Martin Weiss on how a crash unfolds and how to protect yourself

Posted on May 1, 2014 by

A massive default on debt servicing and obligations by states and localities will trigger a run on the banks.

The credit inflation that has been growing over the last two decades will reverse in a nano-second and leave people who have money in the market, CDs, bonds, and savings accounts with nothing.

The FDIC, the Fed and the Treasury Department will be unable to stop the bleeding.

We will see rationing, price fixing, wage controls, seizures, mandates and nationalizations.

No solution that I can see

Massive cuts in spending will reduce the money flowing into the economy, which will result in less government revenue. This, in turn, will lower the vitality of the economy and lead to greater deficits.

If we cut spending, we may have deflation with all the bad consequences.

If the federal government continues to print money and gives that money to the states, we will have higher interest rates, which will wreck the housing market or what’s left of it, with another banking crisis. Checkmate.

How Bad Could It Get? Consider This Possible Sequence of Events

1) A state or major city announces that it is unable to pay the yield on its bonds.

2) Panic grips the entire bond market.

3) Investors dump nearly ALL tax-exempt instruments.

4) Scores of other cities and states find it impossible to refinance their debt or sell new bonds without offering sky-high, double-digit yields.

5) Many MORE defaults follow.

6) The U.S. dollar folds like a cheap suit.

7) Interest rates launch into double digits.

8) Soaring interest rates hit America’s businesses like a ton of bricks.

9) Earnings crater — and along with them, stock prices.

10) Dozens of government entities declare states of emergency and demand billions of dollars in immediate bailouts from Washington.

What Happens Next?

Will our new, fiscally conservative Congress surrender to political pressure and save the states and cities? Or will it surrender their principles to these realities and step into the gap?

Consider the latest news …

  • Late last week, Fed Chairman Bernanke formally declared that the Federal Reserve cannot and WILL not bail out the local governments.
  • At the same time, the new Republican leadership in Congress has also drawn a line in the sand, foreswearing any bailouts of cities and states.

Moreover, this is not just political posturing. Far from it! These pronouncements reflect the inescapable fact that Washington has truly exhausted the political will to embark on a whole new round of bailouts.

What If Washington DOES Decide to Pile Up Billions More in Federal Debt To Save the States and Cities?

Then, the question will be an even MORE ominous one: WHO IS GOING TO SAVE WASHINGTON when the next shoe in this great debt crisis — the implosion of federal debt — drops?

Could it happen?

“NO!” say Standard & Poor’s and Moody’s — the two bond rating agencies that got everything wrong in the housing collapse.

My answer is quite different: The federal day of reckoning is ALSO imminent!

That time could come a lot sooner than you might think …

  • No more papering over the debt monster with phony-baloney accounting tricks!
  • No more borrowing from Peter to pay Paul!
  • No more time for the United States of America to stay on the dole from overseas creditors like China and Japan!

Look. Regardless of what happens on a federal level, it’s only a matter of a short time before news of the first city and state defaults explodes into the headlines — and then, it could be too late for you to protect your wealth.

Social Chaos

Russia: The country’s bonds collapsed in value; interest rates exploded to over 200%. In just 6 months, its stock market plunged 75%. The common people suffered tremendously: A staggering 60% of the workforce was paid only partially and received their paychecks months after they were due. As the economy imploded, millions of average citizens fell victim to crime and corruption. The police demanded bribes for traffic violations, whether real or imagined. Public officials lined their own pockets with the people’s money. Organized crime syndicates divvied up the country into their own private fiefdoms, profiting from protection rackets, prostitution, smuggling, narcotics-peddling and even murder for hire. The government itself admitted that the criminals owned or controlled about half of the country’s private businesses. “Many banks, including some of the largest in the country, shut down. They closed their doors forever. Our savings were wiped out. “All people could do about it was to go to their banks and hammer on locked doors. Other people demonstrated on the streets. They carried their devalued money in miniature coffins and marched past our central bank. “The government didn’t even have enough money to pay the military. So hundreds of thousands of soldiers were broke and many used their skills to resort to crime.

Ireland. Just a few years ago, its economy was booming. Banks loaned people money hand over fist to finance homes, cars — all the joys of modern life. Then, the bubble burst. Real estate values crashed. Mortgage defaults and bank foreclosures soared. Suddenly, the banks had lost billions of euros and were in danger of failure. So, just as in the U.S., the Irish government stepped in and bailed out the banks. And soon, it was the government itself — not just the banks — that was in danger of going under. In May of 2010, with Dublin on the verge of defaulting on its debts, Europe rode to its rescue with a $140 billion bailout. But now, the Irish people are living under crushing austerity measures. Countless jobs have been wiped out; the official unemployment rate is 15%. Salaries have been cut to the bone; pensions and health benefits have been slashed.

Spain: Madrid, Barcelona and 53 more cities, where tens of thousands of workers have taken to the streets to protest a problem they thought they’d NEVER see again in their lifetime: Not just 10 percent official unemployment like we’ve recently seen in the U.S. — but 21 percent official unemployment! A Spanish friend of mine says:  “You wouldn’t believe what I’m seeing here on the streets of Madrid. In big central squares like Plaza Mayor, or even in small, picturesque ones like Plaza de la Villa, it seems beggars outnumber tourists and protesters outnumber beggars.

On December 7, 2001, the Argentinean government announced it would seize $2.3 billion of retirement savings by forcing private pension funds to transfer money to a state bank in exchange for Treasury bills. The move came after depositors withdrew $1.3 billion from their banks, fearing Argentina would devalue the peso. Of course, economic turmoil ensued. Capital flows into the country dried up. Government officials ordered foreign exchange dealers to sell dollars only at the official rate. Over the coming months, the chaos gutted the purchasing power of the Argentinean peso — and the retirement savings seized by the government — by 75%.

Think that can’t happen in the United States? Think again.

The U.S. Government is considering a law that compels retirees to buy annuities for retirement by forcing them in their retirement plans to buying low yielding Treasuries or the same maturity dates as needed for withdrawal.  For years the Obama Administration has seriously considered government-created “guaranteed retirement accounts.” The plan would force employers to enroll employees (unless they opt out) in an account where the government pays a 3% fixed interest rates. Compared to an 8% return for a traditional 401(k) (very possible if you choose the right investments), let’s see how this Obama 401(k) plan stacks up. The latest plan defers taxes at either $20,000 or 20% of your income, whichever is lower.

My comment

So now you are supposed to pay money to find out how to protect yourself, but no need: you can read my book review of Martin Weiss’s Ultimate Depression.

The problem with Weiss, who I greatly admire and trust, is that he is not a systems ecologist, and like most people brainwashed by classical economics, ignores energy and natural resources, which are why the economy will be crashing, even if it seems solely financial.

I think there has to be deflation first to knock the debt down.  Since the only way to protect yourself in a deflation is real goods, you risk losing everything if you buy a house with arable land now, because after the crash homes will only be worth what people can afford with cash, since credit will dry up.  But if you wait too long within the deflationary phase, people may not be selling their homes at all for what they perceive as too little cash.  Most people have been brainwashed into thinking that we will get the economy growing again at some point (but since peak oil = end of growth, that ain’t gonna happen).  Until that hope is dashed, there might be very little real estate to buy.  I don’t know….  You have to walk a very fine tightrope through the wildly fluctuating cascading failures ahead, which eventually might involve inflation, sovereign default, and currency collapse.

If you can afford a home now in an area I recommend in other posts, with enough savings to pay the mortgage until it ends and not hoping that you’ll find renters who still have jobs to rent a room, then by all means do so now.

But meanwhile, buy real goods.  After a financial crash lots of companies will go bankrupt due to insufficient cash flow [and available credit] to service their debts, so you won’t be able to buy stuff like a small backpacking stove and cans of fuel, a 3rd world stove that needs hardly any twigs to cook with, since wood will run out quickly once people are forced to cut down forests to cook and heat with, a year of food (especially grains and legumes), a flour mill so you can grind these grains and high protein legumes and field corn.  Then you can make the flour into pancakes that cook in minutes and sell or barter them for other essential goods.  Plus there are many other items recommended in other posts about this topic.

After the die-off there will be plenty of free empty homes, but Turchin writes that the crisis phase often lasts for 20 years, and there are many ways in which the United States can cope for at least a decade or even longer in the best areas if mass migrations can be prevented, such as rationing oil to agriculture and delivery trucks, central breadlines in towns and cities so that lots of food is cooked for lots of people with the minimal amount of energy needed — everyone cooking at home is wasteful, etc.

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Electric Grid Energy Storage

Posted on April 30, 2014 by

Storing electricity

Electricity can’t be stored. It has to be converted to something else.   Nearly all of the electric grid storage (95%) comes from pumping water up to a reservoir so the water can fall again and generate electricity. But dams have a finite lifetime just like fossil fuels – they silt up within 50 to 200 years, and there aren’t many places to build more dams.  Second most common is compressed air storage, but that is also geographically limited to areas with suitable underground caverns.

