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The End Of QE

by coldwarrior ( 88 Comments › )
Filed under Economy, History, Open thread at October 30th, 2014 - 6:30 am

Some interesting points from Evans-Pritchard, I will have to think on them and comment later asI have to get Princesses Ilsa, Anna, and Merida’s costumes ready for tomorrow night.

The final word on quantitative easing will have to wait for historians. As the US Federal Reserve winds down QE3 we can at least conclude that the experiment was a huge success for those countries that acted quickly and with decisive force.

Yet that is not the ultimate test. The sophisticated critique – to be distinguished from hyperinflation warnings and “hard money” bluster – is that QE contaminated the rest of the world in complicated ways and may have stored up a greater crisis for the future.

What we can conclude is that extreme QE enabled the US to weather the most drastic fiscal tightening since demobilisation after the Korean War, without falling back into recession. Much the same was true for Britain.

The Fed’s $3.7 trillion of bond purchases did not drive up debt ratios, as often claimed. It reduced them.

Flow of Funds data show that total non-financial debt has dropped from a peak near 260pc of GDP in 2009 and since stabilised at 237pc of GDP. Public debt did jump, matched by falls in household and corporate debt ratios.

On cue, federal debt is now falling as well. The deficit is down to 2.8pc of GDP, low enough to erode the debt ratio in a growing economy through the magic of the denominator effect.

This is not a “pure” economic experiment, of course. There are other variables: the shale boom and the manufacturing renaissance in chemicals and plastics that it has spawned; quick action by the US authorities to clean up the banking system. Yet it is indicative.

By contrast, the eurozone carried out its fiscal austerity without monetary stimulus to cushion the shock, lurching from crisis to crisis as a result. The region has yet to reclaim it former levels of output, a worse outcome than during the Great Depression by a wide margin. Not even the 1840s were this bad. You have to go back to the Thirty Years War in the 17th century to trump the economic devastation of EMU.

The eurozone’s public debt ratios have rocketed, yet unlike America there has no been no drop in private debt to compensate.

The latest Eurostat data are staggering. They show that Italy’s debt has jumped by 5.5pc of GDP to 133.8pc over the past year despite a primary surplus, purely because of EMU contractionary policies. The eurozone has bent every sinew to cut debt, and ended up in a worse predicament, exactly as Britain did under its infamous deflation policies in the 1920s.

At the end of it all, Euroland is again on the cusp of a triple-dip recession, with unemployment stuck at 11.5pc. It faces devastating hysteresis effects in southern Europe, where a large chunk of those under 30 have never had a permanent job. Leaving aside the social destruction, this will reduce the economic growth of these countries for two decades or more. It overwhelms the alleged benefits of EMU-imposed reforms.

The contrast with the US is so stark that there can be little argument. The US suffered broadly the same economic shock in 2008 and had a similar jobless rate in the white heat of the crisis. Its unemployment rate has since tumbled to 5.9pc. Lay-offs have dropped to a 14-year low. There is even an acute shortage of truck drivers, now able to command $40,000 a year.

Britain’s workforce has reached fresh records above 30m. Some are highly-educated refugees from the EMU victim states, a loss to them, a boon to us. The British recovery may be unhealthy in many ways – not least the current account deficit – but it is surely better for the long-term prospects of this country than the cosmic gloom gripping the Maastricht bloc.

It is true that Japan is struggling despite the most radical QE blitz ever attempted in a large economy – roughly $70bn a month since Shinzo Abe took power, and began to shake Japan out of its fatalism – but it had a bigger mountain to climb, and it has in fact weathered the shock of its sales tax rise this year. Those who say QE has failed in Japan are premature, and offer no counterfactual argument. Clearly the status quo ante was a path to ruin.

You can argue that zero rates robbed savers, and that QE robbed them a fraction more, but let it never be forgotten that the state rescued the banking system across much of the industrial world in 2008. If governments had let banks collapse – and 4,000 went under across the US in the early 1930s – savers would have lost their shirts. They were in fact bailed out by the taxpayers, and little gratitude some show for it.

What QE has done is to distribute the costs of crisis evenly between creditors and debtors, a matter of natural justice. Eurozone policies are by contrast an enforcement mechanism for creditors alone. Debtors in Spain have been reduced to servitude by a combination of medieval debt laws and the “internal devaluation” imposed by the EMU regime.

We will never know whether extreme monetary stimulus averted social and political breakdown, a slide into beer-hall thuggery and street militias, but would you ever wish to put the matter to a test? So let us give due credit to the heroes of our time – Ben Bernanke, Mervyn King and those who stood by them against the mob of howling critics.

And yet, there is a problem. The Bank for International Settlements and others such as India’s central bank governor Raghuram Rajan argue that QE is in essence a beggar-thy-neighbour ploy that shifts the burden onto others in a “Pareto sub-optimal” for the world as a whole.

They argue it led to a flood of liquidity into emerging economies and that they were not able to neutralise the effects. Most of the world has now been drawn into an all-engulfing debt trap that has left the international system more vulnerable than ever.

Debt has risen by 20 percentage points to a record 175pc of GDP in emerging markets, with China already around 250pc, according to Standard Chartered. These are unprecedented levels for countries without mature financial markets and deep layers of wealth. Morgan Stanley calculates that gross global leverage has risen from $105 trillion to $150 trillion since 2007. The BIS says the world is on a hair-trigger, at risk of “violent” effects if there is slightest loss of liquidity.

This may soon be out to the test since it is not only the Fed that is tightening, tapering QE3 from $85bn a month to zero since the start of the year. By a quirk of fate, China’s central bank has stopped accumulating foreign bonds as well, for its own reasons. Let us hope they are talking to each other.

The Chinese central bank became a net seller of Treasuries, Bunds, Gilts and French bonds in the third quarter. This is a major change of strategy. It was buying $35bn a month earlier this year, before premier Li Keqiang announced that excess reserves had become an inflationary “burden”. This shift is not exactly “reverse QE” but is analogous.

The world must deal with a double shock from the two monetary superpowers. Investors had hoped that the European Central Bank would pick up the baton in a seamless transition. This has not yet happened, and may not happen on any worthwhile scale for a long time given the “German problem”.

