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Activist Post: World Leaders Play ‘Nuclear War Game’ During Netherlands Summit to Test Nuclear Attack Responses

Activist Post: World Leaders Play ‘Nuclear War Game’ During Netherlands Summit to Test Nuclear Attack Responses.

Paul Lawrance
Activist PostDuring the G7 nuclear summit in the Netherlands this week,heads of government played a interactive nuclear war game that was designed to test their response to a terrorist plan to set off a “dirty bomb” in a Western metropolis.

President Obama, German Chancellor Angela Merkel, British Prime Minister David Cameron and Chinese premier Xi Jinping were all a part of the games which showed a series of short films where terrorists planed to use stolen nuclear material to set off a “dirty bomb” in a unnamed Western metropolis, reports The Telegraph.

A diplomatic source told The Telegraph that the heads of state had to react to the films in real time as they were equipped with a computer tablet with a touch screen displaying responses.

“It could be the city of London or Wall Street, Milan or anywhere,” summit goers were told,according to The Telegraph’s report.

“US officials” said the games where meant to give the state leaders at the summit a “scare you to death” feeling that would make then think deeply into their reaction during a nuclear attack.

In the end, as it is being reported, the leaders were able to thwart the attack due to their decision making.

Another interesting note:

During a press conference in the Netherlands on Tuesday, President Barrack Obama said he is more concerned about a nuke going off in Manhattan then he is of any threat coming from Russia.

“Russia’s actions are a problem. They don’t pose the No. 1 national security threat to the United States. I continue to be much more concerned when it comes to our security with the prospect of a nuclear weapon going off in Manhattan,” Obama said in response to a reports question on whether or not Russia is the biggest political foe of the US.

Paul Lawrance writes for Eyes Open Report, where this first appeared

Iraq invasion was about oil | Nafeez Ahmed | Environment | theguardian.com

Iraq invasion was about oil | Nafeez Ahmed | Environment | theguardian.com.

Maximising Persian Gulf oil flows to avert a potential global energy crisis motivated Iraq War planners – not WMD or democracy
Tony Blair leaves the Iraq war inquiry

Tony Blair leaves the Iraq war inquiry. Photograph: Carl Court/AFP/Getty Images

Yesterday was the 11th anniversary of the 2003 Iraq War – yet to this day, few media reflections on the conflict accurately explore the extent to which opening up Persian Gulf energy resources to the world economy was a prime driver behind the Anglo-American invasion.

The overwhelming narrative has been one of incompetence and failure in an otherwise noble, if ill-conceived and badly managed endeavour to free Iraqis from tyranny. To be sure, the conduct of the war was indeed replete with incompetence at a colossal scale – but this doesn’t erase the very real mendacity of the cold, strategic logic that motivated the war’s US and British planners in the first place.

According to the infamous Project for a New American Century (PNAC) document endorsed by senior Bush administration officials as far back as 1997, “While the unresolved conflict with Iraq provides the immediate justification” for the US “to play a more permanent role in Gulf regional security,” “the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein.”

So Saddam’s WMD was not really the issue – and neither was Saddam himself.

The real issue is candidly described in a 2001 report on “energy security” – commissioned by then US Vice-President Dick Cheney – published by the Council on Foreign Relations and the James Baker Institute for Public Policy. It warned of an impending global energy crisis that would increase “US and global vulnerability to disruption”, and leave the US facing “unprecedented energy price volatility.”

The main source of disruption, the report observed, is “Middle East tension“, in particular, the threat posed by Iraq. Critically, the documented illustrated that US officials had lost all faith in Saddam due his erratic and unpredictable energy export policies. In 2000, Iraq had “effectively become a swing producer, turning its taps on and off when it has felt such action was in its strategic interest to do so.” There is a “possibility that Saddam Hussein may remove Iraqi oil from the market for an extended period of time” in order to damage prices:

“Iraq remains a destabilising influence to… the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export programme to manipulate oil markets. This would display his personal power, enhance his image as a pan-Arab leader… and pressure others for a lifting of economic sanctions against his regime. The United States should conduct an immediate policy review toward Iraq including military, energy, economic and political/diplomatic assessments. The United States should then develop an integrated strategy with key allies in Europe and Asia, and with key countries in the Middle East, to restate goals with respect to Iraqi policy and to restore a cohesive coalition of key allies.”

The Iraq War was only partly, however, about big profits for Anglo-American oil conglomerates – that would be a bonus (one which in the end has failed to materialise to the degree hoped for – not for want of trying though).

The real goal – as Greg Muttitt documented in his book Fuel on the Fireciting declassified Foreign Office files from 2003 onwards – was stabilising global energy supplies as a whole by ensuring the free flow of Iraqi oil to world markets – benefits to US and UK companies constituted an important but secondary goal:

“The most important strategic interest lay in expanding global energy supplies, through foreign investment, in some of the world’s largest oil reserves – in particular Iraq. This meshed neatly with the secondary aim of securing contracts for their companies. Note that the strategy documents released here tend to refer to ‘British and global energy supplies.’ British energy security is to be obtained by there being ample global supplies – it is not about the specific flow.”

To this end, as Whitehall documents obtained by the Independent show, the US and British sought to privatise Iraqi oil production with a view to allow foreign companies to takeover. Minutes of a meeting held on 12 May 2003 said:

“The future shape of the Iraqi industry will affect oil markets, and the functioning of Opec, in both of which we have a vital interest.”

A “desirable” outcome for Iraqi’s crippled oil industry, officials concluded, is:

“… an oil sector open and attractive to foreign investment, with appropriate arrangements for the exploitation of new fields.”

The documents added that “foreign companies’ involvement seems to be the only possible solution” to make Iraq a reliable oil exporter. This, however, would be “politically sensitive”, and would “require careful handling to avoid the impression that we are trying to push the Iraqis down one particular path.”

Media analyses claiming lazily that there was no planning for the aftermath of the Iraq War should look closer at the public record. The reality is that extensive plans for postwar reconstruction were pursued, but they did not consider humanitarian and societal issues of any significance, focusing instead on maintaining the authoritarian structures of Saddam’s brutal regime after his removal, while upgrading Iraq’s oil infrastructure to benefit foreign investors.

A series of news reports, for instance, confirmed how the State Department had set up 17 separate working groups to work out this post-war plan. Iraq would be “governed by a senior US military officer… with a civilian administrator”, which would “initially impose martial law”, while Iraqis would be relegated to the sidelines as “advisers” to the US administration. The US envisaged “a broad and protracted American role in managing the reconstruction of the country… with a continued role for thousands of US troops there for years to come”, in “defence of the country’s oil fields”, which would eventually be “privatised” along with “other supporting industries.”

The centrality of concerns about energy to Iraq War planning was most candidly confirmed eight years ago by a former senior British Army official in Iraq, James Ellery, currently director of British security firm and US defence contractor, Aegis.

Brigadier-General James Ellery CBE, the Foreign Office’s Senior Adviser to the Coalition Provisional Authority in Baghdad since 2003, had confirmed the critical role of Iraqi oil reserves in alleviating a “world shortage” of conventional oil. The Iraq War has helped to head off what Ellery described as “the tide of Easternisation” – a shift in global political and economic power toward China and India, to whom goes “two thirds of the Middle East’s oil.” His remarks were made as part of a presentation at the School of Oriental & African Studies (SOAS), University of London, sponsored by the Iraqi Youth Foundation, on 22nd April 2008:

“The reason that oil reached $117 a barrel last week was less to do with security of supply… than World shortage.”

He went on to emphasise the strategic significance of Iraqi petroleum fields in relation to the danger of production peaks being breached in major oil reserves around the world:

“Russia’s production has peaked at 10 million barrels per day; Africa has proved slow to yield affordable extra supplies – from Sudan and Angola for example. Thus the only near-term potential increase will be from Iraq.”

Whether Iraq began “favouring East or West” could therefore be “de-stabilising” not only “within the region but to nations far beyond which have an interest.”

“Iraq holds the key to stability in the region”, Ellery continued, due to its “relatively large, consuming population,” its being home to “the second largest reserve of oil – under exploited”, and finally its geostrategic location “on the routes between Asia, Europe, Arabia and North Africa – hence the Silk Road.”

Despite escalating instability and internal terrorism, Iraq is now swiftlyreclaiming its rank as one of the world’s fastest-growing exporters, cushioning the impact of supply outages elsewhere and thus welcomed by OPEC. Back in 2008, Ellery had confirmed Allied ambitions to “raise Iraqi’s oil production from 2.5 million bpd today to 3 million by next year and maybe ultimately 6 million barrels per day.”