The electric grid can  handle at best 30% of intermittent energy resources like wind and solar before the grid becomes too unstable — it’s so fragile that it needs to be kept within 2% of 60 Hz. There’s no safety net, what keeps the electric grid from falling off the wire into cascading failures is the stability provided by Natural Gas Combined Cycle (NGCC) plants that kick in when the wind dies or the sun sets, and the constant hum of coal and nuclear power plants that provide 24 x 7 baseline power.

The irony is that the more wind and solar you add, the more NGCC plants you need to add for stability.

The Los Angeles Times (Halper) reports that wind and solar are making the  grid less stable because:

  • The role of the grid is to keep the supply of power steady and predictable. Engineers carefully calibrate how much juice to feed into the system as everything from porch lights to factory machines are switched on and off which requires painstaking precision. A momentary overload can crash the system.
  • Energy officials worry about the stability of the massive patchwork of wires, substations and algorithms that keeps electricity flowing.
  • “The grid was not built for renewables,” according to Trieu Mai, senior analyst at the National Renewable Energy Laboratory.

Meanwhile, the electric grid is falling apart

Seventy percent of transmission lines and power transformers are over 25 years old, and 60% of circuit breakers are more than 30 years old (Fitch).  The American Society of Civil Engineers gave the electric grid a D+ in their 2013 report card. The Pew Center said “In short, the present U.S. electric grid will not work on any scale–local, state, national or international—at the higher loads and more diverse generation sources required in the future.”

Nuclear power (19%) and fossil fuels keep the lights burning (coal 40% & natural gas 27.5%).  The maximum amount of electricity we can store is only 2.3% of the total 25 GW electric production capacity.

The Current State of Energy Storage (GES)

So of course if we keep adding more NGCC plants we’re not lessening our need for fossil fuels.  We need to store energy if we’re to wean ourselves off of them.  But we’re still a long way from figuring out how to make low cost, high energy density, fast response, safe storage devices.

Electric Grid Energy Storage Options Peter Singer

Source: Peter Singer. 2011. Energy Storage Crucial Step for Renewable Electricity, Says APS. EnergyStorageTrends.Blogspot.com.

Pumped Hydro: 1) Geographically limited 2) Environmental impacts 3) High overall project cost

Flywheels:  1) Rotor tensile strength limitations 2) Limited energy storage time due to high frictional losses (1-2 hours).

Flywheels spin at very high speeds, up to 20,000 rpm, which makes them very unsafe when fragments of a broken flywheel spin off.  for safety, they’d need to go underground (or expensive thick-walled enclosure), which greatly increases their cost.

Superconductive magnetic energy storage: 1) Low energy density 2) Material and manufacturing cost prohibitive

Electrochemical capacitors: Currently cost prohibitive

Thermochemical energy storage: Currently cost prohibitive

Compressed Air Storage:  1) Geographically limited and a lack of suitable caverns, 2) Lower efficiency due to round-trip conversion, 3) Slower response time than flywheels or batteries, 4) Environmental impact

Batteries

There are many issues, see “Why Killed the Electric Car” for details.  But the deal killer is the cost –$100-200/kWh — at least as expensive as generating electricity.  And scale: the energy density of batteries is so low that you’d need a LOT of batteries, and the the billions of tons of materials to make them would likely exceed known mineral reserves and drive the cost of batteries even higher, with dire environmental consequences if their cadmium, lead, nickel, and so on were released (Pew).

There is significant uncertainty about the usable life of batteries, and concerns about their safety as well.

It takes a long time to bring a battery to market. The sodium–sulfur battery, conceived by the Ford Motor Company back in 1967 was finally commercialized over 40 years later (Whittingham).

Lead Acid: 1) Limited depth of discharge 2) Low energy density 3) Large footprint 4) Electrode corrosion limits useful life

NaS: 1) Operating Temperature required between 250°-300° C (482°-572° F)   2) Liquid containment issues corrosion and brittle glass seals

Li-ion: 1) High production cost – scalability 2) Extremely sensitive to over temperature, overcharge and internal pressure buildup 3) Intolerance to deep discharges

Flow: 1) Developing technology, not mature for commercial scale development 2) Complicated design 3) Lower energy density

Too complicated?

One of the main reasons societies collapse is they grow too complex (Tainter).  Not only is each of these storage devices complex, we need a dozen different kinds of energy storage to meet the different needs of the complicated electric grid:

1) Off-to-on-peak intermittent shifting and firming. Charge at the site of off peak renewable and/ or intermittent energy sources; discharge energy into the grid during on peak periods.
2) On-peak intermittent energy smoothing and shaping. Charge/discharge seconds to minutes to smooth intermittent generation and/or charge/discharge minutes to hours to shape energy profile
3) Ancillary service provision. Provide ancillary service capacity in day ahead markets and respond to ISO signaling in real time.
4) Black start provision. Unit sits fully charged, discharging when black start capability is required.
5) Transmission infrastructure. Use an energy storage device to defer upgrades in transmission
6) Distribution infrastructure. Use an energy storage device to defer upgrades in distribution
7) Transportable distribution-level outage mitigation. Use a transportable storage unit to provide supplemental power to end users during outages due to short term distribution overload situations
8) Peak load shifting downstream of distribution system. Charge device during off peak downstream of the distribution system below secondary transformer); discharge during 2-4 hour daily peek
9) Intermittent distributed generation integration. Charge/Discharge device to balance local energy use with generation. Sited between the distributed and generation and distribution grid to defer otherwise necessary distribution infrastructure upgrades
10) End-user time-of-use rate optimization. Charge device when retail TOU prices are low and discharge when prices are high
11) Uninterruptible power supply. End user deploys energy storage to improve power quality and /or provide back up power during outages
12) Micro grid formation. Energy storage is deployed in conjunction with local generation to separate from the grid, creating an islanded micro-grid

References

(BES) Basic Research Needs for Electrical Energy Storage. 2007. Report of the Basic Energy Sciences workshop on electrical energy storage.

EIA. Table 1.1. Net Generation by Energy Source: Total (All Sectors), 2004-February 2014. U.S. Energy Information Administration.

Fitch Ratings, “Frayed Wires: US Tr ansmission System Shows Its Age,” 2006

Friedemann, A. 2014. Electric Grid Overview.  www.energyskeptic.com

Fridley, David. 2010. Electric Energy challenges. Post Carbon Institute.

GES. December 2013. Grid Energy Storage. U.S. Department of Energy.

Halper, E. Dec 2, 2013.   Power struggle: Green energy versus a grid that’s not ready. Los Angeles Times.

Pew Center. 2004. The 10-50 solution. Technologies and Policies for a Low-Carbon future. The National Commission on Energy Policy.

Whittingham, M. S. April 2008. Materials Challenges Facing Electrical Energy Storage. Harnessing Materials for Energy  www.mrs.org/bulletin vol 33.

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Technology Won’t Save Us

Posted on April 30, 2014 by

Too many science fiction books, movies, comic books, Landing on the Moon, the Manhattan Project, and Happy Endings have  created an unspoken certainty that a hero will arrive before aliens can destroy the Earth and that alternative energy will allow us to continue devouring the planet with hardly a hiccup.

But consider these energy predictions that didn’t come true:

1945. Oak Ridge National Laboratory nuclear physicists Weinberg and Soodak predict that nuclear breeders will be man’s ultimate energy source; a decade later, the chairman of the US Atomic Energy Commission predict it would be “too cheap to meter

1973. “Let this be our national goal: At the end of this decade, in the year 1980, the United States will not be dependent on any other country for the energy we need to provide our jobs, to heat our homes, and to keep our transportation moving.” Richard Nixon

1978. “Through modeling of supply and demand for over 200 US utilities it was projected that, by the year 2000, almost 60% of US cars could be electrified, and that only 17% of the recharging power would come from petroleum.

1979. An influential Harvard Business School study projects that by 2000, the US could satisfy 20% of its energy needs through solar

1980. Physicist Bent Sorenson predicts that 49% of America’s energy could come from renewable sources by the year 2005

1994. Hypercar Center established, whose lightweight material and design would yield 200 mpg cars with a 95% decline in pollution

1994. InterTechnology Corporation predicts that solar energy would supply 36% of America’s industrial process heat by 2000

1995. Energy consultant and physicist Alfred Cavallo projects that wind could have a capacity factor of 60%, which when combined with compressed air storage, would rise to 70 – 95%3

1999. US Department of Energy hopes to sequester 1 billion tonnes of carbon per year by 2025

2000. Fuel cell companies announce 250-kilowatt production plants that can fit into a conference room and produce energy at 10 cents per kilowatt hour, with the goal of 6 cents by 2003

2008. “Today I challenge our nation to commit to producing 100% of our electricity from renewable energy and truly clean carbon-free sources within 10 years. This goal is achievable, affordable and transformative.” Al Gore

2009. Gene scientist Craig Venter announces plans to develop next-generation biofuels from algae in a partnership with Exxon Mobil

How have things turned out?

