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Exam question, 2028

The oil shock of 1973-74, when the price of oil soared more than threefold over eighteen months, has subsequently been attributed to the collapse of the Bretton-Woods agreement and the revaluation of the dollar (post-gold standard). Oil didn't necessarily cost more; the devalued dollar merely bought less.

In May 2008, oil hit $135 a barrel. To what extent was this due to scarcity (the "peak oil" theory) and to what extent was this due to a revaluation of the dollar? Discuss. For added marks, examine the possible reasons why the Federal Reserve stopped publishing the M3 money supply figures in March 2006 and its relevance to the situation two years later. Take into account the rise of the Euro as an alternative planetary reserve currency.

88 Comments

1:

Anatole Kaletsky had an interesting article on this the other day:

To see that these "fundamentals" are all irrelevant, we have merely to ask which of them has changed in the past nine months. The answer is none. The oil markets didn't suddenly discover China's oil demand nine months ago so this cannot explain the doubling of prices since last August. In fact, China's "insatiable" demand growth has decelerated. In 2004 it was consuming an extra 0.9 million barrels a day; in 2007 it was consuming just an extra 0.3 mbd. In the same period global demand growth has slowed from 3.6 mbd to 0.7 mbd. As a result, the increase in global demand growth is now well below last year's increase of 0.8 mbd in non-Opec production, according to Mike Rothman, of ISI, a leading New York consulting group.
...
Now consider the situation today in oil markets: the Gulf, according to Mr Rothman, is crammed with supertankers chartered by oil-producing governments to hold the inventories of oil they are pumping but cannot sell. That physical oil is in excess supply at today's prices does not mean that producers are somehow cheating by storing their oil in tankers or keeping it in the ground. All it suggests is that there are few buyers for physical oil cargoes at today's prices, but there are plenty of buyers for pieces of paper linked to the price of oil next month and next year. This situation is exactly analogous to the bubble in credit markets a year ago, where nobody wanted to buy sub-prime mortgage bonds, but there was plenty of demand for "financial derivatives" that allowed investors to bet on the future value of these bonds.
...
The people who tell you that commodity prices today are driven by "economic fundamentals" are the same ones who said that house prices in Britain were rising because of land shortages. The amazing thing is that just months after losing hundreds of billions in the housing and mortgage bubbles, investors and governments around the world have reverted to the discredited fallacy that financial markets always reflect economic reality, instead of the boom-bust cycles and misconceptions that George Soros's book vividly describes.
2:

Anatole Kaletsky is in denial. Geology limits the amount of oil we can pump, unlike the amount of credit we can make up. How can the two be "..exactly analogous.."?! Does he think we extract mortgages from a hole in the ground?

Of course the decline in the dollar's value has increased the amount of dollars you have to pay for a barrel of oil. However, in the last year the dollar has fallen around 14% against the euro. Over the same period oil prices have gone from $65.94 to $135. (http://tinyurl.com/5o5uj5)

Anyone that tells you that the era of cheap oil will return has got some snakeoil to sell you, because since 1980 we've been using more oil every day than we discover. Far more, now. The discussions about the real trigger for the Iraq war being Saddam's plan to denominate in euros are a sideshow.

We need to move as fast as we can to end our addiction to oil for all sorts of reasons, most notably climate change and getting out of the way of the economic collapse that we risk by hanging onto a 20th century petro-economic model. (disclaimer - I work for the Green party, so I would think that, wouldn't I?)

James

4:

James: amend "addiction to oil" to "addiction to fossil fuel" and I'll agree with you.

On the other hand, oil and LNG are mighty efficient media for storing energy. While boosters of the "hydrogen economy" seem to want us to rip up our entire energy transport infrastructure and replace it with hydrogen tankage -- without specifying where the energy to manufacture the hydrogen's going to come from -- it's worth noting that the Fischer-Tropsch reaction means that if we can produce hydrogen, we have the capability to turn it into hydrocarbons compatible with our existing fuel storage infrastructure. Moreover, synthetic fuel (starting with electricity, hydrogen produced by electrolysis from water, and carbon monoxide produced by reduction of carbon dioxide harvested from the atmosphere) is potentially carbon-neutral, if the energy source that's used to power it doesn't come out of a hole in the ground -- it'd take carbon out of the atmosphere and eventually put it back there, but it won't be adding carbon from fossil reserves. The question of how exactly we obtain the carbon neutral energy source to power a non-fossil hydrocarbon economy is an interesting one, but I'd point to the 600Tw of infalling solar energy flux as one possible source (given that global energy demands today are on the order of 16Tw we are, it seems, missing out on something), and fission or fusion power as an alternative.

But that's a digression. I repeat: the problem isn't oil, the problem is fossil oil, which is non-renewable and which adds carbon to our biosphere when we use it.

5:

"We need to move as fast as we can to end our addiction to oil for all sorts of reasons"

We do.

But the problem at the moment is that the price spike is likely to collapse exactly the investments we need to make that work.

Gradual price increases were sending the right signals; Volvo, for example, was planning launches of decent usable hybrids next year.

Suddenly the price spikes, Ford's sales and hence finances fall off a cliff and they're now talking about massive redundancies at their subsidiaries like Volvo -- because they can't make it to next year at all in their current shape. Speculative programmes about building hybrids are the last things on their minds.

And even if they build them, how's anyone going to buy them? There's a shortage of loans, and people's jobs are at risk. And if you're in the UK, the government has just devalued your trade-in car by several thousand pounds as well, just to help the situation...

The current spike is basically speculation. There's no way world demand changes at the sort of rates that add $6 in a day -- for much the same sort of reasons that we can't adapt economies at those sorts of rates (because either of the two things involves building actual stuff). The price has overshot the current "real" price and it's bubbling.

6:

James, it helps if you read the article before you're shooting your mouth off.
Nowhere does Kaletsky (who unlike spokespeople for the Green party is a very rigorous and careful thinker) state the era of cheap oil is about to return, he's simply making the very sensible point that current prices have very little to do with underlying economic, or industry, conditions, and share the characteristics of a bubble. Commodity bubbles are as prevalent as financial ones - geology, or no geology. Given the affect that conditions in Iraq have on the global oil prices (despite Iraq producing almost no oil) it should be fairly obvious that market sentiment has quite a bit to do with the oil price at the moment.

Current shortages of oil have more to do with technology, than with capacity. Peak oil may be close, but its not why oil prices are high. Prices are high due to years of underinvestment when prices were low. It takes time to get new fields and new methods of extraction online (ten years I read somewhere). Obviously there's going to be a considerable lag between supply and demand. A further problem has been political/military unrest in Nigeria, causing a slump in production there.

I agree that there are all kinds of reasons for moving away from an oil economy. But you're going to look pretty silly if you're predicting economic collapse/massive oil prices, and prices start to fall again.

7:

I'm not really convinced by the hype for hybrids. Perhaps my cynicism was pushed by hybrid SUVs in the US, but there's an awful lot of sunk energy for fairly minimal improvements in non-city driving conditions. And for city driving I would have thought a small car with some kind of fuel cell would probably be more efficient. You can get equivalent efficiencies just using a diesel instead of petrol. There would seem to be better gains in using lighter materials, and focusing more on aerodynamics and ways of reducing the need for things like air conditioning (which consumes a lot of petrol).

8:

Katie: Adverse economic conditions may kill off investment in hybrid cars/consumer goods, though there's always public transport, which is booming. And if this does turn into the Second World Depression (let's call it WD2), all the unemployed could be put into Keynesian public-works projects doing things like building electric train lines to the (by now stranded and impoverished) suburbs.

9:

Let us hope and pray that we are really experiencing "Peak Oil". It will be a very good thing, in the long run.

And maybe we really are in the middle of Peak Oil. Some recent examples:

* The Saudis turned Bush down when he went begging for more oil. Odds are, they can't increase there oil field production - a read-between-the-lines analysis of the production figures indicates that they have alredy peaked.

* Russian production has been flat and declining for the past few years. It peaked 3 years ago at about 10 bbls and has been declining ever since.

* Experts were hoping that the Bakken fields in Montana would yield 100+ billion barrels of oil with new horizontal drilling techiques, but the actual USGS figure were only 3 to 4 bbls.