Thus, the primary motive of the war – mobilising Iraqi oil production tosustain global oil flows and moderate global oil prices – has, so far, been fairly successful according to the International Energy Agency.

Eleven years on, there should be no doubt that the 2003 Iraq War was among the first major resource wars of the 21st century. It is unlikely to be the last.

Dr Nafeez Ahmed is executive director of the Institute for Policy Research & Development and author of A User’s Guide to the Crisis of Civilisation: And How to Save It among other books. Follow him on Twitter @nafeezahmed

Iraq invasion was about oil | Nafeez Ahmed | Environment | theguardian.com

Iraq invasion was about oil | Nafeez Ahmed | Environment | theguardian.com.

Maximising Persian Gulf oil flows to avert a potential global energy crisis motivated Iraq War planners – not WMD or democracy
Tony Blair leaves the Iraq war inquiry

Tony Blair leaves the Iraq war inquiry. Photograph: Carl Court/AFP/Getty Images

Yesterday was the 11th anniversary of the 2003 Iraq War – yet to this day, few media reflections on the conflict accurately explore the extent to which opening up Persian Gulf energy resources to the world economy was a prime driver behind the Anglo-American invasion.

The overwhelming narrative has been one of incompetence and failure in an otherwise noble, if ill-conceived and badly managed endeavour to free Iraqis from tyranny. To be sure, the conduct of the war was indeed replete with incompetence at a colossal scale – but this doesn’t erase the very real mendacity of the cold, strategic logic that motivated the war’s US and British planners in the first place.

According to the infamous Project for a New American Century (PNAC) document endorsed by senior Bush administration officials as far back as 1997, “While the unresolved conflict with Iraq provides the immediate justification” for the US “to play a more permanent role in Gulf regional security,” “the need for a substantial American force presence in the Gulf transcends the issue of the regime of Saddam Hussein.”

So Saddam’s WMD was not really the issue – and neither was Saddam himself.

The real issue is candidly described in a 2001 report on “energy security” – commissioned by then US Vice-President Dick Cheney – published by the Council on Foreign Relations and the James Baker Institute for Public Policy. It warned of an impending global energy crisis that would increase “US and global vulnerability to disruption”, and leave the US facing “unprecedented energy price volatility.”

The main source of disruption, the report observed, is “Middle East tension“, in particular, the threat posed by Iraq. Critically, the documented illustrated that US officials had lost all faith in Saddam due his erratic and unpredictable energy export policies. In 2000, Iraq had “effectively become a swing producer, turning its taps on and off when it has felt such action was in its strategic interest to do so.” There is a “possibility that Saddam Hussein may remove Iraqi oil from the market for an extended period of time” in order to damage prices:

“Iraq remains a destabilising influence to… the flow of oil to international markets from the Middle East. Saddam Hussein has also demonstrated a willingness to threaten to use the oil weapon and to use his own export programme to manipulate oil markets. This would display his personal power, enhance his image as a pan-Arab leader… and pressure others for a lifting of economic sanctions against his regime. The United States should conduct an immediate policy review toward Iraq including military, energy, economic and political/diplomatic assessments. The United States should then develop an integrated strategy with key allies in Europe and Asia, and with key countries in the Middle East, to restate goals with respect to Iraqi policy and to restore a cohesive coalition of key allies.”

The Iraq War was only partly, however, about big profits for Anglo-American oil conglomerates – that would be a bonus (one which in the end has failed to materialise to the degree hoped for – not for want of trying though).

The real goal – as Greg Muttitt documented in his book Fuel on the Fireciting declassified Foreign Office files from 2003 onwards – was stabilising global energy supplies as a whole by ensuring the free flow of Iraqi oil to world markets – benefits to US and UK companies constituted an important but secondary goal:

“The most important strategic interest lay in expanding global energy supplies, through foreign investment, in some of the world’s largest oil reserves – in particular Iraq. This meshed neatly with the secondary aim of securing contracts for their companies. Note that the strategy documents released here tend to refer to ‘British and global energy supplies.’ British energy security is to be obtained by there being ample global supplies – it is not about the specific flow.”

To this end, as Whitehall documents obtained by the Independent show, the US and British sought to privatise Iraqi oil production with a view to allow foreign companies to takeover. Minutes of a meeting held on 12 May 2003 said:

“The future shape of the Iraqi industry will affect oil markets, and the functioning of Opec, in both of which we have a vital interest.”

A “desirable” outcome for Iraqi’s crippled oil industry, officials concluded, is:

“… an oil sector open and attractive to foreign investment, with appropriate arrangements for the exploitation of new fields.”

The documents added that “foreign companies’ involvement seems to be the only possible solution” to make Iraq a reliable oil exporter. This, however, would be “politically sensitive”, and would “require careful handling to avoid the impression that we are trying to push the Iraqis down one particular path.”

Media analyses claiming lazily that there was no planning for the aftermath of the Iraq War should look closer at the public record. The reality is that extensive plans for postwar reconstruction were pursued, but they did not consider humanitarian and societal issues of any significance, focusing instead on maintaining the authoritarian structures of Saddam’s brutal regime after his removal, while upgrading Iraq’s oil infrastructure to benefit foreign investors.

A series of news reports, for instance, confirmed how the State Department had set up 17 separate working groups to work out this post-war plan. Iraq would be “governed by a senior US military officer… with a civilian administrator”, which would “initially impose martial law”, while Iraqis would be relegated to the sidelines as “advisers” to the US administration. The US envisaged “a broad and protracted American role in managing the reconstruction of the country… with a continued role for thousands of US troops there for years to come”, in “defence of the country’s oil fields”, which would eventually be “privatised” along with “other supporting industries.”

The centrality of concerns about energy to Iraq War planning was most candidly confirmed eight years ago by a former senior British Army official in Iraq, James Ellery, currently director of British security firm and US defence contractor, Aegis.

Brigadier-General James Ellery CBE, the Foreign Office’s Senior Adviser to the Coalition Provisional Authority in Baghdad since 2003, had confirmed the critical role of Iraqi oil reserves in alleviating a “world shortage” of conventional oil. The Iraq War has helped to head off what Ellery described as “the tide of Easternisation” – a shift in global political and economic power toward China and India, to whom goes “two thirds of the Middle East’s oil.” His remarks were made as part of a presentation at the School of Oriental & African Studies (SOAS), University of London, sponsored by the Iraqi Youth Foundation, on 22nd April 2008:

“The reason that oil reached $117 a barrel last week was less to do with security of supply… than World shortage.”

He went on to emphasise the strategic significance of Iraqi petroleum fields in relation to the danger of production peaks being breached in major oil reserves around the world:

“Russia’s production has peaked at 10 million barrels per day; Africa has proved slow to yield affordable extra supplies – from Sudan and Angola for example. Thus the only near-term potential increase will be from Iraq.”

Whether Iraq began “favouring East or West” could therefore be “de-stabilising” not only “within the region but to nations far beyond which have an interest.”

“Iraq holds the key to stability in the region”, Ellery continued, due to its “relatively large, consuming population,” its being home to “the second largest reserve of oil – under exploited”, and finally its geostrategic location “on the routes between Asia, Europe, Arabia and North Africa – hence the Silk Road.”

Despite escalating instability and internal terrorism, Iraq is now swiftlyreclaiming its rank as one of the world’s fastest-growing exporters, cushioning the impact of supply outages elsewhere and thus welcomed by OPEC. Back in 2008, Ellery had confirmed Allied ambitions to “raise Iraqi’s oil production from 2.5 million bpd today to 3 million by next year and maybe ultimately 6 million barrels per day.”

Thus, the primary motive of the war – mobilising Iraqi oil production tosustain global oil flows and moderate global oil prices – has, so far, been fairly successful according to the International Energy Agency.

Eleven years on, there should be no doubt that the 2003 Iraq War was among the first major resource wars of the 21st century. It is unlikely to be the last.

Dr Nafeez Ahmed is executive director of the Institute for Policy Research & Development and author of A User’s Guide to the Crisis of Civilisation: And How to Save It among other books. Follow him on Twitter @nafeezahmed

Dmitry Orlov: Ukraine Crisis, Russia and Crimea Update | Greg Hunter’s USAWatchdog

Dmitry Orlov: Ukraine Crisis, Russia and Crimea Update | Greg Hunter’s USAWatchdog.

