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Old 11-09-2010, 03:31 PM
 
Location: Sinking in the Great Salt Lake
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The Oil Drum | Jeff Rubin: Oil and the End of Globalization - ASPO-USA

Could it be that oil is the root cause of all our economic problems? Undoubtedly, we have built our world on the black stuff and nearly everything we do requires it in some form or another. So it makes sense that when oil hickups, the shock reverberates through the economy.

I've brought up the idea before but not really addressed it directly. What do y'all think? Why would or wouldn't oil be responsible for our current predicament and what does it mean for the future?
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Old 11-09-2010, 03:47 PM
 
Location: Backwoods of Maine
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Oil, like gold, is a reflection (in reverse) of the US dollar. Of course, speculation in both oil and gold accounts for many shorter-term (1-2 year) cycles and price fluctuations. But, in general, as the dollar slips in value, oil and gold move higher.

So you are correct, but in reverse. Our economic problems (e.g. very much including the dollar) are the "root cause" of the oil (and gold) prices rising. Oil and gold always have the same "value". But all paper currencies float and change in value, and their prices reflected in the US dollar tell us how our dollar is doing.

Right now, it's not doing so hot!
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Old 11-09-2010, 04:14 PM
 
Location: San Diego California
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Well it is a little hard to deny that every time there is a major spike in oil prices it is followed by recession.

In '73 you had the Arab/ Israeli war, oil went from $18 to $42, in '74 you had recession.
In '79 you had the Iran/Iraq war and oil went from $37 to $70, in ‘80 you had recession.
In '91 you had the first Iraq war and oil went from $20 to $35, in '91 you had recession.
In '99 you had OPEC price hikes and production cuts and oil went from $15 to $35,
in '01 you had recession.
Between '07 and '08 speculation drove oil from 50 to 150 in 2009 you had recession.

1 gallon of gasoline is the equivalent of 500 hrs. of human labor.

Stop and think about that for a minute, there was a time in this country where we got the equivalent of 500 man hrs of work for $.25, that same amount of work energy now costs $3.00.

If QE causes speculation in oil markets, what do you suppose the resulting spike in oil prices will mean going forward?

Gee excuse me, I am being Mr. Doom and Gloom again.
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Old 11-09-2010, 04:44 PM
 
8,317 posts, read 27,707,727 times
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Quote:
Originally Posted by Chango View Post
The Oil Drum | Jeff Rubin: Oil and the End of Globalization - ASPO-USA

Could it be that oil is the root cause of all our economic problems? Undoubtedly, we have built our world on the black stuff and nearly everything we do requires it in some form or another. So it makes sense that when oil hickups, the shock reverberates through the economy.

I've brought up the idea before but not really addressed it directly. What do y'all think? Why would or wouldn't oil be responsible for our current predicament and what does it mean for the future?
Exactly what I've been saying for years, only he says it far more eloquently. What most Americans don't get is that the way things have been in this country for the past half-century are so are just about over--and if you are invested in, in love with, or dependent on that way of life, then your life is pretty much going to suck going forward. It is my firm conviction that the US of the 2020's or sooner may look at whole lot more like life was in, say, the early 1900's when it comes to how we inhabit this landscape. Suburbia as we know it today will be dead, and--to the extent that it exists at all--it will look at lot more like the suburban communities of a hundred years ago. If we don't change our ways, then the alternative will be some sort "Mad Max" Darwinist s***hole of very nasty proportions. Like the article's author, I believe the markets could take us to the better place--IF they are allowed to work. Unfortunately, a huge segment of the population, business establishment, and government bureaucracy is so married to the quasi-socialist model of auto-dependent suburbia and taxpayer-funded roads and highways that they may not allow that constructive change to occur. In that case, our future will be (literally) a very dark one.
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Old 11-09-2010, 04:55 PM
 
5,638 posts, read 10,643,812 times
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Quote:
Originally Posted by jimhcom View Post
Well it is a little hard to deny that every time there is a major spike in oil prices it is followed by recession.

In '73 you had the Arab/ Israeli war, oil went from $18 to $42, in '74 you had recession.
In '79 you had the Iran/Iraq war and oil went from $37 to $70, in ‘80 you had recession.
In '91 you had the first Iraq war and oil went from $20 to $35, in '91 you had recession.
In '99 you had OPEC price hikes and production cuts and oil went from $15 to $35,
in '01 you had recession.
Between '07 and '08 speculation drove oil from 50 to 150 in 2009 you had recession.
VERY Good Causal Relationship Analysis. Outstanding, and presented on a very real and very human scale. Add in the rise of accumulated debt from all those and I think you would have the Big Picture of where we are now.

Reagan pulling down Jimmy Carter's Solar Panels from the White House sure looks like a World Class Dumb Ass move, now. Morning in America, indeed.

Quote:

1 gallon of gasoline is the equivalent of 500 hrs. of human labor.

Stop and think about that for a minute, there was a time in this country where we got the equivalent of 500 man hrs of work for $.25, that same amount of work energy now costs $3.00.