While there will always be oil to be found somewhere, we will never again find fields as extensive and easy/cheap to extract as those of the Persian Gulf. While new extraction technologies such as horizontal drilling, tar sand extraction, insitu cracking of shale oil, coal gasification, etc. will increase the yield of old fields and provide unconventional sources of oil - these new techniques will by definition always result in oil that is more expensive in real terms than easily extracted Saudi crude. While we are sure to find new fields, like those off the coast of Brazil, we will never again find fields as vast as those of the Persian Gulf.

The era of cheap and easy oil is over. Combine that with increasing demand by China and India (who is often forgotten in these analyses) and you have a situation where demand always stays one step ahead of supply - a supply provided by peaking existing fields, expensive new extraction technologies, and disappointingly small new fields.

In other words, you have peak oil.

Yes, the dollar's devaluation has a lot to do with current price increases. But it's just the spark that has been set to a pile of oily rags that has been accumulating for some time. There was bound to be some trigger that set the oil markets going, and the dollar's plunge was it.

So why is this a good thing? As oil heads north of $4 a gallon on its way to $10 a gallon or more, other non-oil sources of energy become economically viable including: algaeic biodiesel, cellulosic ethanol (corn ethanol is a wasteful boondoggle), solar energy based on nanotech, thin films, whole spectrum, etc. This will spur further research as venture capital floods into this new market. And once mass production kicks in and they can take advantage of economics of scale, the price of these non-oil energy soruces will fall.

Alternate energy could be for the coming decade what personal computers and software were for the 1980s. A hot, exciting field attracting our most talented engineering and scientific talent.

I may even see the "Solar Singularity" before I die.

10:

Just to add to Atlatl's tale of oil production woe, Mexico's production is slumping due to non-investment in the oil production hardware owned by PEMEX. A fall from 2.8 megabarrels per day to two million, with further fall in sight was the figure I heard.

To make matters worse, PEMEX oil production should have been climbing the last five years or so, due to the discovery of new offshore fields in Mexican waters. PEMEX does not have the technology to exploit them, and there is strong nationalist opposition to letting outsiders in to get at the oil.

11:

Charlie @4: if fossil oil added carbon to the biosphere there'd be nothing wrong with it. Alas it adds inorganic carbon to the atmosphere, taking it *out* of the (long dead and buried component of the) biosphere.

12:

atlatl@9: Russian production is declining because it's being used as a cash cow and is suffering from underinvestment in infrastructure and exploration: also nobody other than Gazprom is very willing to look for oil there at the moment, because as soon as you start a field up the Kremlin takes it away from you on trumped-up charges (e.g. refusing you permission for a supply pipeline and then taking the field away because you haven't been pumping oil out of the pipeline they refused to let you build). There's lots of oil *there*, it's just not being extracted.

13:

Since January the dollar has been essentially stable against other currencies (check the dollar index).

Since January the price of oil has gone from $100 to $135.

Saudi Arabia has been saying "There is no need for us to pump more oil" for a year now - yet as a soon as a new field came online, capable of pumping 300,000Mbpd, the Saudis started pumping 300,000 extra barrels per day, in advance of Bush's visit and blowing their OPEC quota.

We are past the point where supply could keep up with demand and rising prices are the way to keep balance, forcing out third world usage and even stemming the rise in US usage.

We're at peak guys. This is not rocket science, and its not going to EVER get better.

Deal.

14:

I think there are two different definitions of 'Peak Oil' going in the comments. The one talking about Peak-in-Ground is verifiably false. Proven reserves have risen faster than production for virtually the whole history of the oil economy. (Proven reserves being retrievable oil). Peak production, however, has probably been reached for at least the next 20 years. Between the US's refusal to extract vast amounts of oil and oil shale, and the production declines in mature oil fields in Iran, Central America, and (according to the commentors, who I believe) Russia, it would take a concerted multi-decade effort to raise production significantly.

That said, I think the real estate collapse has much to do with this. Real estate was, for many years, the ultimate "safe" commodity. That is no longer so in much of the US (and Britain, I hear). I think a good chunk of this money is going into oil futures. Hopefully, the US decision to stop filling the SPR will start to signal to the big guys that it is time to move on to the next safe harbor.

15:

The biggest victims of our addiction to oil have been the oil producers themselves. While it may be hard to feel sorry for an oil sheik rolling in petro dollars, oil has been a poison, not a treasure, to the producing countries.

With petro dollars, these countries have had no need to develop democratic institutions (which require representation along with taxation). Petro money means they don't have to tax their own people - and therefore aren't pressured to develop representative government. This is true of both the Middle East and Putin's Russia.

With petro dollars, they don't have to develop a skilled labor force. They can import foreign workers.

With petro dollars you don't have to develop a sophisticated high tech manufacturing base. You can by high tech (from consumer electronics to weapons) from foreign suppliers

With petro dollars you don't have to develop a strong science/engineering education base for your own people. You can hire foreign consultants.

Petro dollars have caused these nations to stagnate technoligically, socially and intellectually. The largesse given to the people to keep them compliant has fostered a cultre of dependency.

As they said in "Syriana" - when the oil is gone, they all go back to herding goats.

16:

Atlatl - "Solar singularity", right.

Nuclear. With gas plants to provide for surge usage.

"Alternate" energy has limited geographic viability, massive statup costs, in many cases huge environmental costs and cannot provide base load power*.

(*certain forms of hydroelectic can provide a little, but those forms are NOT eco-friendly!)

17:

I view oil prices as akin to tulip-bulb prices a couple of hundred years ago. There is actually a closer historical correlation (since the 1968 changes to the way international futures markets calculated settlement obligations) between the proportion of actual production for a given settlement period covered by futures and the inflation-adjusted per-unit price of oil than to any other single fact. (Let me reemphasize that: single factor. This is a complex issue that is not amenable to "if we change this one thing, we'll solve all of our problems and put a chicken in every pot.")

At present, futures for, for example, North Sea crude are running well over 100% of actual production... meaning that any spot purchases will (if one accepts the assumptions of the industry) come from futures, not from actual production. This kind of speculation is bad for everyone involved, and neglects a critical theorem of macroeconomics: the so-called "law of diminishing returns." Of course, this isn't that surprising; most MBA- and finance-types never take any macroeconomics beyond the basic introductory course, and get tunnel-visioned on contemporary microeconomic theory.

I shudder to think what the South Sea Bubble might have looked like if there had been organized futures markets that allowed — nay, encouraged — naked selling. And the thought of a typical trader with no clothes on should be enough to presage that as a horror story, not porn...

18:

The thing is, the Peak Oil Movement isn't just about the undeniable fact that oil production will eventually reach a peak. For instance, check out The Twelve Steps of Peak Oil or Life after the oil crash. Instead they seem to have specific beliefs that:

1. Peak oil will arrive very suddenly
2. Peak oil will cause an immediate global cataclysm of war and conflict
3. Surviving families must be individually self-sufficient

Those beliefs don't seem to be as certain.

One optimistic alternative is that a gradual shift to clean technology will take place as oil prices fluctuate with a gradual upward curve.

Another alternative is that people will resort to coal use and coal-to-fuel technology, leading to massive pollution, choking smog, rising global warming.

Whatever happens, large farms will remain more efficient that small farms. It's seems unlikely there will be suburbanites happily planting little vegetable gardens and driving Prius's with the rest of their lifestyles intact. You're more likely to see the suburbs ploughed up into giant agribusiness or collective farms along with the rest of the countryside, while the urban population swells into giant shantytowns and slums as it becomes too expensive to commute.

I think there's a strong whiff of what Brian Aldiss called the "cosy catastrophe" about Peak Oil: a sudden violent collapse followed by survivors building a better world. I think the reality is likely to be less dramatic and more depressing.

19:

I assumed that the elimination of M3 reporting was not only intended to conceal the rampant dollar inflation meant to reinflate the asset markets, but also responsible for the leap in commodity pricing. However, the fact that this recent spike to record oil prices did not correspond with similar spikes in the price of gold and other commodities, the relative dollar stability mentioned by Iam Smith, and the movement of US naval forces, leads me to suspect that the spike is more likely the market pricing in expectations of military action against Iran later this summer.

I think that's more likely than the Peak Oil scenario, anyhow. And, of course, the fact that the markets may expect a future shortage doesn't mean that the expected action will occur.