By Greg Hunter On March 19, 2014

4Dmitry Orlov:  Ukraine Crisis, Russia and Crimea UpdateBy Greg Hunter’s USAWatchdog.com

Dmitry Orlov is a Russian blogger who writes about the parallel between the U.S and the USSR.  Orlov lived through the financial collapse of the Soviet Union in the early 1990’s, and he thinks the U.S. is on the same trajectory.  Orlov contends, “The trajectory is defined by this sort of incompetent militarism where more and more money results in bigger and bigger military fiascos around the world and less and less of actual foreign policy that can be pursued or articulated.  There are massive levels of corruption.  The amount of money that is being stolen by the U.S. Government and its various appropriations processes is now in the trillions of dollars a year.  Runaway debt, the United States now has a level of debt that is un-repayable.  All we’re waiting for is interest rates to go across the magic threshold of 3% and the entire budget of the country explodes.  There are also all types of other tendencies that point in the direction of collapse and systemic failure at all levels.”

So, how close are we to collapse or system failure?  Orlov contends, “I am pretty sure that anyone who makes a prediction when the collapse will happen is wrong.  Nobody can say when it will happen.  It’s the same as saying a bridge that is structurally deficient; you don’t know when a truck is going to fall through into the river below. . . . You can be chronically sick for a long time, and then one day, you go into a coma or your heart stops.  You cannot predict what day that will happen.  Orlov does say, “The United States right now, from my point of view and the point of view from observers from around the world, is on suicide watch.  It’s a country that is going to self-destruct at some point in the near future.”

On the Ukraine crisis, Orlov thinks, “The Crimea referendum was the first legal way to find out what the people wanted to do.  The turnout was remarkable, and they voted overwhelmingly to rejoin Russia, to become part of Russia once again.  The interesting thing here is it was not just the Russians that voted to join Russia but the Ukrainians in Crimea, which makes a sizable part of the population voted to join Russia. . . Ukraine is composed of sort of a no man’s land in the West and then Russian territories in the East. . . .  If that trend holds, you are basically left with this insolvent nugget of nothingness, and it will be up to the international community to decide what to do with these people.  They are right now marching around Kiev with baseball bats and going into government offices and beating up members of local government and installing their own members.  They are basically running amok.  They don’t even have the support of the Ukrainian military at this point.  So, it will be a mop-up operation against these neo-fascists that are running amok.”  Orlov goes on to say, “In Washington, in the Obama Administration and in the Kerry State Department, we have absolutely breathtaking levels of incompetence.  These people really don’t know what they’re doing and are dangerous at any speed; and everywhere else, we have this follow the incompetent leader thing taking place, and it’s really, really frightening because the incompetents are leading the world to a really dangerous place.”

Orlov goes on to say, “What are these people doing trash talking the Russians?  What would these people do without Russia?  How would they get out of earth’s orbit and visit the international space station?  Who would negotiate international deals with Syria and Iran because all they can do is blunder and lose face.”  Russia doesn’t need the United States for anything.  The United States is the most dispensable country on earth.”

On possible war between Ukraine and Russia, Orlov contends, “They are not going to fight because the Ukraine military is part of the Russian military.  There really isn’t any opposition.  The Ukrainian military will decide what to do in a few days, and then they will inform the Russians, and after that, maybe they will inform their own government.  Maybe they will just go into the government offices and just round them up.  Last I heard, 60% of Ukrainian military accepted Russian passports already.  The remaining parts are being shipped out to the mainland.  That is happening peacefully.  So, there isn’t going to be any fight.  The really important point is the Ukrainian military all over Ukraine does not support the government in Kiev.  They are withholding support, and what they really want is to join the Russian military. . . . The best thing Russia can do is sit back and relax and let this work out.  I don’t think the government in Kiev has any legs.”

Join Greg Hunter as he goes One-on-One with Dmitry Orlov of ClubOrlov.com coming from Central America.

(There is much more in the video interview.)

 


After the Interview:
Dmitry Orlov is currently working on a new book that will be out later this year.  Orlov says, “The new book is about communities and what makes them resistant to adverse events such as financial collapse.”  Orlov adds, “The U.S., as a whole, is not resistant to shocks, but some parts of America are.”  You can find Dmitry Orlov at ClubOrlov.com.  

Dmitry Orlov: Ukraine Crisis, Russia and Crimea Update | Greg Hunter’s USAWatchdog

Dmitry Orlov: Ukraine Crisis, Russia and Crimea Update | Greg Hunter’s USAWatchdog.

By Greg Hunter On March 19, 2014

4Dmitry Orlov:  Ukraine Crisis, Russia and Crimea UpdateBy Greg Hunter’s USAWatchdog.com

Dmitry Orlov is a Russian blogger who writes about the parallel between the U.S and the USSR.  Orlov lived through the financial collapse of the Soviet Union in the early 1990’s, and he thinks the U.S. is on the same trajectory.  Orlov contends, “The trajectory is defined by this sort of incompetent militarism where more and more money results in bigger and bigger military fiascos around the world and less and less of actual foreign policy that can be pursued or articulated.  There are massive levels of corruption.  The amount of money that is being stolen by the U.S. Government and its various appropriations processes is now in the trillions of dollars a year.  Runaway debt, the United States now has a level of debt that is un-repayable.  All we’re waiting for is interest rates to go across the magic threshold of 3% and the entire budget of the country explodes.  There are also all types of other tendencies that point in the direction of collapse and systemic failure at all levels.”

So, how close are we to collapse or system failure?  Orlov contends, “I am pretty sure that anyone who makes a prediction when the collapse will happen is wrong.  Nobody can say when it will happen.  It’s the same as saying a bridge that is structurally deficient; you don’t know when a truck is going to fall through into the river below. . . . You can be chronically sick for a long time, and then one day, you go into a coma or your heart stops.  You cannot predict what day that will happen.  Orlov does say, “The United States right now, from my point of view and the point of view from observers from around the world, is on suicide watch.  It’s a country that is going to self-destruct at some point in the near future.”

On the Ukraine crisis, Orlov thinks, “The Crimea referendum was the first legal way to find out what the people wanted to do.  The turnout was remarkable, and they voted overwhelmingly to rejoin Russia, to become part of Russia once again.  The interesting thing here is it was not just the Russians that voted to join Russia but the Ukrainians in Crimea, which makes a sizable part of the population voted to join Russia. . . Ukraine is composed of sort of a no man’s land in the West and then Russian territories in the East. . . .  If that trend holds, you are basically left with this insolvent nugget of nothingness, and it will be up to the international community to decide what to do with these people.  They are right now marching around Kiev with baseball bats and going into government offices and beating up members of local government and installing their own members.  They are basically running amok.  They don’t even have the support of the Ukrainian military at this point.  So, it will be a mop-up operation against these neo-fascists that are running amok.”  Orlov goes on to say, “In Washington, in the Obama Administration and in the Kerry State Department, we have absolutely breathtaking levels of incompetence.  These people really don’t know what they’re doing and are dangerous at any speed; and everywhere else, we have this follow the incompetent leader thing taking place, and it’s really, really frightening because the incompetents are leading the world to a really dangerous place.”

Orlov goes on to say, “What are these people doing trash talking the Russians?  What would these people do without Russia?  How would they get out of earth’s orbit and visit the international space station?  Who would negotiate international deals with Syria and Iran because all they can do is blunder and lose face.”  Russia doesn’t need the United States for anything.  The United States is the most dispensable country on earth.”

On possible war between Ukraine and Russia, Orlov contends, “They are not going to fight because the Ukraine military is part of the Russian military.  There really isn’t any opposition.  The Ukrainian military will decide what to do in a few days, and then they will inform the Russians, and after that, maybe they will inform their own government.  Maybe they will just go into the government offices and just round them up.  Last I heard, 60% of Ukrainian military accepted Russian passports already.  The remaining parts are being shipped out to the mainland.  That is happening peacefully.  So, there isn’t going to be any fight.  The really important point is the Ukrainian military all over Ukraine does not support the government in Kiev.  They are withholding support, and what they really want is to join the Russian military. . . . The best thing Russia can do is sit back and relax and let this work out.  I don’t think the government in Kiev has any legs.”

Join Greg Hunter as he goes One-on-One with Dmitry Orlov of ClubOrlov.com coming from Central America.

(There is much more in the video interview.)

 


After the Interview:
Dmitry Orlov is currently working on a new book that will be out later this year.  Orlov says, “The new book is about communities and what makes them resistant to adverse events such as financial collapse.”  Orlov adds, “The U.S., as a whole, is not resistant to shocks, but some parts of America are.”  You can find Dmitry Orlov at ClubOrlov.com.  

Activist Post: Final Goal of the Surveillance State

Activist Post: Final Goal of the Surveillance State.