There are no commercial nuclear breeders on anyone’s horizon; global nuclear capacity is only 20% of the Atomic Energy Agency’s 1970 forecast; the Hypercar is nowhere to be seen; solar and wind make up a miniscule portion of US electricity generation; wind capacity factors range from 20%-30%; the US is reliant for 50% of its oil from foreign sources; 70% of US electricity generation comes from coal and natural gas; fuel cells haven’t worked as expected; hybrids are 2% of US car sales; “clean coal” is mostly a blueprint; and Venter announced that his team failed to find naturally occurring algae that can be converted into commercial-scale biofuel (they will now work with synthetic strains instead).

Cembalest, Michael. 21 Nov 2011. Eye on the Market: The quixotic search for energy solutions. J. P. Morgan

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Drowning in digits: National, Unfunded Liabilities, State, and Derivative Debt

Posted on April 26, 2014 by

Just about everyone I know believes in the permanence of the Dollar, the Eternal Supremacy of the United States, and the propaganda to constantly grow their money by taking risks. So they dutifully feed hard-earned wages into the voracious slot machine of Wall Street, despite the rot of the system revealed after the financial meltdown and the continuing fraud and corruption afterwards, as if nothing had happened.

Meanwhile, imaginary digits of currency propagate and grow heavy in computer systems, compressing into a digital critical mass ready to explode. Although the $18.77 Trillion of “Official” United States Treasury National Debt seems huge, it’s a dust mote in the eye of Unfunded Liabilities:

$100.4 trillion (US unfunded liabilities (GAAP)), $840,063 liability per taxpayer

$66 trillion (U.S. total debt) USDebtClock.org. Total Debt per US citizen: $205,228

$205,000,000,000,000  Congressional Budget Office (CBO) Alternative Fiscal  Scenario (AFS). Debt per citizen: $644,785.

$53,761 personal debt per citizen ($940 billion credit card, $1.3 trillion student loan debt, $13.76 trillion mortgage)

$492.3 trillion in currency and credit derivatives (2015)

$6.7 trillion: U.S. debt held by other countries

Professor of Economics Laurence Kitlikoff at Boston University, and author of The Coming Generational Storm: What You Need to Know About America’s Future, said the CBO figure of $205 trillion is more realistic, because it includes government commitments and obligations that aren’t counted as debt, but should be, “such as paying for your social security benefits, mine, or your mother’s Medicare benefits, defense spending, etc. All of these things are obligations that aren’t recorded on the books as debt, whereas paying off future principal and interest payments on Treasury bills and bonds are recorded. If you take the value of all of those commitments and subtract all the taxes coming to pay those commitments, the difference is what’s called the fiscal gap; and that fiscal gap in the U.S. is now $205 trillion. Most of the problems we’re facing and most of the debt we have is off the books and Congress has done bookkeeping to make sure the public doesn’t see it”.

When asked why this wasn’t well known, Kotlikoff replied “The Clinton administration put out the fiscal gap studies for a couple of years and then the Clinton administration censored it. President Bush’s Treasury Secretary O’Neil wanted us to do a fiscal gap accounting for the President’s budget in 2003 but was fired December 7, 2002, and that study was censored two days after he was fired. So, this is not accidental. This is more or less a conspiracy to hide the truth to keep ourselves and our kids in the dark about what the politicians are really doing, which is trying to garner the votes of older people and then get reelected and leave a bigger mess for our kids to handle.”

Kitlikoff argues this can’t go on. There are 4 payees for every beneficiary now. By 2030 there’ll be 2 payees for every beneficiary. That’s obviously not sustainable.

There are so many other debts as well: Personal $16,500,000,000,000 Mortgage $13,300,000,000,000  Student Loans $1,150,000,000,000 and Credit Cards $850,000,000,000.

State level debt. California alone has $354,500,000,000 in unfunded retirement benefits and $132,000,000,000 in other debt.

Plus, if we want to keep civilization in the United States going, there’s $3,600,000,000,000 of maintenance needed on our infrastructure by 2020 according the 2013 American Society of Civil Engineers Report Card.

If you have been brainwashed by libertarianism, capitalism, by classical economics and business “news”, then there’s no need to worry. Every political party, whether Democrat, Republican, or Tea, agrees we can grow our way out of the problem and reduce the dizzying digits of debt.

But if you are both [systems] ecologically and energy literate, it’s hard to understand how anyone could think money, rather than energy, was the engine of growth.

Civilization as we know it, and recent Globalization, happened because oil-fueled container ships carry 90% of all cargo and oil-fueled trucks and trains deliver containers to stores where oil-fueled cars pick the goods up.

Yet so many, even scientists who should know better, collectively hallucinate electric schemes to keep the dream going, as if feeble and intermittent wind and sun or fusion and fission fantasies could crush rocks into concrete, forge steel, smelt iron ore, power thousand foot long ships across the ocean, and keep the growing digits of debt from overwhelming the future.

When the oil crunch hits, the digits will explode, and all of us will say goodbye to more and more of our beloved energy slaves every day, until 90% of survivors till the earth again.

Alice Friedemann

www.energyskeptic.com

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Tom Whipple on how the energy crisis might unfold

Posted on April 25, 2014 by

The Peak Oil Crisis: An Announcement

June 1, 2011. FNPC.com

There are far too many people in nearly every country of the world that are dependent on a very complex supply chain to bring them the necessities of modern life – food, shelter, clothing, medicine, education, and some form of entertainment and recreation – to make a return to 19th century practicable.

There are simply too many people and not enough arable land left in the world.

This implies that for the coming decades, the best solution for the world’s peoples is to shelter-in-place.

While there may be limited opportunities to migrate, these will become increasingly difficult to find. Oil-fueled transportation will become expensive and governments will be taking whatever measures are necessary to stem unauthorized cross-border migrations.

Some intra-country movement will have to take place as regions become uninhabitable for most due to climate change.

This raises the key issue of the next few decades – What will be the role of government in holding society together during the transition to the post carbon age? A corollary issue will be how well current systems of finance, industrial organization and capital formation will function during what is likely to be a prolonged period of economic decline as fossil fuels and then many other resources become scarcer and much more expensive.

As people naturally prefer to stay with accustomed life styles and ways of doing things as long as possible, there will inevitably be a period of political controversy between those who have come to recognize that major changes in our civilization must take place if society is to survive in a recognizable fashion and those who will cling to the familiar until overcome by events. Indeed, the opening rounds of this debate have likely started already in the controversies over global warming, jobs, taxes, deficits, and sovereign debts.

In the United States a great political debate is taking place on 20th century terms with discussion focused on reviving economic growth, cutting federal deficits, and stimulating spending. In the 21st century, an era of depleting resources, much of this debate is no longer relevant. Efforts to create jobs in traditional ways in what will soon be a steadily contracting economy will need to be rethought and new ways of creating new kinds of jobs will be necessary to keep complex societies functioning. Whether the lead will be taken by free enterprise or will fall to governments by default is yet to be seen.

There will be many other issues besides the creation of jobs, and supplying goods and services in the coming transition. Some of these issues are not yet apparent and some will not be recognized for years.

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Oil Crunch 2015: UK Industry Task force on Peak Oil & Energy Security (ITPOES)

Posted on April 25, 2014 by

Ahmed, N.  28 Mar 2014. Ex govt adviser: “global market shock” from “oil crash” could hit in 2015. The Guardian.

Former oil geologist Dr. Jeremy Leggett, identified 5 “global systemic risks (oil depletion, carbon emissions, carbon assets, shale gas, and the financial sector) directly connected to energy” which, he says, together “threaten capital markets and hence the global economy” in a way that could trigger a global crash sometime between 2015 and 2020. Leggett warns that a wide range of experts and insiders “from diverse sectors spanning academia, industry, the military and the oil industry itself, including the International Energy Agency” are expecting an oil crunch most likely from 2015 to 2020.  If we are correct, and nothing is done to soften the landing, the twenty-first century is almost certainly heading for a depression.”

Leggett also highlights the risk of parallel developments in the financial sector: “Growing numbers of financial experts are warning that failure to rein in the financial sector in the aftermath of the financial crash of 2008 makes a second crash almost inevitable.”

Leggett points to an expanding body of evidence that what he calls “the incumbency” – “most of the oil and gas industries, their financiers, and their supporters and defenders in public service” – have deliberately exaggerated the quantity of fossil fuel reserves, and the industry’s capacity to exploit them. He points to a leaked email from Shell’s head of exploration to the CEO, Phil Watts, dated November 2003: “I am becoming sick and tired of lying about the extent of our reserves issues and the downward revisions that need to be done because of far too aggressive/ optimistic bookings.”

Leggett thus remains highly skeptical that shale oil and gas will change the game. Despite “soaring drilling rates,” US tight oil production has lifted “only around a million barrels a day.” As global oil consumption is at around 90 million barrels a day, with conventional crude depleting “by over 4 million barrels a day of capacity each year” according to International Energy Agency (IEA) data, tight oil additions “can hardly be material in the global picture.” He reaches a similar verdict for shale gas, which he notes “contributes well under 1% of US transport fuel. Shale-gas drilling has dropped off a cliff since 2009. It is only a matter of time now before US shale-gas production falls. This is not material to the timing of a global oil crisis, and questions the existence of a real North American ‘boom’: “How it can be that there is a prolonged and sustainable shale boom when so much investment is being written off in America – $32 billion at the last count?”