20:

We here at FCUKED (Firth Coming UK Energy deficit founded 1999) have always maintained there are to PE points.

1. When it happens.

2. When folks realise it is going to happen.

We have over the last 2 years since M3 was buried without trace to save Wanker Bernanke a few bucks a month, been experiencing the arrival of #2.

21:

"The oil markets didn't suddenly discover China's oil demand nine months ago so this cannot explain the doubling of prices since last August."

Kaletsky is just wrong about markets. They suddenly discover, and freak out about, things that were obvious a long way off all the time. It's one of their most striking features.

23:

This will spur further research as venture capital floods into this new market.

Another bubble, great.

Between the US's refusal to extract vast amounts of oil

Er...Alaska? Not that vast.

and oil shale

Is there an economic way to get at that? I've heard of some weird ones like igniting it, pumping down air and using the heat to pyrolyse (?) stuff out, but I didn't think the tech was there yet for the ol' large-scale extraction.

As they said in "Syriana" - when the oil is gone, they all go back to herding goats.

ITYM "have a Malthusian population crash".

24:

Kaletsky isn't wrong, just using words in a very precise way. There is no such thing as a 'market'. There a relatively small number of people whose only concern is the removal of huge sums of money from the world economy, and they do it whether the 'markets' go up or down, because that's the way they have rigged the 'markets' - especially the stock markets.

As for the oil shocks, remember what happened immediately prior to the first one. That's right. The 7 day war. Not economics, politics. And the Bretton Woods agreement might have had a lot of mileage left in it if those in 'control' of the dominant US economy had had the balls to accept the true position of the US Dollar as a reserve currency. They didn't. Their children grow wealthier by the day and the 'real' economy - people making and selling things other people want - gets blasted by the almost daily scares these lemmings generate.

25:

Adrian @ 22:

The US has oil offshore as well. Florida is the one I'm most familiar with -- drilling there was blocked by the tourism and fishing lobby.

Oil shale can be tapped, it's just expensive and environmentally damaging.

26:

4: "600Tw of infalling solar energy flux"

Are you sure that's the right figure? At 1400 W/m^2, I get about 1.8x10^17 W at the top of the atmosphere and about 10^17 W at the bottom.

27:

Some skepticism re the "bubble thing" from Krugman

http://www.iht.com/articles/2008/05/12/opinion/edkrugman.php

28:

Just how low could the cost for electricity go if there was a concerted and whole-hearted push for nuclear? Anything like those 50's jingles, electricity 'too cheap to meter'? I'm interested in long-term solutions (long-term being defined as several hundreds of years) and long-term stability, and it would be really nice if we had those O'Neill trains that went fast enough to put the passengers in free-fall. And electric cars powered by induction to 'smart roads'. Who needs sophisticated electrical storage systems like ultra-super-duper-hyper-caps(which seem to be getting the lion's share of attention by the tech-lovers these days) when it's just a matter of sucking it out of the ground?

I'm sorry if this seems to be a slight tangent, but I'm enamored of a recurring theme where future humans express incredulity at the use to which their predecessors put valuable hydrocarbons: "They used to _burn_ that stuff!?!?!? In cars?!?!?!? You're pulling my leg!"

29:

I remember talking about how the dollar might stop being the world's default currency for international trade 3 years ago (right before the dive started) and having the reaction be laughter.

Well, it's not so funny anymore. The price of oil may not be quite mirroring the Euro/Dollar exchange rate, but they're in step. Iran has stopped trading oil for dollars, and other OPEC nations talk about doing the same thing. China appears to be drawing down their dollar reserves by trading them for foodstuffs (and oil), while more and more central banks shift from dollar reserves to a "basket of currencies", which is generally code for changing from dollars to Euros.

So, yeah, it's bad, and going to get worse. The people who say that a weak dollar is good for domestic production are missing two things: There isn't exactly a lot of US production capacity lying fallow right now (the plants were all shut down and stripped 20 years ago), and; It's got to fall a *long* way before we can compete with Asia.

--Dave

30:

My car gets 44 MPG. It's nothing special. A 4 door sedan with a 1.9 liter engine and a 5 speed manual. It was dirt cheap, all the more so because i bought it used.

But it could get 20% more, or 53 MPG if i put a turbocharger on it the engine it has. It could get 5% more than that, or 55 MPG (rounding) if i add a cruise control. It could get 5% more than that, or 58 MPG, if the bottom was smooth, rather than set up to induce turbulence. Bottom turbulence helps keep the car on the road at high speed, so put in a governor that caps speed to 90 MPH - which is more than fair. Then, replace the gas engine with a diesel, and get 15% more, or 67 MPG. And none of this is high tech, expensive or new. I'm with Carl Sagan, who in his 1981 Cosmos series asked why we don't have cars that get 70 MPG.

Then there's tech we don't use. The differential consumes 7-15% of your power just to let your car go around corners. An electric transmission (generator at the engine, electric motors near the wheels, should have a total loss of 6%. But, there'd be no engine drag (which is alot like braking - a waste), you'd get automatic like non-shifting - except that there'd really be no shifting - no jerks, and you'd get 4 wheel drive with zero economy penalty. You could also have two independent engines. Why is that good? Well, it only takes about 15 HP to cruise down the highway. A 300 HP engine is really poor at delivering 15 HP. So you put in a small engine for highway cruise, and a larger engine for pulling your boat. If an engine dies, the other will still get you home (remember, the little one will let you cruise down the highway). What's all this going to get you? More than 100 MPG. Oh, and since you've got electric, you can add batteries for regenerative braking, and put solar cells on top for another 10% boost when it's sunny - and it charges your batteries when you're parked. Some people might never have to fire up the diesels. We might even have to 'remove gas from our tanks' - in the form of electric energy transfer from the parked car. You house could probably use it.

In the 70's, most of the problem was solved through improved economy, and much of that was the 55 MPH speed limit, which got us some 10 - 15%. Bush has said "There's no instant fix", but we could have new signs on our highways today.

While we're there, what about home heating? Houses get really poor gas mileage. Insulation already pays for itself in the near term. That's only going to increase. Why don't we have businesses that insulate your house, and get pay back from the improved economy?

31:

@25:
Using Wikipedia's figure of 250W/m^2 average (over 24 hours) for the Earth's surface gives about 1.3x10^17W total, or 130000TW. This makes more sense than the 600TW figure, given all the "pave $SMALLNUM percent of the Sahara with photovoltaics to power Europe" (substitute "Arizona" and "North America" as desired) stories I've seen. Although it seems to me that solar thermal designs (ie big fields of mirrors) would be more practical since you can build them with an army of panelbeaters rather than in a chip fab. Serendipitously, an army of panelbeaters seems likely to be underemployed in the near future given the current prospects for the automobile.

@27:
The future-incredulity-at-wasteful-hydrocarbon-usage trope seems to be in conflict with the "roll-you-own" hydrocarbons described @4.

32:

Charlie: In 2028, such an exam question would probably include at least two things which nobody today is thinking about.

33:

ScentOfViolets: The best I can guess from the Fusion researchers is that electricity costs will be comparable, on large scale, with solar photovoltaics (see here). However, capital costs to get to workable fusion powerplants are likely to be quite high. The recent decision by US congress to cut ITER funding (Here) comes as rather a blow to those hoping to see some sort of fusion power staton in the next 50 years.

34:

Answer to exam question: yes to all plus several other factors. Yes the world supply of oil production is at a (possibly temporary) peak for the next several years while demand increases. Yes the dollar has devalued massively and there are no good ways of measuring it (economics as science? Hah!). Yes there are some strange goings-on in the futures markets. Yes the housing bubble has speculators antsy.

We're looking at a near Perfect Storm in the oil market currently. Murphy reigns supreme.

35:

Gahhh, imagine forgetting to put my name it!

So, to summarise what I spent longer typing before:
scentofviolets- high speed trains etc, only going to happen if we get really cheap easy fusion, which is unlikely. ITER shoudl start buillding this year, and fire up at the end of 2016, so it'll be ten years at least before we know if commercial fusion is going to work.