Jon Rappoport
Activist Post

Surveillance is coming at us from all angles. Chips, drones, TSA checkpoints, smart meters, back-doored electronic products, video cameras, spying home appliances; our phone calls and emails and keystrokes and product purchases are recorded.

The government and its allied corporations will know whatever they want to know about us.

What then?

What happens when all nations are blanketed from stem to stern with surveillance?

Public utilities, acting on government orders, will be able to allot electricity in amounts and at times it wishes to. This is leading to an overarching plan for energy distribution to the entire population. 

Claiming shortages and limited options, governments will essentially be redistributing wealth, in the form of energy, under a collectivist model.

National health insurance plans (such as Obamacare) offer another clue. Such plans have no logistical chance of operating unless every citizen is assigned a medical ID package, which is a de facto identity card. In the medical arena, this means cradle-to-grave tracking.

Surveillance inevitably leads to: placing every individual under systems of control. It isn’t just “we’re watching you” or “we’re stamping out dissent.” It’s “we’re directing your participation in life.”

As a security analyst in the private sector once told me, “When you can see what every employee is doing, when you have it all at your fingertips, you naturally move on to thinking about how you can control those patterns and flows of movement and activity. It’s irresistible. You look at your employees as pieces on a board. The only question is, what game do you want to play with them?”

Every such apparatus is ruled, from the top, by Central Planners. When it’s an entire nation, upper-echelon technocrats revel in the idea of blueprinting, mapping, charting, and regulating the flows of all goods and services and people, “for the common good.”

Water, food, medicine, land use, transportation—they all become items of a networked system that chooses who gets what and when, and who can travel where, and under what conditions.

This is the wet dream of technocrats. They believe they are saving the world, while playing a fascinating game of multidimensional chess.

As new technologies are discovered and come on line, the planners decide how they will be utilized and for whose benefit.

In order to implement such a far-reaching objective, with minimal resistance from the global population, manufactured crises are unleashed which persuade the masses that the planet is under threat and needs “the wise ones” to rescue it and us.

We watch (and fight in) wars and more wars, each one exacerbated and even invented. We are presented with phony epidemics that are falsely promoted as scourges.

The only response, we are led to believe, is more humane control over the population.

On top of that, we are fed an unending stream of propaganda aimed at convincing us that “the great good for the greatest number” is the only humane and acceptable principle of existence. All prior systems of belief are outmoded. We know better now. We must be good and kind and generous to everyone at all times.

Under this quasi-religious banner, which has great emotional appeal, appears The Plan. Our leaders allocate and withhold on the basis of their greater knowledge. We comply. We willingly comply, because we are enlisted in a universal army of altruistic concern.

This is a classic bait and switch. We are taught to believe that service for the greater good is an unchallengeable goal and credo. And then, later, we find out it has been hijacked to institute more power over us, in every way.

The coordinated and networked surveillance of Earth and its people is fed into algorithms that spit out solutions. This much food will go here; that much water will go there; here there will be medical care; there medical care will be severely rationed. These people will be permitted to travel. Those people will be confined to their cities and towns.

Every essential of life—managed with on-off switches, and the consequences will play out.

An incredibly complex system of interlocking decisions will be hailed as messianic.

Surveillance; planning; control.

This is the vision.

It isn’t ours. It never was. But we are not consulted.

Instead we are made witness to watershed events: the 1995 Oklahoma City bombing; the 1993 attack on the World Trade Center; the 2001 assault on the Trade Center and the Pentagon. These ops paralleled the unleashing of better and more far-ranging methods of surveillance.

We are profiled down to the threads on our clothing and DNA in our cells. But what is our profile of the technocrats and their bosses?

They are divorced from human life. They live in a vacuum. They take pleasure from that vacuum.

In 1982, I interviewed Bill Perry, who had just left his job as PR chief at Lawrence Livermore Labs, where scientists design nuclear weapons. Perry had been given the kind of job PR people long for. But one day, when he passed the desk of a researcher and listened to his complaints about budget limitations, Perry said, “Listen, America already has the means to blow up the whole planet eight times. What more do you need?”

The researcher looked up at him with a genuinely puzzled expression. He said, “You don’t understand, Bill. This is a problem in physics.”

In the same detached sense, the technocrats who want to calculate and direct our future, move by move, minute by minute, see us as components of a complex and very interesting problem.

Yes, they indeed expect to exercise power and control. But they also live in an abstraction. They deal their answers from that realm. They exercise cool passion. They see, for example, that not every single twitch of thought of every person on earth is yet mapped, so they want to finish constructing the means by which they can chart those “missing elements.” They want to complete the formula.

They view their research as a wholly natural implication of the mathematics they can manipulate. They swim in technology and they want to extend its architecture. To abandon the program would be tantamount to denying their own intelligence. They climb the mountain because it is there.

They do perceive that one factor does not fit their algorithms: the free individual. It’s the wild card. Therefore, they are compelled to analyze freedom and break it down into DNA functions and brain processes. They assume, because they must, that the free individual is an illusory idea that flows from some older configuration of synaptic transmission, at a time in our evolution when we needed it. But now, they suppose, the engineering of human activity and thought has superseded such quaint notions. Now we all can be tracked, traced, and studied on a different and wider scale. Now we can be seen for what we really are: a hive.

Therefore, we must be instructed, within tight limits, about our various functions.

Today’s technocrats flourish with great optimism as they design the future world and its single society. If they run out of pieces of their puzzle to study, they’ll try to track the motion of every atom and electron and quark in the universe. They’ll delight in it.

Knowing all this, we know the terms of the war we are in.

The Central Planners have an equation: “free=uncontrolled=dangerous.”

By the gross terms of that equation, they lump us in with thugs and murderers and terrorists. They even see the normal functioning of the brain as a threat, as an intrinsically defective process, and they have long since decided that organ must be corrected with drugs.

We, on the other hand, must assert, in every way possible, that freedom is real and inviolable, and we must back that up with our actions.

Jon Rappoport is the author of two explosive collections, The Matrix Revealed and Exit From the Matrix, Jon was a candidate for a US Congressional seat in the 29th District of California. Nominated for a Pulitzer Prize, he has worked as an investigative reporter for 30 years, writing articles on politics, medicine, and health for CBS Healthwatch, LA Weekly, Spin Magazine, Stern, and other newspapers and magazines in the US and Europe. Jon has delivered lectures and seminars on global politics, health, logic, and creative power to audiences around the world. You can sign up for his free emails at www.nomorefakenews.com

Natural Gas, Keystone XL Pipeline Won’t Save the U.S. Economy | New Republic

Natural Gas, Keystone XL Pipeline Won’t Save the U.S. Economy | New Republic.

Economist Kenneth Boulding famously said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” But it’s not just economists who believe that anymore. Such ideas are still widely accepted by thought leaders, journalists, and politicians who, together, form a strong consensus that the U.S. recovery should be bolstered by natural gas exploration and production. The McKinsey Global Institute claims in a recent report that a natural gas boom is one of the most important “game changer” ideas for U.S. economic growth, while The Economist writes, “Become a champion of a global fracking revolution, Mr. Obama, and the world could look on America very differently.” And in his recent State of the Union address, President Barack Obama said “I’ll cut red tape” for factories that use natural gas, and that “Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas.”

But the belief that natural gas can be a “bridge fuel,” allowing us to grow rapidly in the age of global warming, is fit for a madman.

The current consensus is that if global temperatures rise more than 2 degrees Celsius above preindustrial levels, the consequences would be catastrophic (the Arctic melt would raise sea levels by tens of meters). So scientists have proposed a “carbon budget”: the total amount of carbon dioxide that can be released into the atmosphere without raising temperatures by 2 degrees. Using a conservative carbon budget of 450 parts per million—which has been endorsed by the International Energy Agency and Britain’s Stern Review—economists Humberto Llavador, John Roemer, and Joaquim Silvestre have thrown cold water on the idea that natural gas is our nation’s economic savior. In a forthcoming paper, they argue that given that budget, the world’s two largest CO2 emitters, the U.S. and China, must keep GDP growth within the threshold of 1 percent and 2.8 percent of GDP per year, respectively, for the next 75 years.

These results may sound surprising, but they are in line with a growing body of research on stranded carbon assets, which are assets such as fossil fuels (oil, coal and natural gas) that will lose their value well before they’re expected to. This can happen as a result of, say, market disruption (rapid advances in green technology like wind and solar polar or divestment) or government regulation (a carbon tax or stricter fuel economy standards). That latter is more likely because, even now, we have found way more fossil fuels than we could possibly burn without inviting long-term environmental disaster.