In his book, Leggett cites a letter he had obtained in 2004 written by the First Secretary for Energy and Environment in the British embassy in Washington, referring to a presentation on oil supply by the leading oil and gas consulting firm, PFC Energy (now owned by IHS, the US government contractor which also owns Cambridge Energy Research Associates). According to Leggett, the diplomat’s letter to his colleagues in London reads as follows: “The presentation drew some gasps from the assembled energy cognoscenti. They predict a peaking of global supply in the face of high demand by as early as 2015.”

The text of the 2004 letter is corroborated by a 2009 PFC Energy report commissioned by the International Energy Forum which concluded that world conventional oil supply was approaching “peak production, where the petroleum industry’s ability to continue to increase – or even maintain – production of conventional oil (and eventually gas) is constrained…”Exploitation of unconventional oil will provide additional liquids, but in all probability only at increasingly higher costs, and it will depend on significant investments to develop appropriate technologies to convert today’s resources into tomorrow’s reserves. The challenge is coming, and this emerging world of limited conventional production will require major adjustments on the part of both consumers and producers.”

Leggett is now convener of the UK Industry Task Force on Peak Oil and Energy Security (ITPOES) and recently addressed world leaders at the World Economic Forum in Davos about his forecast.

Based on flow rate data, the ITPOES report found that “increases in extraction would be slowing down in 2011–13 and dropping thereafter.” From then on, global oil production would drop “at 1% a year from 2015. If the then IEA forecast of demand rising to 105 million barrels a day in 2030 were to prove correct, supply would fall short in 2015.”

Peak oil does not mean, Leggett insists forcefully, that oil is “running out.” The problem is the increasing costs of extraction and decreasing flow rates of unconventionals: “It will never run out. Oil reserves under the ground, we tried to say, once again, are not the same as oil flows from production pipes at the surface.”

The UK Industry Taskforce’s pinpointing of 2015, Leggett emphasizes throughout his book, is corroborated by forecasts from a range of other agencies, including the US and German militaries.

World faces oil supply crunch by 2015, warn British business leaders

04/24/2013

The world faces an oil supply crunch within the next five years, British business leaders led by Virgin tycoon Richard Branson warned on Wednesday.

The rate at which oil is produced risks hitting a peak by 2015, sparking a surge in crude prices and living costs, said a report from the UK Industry Taskforce on Peak Oil & Energy Security (ITPOES). 

“The UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) finds that oil shortages, insecurity of supply and price volatility will destabilize economic, political and social activity potentially by 2015. The taskforce states the impact of peak oil will include sharp increases in the cost of travel, food, heating and retail goods.”

“It finds that the transport sector will be particularly hard hit, with more vulnerable members of society the first to feel the impact. The taskforce warns that the UK must not be caught out by the oil crunch in the same way it was with the credit crunch and states that policies to address peak oil must be a priority for the new government formed after the election. Unless we do so, we face a situation during the term of the next government where fuel price unrest could lead to shortages in consumer products and the UK’s energy security will be significantly compromised.”

Supply-side constraints – lack of construction capacity, oil rigs and skilled manpower – would all contribute towards peak oil, according to the taskforce. Other concerns are Investment shortfall, State of aged infrastructure, Tar sand flow rates too low, CTL flow rates too low, GTL flow rates too low, Absence of oil shale technology, Gas needed for power, Age skew and skills shortage

 

 

 

2011 ITPOES report:  A press release appeared last week on the website of the UK Industry Taskforce on Peak Oil and Energy Security (ITPOES) and said that during a meeting between Chris Huhne, the UK’s Secretary of State for Energy and Climate Change, and representatives of ITPOES, an agreement had been reached that Her Majesty’s Department for Energy and Climate will collaborate with ITPOES on a joint examination of concerns that global oil supply will begin to fall behind demand within as little as five years. This collaboration is seen by the British government as the first step in the development of a national peak oil contingency plan.

American readers should note that the British government recognizes that energy policy and climate change are inextricably linked so that you cannot formulate policies for one without the other, and that a major government recognizes global oil supplies will fall behind demand in as little as five years. After years of official denial this is indeed a breakthrough worthy of note.  Gone is the rhetoric about the billions of barrels of oil remaining that will last for so many decades that nobody alive today needs to worry. Official recognition has been given to the concept that the remaining oil will be so expensive to extract or will be locked into the earth by intractable political disputes, so that it simply will not be available in the unlimited quantities or at the prices we have known for the last 100 years. Also implicit in the announcement is that ever-rising real energy costs will destabilize nearly all of the world’s economies and that economic growth in the form we have come to know it will no longer be possible.

Oil production past and future ASPO

 

 

 

 

 

 

 

 

 

 

 

 

 

2010 ITPOES forecast (hasn’t changed in 2014 – they still believe the crunch starts in 2015). In 2010 they said the recession gave us an extra 2 years before the crunch hits.

2015 ENERGY CRUNCH ITPOES

Posted in Flow Rate, Oil, Oil Shocks, Peak Oil | Comments Off on Oil Crunch 2015: UK Industry Task force on Peak Oil & Energy Security (ITPOES)

Peak Oil in the news

Posted on April 25, 2014 by

Economic vulnerability to Peak Oil

Christian Kerschner Global Environmental Change   Volume 23, Issue 6, December 2013, Pages 1424–1433

Key points from a review of this article at Green Energy

This study shows which sectors could put the entire U.S. economy at risk when global oil production peaks (‘Peak Oil”). The sectors most affected are transport services, primary agriculture, metals and metals processing, non-metallic mineral and textiles, chemical and plastic products, and food and food processing.  Other affected sectors are construction, wood and paper, transport equipment, utilities, and trade.

Researchers say Peak Oil may already be here, and is a real threat to national and global economies. Their study is among the first to outline a way of assessing the vulnerabilities of specific economic sectors to this threat. “In this paper, we analyze the vulnerability of the U.S. economy, which is the biggest consumer of oil and oil-based products in the world, and thus provides a good example of an economic system with high resource dependence.”

August 11, 2012. The next great oil crisis. Miami Herald.

Note: the Miami Herald has removed this from their website – it used to be at: http://www.miamiherald.com/2012/08/11/2946593/the-next-great-oil-crisis.html

Technology is making it possible to tap vast new oil supplies. But that could be the proverbial drop in the gas tank compared to rising demand overseas.

After nearly a decade of warnings that the world’s oil supply was running out, Americans now are hearing about technology breakthroughs that can unlock vast U.S. deposits of natural gas, help reverse a 40-year slide in domestic oil production and perhaps transform America into the next Middle East.

Despite the euphoria, there’s a major problem: The looming American oil glut may simply not be enough to sate the United States and the rest of motorized humanity.

Experts say soaring demand from China and India is sure to send oil prices back above $100 a barrel. A supply disruption in the coming years, they say, could trigger panic, gasoline hoarding and perhaps lead to lines at the pumps akin to the 1973 Arab oil embargo and the 1979 Iranian revolution.

Global shortfalls of other fuels also could develop sooner than many people think, as a planet of nearly 7 billion people and more than 1 billion gasoline-gulping vehicles strains the limits of combustible energy resources that are the underpinning of modern civilization.

While oil industry officials take strong issue with these dim views, critics charge that governments here and abroad have been less than candid about future oil supplies and the ramifications of failing to shift to alternative fuels.

One outspoken Energy Department consultant, Robert Hirsch, alleged that the administrations of both Presidents George W. Bush and Barack Obama have engaged in a cover-up of the likelihood of an oil shortage. Hirsch predicted a shortfall will hit in the next four years and send shockwaves through the world economy, possibly leading to gasoline rationing.

Few governments have implemented intensive conservation programs to stretch out supplies during a decades-long transition to more fuel-efficient vehicles.

Instead, critics say that even as oil prices nearly quadrupled from 2003 through 2011, government and industry leaders have played down the world’s worsening energy predicament.

For example:

  • While U.S. industry officials have trumpeted new drilling techniques that can recover huge deposits of previously unreachable oil and natural gas, most say little about the likelihood of surging Third World demand overtaking supplies, causing shortages and skyrocketing prices.
  • Industry watchdogs say that some U.S. Energy Information Administration forecasts have been wildly optimistic, especially a projection that between 2011 and 2035, global production of liquid fuels will see a 21.6 million-barrel rise in daily output – the equivalent of the current reserves of the five biggest Middle East oil producers.
  • Other projections and policies by the Energy Information Administration, which is the Energy Department’s independent information arm, as well as the Paris-based International Energy Agency and even the U.S. Securities and Exchange Commission, have masked mounting risks of shortages of oil and possibly natural gas, several experts say. A McClatchy computer analysis suggests that proven reserves of all of the world’s primary fuels are likely to diminish much faster than the EIA and the IEA have suggested, raising questions about how long mankind can continue to increase consumption of finite resources.