What do you make of this comment, apaprently oil futures are all up, ni a way which hasn't been seen before, or in other words the market seemst o think the price is going up for a long time to come:
http://initforthegold.blogspot.com/2008/05/too-too-contango.html

36:

WRT US oil:
The US Dept of Energy reported this week that if drilling in ANWR (the big wildlife refuge in northern Alaska) had been allowed years ago, it would drop the price of oil maybe as much as $0.75/barrel.
So much for all the people who think it would bring Cheap! Gasoline! back.

37:

The current huge increase in the price of oil, and in other commodities, is not due to "Peak Oil" (yet) or Chinese/Indian/Developing World demand. It's due to the "Giant Pile of Money" (http://www.thislife.org/Radio_Episode.aspx?episode=355) that was chased out of the Structured Investment Vehicles that backed the recent bubble in the American real estate market. Now that those SIV's are worthless from a wealth protection standpoint, and US T-Bills continue to have negative real returns, the institutional fund managers and central bankers have turned to fixed-return commodities derivatives as the best place to maintain the value of their investments. This has created an artificial surplus of cash chasing a relatively fixed supply of commodities. What we have here is a bubble caused by wealth that for decades happily sat protected from inflation by US T-Bills out looking for a new home.

38:

The funny thing is, I think there would be a non-negative return by investing a few billions into large scale solar and wave power, but for some reason they've put the money into commodities....

40:

@36:

Welcome to a world that has little resemblance to the most quoted but probably least read tomb of economic history, "An Inquiry into the Nature and Causes of the Wealth of Nations". (About as verbose as its title suggests, well worth reading though you should bring some stamina with you. If you don't have that, at least read the first chapter.)

The fundamental base of this work is yet another book of Adam Smith, "The Theory of Moral Sentiment".

In both books the "invisible hand" is mentioned exactly once. I will limit myself to quoting "just" the paragraphs in which they are mentioned.

In the latter:

And it is well that nature imposes upon us in this manner. It is this deception [that people strive to earn more even though it has little additional effect to their own well-being] which rouses and keeps in continual motion the industry of mankind. It is this which first prompted them to cultivate the ground, to build houses, to found cities and commonwealths, and to invent and improve all the sciences and arts, which ennoble and embellish human life; which have entirely changed the whole face of the globe, have turned the rude forests of nature into agreeable and fertile plains, and made the trackless and barren ocean a new fund of subsistence, and the great high road of communication to the different nations of the earth. The earth by these labours of mankind has been obliged to redouble her natural fertility, and to maintain a greater multitude of inhabitants. It is to no purpose, that the proud and unfeeling landlord views his extensive fields, and without a thought for the wants of his brethren, in imagination consumes himself the whole harvest that grows upon them. The homely and vulgar proverb, that the eye is larger than the belly, never was more fully verified than with regard to him. The capacity of his stomach bears no proportion to the immensity of his desires, and will receive no more than that of the meanest peasant. The rest he is obliged to distribute among those, who prepare, in the nicest manner, that little which he himself makes use of, among those who fit up the palace in which this little is to be consumed, among those who provide and keep in order all the different baubles and trinkets, which are employed in the oeconomy of greatness; all of whom thus derive from his luxury and caprice, that share of the necessaries of life, which they would in vain have expected from his humanity or his justice. The produce of the soil maintains at all times nearly that number of inhabitants which it is capable of maintaining. The rich only select from the heap what is most precious and agreeable. They consume little more than the poor, and in spite of their natural selfishness and rapacity, though they mean only their own conveniency, though the sole end which they propose from the labours of all the thousands whom they employ, be the gratification of their own vain and insatiable desires, they divide with the poor the produce of all their improvements. They are led by an invisible hand to make nearly the same distribution of the necessaries of life, which would have been made, had the earth been divided into equal portions among all its inhabitants, and thus without intending it, without knowing it, advance the interest of the society, and afford means to the multiplication of the species. When Providence divided the earth among a few lordly masters, it neither forgot nor abandoned those who seemed to have been left out in the partition. These last too enjoy their share of all that it produces. In what constitutes the real happiness of human life, they are in no respect inferior to those who would seem so much above them. In ease of body and peace of mind, all the different ranks of life are nearly upon a level, and the beggar, who suns himself by the side of the highway, possesses that security which kings are fighting for.

In the Wealth of Nations Smith writes:


But the annual revenue of every society is always precisely equal
to the exchangeable value of the whole annual produce of its
industry, or rather is precisely the same thing with that
exchangeable value. As every individual, therefore, endeavours as
much as he can, both to employ his capital in the support of
domestic industry, and so to direct that industry that its
produce maybe of the greatest value; every individual necessarily
labours to render the annual revenue of the society as great as
he can. He generally, indeed, neither intends to promote the
public interest, nor knows how much he is promoting it. By
preferring the support of domestic to that of foreign industry,
he intends only his own security ; and by directing that industry
in such a manner as its produce may be of the greatest value, he
intends only his own gain; and he is in this, as in many other
cases, led by an invisible hand to promote an end which was no
part of his intention. Nor is it always the worse for the society
that it was no part of it. By pursuing his own interest, he
frequently promotes that of the society more effectually than
when he really intends to promote it. I have never known much
good done by those who affected to trade for the public good. It
is an affectation, indeed, not very common among merchants, and
very few words need be employed in dissuading them from it.


(You are still with me? Sorry about the lengthy quotes, but this is ALL everybody is talking about, a fraction of about 3 MB of pure text.)

Well, the problem these days is, that the increase of the wealth of an individual no longer necessarily means, that this wealth will also be used by other people. Almost half of all money in the US (40%) is earned in a way (through FIRE - Finance, Insurance and Real Estate ) that is all about money and has nothing whatsoever to do with production, services or whatever else you may mean when you say the word wealth that goes beyond numbers with lots of zeros.

What Adam Smith described as an invisible hand would be called self organisation these days, but the point is, that required conditions for it to work are no longer met. Everybody is talking about money, when in fact what we should be concerned about is wealth. (The difference is not quite as subtle as it seems once you had a 100 quadrillion Mark postage stamp in your hand.)

Even though I can intellectually somehow rationalize it, I still find it an extremely strange notion that there are somewhere huge (pre-inflation - i.e. todays money) quantities of money sloshing around in a financial system in search of a place where it can grow - while at the very same time people are starved of capital almost everywhere else.

There must be huge inefficiencies in our physical economies. If there is anything that we can learn from the economic rise of countries, be they the US in the 18th to 20th century, Germany in the 19th and 20th century or many Asian countries in the last decades, then that a broad base of enrichment in a country always leads to huge rise of consumption and great opportunities to make money. Alas, there seems to be a disconnect here between the financial and physical economy as the former seems to be incapable of foreseeing such growth of a physical economy unless it has already materialized. (In other words: the financial system is absolutely future blind, but great in forecasting the past.)

If you look at the growth of Asian economies, you should expect that all the trillions of Dollars, Euros and whatever looking for ways to multiply themselves would be poured into the least developed nations, which are the ones with the greatest growth potential. You should expect that rising profits should prompt companies to increase wages (if via legislation or corporate policy doesn't matter), as there is no surer way to increase economic activity (and thus potential for profits rising further in the future) than increasing disposable income of the society at large. (Which is also born out of the aforementioned 3 MB of text.)

Yet, none of this seems to be happening. What is worse, is that in the way that investors currently seek to make a fortune, it should be plain to see that it can't work. Just about any market that is confronted with those staggering amounts of money will be distorted, eventually collapse and in all likelihood destroy enough capital that money growth after the full cycle and adjusted to take survivership bias into account will be small or negative. (Because investors can't withdraw their virtual profits without collapsing prices in the process.) The only way to invest such a huge amount of money while retaining maximum profits is by spreading it far and wide. (In handy chunks of anywhere between $10 and $10 billion at a time, not the current firehose drinking binges by the trillions.) None of this is happening though. We really need policies to reconnect finance with the physical economy. It is about time people realize that the quaint old economy of that famous Scotsman does not describe our economy anymore.

41:

2008 and oil that

2008 marked the beginning of what we now call “boiling oil��? as the bubbles in the price of oil came ever closer together over the coming years. The principal factors being peak oil, booming world demand, and investment capital in its constant and futile quest for a “safe��? investment vehicle. As global demand cycled and investment sentiment changed the bubbles would burst and reappear with increasing regularity. The trend was however strongly upwards.