The Intergovernmental Panel on Climate Change’s carbon-budget model, widely considered the most reliable, puts the budget for 2012-2100 at between 886 and 1119 gigatons of CO2. Total known fossil fuel reserves in the world, if burned, would add 2860 gigatons of CO2 to the atmosphere. Thus, simple math indicates that almost two-thirds of all known fossil fuel reserves must remain unburned if global temperatures are to remain habitable. And these are optimistic estimates. James Hansen of the Columbia Earth Institute and other leading scientists and economists argue that all extraction of coal and other unconventional fossil fuels, like the Canadian Tar Sands, must cease immediately and the extraction of conventional fossil fuels, like oil and natural gas, must be significantly pared down.

Projects like the Keystone XL pipeline and other attempts to revive the U.S. economy based on fossil-fuel extraction are the equivalent of running up billions in debt and then running off to borrow more. The international community is already blowing through its carbon budget; the IPCC predicts that given “business as usual,” we’ll burn 1,000 gigatons of CO2 between 2012 and 2033, depleting the more conservative budget entirely and nearing the upper bound. We’ve already seen the consequences of temperatures growing by less than one degree Celsius, yet we’re on track to see themrise by more than six degrees by 2100. Our current trajectory tempts ecological and economic collapse, and yet, many are arguing that we accelerate the process.

Part of the problem is that our measure of growth, GDP, does not take into account the costs or sustainability of growth. One billion dollars of growth in the production of solar energy is not the same as $1 billion produced by coal in terms of ecological harm and sustainability, but GDP counts them equally. Instead we should measure progress using more extensive metrics like the Genuine Progress Indicator, which factors the impact of greenhouse gas emissions into its calculations. Further, we should institute a carbon tax, preferably an international one. Some companies currently price carbon internally—meaning that they put a price on the carbon produced by their projects, and subtract that from any expected returns—but do so at widely varying rates. A Carbon Disclosure Project study finds that nine of the largest energy companies in the United States internally price carbon dioxide emissions, at a cost ranging from $15 per ton (Devon) to $60 per ton (ExxonMobil). Governments should consider the social and environmental cost of carbon dioxide when they are making infrastructure and research investments, regulating extractive industries like fracking and offering tax incentives. Against the EPA’s recommendation, the State Department decided not to consider the social cost of carbon in its analysis of the Keystone pipeline.

The State Department also didn’t consider the very likely possibility that the pipeline will become a stranded asset. We can only hope it will—because that would mean we’ve finally learned that if we don’t live within our carbon budget, the long-term ecological and economic harm caused by our relentless extraction and burning of fossil fuels will obviate any short-term benefits to the economy. If we build our recovery on natural resources that need to remain underground to keep global temperatures stable, then we’ll be like the foolish builder in the Gospel of Matthew “who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”

Lew Daly is the director of policy and research at Demos. Sean McElwee is a researcher at Demos.

Natural Gas, Keystone XL Pipeline Won't Save the U.S. Economy | New Republic

Natural Gas, Keystone XL Pipeline Won’t Save the U.S. Economy | New Republic.

Economist Kenneth Boulding famously said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” But it’s not just economists who believe that anymore. Such ideas are still widely accepted by thought leaders, journalists, and politicians who, together, form a strong consensus that the U.S. recovery should be bolstered by natural gas exploration and production. The McKinsey Global Institute claims in a recent report that a natural gas boom is one of the most important “game changer” ideas for U.S. economic growth, while The Economist writes, “Become a champion of a global fracking revolution, Mr. Obama, and the world could look on America very differently.” And in his recent State of the Union address, President Barack Obama said “I’ll cut red tape” for factories that use natural gas, and that “Congress can help by putting people to work building fueling stations that shift more cars and trucks from foreign oil to American natural gas.”

But the belief that natural gas can be a “bridge fuel,” allowing us to grow rapidly in the age of global warming, is fit for a madman.

The current consensus is that if global temperatures rise more than 2 degrees Celsius above preindustrial levels, the consequences would be catastrophic (the Arctic melt would raise sea levels by tens of meters). So scientists have proposed a “carbon budget”: the total amount of carbon dioxide that can be released into the atmosphere without raising temperatures by 2 degrees. Using a conservative carbon budget of 450 parts per million—which has been endorsed by the International Energy Agency and Britain’s Stern Review—economists Humberto Llavador, John Roemer, and Joaquim Silvestre have thrown cold water on the idea that natural gas is our nation’s economic savior. In a forthcoming paper, they argue that given that budget, the world’s two largest CO2 emitters, the U.S. and China, must keep GDP growth within the threshold of 1 percent and 2.8 percent of GDP per year, respectively, for the next 75 years.

These results may sound surprising, but they are in line with a growing body of research on stranded carbon assets, which are assets such as fossil fuels (oil, coal and natural gas) that will lose their value well before they’re expected to. This can happen as a result of, say, market disruption (rapid advances in green technology like wind and solar polar or divestment) or government regulation (a carbon tax or stricter fuel economy standards). That latter is more likely because, even now, we have found way more fossil fuels than we could possibly burn without inviting long-term environmental disaster.

The Intergovernmental Panel on Climate Change’s carbon-budget model, widely considered the most reliable, puts the budget for 2012-2100 at between 886 and 1119 gigatons of CO2. Total known fossil fuel reserves in the world, if burned, would add 2860 gigatons of CO2 to the atmosphere. Thus, simple math indicates that almost two-thirds of all known fossil fuel reserves must remain unburned if global temperatures are to remain habitable. And these are optimistic estimates. James Hansen of the Columbia Earth Institute and other leading scientists and economists argue that all extraction of coal and other unconventional fossil fuels, like the Canadian Tar Sands, must cease immediately and the extraction of conventional fossil fuels, like oil and natural gas, must be significantly pared down.

Projects like the Keystone XL pipeline and other attempts to revive the U.S. economy based on fossil-fuel extraction are the equivalent of running up billions in debt and then running off to borrow more. The international community is already blowing through its carbon budget; the IPCC predicts that given “business as usual,” we’ll burn 1,000 gigatons of CO2 between 2012 and 2033, depleting the more conservative budget entirely and nearing the upper bound. We’ve already seen the consequences of temperatures growing by less than one degree Celsius, yet we’re on track to see themrise by more than six degrees by 2100. Our current trajectory tempts ecological and economic collapse, and yet, many are arguing that we accelerate the process.

Part of the problem is that our measure of growth, GDP, does not take into account the costs or sustainability of growth. One billion dollars of growth in the production of solar energy is not the same as $1 billion produced by coal in terms of ecological harm and sustainability, but GDP counts them equally. Instead we should measure progress using more extensive metrics like the Genuine Progress Indicator, which factors the impact of greenhouse gas emissions into its calculations. Further, we should institute a carbon tax, preferably an international one. Some companies currently price carbon internally—meaning that they put a price on the carbon produced by their projects, and subtract that from any expected returns—but do so at widely varying rates. A Carbon Disclosure Project study finds that nine of the largest energy companies in the United States internally price carbon dioxide emissions, at a cost ranging from $15 per ton (Devon) to $60 per ton (ExxonMobil). Governments should consider the social and environmental cost of carbon dioxide when they are making infrastructure and research investments, regulating extractive industries like fracking and offering tax incentives. Against the EPA’s recommendation, the State Department decided not to consider the social cost of carbon in its analysis of the Keystone pipeline.

The State Department also didn’t consider the very likely possibility that the pipeline will become a stranded asset. We can only hope it will—because that would mean we’ve finally learned that if we don’t live within our carbon budget, the long-term ecological and economic harm caused by our relentless extraction and burning of fossil fuels will obviate any short-term benefits to the economy. If we build our recovery on natural resources that need to remain underground to keep global temperatures stable, then we’ll be like the foolish builder in the Gospel of Matthew “who built his house on sand. The rain came down, the streams rose, and the winds blew and beat against that house, and it fell with a great crash.”

Lew Daly is the director of policy and research at Demos. Sean McElwee is a researcher at Demos.

Reasons for our Energy Predicament – An Overview | Our Finite World

Reasons for our Energy Predicament – An Overview | Our Finite World.

Quiz: What will cause world oil supply to fall?

  1. Too little oil in the ground
  2. Oil prices are too low for oil producers
  3. Oil prices are too high for oil consumers leading to recession, debt defaults, and ultimately a cut back in credit availability and very low oil prices
  4. Oil exporters are subject to civil unrest and overthrow of governments, due to low prices and/or depleting reserves
  5. Lack of money (and physical resources that might be purchased with this money) to pull oil out of the ground.
  6. Pollution related issues–too much smog in China; too many problems with fracking; too many problems with CO2.
  7. The financial current system fails, and can only be replaced by one that allows much less debt. Oil prices remain too low under such a system.