Researchers at the International Monetary Fund, while not yet speaking for the fund, predicted in May that rising oil demand would drive prices to nearly $200 a barrel, “permanently, ” within a decade. Commodities speculators could exacerbate a price surge if they echo their behavior in recent oil spikes.

The world must accept “the outlook for flattened oil supplies” and “the reality that the era of abundant cheap oil is over,” said Sadad Al Husseini, a former No. 2 executive for Saudi Arabia’s national oil company, Aramco. In emails to McClatchy, he called for worldwide energy conservation measures.

The U.S. Energy Information Administration’ s deputy chief, Henry Gruenspecht, defended his agency’s main global oil supply forecast as stemming from “careful consideration of a wide range of factors.” He noted, however, that there’s “significant uncertainty” about future supply and demand of liquid fuels and a lack of transparency regarding some nations’ reserves. An international group of scientists and energy experts argues that global oil production has peaked or soon will as the second half of the oil age begins. The experts, known as peak oil advocates, say that the output of 500 existing giant oilfields that provide most of the world’s liquid fuels has begun a gradual decline that will create a 17 million-barrel daily deficit by 2035.

If they’re right, and if the Energy Information Administration has accurately projected future demand, liquid fuels production must fill a daunting, 38.6 million-barrel daily void to keep pace – an amount equal to more than 40% of the current global output.

“We’re facing a situation that is real hard for anyone to grasp,” said Kjell Aleklett, the Swedish president of the Association for the Study of Peak Oil.

Oil industry officials strongly disagree.

Industry consultant Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, said that peak oil advocates have underestimated technology advances. While the costs are high, adequate supplies exist “if they can be developed in a reasonable time frame,” he said. Yergin, whose latest book, The Quest: Energy, Security, and the Remaking of the Modern World, details the worldwide scramble for fuel, pointed in an interview to an almost 25 percent increase in U.S. oil production since 2008 and major new discoveries in the North Sea and off the coasts of Brazil and Ghana.

Exxon Mobil’s chairman and chief executive officer, Rex Tillerson, told the Council on Foreign Relations recently that high oil prices have spurred the industry to “develop resources that were previously not accessible.” The latest technology will enable recovery of trillions of barrels of oil embedded in underground shale in Western states – enough “to carry us well into the latter part of this century at current production rates,” he said.

“There’s no question the world is running out of cheap oil,” said Brookings Institution scholar Charles Ebinger, who has advised 50 countries on energy matters. “Are we running out of expensive oil? I’m not convinced.”

Aleklett countered that, in a global context, most recent oil discoveries have been modest. For example, he said that if Norwegian oil company Statoil’s new discovery in the largely tapped North Sea amounts to a billion barrels, “that’s what the world consumes in 12 days.”

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Investing – random advice that may be great or awful

Posted on April 24, 2014 by

Be sure to read Nicole Foss and Gail Tverberg to understand the deflationary situation we’re in since investing for deflation is different from inflation.

You Gotta Eat

Fertilizer stocks.  MOS, etc.  They’re the most volatile

Viterra (VT:tsx) and Alliance Grain Traders (AGT:tsx) clean, sort, package, store, and ship grains.  This kind of stock is more stable than fertilizer stocks.

Farmland LP  Farmland LP acquires conventional farmland and converts it into certified Organic. Farmland LP owns 6,750 acres of farmland worth over $50 million in Northern California and Oregon.  Our funds give investors the opportunity to own high quality farmland, while our land management practices increase cash flow by using sustainable crop and livestock rotations.  Investors in Farmland LP help provide Organic farmers and progressive ranchers with access to outstanding land and infrastructure to build their businesses at scale, focused on the crops or livestock they produce best, and on high quality, Organic, sustainable farmland.

Inverse ETFs when the market  crashes

You should never hold an ETF overnight.  If you’re going to do this dangerous gambling, trade during the course of a day, always sell by closing time, and during the day, watch it like a hawk and sell it quickly if the trends go against you — it’s leveraged both ways and if you make the wrong bet you’re going to lose money.

The fees are so high you are almost certain to lose money.

It’s very hard to know the market is crashing, by the time you figure it out, it will be to late. The Wall Street boys will certainly short stocks first, enough to force a “Wall St Hoiday” where all trading stops.

Energy stocks

You missed the big bull run, too bad – you could have made 10 times or more on your investments if only you had believed in Peak Oil back in 2001-7.  Now the EROEI is too high,  and the debt is too high. But maybe there’s an oil shock or two that might send prices sky high between now and collapse, so it’s worth having some shares of energy stocks. If you wait too long to sell though after the next oil shock the economy will crash again, driving your stock prices down.

Cash

Already in other countries where the interest rates have gone negative, people are buying safes and withdrawing cash.  If you wait too long, it will be too late.  And beware of US $100 bills:

The Global Run On Physical Cash Has Begun: Why It Pays To Panic First

Gold & Silver

20 years after the crash it may be safe to use precious metals, but unless you are a member of the Hells’ Angels or a paramilitary organization, the odds are good that your hoard will be taken from you during the 20 or so years of time the crash will take place over.

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How Money is Created: 3 articles

Posted on April 24, 2014 by

Also see:

David Graeber. March 18, 2014. The Truth Is Out: Money Is Just An IOU, And The Banks Are Rolling In It.  The Guardian.

Back in the 1930s, Henry Ford remarked it was a good thing Americans didn’t know how banking worked, because if they did, “there’d be a revolution before tomorrow morning”.

Last week, something remarkable happened. The Bank of England let the cat out of the bag. In a paper called “Money Creation in the Modern Economy”, co-authored by 3 economists from the Bank’s Monetary Analysis Directorate, they stated outright that most common assumptions of how banking works are simply wrong, and that the kind of populist, heterodox positions more ordinarily associated with groups such as Occupy Wall Street are correct.

To get a sense of how radical the Bank’s position is, consider the conventional view: People put their money in banks, which lend that money out at interest to consumers or entrepreneurs willing to invest it in a profitable enterprise. The fractional reserve system allows banks to lend out considerably more than they hold in reserve, and if savings don’t suffice, private banks can seek to borrow more from the central bank.

The central bank can print as much money as it wishes. But it is also careful not to print too much. In fact, we are often told this is why independent central banks exist in the first place. If governments could print money themselves, they would surely put out too much of it, and the resulting inflation would throw the economy into chaos. Institutions such as the Bank of England or US Federal Reserve were created to carefully regulate the money supply to prevent inflation. This is why they are forbidden to directly fund the government, say, by buying treasury bonds, but instead fund private economic activity that the government merely taxes.

It’s this understanding that allows us to continue to talk about money as if it were a limited resource like bauxite or petroleum, to say “there’s just not enough money” to fund social programs, to speak of the immorality of government debt or of public spending “crowding out” the private sector.

What the Bank of England admitted this week is that none of this is really true.

To quote from its own summary: “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” … “In normal times, the central bank does not fix the amount of money in circulation, nor is central bank money ‘multiplied up’ into more loans and deposits.

In other words, everything we know is not just wrong–it’s backwards:

  1. When banks make loans, they create money.
  2. This is because money is really just an IOU.
  3. There’s really no limit on how much banks could create, provided they can find someone willing to borrow it.

The role of the central bank is to preside over a legal order that grants banks the exclusive right to create IOUs that the government will recognize as legal tender by its willingness to accept them in payment of taxes.

They will never get caught short, for the simple reason that borrowers do not, generally speaking, take the cash and put it under their mattresses; ultimately, any money a bank loans out will just end up back in some bank again. In the banking system, every loan just becomes another deposit. Even if banks need to acquire funds from the central bank, they can borrow as much as they like; all the latter really does is set the rate of interest, the cost of money, not its quantity. Since the beginning of the recession, the US and British central banks have reduced that cost to almost nothing. In fact, with “quantitative easing” they’ve been effectively pumping as much money as they can into the banks, without producing any inflationary effects.

What this means is that the real limit on the amount of money in circulation is not how much the central bank is willing to lend, but how much government, firms, and ordinary citizens, are willing to borrow. Government spending is the main driver in all this (and the paper does admit, if you read it carefully, that the central bank does fund the government after all). So there’s no question of public spending “crowding out” private investment. It’s exactly the opposite.

Why did the Bank of England suddenly admit all this? Well, one reason is because it’s obviously true. The Bank’s job is to actually run the system, and of late, the system has not been running especially well. It’s possible that it decided that maintaining the fantasy-land version of economics that has proved so convenient to the rich is simply a luxury it can no longer afford.

Politically this is taking an enormous risk. Consider what might happen if mortgage holders realized the money the bank lent them is not, really, the life savings of some thrifty pensioner, but something the bank just whisked into existence through its possession of a magic wand which we, the public, handed over to it.

[My comment: this article doesn’t explain WHY this is such an “enormous risk”.  So I’ve summarized some of the following video, which you really should watch to hear the parts I didn’t include and to fully understand how the system works so you can protect your wealth:]

The Biggest Scam In The History Of Mankind

Our financial system has kept the wealthiest at the top of the financial food chain for over a century. Never in history have so many been plundered by so few.

