dey wonder, they wonder, they wonder
Chorus: Left, right, left, right…

Fela: where these one thousand soldiers dey go ?
Chorus: Left, right, left, right…

Fela: Look oh! Look oh!
Chorus: Left, right, left, right…

Fela: Na, Fela’s house: Kalakuta,
Chorus: Left, right, left, right…

Fela: Dem reach the place, dey wait
Chorus: Left, right, left, right…

Fela: Dem dey wait for
Chorus: order
Fela: Yessir

Chorus: Left, right, left, right…

Fela: then sudden this place kwan-kwan, dem they wait
Chorus: Left, right, left, right…

Fela: With dem helmet and them guns and them petrol, and them matches
Chorus: Left, right, left, right…

Fela: Then again.
Chorus: Suddenly

Fela: Fela dey for house, Beko dey there too, dem mama dey too, beautiful people dey there too, frenchman dey there too, press man dey there too, 150 of us dey there too. Then suddenly, suddenly, suddenly..

Chorus: chuku-chuku-chuku, nyema-nyema-nyema, chiggi-chiggi-chiggi

Fela: yes, dem they rape,
Chorus: chuku-chuku-chuku, nyema-nyema-nyema, chiggi-chiggi-chiggi

Fela: yes, dem they steal
Chorus: chuku-chuku-chuku

Fela: yes, dem they loot
Chorus: chuku-chuku-chuku,

Fela: yes, dem they fight
Chorus: nyema-nyema-nyema

Fela: yes, some of the women dey rape, yes they fight, yes by force, yes dem they burn, yes dem they burn, yes dem comeout one student’s eye, yes dem break some-some head, dem break some-some head

Fela: dem throw my mama, 78 year old mama, political mama,
Chorus: chuku-chuku-chuku, nyema-nyema-nyema,

Fela: political mama, ideological mama, inflationary mama, ideological mama, political mama, influential mama

Chorus: chuku-chuku-chuku, nyema-nyema-nyema, chiggi-chiggi-chiggi

Fela: dem throw my mama out of for window

Fela: dem kill my mama. dem kill my mama, dem kill my mama, dem kill my mama, dem kill my mama !

Fela: dem carry everybody. dem carry everybody go inside jail.

Fela: Everybody dey inside jail. We dey wait. 27 days. Them lock us.

Press dey shout.
Radio dey ring.
People dey talk:

“Them go burn Fela house.
Wetin dis Fela do?
Dis goverment, he bad-oh.
Wetin dis Fela do?
Fela talk about soldiers flooding civilians for streets.
Fela talk about government wasting money for festival.
Wetin dis Fela do?
Dis goverment he bad-oh.”

People start to talk-o
government start to shake-o

Then suddenly. Suddenly. Suddenly…

Government bring instruments of magic.
Dem bring enquiry
Dem bring two man: one soldier, one justice
The name of justice: Mr What justice.
The other justice: Major Injustice.

Dem start magic: Dem seize my house. wey they there born. Dem seize my land, dem drive all the people wey live in area: two thousand citizens, dem make them all homeless now .

Dem start magic, Dem start magic.
dem bring flame, dem bring hat, dem bring rabbit, dem conjure, dem bring smoke, dem they fall, dem conjure, spirit catch them. Dem they say:

Chorus: Unknown Soldier
Fela: 921
Chorus: Unknown Soldier
Fela: Government Magic
Chorus: Unknown Soldier

Fela: I get some information for you (2 times)
Chorus: Unknown Soldier

Fela: That my mother wey you kill,
Chorus: Unknown Soldier
Fela: She fought for universal suffrage
Chorus: Unknown Soldier
Fela: That my mother wey you kill,
Chorus: Unknown Soldier
Fela: She fought for universal adult suffrage
Fela: That my mother wey you kill,
Chorus: Unknown Soldier
Fela: She’s the only mother for this country
Fela: That my mother wey you kill,
Chorus: Unknown Soldier
Fela: She’s the only mother for Nigeria
Chorus: Unknown Soldier

Fela: Which kind of injustice is this?
Chorus: Unknown Soldier
Fela: wetin kind government inside? If na Unknown Soldier
Chorus: Unknown Soldier
Fela: I said, wetin concerned government inside?
Chorus: Unknown Soldier
Fela: If na Unknown Soldier
Chorus: Unknown Soldier
Fela: we get unknown police,
Chorus: Unknown Soldier
Fela: we get unknown soldier
Chorus: Unknown Soldier
Fela: we get unknown civilian
Chorus: Unknown Soldier
Fela: or is it part of unknown government?
Fela: we get unknown police, dem kill nice student
Chorus: Unknown Soldier
Fela: we get unknown civilian, dem go kill 2 soldiers
Chorus: Unknown Soldier

Fela: we get unknown soldier
Chorus: Unknown Soldier

Fela: I say unknown police and then unknown soldier and then unknown civilian or is it part of unknown government?

Fela: them turn green into red,
Chorus: Unknown Soldier

Fela: them turn blue into white
Chorus: Unknown Soldier

Unknown Soldier

Or how about Authority Stealing (youtube version?