In my view, any answer other that the first one is likely to be at least partially right. Ultimately, the issue is that to extract oil or any fossil fuel, we have to keep the financial and political systems together. These systems can be expected to fail, far before we run out of oil in the ground. Most oil in the ground (as well as most other fossil fuels in the ground) will be left in the ground, in my view.

Basing estimates of future oil production on oil reserves is likely to give far too high an indication with respect to actual future production. Even more absurd numbers come from using “resource” numbers (which are higher than reserve numbers) to make estimates of future oil production. Coal and natural gas production is likely to fall at exactly the same time as oil, because the problems are likely to be financial and political ones, not “resources in the ground” problems.

Direct Application of M. King Hubbert Theory is Incorrect

M. King Hubbert is known for his estimates of future oil production  (195619621976) based on reserve amounts. There are two things of importance to notice about his estimates:

(a) The oil reserve estimates used are of free flowing oil reserves of the type that geologists currently were looking at. Thus, they were restricted to “cheap to extract” reserves, and

(b) When Hubbert showed graphs of world oil production following a generally symmetric curve (so downslope looks like a mirror image of upslope), Hubbert showed some other source of energy supply (nuclear in his early papers, solar in later ones) rising to high levels, before world oil production ever dropped. He even talked about making liquid fuels using a huge amount of energy plus carbon dioxide and water–in other words, reversing combustion (1962). In order to ramp nuclear or solar up to these very high levels, they would need to be  extremely cheap.

The assumptions that M. King Hubbert makes are effectively ones that would allow the economy to continue to grow and the financial system to “hang together.” If a person looks at today’s situation, it is quite different. We do not have an alternate fuel supply that will  allow the economy to continue to grow, regardless of fossil fuel consumption. The published reserves include large amounts of oil in the ground that are not of the very cheap to extract type. Extracting such oil will be impossible if oil prices are very low, or if credit availability is lacking. It is tempting for observers to look at oil reserves and assume that all is well, but this is definitely not the case.

 

Basic issue: Future oil extraction and future substitution is uncertain 

One basic issue is the “iffiness” of the reported reserve and resource amounts:

There is lots of oil in the ground, if we can actually get it out. Getting it out requires a combination of a financial system that allows us to do this (high enough prices for producers, adequate credit availability for producers, equity investment available if credit is not available, buyers who can afford the products) and political system that allows this to happen (citizens in countries with oil extraction not rioting for lack of food; banks open in countries trying to import oil; adequate trade connections among countries).

Likewise, substitution is possible among energy products, if it is possible to overcome the many hurdles involved in doing this. There are two cost hurdles: the higher ongoing cost of the substitute and the transition cost. The transition cost gets to be very high if there are a lot of “sunk costs” that are lost–for example, if citizens  are forced to quickly change from gasoline powered cars to electric cars, so that the resale value of their gasoline powered cars drops precipitously. There is also a technology hurdle: we need to have the technology to enable using the different energy source.

If the cost of the substitute is higher than the cost of the original energy source, a change to the substitute will tend to make the economy shrink, because wages will “go less far”. If citizens need to pay a whole lot more for new cars, or if electricity is more expensive, citizens will cut back on discretionary expenditures. This cut-back on expenditures will lead to layoffs in discretionary sectors, and will make it more difficult for the government to collect enough tax revenue.

Another basic issue: Wages don’t rise as oil (or energy) prices rise

Economists would like us to believe that we just pay each other’s wages. Wages can rise arbitrarily high independently of actually creating goods and services using energy products.

Unfortunately, this doesn’t seem to be true in practice. Based on my research, in the US high oil prices are associated with flat wages, in inflation-adjusted terms. Wages do not rise as fast as oil prices. Instead, wages tend to rise when oil prices are low, making goods and service affordable.

Part of the problem with rising oil prices is that they radiate through the economy in many ways: in higher food prices, because oil is used to produce and transpire food; in higher metal prices, because oil used in metal production; and in higher finished products, such as automobiles and new homes, because they use oil in their production. With wages not rising sufficiently, as oil prices rise, workers find they need to cutback on discretionary goods. The result is recession and job layoffs. I document this issue in the article Oil Supply Limits and the Continuing Financial Crisis, published in journal Energyin 2012.

The flip side of this issue is that without wages rising as fast as the cost of oil extraction, it is hard for the selling price of oil to rise high enough to provide an adequate profit margin for oil producers. It is inadequate oil prices for oil producers that seem to be the current problem. I talk about this issue in two recent posts: What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs and Beginning of the End? Oil Companies Cut Back on Spending.

Economists don’t think that prices can remain too low for oil producers. It can happen, because their model of supply and demand is not correct in a world with energy limits. Even if prices temporarily rise again, recession hits again, and we are back to low prices again.

Another basic issue: Diminishing returns

Diminishing returns occurs when it takes more and more energy or other resources to produce the same amount of goods. In the case of oil supply, we reach diminishing returns because companies extract the easy-to-extract oil first. Thus, the price of oil rises because the oil that can be produced cheaply is mostly gone. If we want to obtain more oil, we need to extract the more expensive to extract oil.

One way to see what diminishing returns does is to think about an economy producing two kinds of goods and services:

  1. The goods and services the consumer really wants–such as food, fresh water, transportation that takes the consumer from door to door, electronic goods, and housing that meets the person’s needs.
  2. All of the intermediate “stuff” that goes into making the end products in (1).

What happens with diminishing returns is more and more of society’s physical labor and its resources go into intermediate products, leaving less and less to produce end products, and less to actually “grow” the economy. In some sense, it is as if we are becoming less and less efficient at producing final goods and services. In my view, this is a major reason why wages stop rising as oil prices rise, and as other energy prices rise.

Another basic issue: The rate of growth in energy supply is closely tied to the rate of GDP growth

We use energy to make goods and services, so it stands to reason that using more energy would lead to more GDP growth. Economists don’t necessarily agree. They are sometimes of the view that the connection has only to do with “Demand”–in other words, when the economy is growing rapidly it needs more oil and energy products to support it its growth. I discuss Steve Kopits’ talk on this subject in Beginning of the End? Oil Companies Cut Back on Spending.

Something that is perhaps not obvious is the fact that cheap energy supply tends to easier to ramp up than expensive energy supply. Cheap energy supply requires relatively less investment. Goods created using cheap energy supply tend to be inexpensive, making them easier to sell to consumers and more competitive in the world market. I talk about these issues in Oil Limits Reduce GDP Growth; Unwinding QE a Problem.  

Another basic issue: The role of debt

Long term debt plays an extremely important role in the economy, because it allows consumers to buy expensive goods like houses and automobiles that they could not otherwise afford, and because it allows businesses to invest in projects before they have saved up sufficient profits from past projects to fund the new projects. It also allows governments to spend more money than they have in tax dollars. All of this purchasing power tends to prop up the price of commodities such as oil and metals, making it feasible to extract them.

We had a chance to see how important a role debt plays in 2008, during the debt crisis in the second half of the year. During that period, the price of oil dropped from briefly hitting $147 barrel to the low $30s range. Major banks needed to be bailed out, and the insurance company AIG was taken over by the US government because of problems with derivatives.

Figure 1. Average weekly West Texas Intermediate "spot" oil price, based on EIA data.

Figure 1. Average weekly West Texas Intermediate “spot” oil price, based on EIA data.

The big drop in oil price in 2008 was due to a drop in oil demand because of lack of credit availability. I wrote an article in 2008  about the huge impact this decrease in credit availability had on energy prices of all kinds, even uranium.

A related concern relates to the fact that “borrowing from the future” — which is what we do with long-term debt, is a great deal more feasible in a growing economy than it is in a shrinking economy. There are a lot more defaults in the latter case, because people keep losing their jobs and businesses keep closing.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

The concern I have is that as economic growth slows, we will reach a point where long term debt becomes very hard to obtain. The lack of credit in 2008 has not been fully fixed. It was only with the help of Quantitative Easing (QE), which added more demand to the marketplace because of very low interest rates, that oil prices have been able to rise again after the drop in 2008. With the very slow economic growth we have been experiencing recently, it has been necessary to use QE to keep interest rates low enough that people can still afford to buy homes and cars.

If the economy shifts from adding debt to subtracting debt, we are likely to see a huge drop in oil prices, perhaps similar to the drop in oil prices in 2008 to the low $30′s range. If this should happen again, it is not clear that the Federal Reserve would be able to find a way to make the price rise again because is already using a huge amount of stimulus, and thus has fewer options left.