Most people don’t have a clue how currency is created: 92-96% of all currency in existence is created in the Banking system.

Our entire currency supply is a supply of numbers, little of it is printed. We work for this “currency”, trading years of our lives for numbers in a computer. We are what gives the currency its value.

Borrowing creates money and eventually far more debt than the “money/currency” itself.

We must keep going deeper and deeper into debt or the whole system goes into a deflationary collapse.

Of course, at some point the trillions of “currency” debt and quadrillions of derivative debt is impossible to pay back, but meanwhile, no one wants the system to crash on their watch, so more and more imaginary numbers are fed into the system to keep it going (i.e. the United States debt-ceiling). The can keeps getting kicked down the road.

It’s a fraud, a Ponzi scheme, a scam. It’s legalized theft. It has to crash eventually, [it always has in the bubbles of the past 200 years]. Here’s how it works:

Step 1. Banks swap I.O.U.s to create currency. The treasury sells the bonds to the banks.

Step 2. The banks then turn around and sell our national debt at a profit to the Federal Reserve, which they probably own (The federal reserve is not federal, it has stockholders). The Federal Reserve, then opens its checkbook, which doesn’t have a penny in it, and buys those I.O.U.s with I.O.U.s that it writes, gives those checks to the banks and currency springs into existence. This repeats relentlessly, which builds up bonds at the Federal Reseruve and currency at the treasury. All of it is just a bunch of numbers in a computer. The treasury then deposits these numbers into various branches of the government.

Step 3. Then the government spends the numbers on social programs, public works, and war. Government employees deposit their pay in banks.

Step 4. Banks multiply the numbers even more by inventing more I.O.U.S through fractional reserve lending where they steal a portion of everyone’s deposit and lend it out, and magnify the currency exponentially. The banks only have to keep a small part of your deposit. If you put $100 in, the bank can lend $90 out and keep $10 in case you want it back. It is legally allowed to replace your $90 with an I.O.U.

  1. Now there is $190 in the system.
  2. Someone borrows your $90 to buy something, deposits the check in his bank, and that bank lends it out 90% of the $90 (or $81).
  3. Now there’s $271 in existence ($190 + $81).
  4. Eventually there’ll be $1000 created from your $100 deposit.

Step 5. We work hard for these numbers. And pay taxes to the IRS, who turn our numbers over to the treasury to pay principal plus interest to the federal reserve on bonds they created with zero collateral (such as gold, oil, etc).

Step 6 The system is built to require ever increasing amounts of debt that will eventually collapse under its own weight.

[My comment: the financial system has worked this long due to exponentially increasing amounts of fossil fuels. All goods, infrastructure, electricity, food, heating, etc., depend on fossil fuel energy at every step. Especially farming, transportation, etc., because 97% of billions of combustion engines run on oil, not electricity. Oil production has been flat since 2005, which drove oil prices up to $148 and caused the financial crash, which is why the economy hasn’t recovered, and never will. If the system doesn’t collapse under its own weight of debt, as shown in this video, then it will certainly collapse within the next 6 years as energy production leaves the plateau and declines exponentially. Oil production may already be declining, and isn’t apparent because demand has dropped since the majority of Americans are poorer and driving / consuming less since the crash].

Step 7 The secret owners – probably the largest banks — take their cut. They make a profit not just on your deposit (step 4) but also when:

  1. They sell our national debt to the Fed.
  2. When the Federal Reserve pays interest on the reserves
  3. When the Federal Reserve pays them a 6% dividend on their ownership of the fed
  4. Those who get the money first can spend it before prices inflate and get the most benefit.

This system is fundamentally evil

  • It funnels wealth to from the workers to the super-rich, causes booms and busts, and creates the great disparity of wealth.
  • It is a form of enslavement. Bond(age).
  • Nobody is asking our children if they want to work hard for the prosperity we’re enjoying now and be enslaved as well.
  • George Washington said “No generation has a right to contract debts greater than can be paid off during the course of its own existence”.
  • John maynard Keynes once said that “By this means, government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft”.

Strip private banks of their power to create money.  Financial Times.

Printing counterfeit banknotes is illegal, but creating private money is not. The interdependence between the state and the businesses that can do this is the source of much of the instability of our economies. It could – and should – be terminated.

I explained how this works two weeks ago. Banks create deposits as a byproduct of their lending. In the UK, such deposits make up about 97 per cent of the money supply. Some people object that deposits are not money but only transferable private debts. Yet the public views the banks’ imitation money as electronic cash: a safe source of purchasing power.

Banking is therefore not a normal market activity, because it provides two linked public goods: money and the payments network. On one side of banks’ balance sheets lie risky assets; on the other lie liabilities the public thinks safe. This is why central banks act as lenders of last resort and governments provide deposit insurance and equity injections. It is also why banking is heavily regulated. Yet credit cycles are still hugely destabilising.

What is to be done? A minimum response would leave this industry largely as it is but both tighten regulation and insist that a bigger proportion of the balance sheet be financed with equity or credibly loss-absorbing debt. I discussed this approach last week. Higher capital is the recommendation made by Anat Admati of Stanford and Martin Hellwig of the Max Planck Institute in The Bankers’ New Clothes.

A maximum response would be to give the state a monopoly on money creation. One of the most important such proposals was in the Chicago Plan, advanced in the 1930s by, among others, a great economist, Irving Fisher. Its core was the requirement for 100 per cent reserves against deposits. Fisher argued that this would greatly reduce business cycles, end bank runs and drastically reduce public debt. A 2012 study by International Monetary Fund staff suggests this plan could work well.

Similar ideas have come from Laurence Kotlikoff of Boston University in Jimmy Stewart is Dead, and Andrew Jackson and Ben Dyson in Modernising Money. Here is the outline of the latter system.

First, the state, not banks, would create all transactions money, just as it creates cash today. Customers would own the money in transaction accounts, and would pay the banks a fee for managing them.

Second, banks could offer investment accounts, which would provide loans. But they could only loan money actually invested by customers. They would be stopped from creating such accounts out of thin air and so would become the intermediaries that many wrongly believe they now are. Holdings in such accounts could not be reassigned as a means of payment. Holders of investment accounts would be vulnerable to losses. Regulators might impose equity requirements and other prudential rules against such accounts.

Third, the central bank would create new money as needed to promote non-inflationary growth. Decisions on money creation would, as now, be taken by a committee independent of government.

Finally, the new money would be injected into the economy in four possible ways: to finance government spending, in place of taxes or borrowing; to make direct payments to citizens; to redeem outstanding debts, public or private; or to make new loans through banks or other intermediaries. All such mechanisms could (and should) be made as transparent as one might wish.

The transition to a system in which money creation is separated from financial intermediation would be feasible, albeit complex. But it would bring huge advantages. It would be possible to increase the money supply without encouraging people to borrow to the hilt. It would end “too big to fail” in banking. It would also transfer seignorage – the benefits from creating money – to the public. In 2013, for example, sterling M1 (transactions money) was 80 per cent of gross domestic product. If the central bank decided this could grow at 5 per cent a year, the government could run a fiscal deficit of 4 per cent of GDP without borrowing or taxing. The right might decide to cut taxes, the left to raise spending. The choice would be political, as it should be.

Opponents will argue that the economy would die for lack of credit. I was once sympathetic to that argument. But only about 10 per cent of UK bank lending has financed business investment in sectors other than commercial property. We could find other ways of funding this.

Our financial system is so unstable because the state first allowed it to create almost all the money in the economy and was then forced to insure it when performing that function. This is a giant hole at the heart of our market economies. It could be closed by separating the provision of money, rightly a function of the state, from the provision of finance, a function of the private sector.

This will not happen now. But remember the possibility. When the next crisis comes – and it surely will – we need to be ready.

 

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Electric Grid Overview

Posted on April 23, 2014 by

[ Our energy, transportation, electric, water and other infrastructures are all heavily dependent on each other, making the U.S. one of the most vulnerable nations on earth.  Although transportation is the most essential of all, especially trucks, which make the electric grid and electricity generation contraptions possible from mining to manufacture to thousands of components delivered via world-wide supply chains to final delivery to the site, electricity outages can take down transportation (i.e. gas pumps are electric, etc).

To understand why, it helps to learn how the electric grid works, which I’ve attempted to do below.

Alice Friedemann   www.energyskeptic.com  author of “When Trucks Stop Running: Energy and the Future of Transportation”, 2015, Springer and “Crunch! Whole Grain Artisan Chips and Crackers”. Podcasts: Practical Prepping, KunstlerCast 253, KunstlerCast278, Peak Prosperity , XX2 report ]

Electricity is essential.

In a blackout all of these essential services fail: Pumping of potable water, sewage, and irrigation water; sewage treatment; food and fuel supply and storage; refrigeration; medical facilities, prisons, banking, communications, refineries, shipping, transportation, commerce, and home/commercial life-support systems (heating, ventilation, and air conditioning), etc.

Modern life is impossible without it.