It wasn’t so much that the dollar devalued, although it did as its artificially high value from being the worlds reserve currency rapidly ebbed away. It was that the currencies of the BRIC and other nations “up-valued��? as their economies grew at breakneck speeds. Commodities rose in price based on what people were prepared to pay. As more people in more nations were relatively wealthier commodities rose strongly. The artificially low priced commodities of the first-world third-world era were finally being swept away.

42:

Whole load of points --

The 1950s nuclear "electricity too cheap to meter" slogan meant the consumer would pay a fixed price for electricity supply, not that it would be free. Nobody except a marketing droid who came up with the idea took this seriously as a concept.

Shale needs process heat and steam and lots of it to crack out the oil. That's why engineers say it takes 4 barrels of oil to produce one deliverable barrel of real output. It has been suggested that small nuclear reactors be used to provide this process heat and steam, built directly on the big dragline bucket excavators that are used to dig out the shale. That would maximise the amount of oil produced from the shale. For an SF version of the idea, see the spice harvesters from "Dune".

Electric hub motors instead of differentials in cars -- what happens when the electronic control fails and the car starts driving in the direction it wants to go instead of where you want it to go? Apart from NASCAR and Formula 1 racing, most cars drive in straight lines most of the time so the energy savings from using individual hub motors (more expensive than a single prime mover engine, adds unsprung wheel weight requiring stronger suspension and wheel assemblies etc.) will be negligible.

43:

No need for differentials. Just put two wheels at the front for steering, and one driven wheel at the rear.

It worked for Morgan.

44:

Thing is.. the current oil prices are way past the point where it would be cheaper to build nuclear (fission) reactors to power hydrocarbon synthesis from atmosphere. Which is a nigh-infinite supply, because it turns oil use into a closed circut. This is not a stable situation, if nothing else someone is going to execute arbritage and actually build such a plant with capital raised by selling futures on its production.

Exuse me, I need to write a startup proposal.

45:

Stephen@29: Why are not solar water heaters (not solar pannels, water heaters) not mandatory on new houses? They pay back in 3 years in a temperate climate.

Thomas@43: When it comes down to it, that'll be feeding the plastics industry, not fuel.

46:

27: "Anything like those 50's jingles, electricity 'too cheap to meter'?"

That phrase comes from Lewis Strauss, chairman of the US Atomic Energy Commission:

"Our children will enjoy in their homes electrical energy too cheap to meter," he declared. ... "It is not too much to expect that our children will know of great periodic regional famines in the world only as matters of history, will travel effortlessly over the seas and under them and through the air with a minimum of danger and at great speeds, and will experience a lifespan far longer than ours, as disease yields and man comes to understand what causes him to age."

Lewis L. Strauss
Speech to the National Association of Science Writers, New York City, September 16th, 1954
[New York Times, September 17, 1954]

He also said things like "industry would have electrical power from atomic furnaces in five to fifteen years." Nobody seems to remember that prediction though (It came true in 1957).


47:

tp1024 @39 ...you should expect that all the trillions of Dollars, Euros and whatever looking for ways to multiply themselves would be poured into the least developed nations, which are the ones with the greatest growth potential.

In practice this is problematic; a small investment in, say Cameroon, ought to create a great deal of wealth and thus profit. As it turns out due to cronyism and corruption investments tend to create little wealth and unstable political situations make it difficult and risky to collect a profit. I'd say something about inadequate infrastructure, but that's where the intial investments ought to (and sporadically are) be made, and, not coincidentaly, where the corruption tends to be the greatest.

Andrew Crystal @44 When it comes down to it, that'll be feeding the plastics industry, not fuel.

So that ought to reduce the price of oil, but have a greater proportion of it being burnt? Hmm...

(or maybe just reduce the price of plastics. that can't possibly have a bad effect, can it?)

48:

Um, there's a reason I put 'too cheap to meter' in tics. If you like, I'll rephrase and say, would it be possible with aggressive nuclear development to get the cost of electricity down to, say,

36: I don't understand this instance that nuclear power be based on fusion. It really doesn't get you much more than fission in the short term, and it has the same problems of waste disposal. If you want to posit some magic system where seawater come in one end and megawatts come out the other, and the main works fits on a table top, yeah, sure, fusion would be infinitely preferable to clunky old fission. But if horses had wings beggars could fly too.

Oh, and lets not forget there's always the possibility of something Completely Different. How about, for example, cheap synthesis of bucky nitrogen? Bang. No more worries about carbon footprints (at least for transportation). Or perhaps more mundanely, the turkey-guts-into-oil, thermal depolymerization process is finally perfected. Or a bug that eats cellulose and excretes long-chain hydrocarbons.

49:

that should be: get the cost of electricity down to less than three cents a kilowatt-hour. Apparently an unadorned less than sign is interpreted as part of a tag.

50:

@47: there is a limited amount of *cheap* uranium ore around. Once that's gone in about 50-70 years at current consumption then the price of fission reactor fuel goes up. It's like coal and now oil; the cheap good-quality easy-to-get stuff has been got. If we burn uranium faster then the cheap stuff runs out faster.

With fusion the basic fuel is the second most common material in the Universe after Stupidium, and can be obtained from water. There is no real waste problem with fusion; any radioactive material made during a fusion reactor's operation dies out in a few months. With fission the radioactive byproducts are breakdown elements like iodine, cesium etc. which are longer-lived and biologically preferential. With fusion the worst byproducts you get are some lithium and tritium which are a lot easier to deal with, and indeed can be used as fuel.

51:

Really? Tritium is common? At this point, even D-D fusion looks like it's not happening any time soon. Further, the problem with fusion is the same as the problem with fission: neutron activation. To avoid those decay products - and yes, they will be the heavier elements - a completely aneutronic reaction has to be employed. At which point, you are in MagicTech Land again. Finally, not only is fission here and now, you don't even need to process uranium; thorium works just fine. Oh, and waste disposal is a solved problem, and has been for a while. In an engineering sense if not a political one.

52:

Making lemonade out of lemons, the ITER testbed is designed with a blanket of lithium metal on the walls of the fusion chamber. Neutrons from the fusion process hit the Li and create 3He, thus reducing the problems with neutron activation of the chamber's structure and also neutron embrittlement (less of a problem than fission reactors since fusion reactors are meant to be dismantled and rebuilt on a regular schedule anyway).

Fusion fuel mixes are one of the things ITER is meant to test and evaluate. D-D would be nice, H-H wonderful, but AIUI D-T is probably going to be the way forward at least for the first prototype power reactors to be built in the 2020s or thereabouts.

53:

Andrew Crystall #44- why no solar water heating? Because that would require laws, and laws are evvviiiillll.

Oh wait, surely its more that the gvt hasn't got a clue, is in hock to the builders who can give them more cash than anyone else, and don't actually want to do anything about the problem.

Scentofviolets- where are you getting your stuff about fusion reactions? I know they aren't perfect, but the ITER folk won't be building the thing unless they have things worked out so we don't end up with a mountain of nasty stuff the way we did from early fission. They already have a decommissioning plan, which does include 30 years or so for radioactivity to decay in parts that are being dismantled.

You also say that Thorium works fine. This is sort of correct, but I found this url:
http://www.world-nuclear.org/info/inf62.html

Which I don't think can be said to be anti-nuclear, which says:

"Much development work is still required before the thorium fuel cycle can be commercialised, and the effort required seems unlikely while (or where) abundant uranium is available."


54:


If the rise of oil were purely due to the decline in the $US, then it would be stable and low in euros. It is not, the price of oil has risen in euros as well.


If the price was rising due to speculation, then as Paul Krugman has pointed out, there should be a rise in oil inventories (at least over the long term) - there is no evidence for this. If the short term rise is due tio speculation, then fine, it will collapse once those long futures have to accept delivery.

The price elasticity of oil is very low, so it takes just small imbalances in supply demand to change prices. The argument that we have finally reached a demand that the suppliers cannot meet, for whatever reeason, seems to be the most likely explanation for the current situation.

Contrary to Charlie's posited assertion that oil did not cost more in real $US during the first oil shock of 1973-74: this is untrue. The real price of oil rose for all western currencies. However it is true that the real price of oil had been declining overall since at least WWII until the end of the C20th. The first and second oil shocks raised the rael price of oil for short periods due to supply restrictions that were noticeable by long lines of autos at the gas pumps.