The ECB’s balance sheet has contracted by €150bn to just over €2 trillion since Frankfurt first unveiled its “QE-Lite” more than four months ago. The ECB bought €1.7bn of securities last week but this is a toe in the water.

It is too early to judge whether even the Anglosphere can really throw away its QE crutches. The risk of a relapse is obvious as the commodity nexus flashes global stress warnings. We may need QE4 after all.

If so, let us inject the stimulus directly into veins of the economy money next time, using it to build roads, houses and an infrastructure fit for the 21st century. Experts call that “fiscal dominance”, a dirty concept, a slippery slope towards to monetary financing of deficits. To which the condign reply in a global deflationary trap with chronic lack of demand is, all the better.

 

FRAC Goes the Oil Market

by coldwarrior ( 80 Comments › )
Filed under Economy, Energy, Open thread at October 15th, 2014 - 8:00 am

I started my day like every day…Kettlebell and Nordictrack and CNBC at 0530. The heads are finally getting at what the Frac boom mans to the oil market. Combine the frac with very low economic growth expectations and you get several things:

A Nervous Saudi (PLEASE read the entire article at this link):

A Saudi billionaire investor has sounded the alarm over the potential impact of falling oil prices on the Gulf kingdom’s economy.

In an open letter to Saudi ministers posted via Twitter, Prince Alwaleed bin Talal al-Saud expressed his “astonishment” at comments made by Ali al-Naimi, the oil minister, who reportedly played down the impact of oil prices falling below $100 a barrel. Prices have since fallen below $88 a barrel, or a quarter since June.

Prince Alwaleed, noting the kingdom’s 2014 budget was 90 per cent dependent on oil revenues, said belittling the impact of lower prices was a “catastrophe that cannot go unmentioned”…

The prince expressed similar concerns last year over the rise of shale oil, which, with weakening Asian demand, has contributed to the rapid slide in oil prices – despite geopolitical uncertainties in Iraq, a major producer.

His public broadside against the veteran oil minister came as analysts said the Gulf members of Opec, the oil producers’ cartel, led by Saudi Arabia, seem prepared to drive down oil prices to retain market share and fend off the threat of rising US production, despite the risks to their hydrocarbon-dependent economies…

Gulf oil producers, most of which have large cash reserves, seem to be betting that the short-term pain of declining oil revenues from lower prices will close off competing supplies and revive the lowest global oil demand since 2009.

Oil prices are reaching levels that, if sustained, threaten the ability of some Gulf states to meet domestic spending commitments, forcing a drawdown on reserves or debt issuance.

Saudi Arabia needed an oil price of $89 a barrel in 2013 to balance the budget, up from a “fiscal break-even” of $78 a barrel in 2012, according to the International Monetary Fund.

Chart

But Riyadh’s regional political rivals, such as Iran and Iraq, as well as other Opec members such as Venezuela, have much higher fiscal break-evens.

That bolded paragraph is the new reality, the ME is being driven from relevance.

 

And you get market fallout:

Crude oil futures settled down 4.6 percent at $81.84 a barrel, the biggest percentage drop since November 2012 and the lowest settlement since June 28, 2012.

Brent crude for November slid earlier and lurched lower toward the end of the day, dropping by more than $4 a barrel to dip below $85 a barrel for the first time since 2010. It was the biggest one-day drop in prices since 2011. The benchmark settled at $85.04, $3.85 lower on the day.

Oil dived more than $4 a barrel on Tuesday, its biggest drop in more than two years as mounting evidence of slackening demand and unrelenting U.S. shale output left traders struggling to peg a floor for crude’s four-month rout.

The abrupt acceleration of an over 26 percent slide in prices since June was triggered by three news items that epitomized the market’s turn: a downgrade in global oil consumption forecasts; projections for another big boost in shale oil; and reluctance by OPEC members to cut output.

Read MoreCheap oil is here to stay, at least for a few months

Oil is struggling to find a floor after Saudi Arabia made clear that it was focused on maintaining market share, not supporting prices with unilateral production cuts.

Other members appear to be taking a similar tack. A source familiar with oil policy in Iran, normally one of the first in OPEC to call for production cuts, followed Kuwait in saying there was no need to rein in supplies.

Read MoreOil slide wipes out stock market gains

“I think it’s just continued the rationalization that all signs continue to suggest that OPEC is not going to do much,” said Dominick Chirichella, senior partner at the Energy Management Institute, New York.

Getty Images

The slide began early in the day after the International Energy Agency, the West’s energy watchdog, cut its estimates for global oil demand growth by 250,000 barrels per day for this year and by 90,000 bpd for 2015. It said demand for OPEC oil would be 200,000 bpd lower for both years.

Read MoreOil demand to ‘rise tentatively’ in 2015: IEA

The diminishing outlook for consumption is colliding with an unrelenting rise in U.S. shale oil, leading to a glut of crude that has knocked Brent lower since June.

Losses deepened in mid-afternoon after the U.S. Energy Information Administration projected that fast growing shale basins would increase output by some 106,000 bpd in November from a month earlier.

 

The down side? This can be deflationary and the Fed does not have much room to move on interest rates. This could cause QE again here as Europe heads for another recession. Low $ oil shuts off the Shale wells in America at,I think $80 a barrel. Weak expected demand and the march toward American Energy independence is going to be an interesting ride.

Supply, Demand, Dollar Values and FRAC!

by coldwarrior ( 72 Comments › )
Filed under Economy, Energy, Open thread at October 9th, 2014 - 8:00 am

An interesting article:

 

HERE

The Shale Revolution Is Changing How We Think About Oil And The Dollar

 

goldman sachs commodoties and dollarGoldman Sachs

Historically, there’s been a pretty consistent correlation between oil prices and the US dollar.

When the dollar strengthened, oil prices would fall — and vice versa.

For the longest time, this relationship has been explained by the huge flow of US oil imports.

However, a new report by Goldman Sachs’s Jeffrey Currie says that rationale has broken down in the wake of the American shale revolution.