Electric power transmission and distribution (T&D) in the United States is in urgent need of expansion and upgrading.  It’s been called the world’s largest machine run by over 3,100 utility companies, with nearly 3,000 power plants that generate 4.16 million GWh.  Fossil fuels generated 70% of the electricity — 49% coal and 21% natural gas.  Renewable energy only contributed 8.4%, with 6% of that from hydropower.

The American Society of Civil Engineers has warned that without an investment of $100 billion, the US power generation system will collapse by 2020. Growing loads, aging equipment, and wind and solar power are destabilizing and stressing the system, which increases the risk of widespread blackouts. Modern society depends on reliable and economic delivery of electricity.

Recent concerns have stemmed from inadequate investment to meet growing demand, the limited ability of those systems to accommodate renewable-energy sources that generate electricity intermittently, and vulnerability to major blackouts involving cascading failures.  And also, distant sources of renewable generation can’t be used without expanding the grid.

The high-voltage transmission system (or grid) transmits electric power from generation plants through 163,000 miles of high-voltage (230 kilovolts [kV] up to 765 kV) electrical conductors and more than 15,000 transmission substations. The transmission system is configured as a network, meaning that power has multiple paths to follow from the generator to the distribution substation.

The distribution system contains millions of miles of lower-voltage electrical conductors that receive power from the grid at distribution substations. The power is then delivered to 131 million customers via the distribution system. In contrast to the transmission system, the distribution system usually is radial, meaning that there is only one path from the distribution substation to a given consumer.

Problems with the Current System

Most U.S. transmission lines and substations were constructed more than 40 years ago and are based on 1950s’ technology, but demands on the electric power system have increased significantly over the years. Since 1990, electricity generation has risen from about 3 trillion kilowatt-hours (kWh) to about 4 trillion in 2007. Long-distance transmission has grown even faster for reliability and economic reasons, including new competitive wholesale markets for electricity, but few new transmission lines have been built to handle this growth.

From 1985 through 1995, transmission investment was fairly stable at the level of about $4.5 billion per year. In the late 1990s, the restructuring and re-regulation of the U.S. transmission system led to a decrease in investment down to about $3 billion a year and is operating at or near its physical limits often.

Inadequate system maintenance and repair also have contributed to an increase in the likelihood of major transmission system failures.  Of greatest concern is the risk of these disturbances cascading over large portions of the T&D systems. The 2003 blackouts in the world’s two largest grids—the North American Eastern Interconnection and the West European Interconnection—resulted from such cascading failures. Each event affected 50 million people.

If the electric grid comes down from cyber or nuclear war, an Electromagnetic pulse, natural gas shortages (natural gas peaker plants are essential to balancing “renewable” energy), coal shortages, terrorist attacks, natural disasters, oil shocks, and so on, the electric grid could be down for a year or more in one or all of the regional networks.

Anyone who hopes that renewable energy could compensate even slightly for oil in the future needs to understand that above all, there has to be a 100% reliable and vastly expanded electric grid. Yet The Grid is rusting and falling apart right now for many reasons.  One of them is deregulation, which has made it unprofitable to maintain The Grid because it harms the profits of the shareholders.

There’s no point in building wind, solar, hydro, and nuclear power plants without a robust and expanded electric power grid.  And without the electric grid, it will be hard to make microchips and other gadgets essential to civilization, there will be no refrigeration, lights, electrified transportation, hospital services, internet, computers running — we are as dependent on the electric grid as we are on oil.  A decentralized system is not capable of making steel, aluminum, make cement, and all the other heavy duty chores needed to maintain civilization as we know it.

A quick way to get up to speed on this topic are the following:

I think the grid is fascinating, an immense puzzle, the world’s largest machine – I hope you’ll read these and other books to really grasp the immensity, complexity, and vulnerability of the grid.

Grid Stability

Blackouts happen when there’s too much or too little power and the frequency deviates too much from the very narrow band of 60 Hz frequency – a great explanation of this is:

Chris Lee. March 13, 2013. Stabilizing the electric grid by keeping generators in sync Better grid design should keep generators from fluctuating in phase. Nature Physics, 2013. DOI: 10.1038/nphys2535

Los Angeles Times: Green energy is making collapse of the electric grid more likely

Evan Halper. Dec 2, 2013.   Power struggle: Green energy versus a grid that’s not ready. Minders of a fragile national power grid say the rush to renewable energy might actually make it harder to keep the lights on.  Los Angeles Times.

The grid is also built on an antiquated tangle of market rules, operational formulas and business models.  Planners are struggling to plot where and when to deploy solar panels, wind turbines and hydrogen fuel cells without knowing whether regulators will approve the transmission lines to support them.

Energy officials worry a lot these days about the stability of the massive patchwork of wires, substations and algorithms that keeps electricity flowing. They rattle off several scenarios that could lead to a collapse of the power grid — a well-executed cyberattack, a freak storm, sabotage.

But as states, led by California, race to bring more wind, solar and geothermal power online, those and other forms of alternative energy have become a new source of anxiety. The problem is that renewable energy adds unprecedented levels of stress to a grid designed for the previous century.

Green energy is the least predictable kind. Nobody can say for certain when the wind will blow or the sun will shine. A field of solar panels might be cranking out huge amounts of energy one minute and a tiny amount the next if a thick cloud arrives. In many cases, renewable resources exist where transmission lines don’t.

“The grid was not built for renewables,” said Trieu Mai, senior analyst at the National Renewable Energy Laboratory.

The role of the grid is to keep the supply of power steady and predictable.

Engineers carefully calibrate how much juice to feed into the system as everything from porch lights to factory machines are switched on and off. The balancing requires painstaking precision. A momentary overload can crash the system.

California has taken some of the earliest steps to address the problems. The California Public Utilities Commission last month ordered large power companies to invest heavily in efforts to develop storage technologies that could bottle up wind and solar power, allowing the energy to be distributed more evenly over time.

Whether those technologies will ever be economically viable on a large scale is hotly debated.

Already, power grid operators in some states have had to dump energy produced by wind turbines on blustery days because regional power systems had no room for it. Officials at the California Independent System Operator, which manages the grid in California, say renewable energy producers are making the juggling act increasingly complex.

“We are getting to the point where we will have to pay people not to produce power,” said Long Beach Mayor Bob Foster, a system operator board member.

Joel Brenner.  2011. “America the Vulnerable: Inside the New Threat Matrix of Digital Espionage, Crime, and Warfare”.

Electric grid Vulnerability

Retired military officers wrote a 62 page report called “Powering America’s Defense: Energy and the Risks to National Security”.   The report discusses the U.S. electric grid, which it says is “unnecessarily vulnerable.”

The grid is very vulnerable to cyber attacks as explained in my two book reviews of:

  1. Richard Clarke. 2012. CYBER WAR. The Next Threat to National Security and What to Do About It”.
  2. Joel Brenner.  2011. “America the Vulnerable: Inside the New Threat Matrix of Digital Espionage, Crime, and Warfare”.

Also  see:

Emergency drill: Cyberattack on electric grid

Assault on California Power Station Raises Alarm on Potential for Terrorism. April Sniper Attack Knocked Out Substation, Raises Concern for Country’s Power Grid (Wall Street Journal). New York Times: Sniper Attack at power hub still a mystery

Philip Ball. Jan 2004. Power blackouts likely: Electricity systems are becoming ever more vulnerable, and there’s no quick fix.  Nature.   Geomagnetic storms could cause large blackouts in the future, and the way the grid is growing makes it more vulnerable, according to John Kapperman, a government advisor.  The Sun ejects streams of charged particles that can warp the Earth’s magnetic field, producing dazzling atmospheric effects such as the aurora borealis. The changing magnetic field also induces a direct current in transformers. This causes huge electrical surges, because the grid is meant to take only alternating current. “It’s very difficult to design a transformer that can cope with this,” says Kappenman. The effect on power grids can be devastating. In 1989, the power grid in Quebec, Canada, was shut down within 90 seconds of a major geomagnetic storm. As the grid grows, and more interconnecting wires are added to the system, it actually becomes more vulnerable to such storms. Over the past 50 years, there has been a tenfold increase in the lengths of power lines in the United States. “The power companies have unwittingly built risks into the grid, and the risk is spiralling out of control,” he says.

H. Byrd. 12 May 2014. Lights out: The dark future of electric power. NewScientist.com

We predict that blackouts will occur with greater frequency and greater severity due to trends in both electricity supply and demand. Supply will become increasingly precarious because of the depletion of fossil fuels, neglected infrastructure and the shift toward less reliable renewable energy. Demand, meanwhile, will grow because of rising populations and affluence.

Resource depletion is already having an effect on countries that rely on fossil fuels such as coal for electricity generation. Countries with significant renewable resources are not immune either. Weather is not predictable and is likely to become less so, courtesy of climate change: in the past decade shortages of rain for hydro dams has led to blackouts in Kenya, India, Tanzania and Venezuela.

Deregulation and privatization have created further weaknesses in supply as there is no incentive to maintain or improve the grid. Almost 75% of US transmission lines and power transformers are more than 25 years old and the average age of power plants there is 30 years.