Will the euro replace the $US as the de facto reserve currency? Not in the short term simply due to history and the sheer volume of $US in circulation. The last time this happened was the shift from sterling to $US as Britain handed over the reigns of global superpower to the US. This time around, the new reserve currency might be yuan or rupees, sometime in the middle of the C21st.

55:

Keep in mind that the oil industries have a great deal of political clout and a powerful interest in profit maximization. As a result, leaving the combustion economy is likely to happen too late, because the estimate of critical necessity will be fighting with the estimate of maximal profit and be pushed too far into the future.

And, hey, just try advancing the idea that one of the functions of government is compelling risk-taking behavior on the part of capital. (Since otherwise capital will tend to distort the economy to distribute risk away from itself.) Had people tell me I was crazy about that one ten years ago.

56:

Robert @49,

Depends on how you define "cheap" uranium, doesn't it? I read/heard somewhere - and I have no better cite for this - that if the asking price of Uranium were to double fuel cost would still be a fairly trivial percent of nuke plant operating cost and we would have commercially viable Uranium reserves for 50,000 years.

Again, I have no idea whether that is true. Does anyone reading this have any ahrd data?

57:

The difference between the mid-70's and now is that then there were also long lines at the gas stations (at least here in the US). There doesn't seem to be any shortage at all here at the moment. I think the boys are just grabbing everything they can get while the gettin's good.

58:

Steve @55: From what I've read, at current levels of consumption and reprocessing of waste fuels worldwide, we have about 50-70 years of known economic reserves of uranium ore. There may be lots more ore out there but there's no need to look for it right now and exploration costs money. If the US started reprocessing its spent fuel in any quantity then the reserves would be stretched further.

Charlie wrote an article about a visit to a British AGR power station near Edinburgh. It's available on this website. It was designed in the 1970s to be very efficient in the expectation that the cost of uranium fuel would rise as lots more reactors were built worldwide. In the end this didn't happen and uranium prices have stayed low, negating its design advantage. The less efficient but cheaper to build PWRs became the reactor of choice instead.

59:

Supply of fuel for nuclear fission is not a problem. Japanese researchers have developed a method for harvesting uranium from seawater using an ion-exchange resin held on a mesh. Just hang the mesh in the ocean currents, and come back after a few months. The cost of the uranium is about 4 times the current cost of mined uranium, but this doesn't make much difference to the cost of electricity from nuclear fission, as fuel costs are only a small proportion of the total cost. With ocean extraction and breeder reactors (which reduce fuel requirement 60-fold) there's enough uranium to supply all the world's energy for a few thousand years (calculations are given here).

60:

Neil@46: No, I mean when oil's that scarce, it'll be used by the plastics industry and not as a fuel. There are alternate fuels, plastic is far harder to replace.

Guthrie@52: Yea, but we do have cheap uranium for decades. There have been tests and one German reactor which ran off Thorium, and I'm sure that in the decades of something can be worked out with the Thorium cycle. And Thorium is considerably more abundant that Uranium.

61:

(Been away for a couple of days.)

I confess that I'm mostly worried about Graydon's point: we have the technologies and tools to make a clean transition, but we lack the political will and the profitability of running the existing model into the ground rather than investing in a new one could result in us driving over a cliff if the current becomes non-viable too abruptly. As, arguably, it already has (with horrendously high atmospheric CO2 levels).

We're too damned efficient these days -- I worry that network economies relying on just-in-time logistics simply don't have enough slack in their systems to deal with sudden discontinuities.

62:

Like you, I'm dependent on the pharmaceutical distribution chain, and I know you reported a problem last year with a specific drug.

If the idiots wreck things, I expect to die before you.

When I was at school, one of the teachers had this schtick of conjuring up disaster scenarios to discuss over school dinner. "You're on a desert island with only what you have in your pockets." That sort of thing.

It was difficult to explain to him that I'd die, fairly quickly. He didn't seem able to make the connection. One of those "sport is good for you" idiots who never actually seemed to bother with teaching anyone how to play, and the way he smoked his pipe, mens sana in corpore sano didn't seem to have much of a chance.

63:

Someone asks why solar energy in new homes is not compulsory. The EU has made it compulsory at least for new homes in some cases. From 2009 IIRC new constructions will have to have thermal solar for water heating. At least so I've heard somewhere.

64:

Stephen @29: You appear to be ignorant of the law of diminishing returns in technological endeavours.

I've got a car with several of the features you describe (google Citroen GS): a smooth undertray, a 60hp engine in a one-tonne body, and a 95mph maximum speed. It needs about 25-30hp at highway speeds, not 15hp, and it doesn't get anything like 100mpg...

Charlie @60: next time you want to have trouble sleeping, start looking up the likely effects of 1000ppm of atmospheric CO2 (steady-as-she-goes prediction for the 21st century) on marine organisms that need precipitated calcium carbonate at some stage in their life-cycle. Which is probably about 50% of the marine food chain.

65:

Chris L @60:

next time you want to have trouble sleeping, start looking up the likely effects of 1000ppm of atmospheric CO2 (steady-as-she-goes prediction for the 21st century) on marine organisms that need precipitated calcium carbonate at some stage in their life-cycle.
We're de-terraforming the Deep Ones??

66:

Jay: probably not the Deep Ones, calcium carbonate already dissolves at the temperatures and pressures they're at. Maybe they'll get unhappy if we crash the ecosystems above them, though. What do they eat? :)

67:

"next time you want to have trouble sleeping, start looking up the likely effects of 1000ppm of atmospheric CO2 (steady-as-she-goes prediction for the 21st century) on marine organisms that need precipitated calcium carbonate at some stage in their life-cycle."

...except that's almost certainly not going to happen, even with not-really-possible increases in oil and coal consumption.

The "huge" increase in CO2 on the planet over the last century or so has been from 295 ppm in the late 1890s to a bit less than 390 ppm today. To get the 1000+ ppm levels needed for the "worst case" climate models (or even the 600 ppm levels for their "not quite as bad" scenarios), you'd pretty much have to burn every bit of fuel, known and suspected, along with massive new reserves nobody knows about, and do something drastic to all of the plants so they wouldn't absorb most of it, while not adding any non-carbon energy sources.

The current trend, with constant growth (not a given, with energy prices going up and newer non-CO2-emitting tech coming on line), is about 2.1 ppm per year, which mean that you're looking at less than 600 ppm by 2100. With no additional restrictions on output, no drastic changes in laws, and a 92 year increase in hydrocarbon energy consumption at current rate.

So no, 1000 ppm isn't going to happen. Unless we get hit by a methane asteroid, or the clathrates get smacked too hard.

68:

http://www.moneyweek.com/file/18497/derivatives-the-mother-of-all-bubbles.html

The acidification of the seas is the only part of the whole CO2 scaremongering* that is.. really scary. Crashing the ocean ecosystems..

So it's gonna be warmer everywhere? So what? Greenland wasn't named Green-land because of all the snow and ice..
Besides, the sea level rise predicted is quite small. And even if large-scale human deaths result from warming, there are already too many of us**... (Malthus wasn't entirely wrong.. unless you invent a means of producing food from water, carbon dioxide and energy that's not farming, eventually we *are* going to run out of places where we can grow food. People seem hell bent on finding out when... I think)


*there's a nice conspiracy theory that claims that the whole AGW scaremongering is the Illuminati's doing, a grand design to depress consumption of stuff..

**we like to pretend we aren't animals .. but we are and all the lessons about carrying capacity also apply to us..

P.S... if we used breeders and extracted uranium from seawater... wouldn't the uranium in all the seas last us millions of years, not thousands.. I remember seeing figures like that. Besides, what about asteroid or deep crust uranium... isn't some of that stuff out there too?

69:

Regarding coral reefs, they will be in danger once we approach 500ppm, not 1000:
http://bp1.blogger.com/_7NrAt8xGd0E/R3yC9CoTV9I/AAAAAAAAAjk/iHV-VFunILA/s1600-h/vostok.PNG

As fro Stirlitz, are you volunteering to be one of the "too many" people? Or would you like to take climate change a bit more seriously?

Charlie #60- ummm, yes, JIT is great until things go wrong...
I've been considering that point for a while. It would not be beyond the bounds of possibility that co-ordinated terrorist attacks utilising a variety of methods, interacting with the modern security circus, could bring continents to a halt.
WHich would directly cause thousands of deaths, and many billions of losses.