AUTHORITY STEALING

[Chorus]
Authority stealing!
You be thief (I no be thief)
You be rogue (I no be rogue)
You dey steal (I no dey steal)
You be robber (I no be robber)You be armed robber (No be armed robber)
I no be thief (You be thief)
I no be rogue (You be rogue)
I no dey steal (You dey steal)
I no be robber (You be robber)
I no be armed robber (You be armed robber)
[Chorus]
Argument, argument!
Argument, argument, argue
Them argue
Everbody dem argue
Them dem dem argue
Up and down them argue
Everbody dem argue
Them dem dem dem argue
Yes yes, them argue
Everbody dem argue
Argument about stealing
Somebody don take something
Wey belong to another person
Then you go hear:
You be thief (I no be thief)…
On top of the road, on the side
People dey waka
Office workers, labourer workers, workers’ workers
Them go dey waka
Inside bus them go dey
Motorcycle them dey ride
Plenty, plenty crowd
Inside this crowd
Sometimes for one corner
Sometimes for one street
You go dey hear: ha ha!
[Chorus]
Thief, thief, thief!
Rogue, rogue, rogue!
Robber, robber!
Catch am, catch am! Thief, thief, thief!
Catch am, catch am! Rogue, rogue, rogue!
Catch am, catch am! Robber, robber!
Catch am
Pull am
Get am
Keep am
Ole…
[Chorus]
Catch am, catch am!
Looking go start
Watching go start
Chasing go start
Somebody go dey
Wey them go grab
Them go beat am well-well
Them go lynch am well-well
Police go come well-well
Them go carry am go court
Them go put am for jail
Them fit put am six months
(Them go put am for one year)
Them fit put am two years
(Them go put am for five years)
Them fit put am seven years
(Them go put am for ten years)
If not them go shoot am well
Them go shoot am for armed robbery
On top of the road, on the side
People dey waka
Office workers, labourer workers, workers’ workers
Them go dey try
To try to make ends meet
Them go dey hustle
To try to make ends meet
Them go put hands for back
To try to make ends meet
Them go dey beg oga
To try to make ends meet
Them go be slaves for them town
To try to make ends meet
I say turn your face small
To the right wing
Oga patapata dey for there
Authority people dey for there
Instead of workers
We have officials
Instead of buses
Them dey ride motor-car
Instead of motorcycle
Na helicopter
Instead of them waka
Na worker go waka for them
Authority people them go dey steal
Public contribute plenty money
Na authority people dey steal
Authority man no dey pickpocket
Na petty cash him go dey pick
Armed robber him need gun
Authority man him need pen
Authority man in charge of money
Him no need gun, him need pen
Pen got power gun no get
If gun steal eighty thousand naira
Pen go steal two billion naira
[Chorus]
Thief, thief thief!
Rogue, rogue, rogue!
Robber, robber!
You no go hear them shout
You no go hear them shout at all
You no go hear them say
You no go hear them say response at all
Na different way be them way
Na civilize style be them style
[Chorus]
Yes, yes, yes, yes!
“Oh yes, of course, contract, have some money back in hand, ha ha”
Hear the words them dey take deceive the people:
Misappropriation
Maladministration
Nepotism
Mitigation
Make I remember another one wey them dey use
Defraudment
Forgerylization
Embezzlement
Vilification
Mismanagement
Public inquiry
Authority stealing pass armed robbery
We Africans we must do something about this nonsense
We say we must do something about this nonsense
I repeat, we Africans we must do something about this nonsense
Because now authority stealing pass armed robbery
Authority man him go dey steal
Public contribute plenty money…
[Chorus]
Authority stealing!

I think he may be making a slight mistake though in thinking that the US collapse is going to look like the USSR collapse, which is what he wrote about mainly, the countries are very different in terms of the cultures, politics, social systems.

But what is not different is the fundamental requirement of our system for raw materials and resources, and the serious lunacy of believing in debt fueled and funded ‘growth’, which was supposed to replace growth based on resource exploitation, ie, manufacturing . Sadly trying to restore debt fueled growth is the method Obama is trying to keep floating, like the Bush group before him (oh, if the banks would just lend again everything would be ok…).

When growth stops in a system based on Capital and debt, ie, a system requiring growth to survive, that system will not have a neat elegant wind-down, that much you can be absolutely certain about. But I think one major difference is found in the respective histories of the US and Russia.

Russia has always been fond of oligarchs, with basically unlimited power, whether czars, Putin, Stalin, or Lenin.

The US has at least some checks and balances, and people have a certain expectation that they won’t get totally screwed by the system. Not to idealize our political process in any way, but we do have a system that, although damaged severely by corporatism, can be altered, and we have political documents, which if we follow them, are actually all the tools we need. But the people need to be really pissed off before this happens, and ready to support a party that is willing to cut off corporatism and its perks.

So it strikes me, what is the first thing to go when this system starts to crack due to rising resource costs and peaked production levels of key resources, like oil? Airlines, of course. So it’s not surprising to see, after a disastrous last year, that World’s airlines in fight for survival (with 9 billion US dollars in losses this past year).

Faced with their biggest crisis in history, airlines from throughout the world gathered in Kuala Lumpur to take stock and swap survival strategies.

“Numbers can tell powerful stories,” International Air Transport Association director-general Giovanni Bisignani told his audience of 500 airline representatives at their annual summit.

Airlines are expected to collectively lose US$9 billion (NZ$14b) this year as falling demand, lower yields, broken consumer confidence and the swine flu pandemic threaten to wipe out US$80b in revenue.

Those losses will come on top of last year’s US$10.4b deficit thanks to the double hit from record high fuel prices and the collapse of the world economy.

“The ground shifted and our industry was shaken,” Mr Bisignani says.

Airlines are in survival mode and in desperate need of help to see them through the crisis and allow them to emerge with a business model that delivers a financially sustainable future.

Yep. Can you say: (re)nationalized airlines? In fact, can you say: the only countries that will have any chance of controlling the bumpy downhill slide are going to be the ones where the state controls resource allocation and pricing? Watch the ‘free market’, one of the greatest pieces of nonsense ever generated as a concept in human history, start to show more and more how pathetically unable it is to actually do anything other than serve as an excuse to funnel more money to the hands of those who control it.