The looming threat of blackouts cannot be solely blamed on vulnerabilities in generation, however. Over-consumption is also a factor. Between 1940 and 2001, average US household electricity use rose 1300 per cent, driven largely by growing demand for air conditioning. And such demand is forecast to grow by 22 per cent in the next two decades.

It is worth reiterating what is at stake here. We analysed almost 50 significant power-outages across 26 countries. They had numerous causes, from technical failure to sabotage. Nonetheless, the same set of problems emerged.

Blackouts affect computers, microprocessors, pumps, fridges, traffic and street lights, security systems, trains and cellphone towers, with consequences across society. The economic losses can be enormous: power outages are already estimated to cost up to $180 billion a year in the US.

GPS pioneer warns on network’s security.   Financial Times.

The Global Positioning System helps power everything from in-car satnavs and smart bombs to bank security and flight control, but its founder has warned that it is more vulnerable to sabotage or disruption than ever before – and politicians and security chiefs are ignoring the risk.

Impairment of the system by hostile foreign governments, cyber criminals – or even regular citizens – has become “a matter of national security”, according to Colonel Bradford Parkinson, who is hailed as the architect of modern navigation.

“If we don’t watch out and we aren’t prepared,” then countries could be denied everything from ‘navigation’ to ‘precision weapon delivery’, Mr Parkinson warned.

“We have to make it more robust … our cellphone towers are timed with GPS. If they lose that time, they lose sync and pretty soon they don’t operate. Our power grid is synchronized with GPS [and] our banking system.”

Western governments are “in their infancy in recognizing the problem”, Mr Parkinson told the Financial Times in an interview on the fringes of a conference for government officials, academics and defense contractors at the UK’s National Physical Laboratory.

He said: “[In the US] I don’t know anyone that is really in charge of it. The Department of Homeland Security should be [but] … they don’t have any people that understand it very well. They’ve got one person without any budget to speak of.”

National Academy of Sciences on why blackouts are a system problem

Jay Apt, et al. Electrical Blackouts: A Systemic Problem Although human error can be the proximate cause of a blackout, the real causes are found much deeper in the power system. issues in Science & Technology. National Academy of Sciences.

Problems at the root of blackouts:

  • Monitoring of the power grid is sparse, and even these limited data are not shared among power companies.
  • Industry standards are lax; for example, vegetation under transmission lines is trimmed only every five years.
  • Operators are not trained routinely with realistic simulations that would enable them to practice dealing with the precursors to cascading failures and the management of large-scale emergencies.
  • Power companies have widely varying levels of equipment, data, and training. Some companies can interrupt power to customers quickly during an emergency, whereas others are nearly helpless.
  • Decades-old recommendations to display data in a form that makes it easy to see the extent of a problem have been ignored. This was a contributing cause of the 1982 West Coast blackout, where “the volume and format in which data were displayed to operators made it difficult to assess the extent of the disturbance and what corrective action should be taken.”
  • Monitoring of the power system is everywhere inadequate, both within regions and between them.

After the passage of the Public Utilities Regulatory Policies Act in 1978 and the Energy Policy Act of 1992, the electricity industry became a hybrid of vertically integrated utilities and new structures of multiple forms. “Merchant generators,” independent of utility companies, installed their own plants and sought customers anywhere in the country. Aggregators bargained for better rates on behalf of large numbers of customers. Energy brokers used the open market and long-term contracts to buy and sell power.

Restructuring has transformed the operation of the electricity system. Utilities formerly transmitted power from a nearby generation plant to customers. Now, industrial customers can buy power from plants hundreds of miles away, putting major burdens on the transmission system and increasing the likelihood of a blackout. That has made a huge difference: The number of times that the transmission grid was unable to transmit power for which a transaction had been contracted jumped from 50 in 1997 to 1,494 in 2002. This metamorphosis has done little to improve the physical system of transmission or its control systems. The burden of making the new system operate reliably has instead fallen on people.

No organization that generates, transmits, or distributes electric power wants low reliability. But in a deregulated competitive electricity market, companies have to pay for investments out of the revenues they earn. Unless companies can find a way to bill customers for reliability, or unless regulators mandate reliability investments and ensure that they are reimbursed, no investments will be made. None of the 19 states that have implemented electric restructuring has figured out how to pay for investments to prevent low-probability events such as blackouts

 

How the Electric Grid Works

National Academy of Science report written for the Department of Homeland Security: “Terrorism and the Electric Power Delivery System. 2012. National Research Council.

As systems became larger and power had to be carried over longer distances, power lines were operated at ever higher voltage in order to minimize losses. Efficient high-voltage transmission lines also made it possible to locate ever larger generators in remote areas rather than close to towns and cities. By the middle of the 20th century, system operators began to connect individual high-voltage systems together so that power could be moved from region to region, both to promote economic efficiency and to increase reliability by making it possible to move power into regions suffering from temporary shortages. Once electric power has been generated, the voltage is stepped up and power moves over long distances through the high-voltage transmission system, a complex network of lines, most of which are carried aboveground on tall towers. At key points throughout this system are substations that contain transformers to increase and decrease the voltage, switching gear that connects the system in desired configurations, and circuit breakers that open and close connections while also acting as giant fuses to protect expensive equipment from damage, as well as a variety of other devices.. When power reaches an area where it will be used, the voltage is reduced and power is distributed to customers over lower-voltage distribution lines. Unlike the transmission system, which is a large interconnected network, many distribution systems branch out radially to deliver power to customers, although some older, dense urban areas, such as New York City, use network configurations for distribution. All the elements of the transmission system, and increasingly those of the distribution system, are monitored and controlled by information and communication systems.

Keeping power flowing to customers is a continuous process of control, recovery, and repair. Most outages are local, brief in duration, and caused by problems at the level of the distribution system—such as lightning strikes, wind storms and tree falls, short circuits caused by wild animals such as squirrels, vehicles that crash into power poles, and similar events. Line crews can usually fix these outages in a matter of hours. Distribution systems that incorporate automation can often isolate a problem and restore service for many affected customers in a matter of seconds or minutes. Outages caused by disruptions in the high-voltage transmission system are less common. When they do occur, because of faulty equipment, weather, or for other reasons, many such outages are never noticed by customers, because automatic controls and system operators can limit their impact and maintain the supply of power to the distribution system. But, of course, the transmission system does occasionally experience problems that result in loss of service to customers. Weather events, such as hurricanes and ice storms, earthquakes, and similar natural events, can bring down many transmission lines, and, less frequently, can damage transformers, circuit breakers, and other equipment such as the terminal facilities for direct-current (DC) lines. Inadequate attention to maintenance can also contribute to blackouts, such as from arcing to vegetation from inadequate tree trimming.

If protection systems are poorly designed or do not operate properly, faults or equipment failures can cause outages and may cascade or propagate into blackouts. Once an overloaded circuit or transformer in the system either fails or is intentionally removed from service, the power flows through other available circuits in proportion to the paths of least resistance. These alternative circuits may in turn become overloaded and either fail or be taken out of service by the protection system. This repeated, possibly uncontrolled, cycle of overload and equipment removal/failure is a dynamic, frequently oscillating phenomenon that can lead to a cascading outage. A local failure can escalate into a cascading failure in a matter of a few minutes, potentially leading to a wide-area blackout.

Structural Changes in the Industry

The electric power industry has undergone considerable changes in the last two decades that have affected how the electricity infrastructure operates. Some of the once vertically integrated electric utilities that supplied generation, transmission, and distribution services have undergone restructuring that separated them into distinct entities with responsibility for only one or a few such services. In 1996, to mandate and facilitate competition at the wholesale level, FERC required transmission-owning utilities to “unbundle” their transmission and power-marketing functions and provide nondiscriminatory, open access to their transmission systems by other utilities and independent power producers. Some utilities pursued unbundling by creating separate divisions within their companies, others spun off certain assets into separate but affiliated companies, and others sold off assets to separate owners (primarily generating facilities). Some states required—or created powerful incentives for—utilities to divest their generation assets as part of a restructuring effort. Others required vertically integrated utilities to divest their transmission assets to independent entities. In addition, power marketers—who often do not own generation, transmission, or distribution facilities—now buy and sell power on wholesale markets and market electricity directly to customers. All of these changes created even greater variations of the operational landscape within the industry. Competition in the electric power industry has led to significant changes in the operation of the system.

The Energy Policy Act of 1992 made it possible for competitive power producers to be entitled to access and use a utility’s transmission system. In some regions, these requirements put new demands on an already stressed power system. In 1996, FERC issued regulatory policies (FERC Orders 888 and 889) that formally required transmission owners to provide open and nondiscriminatory access to the competitive wholesale generation market, and to provide comparable terms and conditions to all market participants, including the generation used to serve a utility’s own customers. FERC policies, in combination with technological and economic changes in the industry, placed extraordinary new demands on transmission systems. Utilities that previously planned and operated their systems for the benefit of their own customers’ requirements were now required to take other market interests into account.

 

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