70:

65: Souls. They eat the souls of the lost, the wronged and the damned.

Luckily, there are always plenty of those. It's when we bring democracy to China, Burma, North Korea, feed Africa and stop all wars that there will be trouble.

71:

Greenland wasn't named Green-land because of all the snow and ice..

Oh? I thought it was named that to get people to colonize a really inhospitable place; sort of like naming a chunk of Death Valley Rancho Pardiso. When in the last 20,000 years was Greenland not covered by a thick ice sheet?

72:

Charlie @ 60

Agreed. Not-quite-in-time is much worse than it's-trickling-in-at-a-steady-rate-all-the-time. There's some interesting evidence that a lot of medium-size extinction events (not the Level 1 asteroid impact sort) are the result of cascade failures through an already-stressed ecosystem in which some keystone species hits a wall. I bet human economic systems are even more susceptible to those sorts of failure.

73:

Guthrie:

That whole "dead coral" bit is a bit of a stretch, too. More than a few studies have shown that many (if not most) species of coral and other carbonate-using species actually do better with slightly higher levels of CO2 in the water, increasing accumulation instead of reducing it.

You also have to consider that the predicted increase in acidity is very, VERY small. The total increase over the last 100 years or so has been about 0.075 pH. Yes, seventy-five THOUSANDTHS of one pH level (out of 14), much less than the natural variability in any known part of the ocean. When your signal is smaller than the noise, you don't have science, you have politics.

There's a good bit of debate about long-term effects, too. there are a lot of undersea nonbiological (well, fossil) carbonate deposits that will break down slowly to counteract that decreased alkalinity (yes, the oceans are slightly alkaline), which will probably make MORE carbonates available for corals and other, similar creatures.

74:

[]
As fro Stirlitz, are you volunteering to be one of the "too many" people?
[]

Uh. No.
However, I'll volunteer for corpse-collecting duties.. and if it were legally possible to indulge my repressed homicidal tendencies rest assured I would take up the challenge :)

Greenland was green. Birch forests, grass, agriculture.. during the medieval climate optimum... (that very pesky period when it was hotter than today and which is I believe often not included on alarmistic temperature graphs..:-) Wikipedia and lotsa other places say so..
http://en.wikipedia.org/wiki/History_of_Greenland

75:

Cirby #72-
What slightly higher levels of CO2 in the water are you talking about? I'm talking about the expected pH shift due to the formation of carbonic acid, which is happening right now and will likely move the ocean into a non-coral reef friendly state when CO2 levels in the atmosphere are around 500ppm. I you had some numbers, it would help. Talking about "small" increases in acidity is a red herring - it is exactly the same as arguing that an increase in CO2 of only 110ppm is so small that it can have no effect.

The point is that by changing the pH and reducing the ability of coral etc to form shells, you destroy the reefs and the biodiversity that go along with them. It won't happen overnight, but you will affect the entire food chain that the reefs are part of, not to mention the hundreds of millions of dollars that are made by peopel living off the reefs, and the billions of dollars of services they give.

Stirlitz #73- you do know that the green bit of Greenland was the bit that is now so green they are growing cabbages, wheat, and exporting sheep? Plus, there is no evidence whatsoever that on a global or even hemispheric scale, it was warmer in the MWP. IF there was, people would produce it.
The rest of Greenland has been covered with glaciers and ice for hundreds of thousands of years.

76:

"What slightly higher levels of CO2 in the water are you talking about?"

The observed ones that the people you cite are wrongly claiming will (if CO2 levels double in 100 years) kill and/or damage all of the coral and similar creatures. You can find the 0.075 in places ranging from Wikipedia on up to actual, scholarly publications about coral formation.

The actual observed increase, as I mentioned above, is VERY, VERY SMALL. The panic-case (580 PPM) scenario that used to be touted (they're starting to call 500 ppm worst-case) would cause a global pH increase of 0.2 (out of 14), and no, that's not a coral-killer by any means. Sure, you can cause lower growth rates for a while by shocking coral with a fast pH change, but most species cope with it, since that's well inside of normal ocean pH variability - which ranges from less than 0.1 pH in "dead" ocean zones" to over 1.0 pH in "active" areas near the coast.

("pH variability and CO2 induced acidification in the North Sea" is the paper I keep seeing as a quote or reference - and the most it will claim is that it could produce "measurable" changes in the ecosystem, not drastic ones)

The "point" may be that changing the pH could change the environment sort of like they predict, but actual, no-kidding observations suggest that no, really, it ain't gonna happen. Much as the "point" of late-1990s global warming advocates was that we were going to see incredible increases in hurricane frequency and intensity (didn't happen), and massive changes of all sorts (still waiting). The secondary thing I mentioned was that no, not all coral reefs die off when you change the pH of the water they live in by that tiny, tiny fraction, and that quite a few organisms will actually do BETTER under the marginally-changed conditions.

The real "point," as I mentioned up-thread, is that no, CO2 isn't going to double under any reasonable scenario. Even if it does increase by, say, as much as CO2 has increased over the last 100 years (i.e., 100 ppm), it's not going to be anything like a doubling.

77:

But Cirby, the point is the pH in the regions the corals live in. What pH are we looking at there?

I could'nt care less about some peoples ideas of reaching 1000ppm- I havn't seen anyone suggesting it as anything more than a very very unlikely occurence. The point is that things start going wrong at 500ppm and below.

And yes, I am perfectly aware that different species will do better when corals react to pH etc changes. The small problem here is that it shifts the ecosystem, and in many cases we have no idea how, or in what direction. And if you have the corals going, then what will build the reefs?

Finally, if there really is nothing to worry about, why do I find papers like this:
http://www.sciencemag.org/cgi/content/abstract/318/5857/1737

Atmospheric carbon dioxide concentration is expected to exceed 500 parts per million and global temperatures to rise by at least 2�C by 2050 to 2100, values that significantly exceed those of at least the past 420,000 years during which most extant marine organisms evolved. Under conditions expected in the 21st century, global warming and ocean acidification will compromise carbonate accretion, with corals becoming increasingly rare on reef systems. The result will be less diverse reef communities and carbonate reef structures that fail to be maintained. Climate change also exacerbates local stresses from declining water quality and overexploitation of key species, driving reefs increasingly toward the tipping point for functional collapse. This review presents future scenarios for coral reefs that predict increasingly serious consequences for reef-associated fisheries, tourism, coastal protection, and people. As the International Year of the Reef 2008 begins, scaled-up management intervention and decisive action on global emissions are required if the loss of coral-dominated ecosystems is to be avoided.

78:

"...(that very pesky period when it was hotter than today and which is I believe often not included on alarmistic temperature graphs..:-)..."

Correction: that period when Europe/N. Atlantic region was warmer than that region is today. Please see:
http://www.realclimate.org/index.php/archives/2004/12/werent-temperatures-warmer-during-the-medieval-warm-period-than-they-are-today/

79:

Barry: what part of "a global warming trend does not preclude regional variations in temperature that go in the opposite direction" don't you understand?

NB: you're now wandering way off-topic, and further forays into climate change denail may be removed without further warning. (Unless they're sufficiently amusing to tickle my whimsy gland.)

80:

Coral reefs (guthrie @68, cirby @72): Coral reefs are already in trouble, with episodic bleaching events provoked by strong El Nino years. Coral biology is seriously odd, and neither the individual organisms nor the reef as a whole will bounce back at all quickly from major traumas. Phase shifting is a well-documented phenomena in areas where coral reefs are highly stressed: the corals get replaced by algae, and since the algae don't produce a reef-like physical structure, the entire nature of the region changes as the coral skeletons start to fall apart. It's already happened where reefs are damaged by pollution and run-off.

CO2 levels (cirby @66 and others): Linear extrapolation from modern or historical trends doesn't tell you anything about future levels, because the rise is exponential and has been for 150 years. There's no sign of that changing (especially as China and India really get cranking), and if you run that trend to its logical conclusion (and there's no compelling reason not to) you get CO2 levels of 800-1000ppm sometime in the 21st century. No-one has any real idea what that would mean for global climate or ecosystem function, except that it's likely to be scary. The IPCC reports are written for consumption by politicians and PHBs, they put in threshold values and so forth to give them something to cling to. At this point, more is bad, end of story.

