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Such is the power of wishful thinking that a set of fool-making memes now pulses through the word-clouds of financial chatter in America spreading the false good cheer that our economic troubles are behind us and pimping for perpetual motion in wealth expansion. A poster boy for this bundle of falsehoods is financial analyst A. Gary Schilling. Just last week, he was talking out of his cloacal vent about US “energy independence” and “the manufacturing renaissance” that will allow this country to magically decouple from the compressive contraction driving the rest of the world.
Shilling is among the growing chorus of cheerleaders who believe that the shale oil and gas boom will make it possible for so-called “consumers” (what we foolishly call ourselves) to keep driving to Wal-Mart forever — which is the master wish behind all the current fantasies of endless expansion. That idea is going to leave a lot of people disappointed and put the nation further behind in the necessary reorganization of all the key systems that support everyday civilized life, namely: food production, commerce, transport, and the management of capital.
Here’s what’s actually going to happen with shale oil and gas. Best case scenario: shale oil production rises for three more years to about 2.3 million barrels a day and then crashes so quickly that in 10 years the shale oil industry ceases to exist. A less rosy forecast would admit that the exorbitant costs of drilling-and-fracking will not find the necessary capital to even take the industry that far. Rather, dwindling capital will see the shocking decline rates of shale wells (commonly 50 percent the first year and double digits the following) and will run shrieking for other places to hide.
Contrary to Gary Schilling’s blather, America is not practicing “energy conservation.” Rather, an economy engineered strictly to run on cheap oil has gotten crushed by oil that is not cheap. Does Schilling believe, for example, that American suburbia works just as well on $90-a-barrel oil as it did on $11-a-barrel oil, or that it has a future as the basic armature of daily life, or that we are doing anything meaningful to alter the burdens of living this way? My guess is that he has never thought about it.
Likewise, as the American economy got crushed by no-longer-cheap oil, all the working classes in this country below the one-percenters got crushed, hammered, and trashed. Among other things they can no longer afford is gasoline. Total vehicle miles driven has gone down by almost 3 percent since 2007. It will keep going down, and the Happy Motoring matrix will collapse for another reason: capital scarcity will translate into fewer available car loans for Americans, and fewer qualified borrowers, and Americans are used to buying their cars on installment loans.
The shale gas situation is also not the “energy savior” it’s cracked up to be. Because it costs so much to export the stuff, and we don’t have the export infrastructure in place — ocean terminals, fleets of special (expensive!) tanker ships — shale gas is hostage to the US domestic market. The initial boom was so extravagant that it produced a gas glut, which drove the price way below the level that makes it economically rational to drill for the stuff. Now, a lot of those drilling rigs are migrating to North Dakota, where the Bakken shale oil fields require perpetual increases in rig-counts to offset the rapid decline of existing wells.
The shale gas regions of Barnett (Fort Worth), Haynesville (Louisiana), and Fayetteville, Arkansas, are already dwindling. The “sweet spots” turned out to be smaller than the hype suggested. The Marcellus (Pennsylvania and New York) is next. Several of the other hyped shale gas “plays” — the Antrim and the Utica — proved too unpromising to even bother with and never made it out of the wish bag.
The problems with fracking and groundwater pollution are secondary to the economic quandaries as far as the fate of the industry is concerned. At under $8 a unit (1000 cubic feet), shale gas is not worth drilling-and-fracking for. It’s currently around $4. Above $8, Americans are going to have a hard time paying for it. So, enjoy the temporary glut and now stand back and watch the industry begin to dry up and blow away.
As for the “industrial renaissance,” clowns like Gary Shilling can’t put together the obvious trends. The talked-about new factories will be operated by robots, so there would be no employment renaissance to go along with them. Then there is the question of who might the products be sold to? To Americans who have no jobs and no money? To Europeans who are also going broke and also have the ability to roboticize industrial production and impoverish their own working people? To Asia, which is already at industrial over-capacity — and which will only grow worse as Americans and Europeans buy less stuff? I guess that leaves South America and Africa. Well, good luck with that.
Schilling is really only shilling for delusional stock market psychology, which tends to be a self-reinforcing racket until it reaches a threshold of credulity criticality and then implodes from a sudden loss of faith, ruining even a great many one percenters. Money may indeed keep pouring into the US stock markets, especially from other countries, where the money is frightened. I’ll tell you what it ought to be really frightened about: that it doesn’t represent genuine capital, i.e. has no real value. One day not distant, all the nations will discover that their money is only notional and that notions have a way of going up in a vapor. Foolish ideas, though, appear more durable and plentiful. They just keep coming, no matter what’s going on in reality.
My basic wish is that we would quit all our wishing in America and get on with the job of transforming our economic arrangements to a scale and mode that are consistent with the resource and capital realities of these times — before they whap us upside the head and put and end to the project of remaining civilized.