If oil prices drop to a low level and stay down, a large share of oil production will be discontinued. Very little new drilling will be done. Similar effects are likely to happen for other fossil fuels and for mining for metals as well. Such a drop in oil production is likely to be steep–at least as steep as when the Former Soviet Union collapsed. Oil production dropped by about 10% per year, and other energy use dropped rapidly as well. Customers such as the Ukraine and North Korea saw even steeper declines in their oil imports.

Another basic issue: Government funding

Governments are only possible because of the surpluses of an economy. Greater surpluses allow more government employees and more services. Mario Giampietro (2009) is one researcher who writes specifically about this issue. Furthermore, as an economy grows, rising tax revenue makes it is easy to add more programs and services.

As an economy reaches diminishing returns, studies of past economies show that inadequate government funding is one of the major bottlenecks. This occurs because falling resources per capita leads to increasing disparity of wages, with new workers finding it difficult to find good-paying jobs. Governments are called on to provide more programs at precisely the time when their ability to raise sufficient funds to pay for these programs is lacking. A major factor leading to collapse is the inability of governments to collect sufficient taxes from increasingly impoverished citizens.

The Two Way Escalator Problem

As I see it, the economy as it is currently constructed only gives us two options: up and down. The markers of the “up escalator” are

  1. Cheap energy
  2. Growing energy supply
  3. GDP growth
  4. Wage growth
  5.  Debt growth
  6. Growing government programs

The markers of the “down escalator” are

  1.  Expensive to produce energy supply
  2. Energy supply grows slowly
  3. GDP Growth lags or declines
  4. Wages lag
  5. Outstanding debt tends to shrink
  6. Increasing inability to fund government programs

The two deal-killers with respect to these two escalators are

  • Moving from debt supply growth to debt supply shrinkage. This is like moving from Keynesian economics to the opposite. Or from getting a credit card with a large available balance, to having to pay back old credit card debt without adding new debt.
  • Increasing inability to fund government programs

The above two reasons are why I expect financial and governmental problems to lead to the end of our current system. Diminishing returns is already leading to higher oil prices, and thus moving us from the up escalator to the down escalator.

I am doubtful we can reestablish very widespread use of long-term debt after a collapse because by that time, the economy will clearly be shrinking. A person often hears people talk about getting rid of the fractional reserve banking system because it requires growth to maintain, but in fact, having such a system has been very helpful in enabling extraction of fossil fuels and allowing the economy to use metals and concrete in quantity. The availability of bonds for financing has been helpful as well.

One essential part of today’s economy is very long supply lines. These allow very complex products to be made, using supplies from all over the world. What we found in the 2008 credit crisis is that many businesses (both large and small) in these supply chains were hit hard by lack of credit availability. I see this issue as being very difficult to solve. If it cannot be solved, we will be faced with making goods locally using smaller companies and very much shorter supply lines. It would be a different system than we have today, and would likely support a smaller world population.

A lot of “peak oilers” would like to think that somehow it is possible to “get off at the mezzanine,” and have a viable economy similar to today’s with a small amount of expensive renewables, plus a continuing supply of fossil fuels. I have a hard time seeing this actually happen. One problem is the likelihood that fossil fuel supply will decline quickly because of low price. Another potential problem is a major cutback in credit availability making transactions difficult; a third issue is governmental problems, as taxes fall short of what is needed to fund programs.

We could in theory get back on the up escalator if we find alternative fuels that meet all of the required specifications–very cheap; available in huge quantity, expanding year by year; can be transformed to a liquid fuel similar to oil; and non-polluting. This seems unlikely right now.

Otherwise, what we do have is all the “stuff” we have today, for as long as it lasts. The economy won’t stop on a dime. We also have the ability to recycle things that we can no longer use, that might be more helpful in another place. Solar panels that people currently own will continue to function for a while (especially off-grid), and the grid will probably continue for a while. We know that many people lived in local economies, before we had fossil fuels, and it is likely to be possible again. We certainly live in interesting times.

Reasons for our Energy Predicament – An Overview | Our Finite World

Reasons for our Energy Predicament – An Overview | Our Finite World.

Quiz: What will cause world oil supply to fall?

  1. Too little oil in the ground
  2. Oil prices are too low for oil producers
  3. Oil prices are too high for oil consumers leading to recession, debt defaults, and ultimately a cut back in credit availability and very low oil prices
  4. Oil exporters are subject to civil unrest and overthrow of governments, due to low prices and/or depleting reserves
  5. Lack of money (and physical resources that might be purchased with this money) to pull oil out of the ground.
  6. Pollution related issues–too much smog in China; too many problems with fracking; too many problems with CO2.
  7. The financial current system fails, and can only be replaced by one that allows much less debt. Oil prices remain too low under such a system.

In my view, any answer other that the first one is likely to be at least partially right. Ultimately, the issue is that to extract oil or any fossil fuel, we have to keep the financial and political systems together. These systems can be expected to fail, far before we run out of oil in the ground. Most oil in the ground (as well as most other fossil fuels in the ground) will be left in the ground, in my view.

Basing estimates of future oil production on oil reserves is likely to give far too high an indication with respect to actual future production. Even more absurd numbers come from using “resource” numbers (which are higher than reserve numbers) to make estimates of future oil production. Coal and natural gas production is likely to fall at exactly the same time as oil, because the problems are likely to be financial and political ones, not “resources in the ground” problems.

Direct Application of M. King Hubbert Theory is Incorrect

M. King Hubbert is known for his estimates of future oil production  (195619621976) based on reserve amounts. There are two things of importance to notice about his estimates:

(a) The oil reserve estimates used are of free flowing oil reserves of the type that geologists currently were looking at. Thus, they were restricted to “cheap to extract” reserves, and

(b) When Hubbert showed graphs of world oil production following a generally symmetric curve (so downslope looks like a mirror image of upslope), Hubbert showed some other source of energy supply (nuclear in his early papers, solar in later ones) rising to high levels, before world oil production ever dropped. He even talked about making liquid fuels using a huge amount of energy plus carbon dioxide and water–in other words, reversing combustion (1962). In order to ramp nuclear or solar up to these very high levels, they would need to be  extremely cheap.

The assumptions that M. King Hubbert makes are effectively ones that would allow the economy to continue to grow and the financial system to “hang together.” If a person looks at today’s situation, it is quite different. We do not have an alternate fuel supply that will  allow the economy to continue to grow, regardless of fossil fuel consumption. The published reserves include large amounts of oil in the ground that are not of the very cheap to extract type. Extracting such oil will be impossible if oil prices are very low, or if credit availability is lacking. It is tempting for observers to look at oil reserves and assume that all is well, but this is definitely not the case.

 

Basic issue: Future oil extraction and future substitution is uncertain 

One basic issue is the “iffiness” of the reported reserve and resource amounts:

There is lots of oil in the ground, if we can actually get it out. Getting it out requires a combination of a financial system that allows us to do this (high enough prices for producers, adequate credit availability for producers, equity investment available if credit is not available, buyers who can afford the products) and political system that allows this to happen (citizens in countries with oil extraction not rioting for lack of food; banks open in countries trying to import oil; adequate trade connections among countries).

Likewise, substitution is possible among energy products, if it is possible to overcome the many hurdles involved in doing this. There are two cost hurdles: the higher ongoing cost of the substitute and the transition cost. The transition cost gets to be very high if there are a lot of “sunk costs” that are lost–for example, if citizens  are forced to quickly change from gasoline powered cars to electric cars, so that the resale value of their gasoline powered cars drops precipitously. There is also a technology hurdle: we need to have the technology to enable using the different energy source.

If the cost of the substitute is higher than the cost of the original energy source, a change to the substitute will tend to make the economy shrink, because wages will “go less far”. If citizens need to pay a whole lot more for new cars, or if electricity is more expensive, citizens will cut back on discretionary expenditures. This cut-back on expenditures will lead to layoffs in discretionary sectors, and will make it more difficult for the government to collect enough tax revenue.

Another basic issue: Wages don’t rise as oil (or energy) prices rise

Economists would like us to believe that we just pay each other’s wages. Wages can rise arbitrarily high independently of actually creating goods and services using energy products.

Unfortunately, this doesn’t seem to be true in practice. Based on my research, in the US high oil prices are associated with flat wages, in inflation-adjusted terms. Wages do not rise as fast as oil prices. Instead, wages tend to rise when oil prices are low, making goods and service affordable.