“In 2008 … the US was importing on a net basis nearly 12 million [barrels per day] of oil and products,” Currie writes. “Owing to shale technology, today that number is now less than 5 million b/d. And subtracting out Canada and Mexico, the number drops to 2.4 million b/d. In other words, net imports are over 60% lower than in 2008.”

This has “significantly reduced the correlation between commodities and the US dollar,” he writes.

Back in the day…

In the past, Currie writes, investors believed that the “primary mechanism for the correlation” between oil prices and the dollar was the large US petroleum current account deficit.

“From the early 2000′s to the global financial crisis, increasing oil imports saw a widening US current account deficit, which put depreciation pressure on the dollar (appreciation pressure on oil producers currencies), which in turn put further widening pressure on the current account deficit (for any given volume of imports), causing additional dollar weakness,” Currie writes.

By 2008, oil reached $147 per barrel and the US dollar was at its weakest point versus the Euro at 1.6. At the time, the US was importing on a net basis approximately 12 million barrels per day of oil and products.

And then there was the shale revolution…

santorum north dakota shaleREUTERS/Harrison McClaryA piece of North Dakota shale.

Today, the number of imports has dropped to around 5 million. If you take out Canada and Mexico, that number falls further to 2.4 million — a stark difference from 2008′s 12 million.

Overall, oil imports are down more than 60% since 2008.

Imports have dropped because the US is now using hydraulic fracturing to extract oil from its massive shale basins, creating more supply.

And it’s during this same 2008 – 2014 time period that there’s been a huge reduction in correlation between oil prices and the US dollar, according to Currie.

“Along with the post-crisis financial market normalization, [the drop in oil imports] has dramatically reduced the correlation between oil and the USD, to around 0% (i.e. uncorrelated) today from historical highs near 60% in 2008/2009,” Currie writes.

Thus, according to this analysis, although oil prices have recently dropped as the dollar has surged, one trend doesn’t explain the other.

 

Time to Panic?

by Iron Fist ( 217 Comments › )
Filed under Academia, Economy, government, Politics at October 5th, 2014 - 8:00 am

Good article in the Free Beacon:

Deadly, irrational, and determined, the intruder snuck across a weakened perimeter. Eluding capture, the intruder was detained only after missteps and close calls. The spin began soon after the threat was isolated. Information was selectively leaked. Half-truths and untruths were uttered. Responsibility was avoided; privileges and credentials asserted; authority reasserted. Trust us. Remain calm. Don’t panic.

This is the template of recent events. A mental case jumps the White House fence. He makes it to the East Room before he’s tackled by an off-duty Secret Service agent. Initial statements turn out to be misleading or false. We discover that lapses in security are much worse than previously understood, that in recent memory the White House was sprayed with bullets, and that an armed man with a criminal record rode in an elevator with the president. The official in charge of the Secret Service, promoted for reasons of affirmative action, resigns hours after the White House expresses its confidence in her abilities. The overriding impression is of disarray, confusion, bad management, failed communication, anomie, disillusion, corruption, and secrecy. But do not worry. Things are under control.

The elevator? It was in the Center for Disease Control and Prevention in Atlanta, where the president told the American people that the Ebola outbreak in West Africa is not a threat to our country. President Obama said the chances of Ebola appearing in the United States are “extremely low.” If a carrier somehow finds his way to the 50 states, “We have world-class facilities and professionals ready to respond. And we have effective surveillance mechanisms in place.” Two weeks later, as Byron York points out, the president was proven utterly wrong.

And he goes on with more examples. The upshot:

It is precisely the intersection of Ebola and globalization that worries me. The only response to a virus this deadly is to quarantine it. Stop flights, suspend visas, and beef up customs and security. It can be done. If the FAA can cancel flights to Israel, why can’t it cancel flights to and from the West African countries whence the outbreak originated?

Simple: because doing so would violate the sacred principles by which our bourgeois liberal elite operate. To deny an individual entry to the United States over fears of contamination would offend our elite’s sense of humanitarian cosmopolitanism. For them, “singling out” nations or cultures from which threats to the public health or safety of the United States originate is illegitimate. It “stigmatizes” those nations or cultures, it “shames” them, it makes them feel unequal. It’s judgmental. It suggests that America prefers her already existing citizens to others.

Such pieties endanger us. They are the reason we were slow to contain the influx of Central American refugees, the reason we do not follow-up on illegal immigrants who fail to show up for hearings, the reason we remain unable to strip jihadists of U.S. citizenship, the reason that a year after two Chechen refugees bombed the Boston Marathon, America is preparing to expand resettlement of Syrian refugees. The imperatives of the caste, the desire to make actual whatever is rattling around Tom Friedman’s brain at a given moment, take precedence over reality.

The system can withstand only so many shocks. For the last two years it has suffered nothing but blows, traumas, national and international concussions. The response by our government has been denial and delusion. But that has further alienated the public, and it won’t be long before things get really weird. Maybe it is time for the political class to panic, too.

Know hope? That’s passé.

Know fear.

He is right. Over and over our political class is falling short. We are proving again and a gain that our leaders simply aren’t up to the task of governing. My only question is what if they are doing it out of malice? I have been posing that question about Obama recently. I would say that at this point it is impossible to determine whether he is supremely incompetent or supremely malicious. It could be either of these, or both. But when they keep getting the same results from doing the same things, repeatedly and predictably, you have to ask if they are satisfied with the results that they are getting. The same is true of the political class as it is Obama himself. They insist on doing the same old same old, repeatedly, and they get the same piss poor results every time that they do it. It isn’t as though their policies have ever succeeded at bringing peace and prosperity to America. They always produce the same failures. Are our political elites somehow damaged intellectually, that they cannot see the results of their policies on every issue from gun control to foreign policy to the economy? Are they completely stupid? Even someone with mental handicaps is capable of recognizing when their actions produce negative results. They are (for the most part) capable of being self-critical, and of learning from their mistakes, and improving on the outcomes of their actions. Only the most severely mentally handicapped person is incapable of this (in my years in the restaurant industry I’ve worked with a number of developmentally handicapped people, and they have always shown the ability to do this). It is self-evident from their actions that either the Left must be incapable of this level of cognition (i;.e. rational and critical thinking), or they are acting with malice aforethought. You can’t necessarily prove which of these it is, but I ask you, if it were malice, what would they be doing differently than they are right now? I can’t think of much of anything. They do have to live in a world where they can only go so far openly, lest the LIVs catch on and vote them out of their offices, fire them from their jobs as academians, o r otherwise take steps to neutralize their malice.