Dissolved CO2 and pH (cirby @75, guthrie @74): Sorry, guys, carbonate chemistry is more complicated than that. I've spent a bit of time thinking about it lately, and it still makes my eyes cross. There are critical points beyond which solid calcium carbonate just isn't energetically feasible, and it depends on what sort of crystal you're talking about: lots of organisms (corals included) secrete aragonite, which is the least stable form. It works the opposite way to what you'd expect, too: more dissolved CO2 makes carbonate more soluble, not less. That's why nothing in the deep sea has carbonate shells; water under that much pressure can hold an enormous amount of dissolved gasses. That's also why pH alone is misleading. pH changes in concert with CO2 saturation, but it's not the only effect.

1000ppm CO2 is at equilibrium with seawater acidified by 0.4 point of pH. I know because I measured it last week. Are you folks aware that the pH scale is exponential? A shift of 0.4 represents a change of nearly 50% in the ion concentration. That's massive, and most biological systems will chuck a wobbly over far smaller changes. You only need to nudge the weakest point in an organism's life-cycle (fertilisation, settlement, shell formation) to take it out of the picture entirely. And really, corals are a red herring. Lots of planktonic organisms use carbonate too, and they're a huge driver of ocean ecology.

Here endeth the crash course in marine biology :)

A lot of this stuff is pretty new, expect a rush of publications over the next few years.

81:

No offence Chris, but pH being logarithmic I learnt at school.
You're right about everything else though, I am but an amateur dabbling in stuff that is outwith my degree subject. I did however find some interesting links last night, for example:
http://www.ucar.edu/communications/Final_acidification.pdf

An entire report on ocean acidification from a workshop run by NOAA, NSF and USGS. In it are some graphs, including two showing pH variation at a couple of sites. The trend is downwards, and varies by about 0.06 of a pH unit.

I'm afraid that I have run out of things to say on the actual thread topic...

82:

to move back towards the "peak oil, economic slowdown, death of the dollar" topic...
an answer to the exam question would have to say all of the above - high oil prices due to peak oil and also the declining dollar. oil supply is pretty close to demand, and at the moment pretty much no-one has the capacity to expand supply (certainly in the short term). when supply and demand are closely matched, market volatility results - the price can change abruptly, small changes in supply (a pipeline fire here, a strike there) will lead to unnecessary rises due to market jitters etc.
from what I understand, there is a general consensus within the industry that global conventional oil supply peaked last year, possibly late 2006. The larger oil fields are also declining fast - North Sea at 7% ish, canderel in mexico (one of the top 5 oil fields in the world) peaked last year and is now declining at 14% (that means it will be at less than 50% production in 5 years!).

On the dollar side of things - since the US stopped publishing m3 data, I heard the printing presses have been printing dollars pretty much 24/7 (source: podcast from here http://www.karmabanqueradio.com/). so supply of dollars is increasing, effectively diluting the value of the individual dollar. then there are the hedge funds, and government loans to said hedgefunds (electronic money is created to lend to them - further dilution). Not to mention the treasury bills which most governments are now deciding to refuse, or sell off.

the euro is it seems doing well - tho don't know so much about this so can't comment much. oil bourses using euros are increasingly seen, I have heard that more and more drug busts in south america (big busts) are finding suitcases of euros rather than dollars (colomia i think).

that seems to sum up what some people are saying above, as well as adding my 50Ps worth. I have a question though - would love to know what people think. What does this mean for the singularity? Am thinking mainly of the peak oil side of things, but global warming/USA financial meltdown also.

83:

I think it clear that anything, such as peak oil, global warming, financial meltdowns etc, which reduce basic science research, applied research, education, and investment in industy rather than paper pushing, will put off the arrival of any "singularity" you care to mention.

84:

it would certainly seem that general cataclysm (financial, energy, environmental) will probably delay the technological/AI singularity, but I could see some situations where this might not be the case. However - to me it looks like we are in a race - get to the singularity before the effects of peak oil really start to bite.

85:

Seeing as peak oil will be begin biting over the next few years, and there is no credible evidence for us even being able to build a self bootstrapping AI, you'll excuse me if I think you are ridiculously optimistic, to the extent that you really need to go and find something else to dream about.
Dreams are great, but should not be confused with reality.

86:

Guthrie@85
I reckon peak oil is biting now. I think we will be (very) lucky to get to the singularity before things are really bad, but I guess I have hope in a number of other technologies and ways of doing things, and I am hoping (optimistically) that they will allow the species to get through it, at least in some form that resembles the level of technological/social/etc advancement we have achieved today.

The work of Ray Kurzweil is one basis for my optimism - basically that advances in technology are exponential rather than linear. this means that in 2000 - 2020 we should see the same amount of technological change as in 1900 - 2000.

I think something similar may be happening with social networks - have a look at what clay shirky is saying (www.clayshirky.com). basically, the value of a network increases exponentially with the number of connected nodes (i think this is known as reeds law, curtesy of david reed).

anyway what all this boils down to is that
1 change is happening faster and the rate of change is increasing
2 more is different (as in networks)
combine the two, and I guess we will see what happens.

87:

I wouldn't quite say that peak oil is biting, but certainly you can feel the jaws on your throat...
I actually expect a plateau in oil production for the next 5 to 10 years, around the 86 million bpd mark, but prices won't drop much and will spike whenever political stuff interferes with oil production.

I also see no reason why we can't get through it and maintain a technological life. There will be changes but the technology that we have today or on the drawing board is enough to allow us to survive. It won't necessarily be pleasant at all times, especially for the poorer parts of the world population.

As for Kurzweil, I tried to read his "Age of Spiritual Machines", but couldn't get past the leaps in hope that he made, as well as the conflation of computing power with capabilities for doing intelligent stuff.

88:

As for peak oil:
Pour a few single malts into a petroleum engineer and you'll get the admission that oil reserves are routinely overstated (helps the book value of capitalist structures and the prestige and power of nationalised ones). One must further realise that the last bits of an oil well are harder to extract, harder to refine, and yield fewer net BTUs per. It's impossible to say for sure, but positing 10% overstatement of, and 5% unrecoverable, reserves, I've a strong feeling we're past peak for developed deposits. There are almost certainly decent stores around the Caspian and in deep waters of the oceans, but these will require huge investments either to recover or transport, investments in recovering a product we shouldn't be burning anyway.

As for the USD contributing to price rise:
It's not only the de facto fall in purchasing power but the expected future PP of the dollar which drives prices. Thanks to Alice-in-Wonderland US fiscal policies that future is weaker than skimmed milk. The caesura in M3 reporting is surely to obfuscate the massive number of dollars sent abroad since then (most of the US budget shortfall, more than the underreported trade deficit, a good portion of Defense and CIA spending, and C47s full of drug monies; that's not counting corporate capital investment abroad).

A goodly part of oil's price rise is the suspension and subsequent disruption (purposeful, in my uninformed opinion) of Iraq's pre-war ~400K bbls/day. The previously mentioned Nigeria ills don't help either. Increased demand doesn't come close to accounting for anything but a small part of the rise.

The immediate partial answer to energy probs (there are no solutions save a reverse of the population curve) should be efficiency. America enacting a graduated tariff (e.g., no levy on first 4 million bbls, increasing rates on each, say, additional 2 million) on imported oil would be the most effective means. This ain't gonna happen cuz we Americans possess venality and myopia in equal abundance. Longer term, the answers will vary by geography. Geothermal may be the most viable panacea of all, if there is one; new deep drilling techniques from MIT harbor hope. Nuclear requires immense capital outlays and tons of time for construction. It also trades a brush fire for a forest fire; it's a dire accident waiting to happen. To err is human, after all. Solar (which includes wind, wave, and biofuels (from otherwise non-arable lands, let's be sensible)) may help smooth demand curves, but its nature makes it an unreliable base. Shale and tar sands are energy sinks (or awfully near). We're obviously gonna rely on electricity for transport, and upon myriad small generating stations for electricity while we wait the bio-engineered enzyme which eats waste and defecates hydrogen. Meanwhile, I keep my bicycle in good shape.

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This page contains a single entry by Charlie Stross published on May 23, 2008 9:10 AM.

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