Part of the problem with rising oil prices is that they radiate through the economy in many ways: in higher food prices, because oil is used to produce and transpire food; in higher metal prices, because oil used in metal production; and in higher finished products, such as automobiles and new homes, because they use oil in their production. With wages not rising sufficiently, as oil prices rise, workers find they need to cutback on discretionary goods. The result is recession and job layoffs. I document this issue in the article Oil Supply Limits and the Continuing Financial Crisis, published in journal Energyin 2012.

The flip side of this issue is that without wages rising as fast as the cost of oil extraction, it is hard for the selling price of oil to rise high enough to provide an adequate profit margin for oil producers. It is inadequate oil prices for oil producers that seem to be the current problem. I talk about this issue in two recent posts: What’s Ahead? Lower Oil Prices, Despite Higher Extraction Costs and Beginning of the End? Oil Companies Cut Back on Spending.

Economists don’t think that prices can remain too low for oil producers. It can happen, because their model of supply and demand is not correct in a world with energy limits. Even if prices temporarily rise again, recession hits again, and we are back to low prices again.

Another basic issue: Diminishing returns

Diminishing returns occurs when it takes more and more energy or other resources to produce the same amount of goods. In the case of oil supply, we reach diminishing returns because companies extract the easy-to-extract oil first. Thus, the price of oil rises because the oil that can be produced cheaply is mostly gone. If we want to obtain more oil, we need to extract the more expensive to extract oil.

One way to see what diminishing returns does is to think about an economy producing two kinds of goods and services:

  1. The goods and services the consumer really wants–such as food, fresh water, transportation that takes the consumer from door to door, electronic goods, and housing that meets the person’s needs.
  2. All of the intermediate “stuff” that goes into making the end products in (1).

What happens with diminishing returns is more and more of society’s physical labor and its resources go into intermediate products, leaving less and less to produce end products, and less to actually “grow” the economy. In some sense, it is as if we are becoming less and less efficient at producing final goods and services. In my view, this is a major reason why wages stop rising as oil prices rise, and as other energy prices rise.

Another basic issue: The rate of growth in energy supply is closely tied to the rate of GDP growth

We use energy to make goods and services, so it stands to reason that using more energy would lead to more GDP growth. Economists don’t necessarily agree. They are sometimes of the view that the connection has only to do with “Demand”–in other words, when the economy is growing rapidly it needs more oil and energy products to support it its growth. I discuss Steve Kopits’ talk on this subject in Beginning of the End? Oil Companies Cut Back on Spending.

Something that is perhaps not obvious is the fact that cheap energy supply tends to easier to ramp up than expensive energy supply. Cheap energy supply requires relatively less investment. Goods created using cheap energy supply tend to be inexpensive, making them easier to sell to consumers and more competitive in the world market. I talk about these issues in Oil Limits Reduce GDP Growth; Unwinding QE a Problem.  

Another basic issue: The role of debt

Long term debt plays an extremely important role in the economy, because it allows consumers to buy expensive goods like houses and automobiles that they could not otherwise afford, and because it allows businesses to invest in projects before they have saved up sufficient profits from past projects to fund the new projects. It also allows governments to spend more money than they have in tax dollars. All of this purchasing power tends to prop up the price of commodities such as oil and metals, making it feasible to extract them.

We had a chance to see how important a role debt plays in 2008, during the debt crisis in the second half of the year. During that period, the price of oil dropped from briefly hitting $147 barrel to the low $30s range. Major banks needed to be bailed out, and the insurance company AIG was taken over by the US government because of problems with derivatives.

Figure 1. Average weekly West Texas Intermediate "spot" oil price, based on EIA data.

Figure 1. Average weekly West Texas Intermediate “spot” oil price, based on EIA data.

The big drop in oil price in 2008 was due to a drop in oil demand because of lack of credit availability. I wrote an article in 2008  about the huge impact this decrease in credit availability had on energy prices of all kinds, even uranium.

A related concern relates to the fact that “borrowing from the future” — which is what we do with long-term debt, is a great deal more feasible in a growing economy than it is in a shrinking economy. There are a lot more defaults in the latter case, because people keep losing their jobs and businesses keep closing.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Figure 2. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

The concern I have is that as economic growth slows, we will reach a point where long term debt becomes very hard to obtain. The lack of credit in 2008 has not been fully fixed. It was only with the help of Quantitative Easing (QE), which added more demand to the marketplace because of very low interest rates, that oil prices have been able to rise again after the drop in 2008. With the very slow economic growth we have been experiencing recently, it has been necessary to use QE to keep interest rates low enough that people can still afford to buy homes and cars.

If the economy shifts from adding debt to subtracting debt, we are likely to see a huge drop in oil prices, perhaps similar to the drop in oil prices in 2008 to the low $30′s range. If this should happen again, it is not clear that the Federal Reserve would be able to find a way to make the price rise again because is already using a huge amount of stimulus, and thus has fewer options left.

If oil prices drop to a low level and stay down, a large share of oil production will be discontinued. Very little new drilling will be done. Similar effects are likely to happen for other fossil fuels and for mining for metals as well. Such a drop in oil production is likely to be steep–at least as steep as when the Former Soviet Union collapsed. Oil production dropped by about 10% per year, and other energy use dropped rapidly as well. Customers such as the Ukraine and North Korea saw even steeper declines in their oil imports.

Another basic issue: Government funding

Governments are only possible because of the surpluses of an economy. Greater surpluses allow more government employees and more services. Mario Giampietro (2009) is one researcher who writes specifically about this issue. Furthermore, as an economy grows, rising tax revenue makes it is easy to add more programs and services.

As an economy reaches diminishing returns, studies of past economies show that inadequate government funding is one of the major bottlenecks. This occurs because falling resources per capita leads to increasing disparity of wages, with new workers finding it difficult to find good-paying jobs. Governments are called on to provide more programs at precisely the time when their ability to raise sufficient funds to pay for these programs is lacking. A major factor leading to collapse is the inability of governments to collect sufficient taxes from increasingly impoverished citizens.

The Two Way Escalator Problem

As I see it, the economy as it is currently constructed only gives us two options: up and down. The markers of the “up escalator” are

  1. Cheap energy
  2. Growing energy supply
  3. GDP growth
  4. Wage growth
  5.  Debt growth
  6. Growing government programs

The markers of the “down escalator” are

  1.  Expensive to produce energy supply
  2. Energy supply grows slowly
  3. GDP Growth lags or declines
  4. Wages lag
  5. Outstanding debt tends to shrink
  6. Increasing inability to fund government programs

The two deal-killers with respect to these two escalators are

  • Moving from debt supply growth to debt supply shrinkage. This is like moving from Keynesian economics to the opposite. Or from getting a credit card with a large available balance, to having to pay back old credit card debt without adding new debt.
  • Increasing inability to fund government programs

The above two reasons are why I expect financial and governmental problems to lead to the end of our current system. Diminishing returns is already leading to higher oil prices, and thus moving us from the up escalator to the down escalator.

I am doubtful we can reestablish very widespread use of long-term debt after a collapse because by that time, the economy will clearly be shrinking. A person often hears people talk about getting rid of the fractional reserve banking system because it requires growth to maintain, but in fact, having such a system has been very helpful in enabling extraction of fossil fuels and allowing the economy to use metals and concrete in quantity. The availability of bonds for financing has been helpful as well.

One essential part of today’s economy is very long supply lines. These allow very complex products to be made, using supplies from all over the world. What we found in the 2008 credit crisis is that many businesses (both large and small) in these supply chains were hit hard by lack of credit availability. I see this issue as being very difficult to solve. If it cannot be solved, we will be faced with making goods locally using smaller companies and very much shorter supply lines. It would be a different system than we have today, and would likely support a smaller world population.

A lot of “peak oilers” would like to think that somehow it is possible to “get off at the mezzanine,” and have a viable economy similar to today’s with a small amount of expensive renewables, plus a continuing supply of fossil fuels. I have a hard time seeing this actually happen. One problem is the likelihood that fossil fuel supply will decline quickly because of low price. Another potential problem is a major cutback in credit availability making transactions difficult; a third issue is governmental problems, as taxes fall short of what is needed to fund programs.

We could in theory get back on the up escalator if we find alternative fuels that meet all of the required specifications–very cheap; available in huge quantity, expanding year by year; can be transformed to a liquid fuel similar to oil; and non-polluting. This seems unlikely right now.

Otherwise, what we do have is all the “stuff” we have today, for as long as it lasts. The economy won’t stop on a dime. We also have the ability to recycle things that we can no longer use, that might be more helpful in another place. Solar panels that people currently own will continue to function for a while (especially off-grid), and the grid will probably continue for a while. We know that many people lived in local economies, before we had fossil fuels, and it is likely to be possible again. We certainly live in interesting times.

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