Dhimmi Carter Birthday Wishes

by Macker ( 139 Comments › )
Filed under Anti-semitism, Democratic Party, Energy, Hamas, History, Inflation, Iran, Koran, Misery Index at October 2nd, 2014 - 6:00 pm

Happy Belated 90th Birthday to the WORST US President…of the 20th Century! Yes, James Earl Carter, Jr. is still kickin’…and it’s time for those of us on the Right Side to leave any type of Birthday Greeting to a forerunner of who we have now.
Think of all the things he’s responsible for: The Misery Index, stagflation, high unemployment, military emasculation, the Iranian Hostage Crisis…and that’s just for starters.
Have at it!

How the US government trashed the diesel fuel cost advantage

by 1389AD ( 105 Comments › )
Filed under Cars & Trucks, EPA, Food and Drink, Regulation at September 30th, 2014 - 8:00 am
Pain at the pump
Diesel or petrol, pain at the pump

I’m no Jay Leno but I do know a thing or two about motor vehicles, and a thing or three about tyranny, of which I have made a lifelong object of study. You shouldn’t need me to tell you that anything that raises the costs of road transportation also hamstrings the US economy, makes ordinary Americans poorer, strangles our liberty, and helps our enemies who are burdened by no such constraints.

I’ve owned both diesel and gasoline vehicles. Diesel was once the way to go when it came to saving money at the fuel pump. Diesel engines still outlast the gasoline variety and can deliver impressive power, but the US grabbermint deliberately wiped out the diesel fuel dollars-per-mile advantage.

Here’s how they did it:

Eric Peters: The Diesel Dilemma

The last time people began to sweat the cost of gas, they were able to turn to diesels. The cars delivered tremendous mileage (e.g., a VW Rabbit diesel was capable of 50-plus MPG, as good or better than a new Prius hybrid) and – perhaps as important – the fuel itself was cheaper than gasoline.

You may recall.

What happened?

Government.

Diesel fuel became more expensive than gasoline – because of government edicts that made it more rather than less expensive to refine. Today’s “ultra-low sulfur” diesel runs close to $4 a gallon in my neck of the Woods vs. just over $3 for a gallon of regular unleaded.

This cost-to-feed disparity takes a lot away from the economic argument in favor of buying a diesel-powered car. Especially given that modern diesel-powered cars – though excellent in many ways – are also a great deal less fuel-efficient than the diesel powered cars of the ’70s and ’80s (the era before government got around to hassling diesels to the extent that it had been hassling gas-powered cars). Engine design had to be altered; exhaust systems changed up. Almost all current-year diesel-powered passenger cars have particulate traps and “regeneration” (diesel fuel is injected into the exhaust to after-burn it for emissions control reasons; of course, fuel used to burn off soot is fuel not used to propel the car – and your mileage goes down).

Most (virtually all) current-year diesel-powered passenger cars also require something called Diesel Exhaust Fluid (DEF) to achieve compliance with emissions regs. That is, to placate the government (at your expense). The DEF – basically, urea (that is, piss) – is contained in a separate tank that must be regularly topped off. The DEF works kind of like a gas engine’s catalytic converter, chemically altering the composition of the exhaust stream.

Whether this is good or bad is ultimately neither here nor there as far as the consumer appeal of diesel-powered cars.

Historically, the primary reason for going with a diesel rather than a gas-engined car (all else being equal) was the prospect that the diesel would – hopefully – save you money.

Unfortunately, that’s less likely today than it was yesterday. Because of the higher cost of the fuel – and the lower fuel-efficiency of modern diesels.

Here’s an example:

I recently reviewed the 2014 VW Jetta TDI (see here). For a modern car – relative to other modern cars – it delivers excellent fuel economy: 30 MPG in city driving and 42 MPG on the highway. But back in 1979, a VW Rabbit diesel delivered 45 MPG … in citydriving.

And 57 on the highway.

See here, if you don’t believe me.

Now, granted, the ’79 Rabbit is (was) a smaller car than the ’14 Jetta. But the difference is startling nonetheless – because the Jetta has all the putative advantages of the intervening 40 years (almost) of technological advances.

Shouldn’t it deliver better economy than a Carter-era car?

Well, it could.

If VW were not forced to festoon its brilliant TDI (turbo direct injection) diesel with all the foregoing folderol. If the federal obsession with soot – aka “particulate” emissions – were not so fervid. And here it is important to point out that diesel emissions aredifferent. Particulates may be obnoxious to some, but they are not a factor in the formation of smog – the main justification for swaddling gas engines with a Hannibal Lecter-esque suit of “controls” to tamp them down.

Everything – like it or not – is ultimately a cost-benefit analysis. And frequently there is a conflict between one desired thing and another desired thing. In this case, the desire of the government to effectively curb tailpipe emissions of cars (both diesel and gas) to nil conflicts with the consumer’s desire for a fuel-efficient (to say nothing of affordable) vehicle.

And this is why – for the most part (the Jetta I reviewed being one of literally two exceptions) the diesel-powered cars available today are almost all high-end/expensive cars. The diesel engines available in vehicles like the Mercedes E-Class and the BMW 3 and 5 are touted as much for their performance as their economy – and of course, the cars they’re installed in are sold on the basis of luxury and status. These are the sweeteners that make so-so-efficient modern diesels more palatable to buyers.

But on the economy end of the scale, it is harder to make a sound case for a modern diesel-powered car. Even the thoroughly excellent Jetta TDI. It costs about $5k more than the base trim gas-engined Jetta. And then there’s the 50-75 cents more per gallon you pay at the pump. Sure, the TDI’s mileage is 10-plus MPG better than the gas-engined models. But $5k buys oceans of gas … and don’t forget the extra $8-10 or so more you’ll be paying at each fill-up, diesel vs. regular unleaded.