If QE causes speculation in oil markets, what do you suppose the resulting spike in oil prices will mean going forward?
That we are well past the point to get smart(er) and leave Oil behind US. Just like the (now) old saying of Who Cares About the Price of Tea in China? -- if we were not Oil addicts -- Who Cares About the Price of Oil in Saudi?

Quote:

Gee excuse me, I am being Mr. Doom and Gloom again.


Naw, sort of comes with the topic of Peak Oil. The Oil Drum barely manages to stay above Doomerville, and some sites like LATOC are a Trailer Park full of it, like pigs in the mud.

There are some brighter notes on going off of Oil, and that would (or will?) be Boom Times for US. Maybe Boom like economic, or could be Boom like war. But either way, we are going to wind up off of Oil -- seems better to plan on that and choose a brighter and cleaner future, now.

Last edited by Philip T; 11-09-2010 at 05:07 PM..
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Old 11-09-2010, 10:14 PM
 
5,805 posts, read 10,366,871 times
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Oil can be substituted if only we didn't have politicians in the pocket of those who profit from it. So in a true free market economy with complete information I think we'd sidestep many of the issues. But we don't have a free market in energy production and distribution and we certainly don't get fair and complete information so yeah we're going to continue to feel the shocks of oil price moves.
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Old 11-10-2010, 06:55 AM
 
Location: San Diego California
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Quote:
Originally Posted by Willy702 View Post
Oil can be substituted if only we didn't have politicians in the pocket of those who profit from it. So in a true free market economy with complete information I think we'd sidestep many of the issues. But we don't have a free market in energy production and distribution and we certainly don't get fair and complete information so yeah we're going to continue to feel the shocks of oil price moves.
In reality we do not have anything that we can replace oil with, at least not at anywhere near the same price. The best we can hope to do is supplement.
The problem is not running out of oil as much as it is running out of cheap oil.
Energy costs are the biggest factor in the economy, and even moderate changes create a shock effect in the economy.
Peal oil is the largest challenge we face going forward.
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Old 11-10-2010, 09:56 AM
 
Location: Wherabouts Unknown!
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Willy702 wrote:
But we don't have a free market in energy production and distribution
You're right about that! IMO, the concept of a free market is a fairy tale about as believable as a big rabbit delivering eggs every year on the first Sunday after the first Monday after the spring equinox.
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Old 11-11-2010, 07:35 AM
 
5,638 posts, read 10,643,812 times
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Quote:
Originally Posted by jimhcom View Post
In reality we do not have anything that we can replace oil with, at least not at anywhere near the same price. The best we can hope to do is supplement.
We do not match on that -- but probably as much from overall concept of the thought process behind it as whether it is technically correct.

It is more like saying that automobiles (horseless carriages) can never replace horses, while looking under the hood to see where to put the hay and oats to run the carriage.

Technically that may be correct. Automobiles have not, in fact, totally replaced horses. I am looking from the kitchen window at 5 horses galloping around a field this morning while drinking my coffee. Horses still very much exist. And are very pretty and pleasant to behold. If there were instead, 5 cars or trucks driving around the field, it would just look like a(nother) crappy road.

In general use and practice, automobiles (and the Oil that runs them) did not so much replace horses -- It / They surpassed horses. And did the prior job(s) of the horses faster, cleaner, and generally better -- and -- and Cheaper. Yeah, cheaper. This is a business forum, after all.

Same on the replacement of Oil. Most good options are now, like then when the horse was surpassed -- faster, cleaner, better and cheaper. But Oil and probably some oil burning engines will likely be in some use 100 years from now, same as the horses running around outside the kitchen window.

Quote:

The problem is not running out of oil as much as it is running out of cheap oil.
Energy costs are the biggest factor in the economy, and even moderate changes create a shock effect in the economy.
Peal oil is the largest challenge we face going forward.
As much as I track and have been tracking energy in general, and transition to renewable (I R an EE who do Petro, Chem, Industrial, Utility, etc. Power and Renewable) -- Here is what I consistently see -- Overcoming (or just simply driving around -- my bias, anymore) the entrenched ignorance of US business management is by far the largest challenge

We could, at this point (or any other point in the last 30 years) easily be tracking away from Oil -- and be doing much of what had been done by Oil -- better, faster, cleaner AND cheaper than Oil.

I know some Doomer Drama Queens like to fret it should have started 30 years ago. Yeah, it is what it is, and things are what they are, but this is still an excellent time to be heading off of Oil. We have millions of surplus skilled labor and technical folks available. Demands are slack enough to take down existing systems and move forward. Known good replacements exist. The .gov is looking at more functional "stimulus." These are all very favorable things.

Put those together and the future could be brighter than most folk imagine.

But the Real Limiting Factor is still -- the entrenched ignorance of US business management
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Old 11-11-2010, 09:02 AM
 
Location: Wherabouts Unknown!
7,810 posts, read 17,917,217 times
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Philip T wrote:
But the Real Limiting Factor is still -- the entrenched ignorance of US business management
Perhaps it is not ignorance, but rather FEAR that their priveledged place in society may be coming to an end, that the game might soon be played on a more level playing field....and they are doing everything in their power to hold on to the status quo. I guess that would also qualify as ignorance.
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