To sum up:

The proverbial low-hanging fruit was plucked decades ago. That is, on the order of 90 percent of the harmful (e.g., smog forming, respiratory distress-inducing) byproducts of internal combustion were “controlled” by the first simple – but very effective – emissions technologies, such as catalytic converters (for gas-engined vehicles). Since the ’90s, the government’s increasingly demented crusade has been to “control” the remaining fractional part of a vehicle’s exhaust output that is less-than-pure.

I italicize this for emphasis because it is not a literary or editorial flourish. It is the literal truth.  The government will push for – and impose – a new round of emissions rigmarole in order to “cut” what they will invariably describe as “harmful emissions” by half a percent. But they will tout this as a 50 percent reduction – which it technically is. Because if you reduce 1 percent by half you have reduced it by 50 percent. But “50 percent” sounds a helluva lot better, PR-wise, than “half of one percent.”

So, we end with pretty pricey diesels that are only so-so efficient – relative to what they should and easily could be.

Continue reading…

Mixing alcohol with gasoline

Governmental bodies and various private organizations harp endlessly on the dangers of, and legal penalties against, driving under the influence of ethyl alcohol. At the same time, the US government is doing all it can to force you to feed ethyl alcohol into your gasoline-powered engine! Problem is, ethyl alcohol damages equipment that is not purpose-built to use it as fuel. Gasoline adulterated with alcohol can destroy your car, your motorcycle, your aircraft, your boat, your power tools, your generator…you name it. Seems to me that this is a stealth method to force older vehicles and equipment into the junkyard.

Arguably, “gasohol” harms the environment, in that the energy cost of producing the corn (maize), distilling ethyl alcohol from it, and transporting it to the pump, exceeds its yield as a vehicular energy source.

Corn is food. It is especially suited as fuel for people and animals, not machines. It makes economic sense to use corn as animal feed and to consume corn directly as sweet corn, hominy grits, cornbread, tortillas, popcorn, you name it. Burning corn, or for that matter, any food, as substandard vehicle fuel raises food prices worldwide, making people go hungry who otherwise would not.

If you own an older car or motorcycle, or would like to buy one, you owe it to yourself to read this:

Eric Peters: Making Your Car (and Bike) Ethanol-Safe

Follow The Money

by coldwarrior ( 53 Comments › )
Filed under Economy, Energy, Marxism, Open thread, Progressives, Technology at September 23rd, 2014 - 8:00 am

Follow the money…always a good place to start:

 

What really drives anti-fracking zealots?

Author

By Paul DriessenSeptember 22, 2014 | Comments| Print friendly |

Recent news stories underscore the tremendous benefits brought by America’s fracking revolution.

  • The shale oil production boom could boost US crude production to 9.5 million barrels of oil per day (bopd) next year, reducing America’s crude oil imports to 21% of domestic demand, the lowest level since 1968. Output from fracked wells represents 43% of all US oil production and 67% of natural gas production; “frack oil” could hit 10 million bopd by 2016, the Energy Information Administration says.
  • The global economy saves $4.9 billion per day in oil spending because of the shale oil boom. Without it there would be a 3 million barrel per day shortfall and prices would likely be 55% higher: $150/barrel.
  • Constantly improving hydraulic fracturing technologies continue to increase production. For example, Cabot Oil & Gas refracked a 2013 Pennsylvania well, increasing its output to 30.3 million cubic feet of gas per day; that’s four times the output from the best well drilled in 2003. Fracking is even being used in decades-old onshore and offshore wells, to keep them producing for many more years.
  • Rust Belt cities and industries—from manufacturing, real estate and law to hotels, restaurants and many others—are rebounding because of drilling,fracking and production in nearby shale areas. In Ohio unemployment fell to 5.7% in July from 10.6% four years ago; oil output increased 26% just from the previous quarter, while gas production rose 31%—generating billions in state and local revenues.
  • The US oil and natural gas boom means jobs and business for almost 30,000 companies within the industry’s vast and complex supply chain. Indeed, the petroleum industry accounts for nearly 10 million jobs and almost 8% of all domestic economic activity, including states far from actual drilling activities.
  • The American Fuel & Petrochemical Manufacturers launched a new website to help veterans and other men and women find high-paying jobs in the booming oilfield, fuel and petrochemical industries.

Anti-fracking zealots: Follow the money—and the ideology

There are numerous other benefits, while the alleged risks are exaggerated or even fabricated. So what drives anti-fracking zealots who seem to materializeen masse whenever a new project is announced?

Follow the money—and the ideology. Big Green is big business. The US environmental activist industry alone is a $13.4-billion-a-year operation. It pours that money into determined campaigns to eliminate fossil fuels, gain ever greater control over our lives, reduce our living standards, and end free-enterprise capitalism. It drives its agenda with clever but phony crises: catastrophic climate change, unsustainable development, imminent resource depletion, poisonous frack chemicals and dozens of others.

Fracking obliterates its claim that we are about to run out of oil and gas—and so must slash our living standards, spend billions on crony-corporatist “renewable energy” schemes, and put radical green bureaucrats and activists in charge of our lives, livelihoods, living standards and remaining liberties. They are incensed that fracking guarantees a hydrocarbon renaissance and predominance for decades to come. They won’t even acknowledge that “frackgas” helps reduce (plant-fertilizing) carbon dioxide emissions.

Even √ºber wealthy celebrities get involved. Exaggerations and fabrications, confrontations and often callous disregard of other people’s needs are their stock in trade. In torrents of angry outrage and demands for totally one-sided precaution, they denounce any suggestion that fracking is safe or beneficial.

Whatever alternative technologies they support comply with their “precautionary principle.” Whatever they oppose violates it. They trumpet alleged risks of using fracking and hydrocarbon technologies, but ignore even the most obvious benefits of using them… and most obvious risks of not using them.

Anti-fracking zealots tend to be well-off, and largely clueless about the true sources of modern living standards. They assume electricity comes from wall sockets, food from grocery stores, iPhones from Apple Stores. You can count on one hand the farm, utility or factory workers they know personally.

They are dismissive about people who are jobless because of their war on affordable energy—and about poor rural New York families that are barely hanging onto their farms, unable to tap the Marcellus Shale riches beneath their land, because of an Albany and Manhattan-instigated moratorium.

They are equally uncaring about the world’s impoverished billions, whose hope for better lives depends on the reliable, affordable electricity that drilling and fracking can help bring. Worldwide, 1.4 billion people still do not have access to electricity including 300 million in India and 550 million in Africa. Millions die from lung and intestinal diseases that would largely disappear if they had electricity.

What the frack is wrong with this picture? This is not the same environmental movement that Ron Arnold, Patrick Moore and I belonged to decades ago. Big Green has become too rich, too powerful, too driven by perverse, inhumane notions of ethics, social responsibility and compassion. Their claims aboutethanol and wind power being environment-friendly are just as out of touch with reality.

Incessant claims that fracking contaminates groundwater and drinking water?

But what about their incessant claims that fracking contaminates groundwater and drinking water? Even EPA has not been able to cite a single “proven case where the fracking process itself has affected water.” A September 2013 report in the Proceedings of the National Academy of Sciences further confirms this. After carefully examining water wells in heavily fracked areas of Pennsylvania and Texas, researchers concluded that rare cases of methane (natural gas) contamination were not due to fracking.

Instead they resulted from improper cement and pipe installation near the surface, thousands of feet above the frack zone. The problem is covered by existing regulations and is preventable and relatively easy to correct. Petroleum industry and state officials are already collaborating to further strengthen the regulations where necessary, enforce them more vigorously, and improve well completion practices.

Moreover, some of the contamination resulted from water wells being drilled through rock formations that hold naturally occurring methane. Indeed, there have been very few cases of any contamination, out of more than one million wells hydraulically fractured since the first “frack job” was done in 1947, and out of 20,000 wells fracked in Pennsylvania since the Keystone State’s boom began in 2008.

Of course, none of this is likely to assuage anti-fracking factions or end their fictions. They are driven by motives that have nothing to do with protecting people’s health or environmental quality. In fact, what they advocate would further impair human health and environmental quality.

The great Irish statesman Edmund Burke could have been talking about these “fracktivists” when he said: “Because half a dozen grasshoppers make the field ring with their importunate chink, whilst thousands of great cattle… chew the cud and are silent, pray do not imagine that they are the only inhabitants of the field… or that they are other than little, shriveled, meager, though loud and troublesome, insects of the hour.”

Unfortunately, these definitely loud and troublesome insects have also grown powerful, meddlesome and effective. So fracking supporters must continue to battle the anti-energy ideologues—by becoming better community organizers and persuaders themselves, to counter the anti-fossil fuel lies and insanity, and the destructive policies, rules and moratoria imposed by ill-advised or ideological politicians and regulators.

We fracking supporters are clearly on the side of humanity, morality, true sustainability and real environmental progress. We also know that—no matter how hard eco-activists despise it and rail against it—they cannot put the fracking genie back in the bottle.

America and the world have awakened to its potential—and to the critical need for this technology. Let us applaud this incredible progress, and champion it throughout Europe, Asia, Africa and worldwide.

From this morning’s drudge:

GARBAGE MARCH FOR CLIMATE…

VIDEO: Dicaprio loses his hearing when asked about his yachts…

GOOGLE severs ties with conservative group over ‘climate change’ stance…

VIDEO: RFK Jr. refuses to give up cellphone, automobile to save planet…

Skeptics ‘should be in Hague’…

BASTARDI: ‘Nature, not man, rules climate system’…

Saturday Lecture Series: Ponzi Oil?

by coldwarrior ( 39 Comments › )
Filed under Academia, Energy, Environmentalism, Open thread, saturday lecture series, Science at September 20th, 2014 - 8:00 am

Good morning all! Today we are at the Blogmocracy Petroleum Institute and lumber yard. The lecture today is about Ponzi Scemes/Peak Oil/Gas and Fracking.

In a rapid change of tack, the left, the Luddites, are now screaming that the natural gas and fracking method of extracting is  a Ponzi Scheme. Interesting that they can’t see Social Security as such. This week we found out that any contamination of well water  is the result of cracked well pipe and not form fracking. Oh, and Fracking does not cause earthquakes either.

 

 The integrity of oil and gas wells

Public concerns about oil and natural gas extraction these days inevitably turn to hydraulic fracturing, where millions of gallons of water, sand, and chemicals are pumped underground at high pressures to crack open rocks. Hydraulic fracturing often occurs a mile or more down, far from the water we drink or the air we breathe. The focus for safety and environmental stewardship should often be somewhere else—nearer the surface—emphasizing risks from spills, wastewater disposal, and the integrity of oil and natural gas wells passing through drinking-water aquifers (1⇓⇓–4). In PNAS, Ingraffea et al. (5) examine one of these factors, well integrity, across the Marcellus region of Pennsylvania, using inspection records from the state Department of Environmental Protection (DEP).

In a technical sense, “well integrity” refers to the zonal isolation of liquids and gases from the target formation or from intermediate layers through which the well passes. In a practical sense, it means that a well doesn’t leak. Drilling companies emphasize well integrity because a faulty well is expensive to repair and, in the rarest of cases, costs lives, as in the Deepwater Horizon disaster in the Gulf of Mexico. Drillers use steel casing (pipes), cement between nested casings and between the outside casing and rock wall, and mechanical devices to keep fluids inside the well.

Faulty casing and cementing cause most well integrity problems. Steel casing can leak at the connections or corrode from acids. Cement can deteriorate with time too, but leaks also happen when cement shrinks, develops cracks or channels, or is lost into the surrounding rock when applied. If integrity fails, gases and liquids can leak out of the casing or, just as importantly, move into, up, and out of the well through faulty cement between the casing and the rock wall.

 

So how can the Luddites continue…easy, call it a Ponzi Scheme! Who are the science deniers now?

 

Is the Shale Revolution a ‘Ponzi Scheme’ or the End of Peak Oil?

“Ponzi scheme” or the end of Peak Oil?

 

Shale boomGWPFA lot of folks are fervently forecasting that shale gas and oil production is a bubble about to pop, possibly producing an economic collapse similar to the one in 2008. Earlier this week, the left-leaning Center for Research on Globalization in Montreal dismissed the shale revolution as a “Ponzi scheme” and “this decade’s version of the Dotcom bubble.” In a column last year for The Guardian, Nafeez Ahmed of the Institute for Policy Research and Development cited studies predicting that U.S. shale gas production will likely peak in 2015 and oil production in 2017. In a July 2013 report for the Club of Rome—the same folks who brought us 1972′s doom-mongering classic, The Limits to Growth—the University of Florence chemist Ugo Bardi declared that the “idea that a ‘gas revolution’ that will bring for us an age of abundance is rapidly fading” because “the data show that the gas bubble may be already bursting.” A month later, Richard Heinberg of the Post Carbon Institute said, “It turns out there are only a few ‘plays’ or geological formations in the US from which shale gas is being produced; in virtually all of them, except the Marcellus (in Pennsylvania and West Virginia), production rates are already either in plateau or decline.”

So was President Barack Obama wrong in 2012, when he claimed, “We have a supply of natural gas that can last America nearly 100 years”? Perhaps not.

The renaissance of oil and gas production in the United States has largely been the result of applying the technique of hydraulic fracturing (fracking), which releases vast quantities of hydrocarbons trapped in tight shale formations. The bubble theorists make much of the fact that production tends to drop more rapidly in fracked wells than in conventional ones, forcing the frackers to drill more holes just to keep up. They overlook the fact that drillers are working ever faster and cheaper and that newer wells tend to be more productive than earlier wells. How do we know this? Because the number of drill rigs has not increased in most shale fields, yet production continues to go up.

So what about Heinberg’s claim that “production rates are already either in plateau or decline”? He’s just wrong. The September drilling productivity report from the federal Energy Information Administration (EIA) notes that since 2013, that gas production is up in every one of the “plays” cited by Heinberg. Production in the Bakken region of North Dakota grew 8 percent; the Eagle Ford, Permian, and Haynesville regions in Texas increased 15, 7, and 97 percent, respectively; the Niobrara region in Wyoming and Colorado rose by 29 percent; and the Utica and Marcellus regions in Ohio, Pennsylvania, and West Virginia surged 142 and 47 percent. “We’ve been tracking this for 10 years, and recovery rates have gone up dramatically,” says EIA forecaster Philip Budzik.

Meanwhile, the EIA’s Annual Energy Outlook 2014 shows the potential U.S. oil and gas resource bases are increasing, not decreasing. Bubble forecasters insist those estimates are way off-base. They point to the EIA’s recent big flub when it came to estimating how much petroleum might be pumped from the Monterey shale formations in California. The agency initially prognosticated that as much as 13.7 billion barrels of oil might be produced, but it cut its estimate by 96 percent, to 600 million barrels, once it recognized the extraction challenges posed by the complicated geology of southern California. Whoops!

That’s bad, but in the scope of estimates it’s a blip, not a fatal error.

Back in 2000, the EIA Outlook report estimated that the U.S.’s technically recoverable petroleum resources were 124 billion barrels; it put natural gas resources at 1,111 trillion cubic feet (tcf). (“Technically recoverable” basically means that the resource can be extracted using current technology if the price is right.) Proved oil and natural gas reserves amounted to 22 billion barrels and 176 tcf, respectively. (“Proved” generally means the amount of resources that can be recovered from the deposit with a reasonable level of certainty.) When it came to shale and other tight rock formations, the 2000 report estimated that only 2 billion barrels of oil and 50 tcf of natural gas were technically recoverable. “Basically, in 2000 no one was even thinking that you could produce this stuff,” says Budzik.

How time and technological progress make fools of all prognosticators! The 2014 EIA Outlook estimates that the U.S.’s technically recoverable oil resources are 238 billion barrels and natural gas resources are 2,266 tcf. Proved U.S. petroleum reserves have increased from their 2009 nadir of 19 billion barrels to over 30 billion barrels, and proved natural gas reserves are at 334 tcf now. In other words, estimates of technically recoverable U.S. resources of both oil and gas have nearly doubled in the past 15 years. Proved oil reserves have increased 50 percent, while proved gas reserves have also nearly doubled. Technically recoverable resources from shale and other tight rocks is now estimated to be 59 billion barrels of crude and 903 tcf of gas—a 30-fold and 18-fold increase, respectively, over the 2000 assessments.

Take the figure of 2,266 tcf of natural gas. Last year, Americans burned through 26 tcf of natural gas. At that rate, the estimated resource would last 87 years. Not the 100 years claimed by the president, but close enough for government work.

While EIA reserve and resource estimates have been trending steeply upward over the past decade and half, the agency tries to take into account uncertainties by sketching out scenarios to 2040 in which domestic oil and gas supplies are either 50 percent higher or lower than its reference case. Production of shale gas and oil is the key difference in the scenarios. In the high supply case, technically recoverable crude and gas plus proved reserves amount to 431 billion barrels and 3,683 tcf. Consequently, domestic oil production rises to 13 million barrels per day before 2035 and imports decline to near zero. Tight oil production peaks at 8.5 million barrels per day in 2035 compared to the reference case peak of 4.8 million barrels in 2021. Cumulative tight oil production reaches 75 billion barrels, up from 44 billion in the reference case.

In the low supply scenario, crude oil totals 210 barrels and gas totals 1,814 tcf; oil production reaches 9.1 million barrels per day in 2017 and then slowly falls to 6.6 million barrels per day in 2040. Tight oil production peaks in 2016 at 4.3 million barrels per day with a cumulative production of 34 billion barrels. Interestingly, the difference in price in the high and low supply scenarios is only $20 per barrel—$125 versus $145 (using 2012 dollars) in 2040.

The shale bubble proponents essentially are betting on the EIA low production scenario. They will be proven right if shale oil production does peak in the next year or two. We shall soon see. “The history of the industry is that we are always running out,” says Budzik. “So long as we have a well functioning economic system that allows the price mechanism to adjust and encourages innovation we will see the resource base grow rather than diminish.” Rising prices at the beginning of the 21st century did, in fact, promote more exploration and faster technological progress, resulting in the shale revolution the U.S. is currently enjoying. If this dynamic is not unduly hampered, it’s a good bet that the prophets of bubble-bursting doom are wrong yet again.

The LEGO Movie: Emergent order wins, centralized planning fails

by 1389AD ( 121 Comments › )
Filed under Communism, Economy, Fascism, Hipsters, Movies, Regulation, taxation at September 9th, 2014 - 5:00 pm

EconPop – The Economics of The LEGO Movie

Published on Jul 29, 2014 by Econ Stories
All new episode! Click to share: http://ctt.ec/myUJ0

In this episode of EconPop, Andrew discusses the animated hit comedy The LEGO Movie. Subjects include emergent order, creative destruction, and central planning.

EconPop is the YouTube series that sifts through the haystack of popular culture to find the needle of economics within… and then stabs you with it!

Starring comedian Andrew Heaton, EconPop takes a surprisingly deep look at the economic themes running through classic films, new releases, tv shows and more from the best of pop culture and entertainment. Heaton brings a unique mix of dry wit and whimsy to bear on the dismal science of economics and the result is always entertaining, educational and irreverent. It’s Econ 101 meets At The Movies, with a dash of Monty Python.

A Production of http://emergentorder.com

Produced in Association with The Moving Picture Institute. http://thempi.org

The Myths Of Minimum Wage

by Bunk X ( 42 Comments › )
Filed under Communism, Economy, Fascism, Liberal Fascism, Politics, Progressives, Socialism, unemployment at September 7th, 2014 - 12:29 am

Minimum Wage graph Poverty Level BS

My eyes glazed over when I saw that graphic, because there are no numbers or statistics to back up that arbitrary wiggly line and its specious claim. It’s pure socialist propaganda. Ready for some unadulterated reality?

According to the U.S. Bureau of Labor and Statistics, 1979-2012 minimum wage jobs comprise an average of about 60% of all hourly jobs for any given year, but guess what percentage of workers over the age of 16 make minimum wage or less?

In 2012 a whopping 4.7 per cent of the working population above the age of 16 earned at or below minimum wage nation-wide. In California, only 1.4 per cent.

[Source: www.bls.gov/opub/ted/2013/ted 20130325]

Why such a small percentage? Because the majority of those workers are in transition to better jobs, better pay, and the minimum wage jobs have an unsurprisingly high turnover rate. Who wants to scrub pots at Denny’s for the rest of their life, let alone for more than a year?

Which industries employ the majority of minimum wage earners?

Minimum Wage Bar Chart by Industry

[Source: www.bls.gov/opub/ted/2013/ted_20130325 ]

Agriculture is relatively insignificant, especially once you combine the Service/Retail percentages, and note that the Federal Government employs very few minimum wage earners.

Now let’s look at the make up of the minimum wage workforce, the nebulous 4.7 percent.

2013 Census Table 7

[Source http://www.bls.gov/cps/minwage2012tbls.htm#7]

Now let’s examine the age makeup of the 4.7 percent who make minimum wage or less.

Minimum Wage graph 1 ALL

Note that many workers in restaurants and hotels (waiters, waitresses, busboys, bellhops, etc.) often receive less than minimum wage, as they’re expected to make up the rest in tips. Tips account for a large percentage of income and workers typically earn more than minimum wage, sometimes a lot more in upscale venues. Since tips are un-monitored cash transactions, much of that income goes unreported. Let’s break it down a tad further.

The prevailing federal minimum wage in 1979 was $2.90, $3.10 in 1980, and $3.35 in 1981-89. The minimum wage rose to $3.80 on April 1, 1990, to $4.25 on April 1, 1991, to $4.75 on October 1, 1996, to $5.15 on September 1, 1997, to $5.85 on July 24, 2007, to $6.55 on July 24, 2008, and to $7.25 on July 24, 2009. When I checked Minimum Wage Job Numbers and correlated them with Minimum Wage Increases I found none, which suggests that employers covered the increased overhead with higher prices for goods and services in order to stay in business, and the costs were passed down to the consumer. The low income population takes another hit.

Minimum Wage graph 3 PCT Men and Women

Blue is for boys, pink is for girls. Statistics are not sexist.

I’m not an economist, and I’m also not a CPA, but I suspect the IRS gets something out of this scenario because the basic illogic of raising the minimum wage, especially in a sluggish economy, escapes me.

Who else benefits? Union leaders, long-march socialists and politicians whoring for votes.

Aside from the fact that the majority of the poor do not remain poor indefinitely (any more than the majority of the wealthy stay wealthy) raising the minimum wage gives people an incentive not to advance. If a worker finds that minimum wage meets or surpasses his/her current expenses, why not ride with it a few more years? The problem with that scenario is that the worker is not improving his/her resumé for those valuable “few years,” and by the time they realize it, they are years behind those who abandon minimum wage jobs, pick up new valuable skills, and naturally earn more. Those who choose to remain in low-skilled positions deny recent graduates the opportunity to find work, and the ladder to prosperity becomes stagnant.

Another scenario is of a family who needs a secondary income to give them a financial cushion during the expensive child-rearing years; or perhaps an elderly couple may not have saved enough for their retirement because their investments tanked; or simply because they choose not to retire.

Wage and price control is a socialist/fascist concept that has never worked because it creates more problems than it solves, and the problems it attempts to solve are non-existent in the free market. Pay a worker for the value of his/her work, and if there aren’t enough workers for the job, then you’re paying too little. Nobody wants to be a buck an hour pot scrubber for the rest of their life, but we’re still talking about only 4.7 percent of the working population, and most of those workers are moving up the ladder uninhibited.

There is also a macro-scenario that has to do with illegal immigrants and the Cloward-Piven Strategy that aims to overwhelm a stable government with free services provided and paid for by successful corporations, entrepreneurs and the common man, fomenting economic collapse and allowing Socialism/Communism/Fascism to prevail.

This road has always led to mass murder, without exception.

May God help our children and grandchildren if the progressives succeed.

Bunk