One of THE BEST Articles that I Have EVER Read!

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  • Thu, Sep 02, 2010 - 02:16pm

    #31
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    Re: One of THE BEST Articles that I Have EVER Read!

ashvinp,

A lead onto what kemosavvy has written was covered in depth by Gail The Actuary at ‘The Oil Drum’ back in June of this year, with her post : –

What happens when energy resources deplete? 

[quote=Gail The Actuary]

Snippet

[Another] view, popular among those concerned about peak-oil, is that oil and energy prices will just keep rising. If scalable substitutes aren’t found, some expect that oil prices will rise from their current price of $75 barrel, to $100 barrel, to $200 barrel, to $300 barrel, and eventually to $1,000 barrel or more.

The problem with this view is that it doesn’t take into account the amount of money people actually have available to spend. Just because oil or energy prices rise doesn’t mean that people will get additional income to cover these higher expenditures. In real life, prices can’t keep going up.

{Continued …}

[/quote]

I also highly recommend you listen to Nicole Foss (also known as Stoneleigh of The Automatic Earth), who gave a lecture as part of the Transistion Town Totnes workshop on June 8th of this year called : – 

Making Sense of the Financial Crisis in the Era of Peak Oil

Ruhh put up a thread for it, and here’s a link to that also.

I’m certain these links will give you plenty to think about …

Take Care,

~ VF ~

 

  • Thu, Sep 02, 2010 - 02:40pm

    #32
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=M.E.]

[quote=machinehead]

Nor will the US dollar, I assure you. Frown

[/quote]

What situation, other than hyperinflation, can decapitate the dollar?

[/quote]

Wars, currency mergers (e.g. the euro), currency replacements (many examples), chronic inflation (as opposed to hyperinflation) … these are several potential causes.

Fiat currencies are a recent experiment, dating from the early 1970s. Some metallic coins survive from antiquity, but none of the issuers do. The long-term prospects for fiat currencies are even worse, I suppose.

In the San Telmo district of Buenos Aires, a restaurant has an entire wall papered with 100-austral notes, made worthless by a currency exchange in 1992:

  • Thu, Sep 02, 2010 - 04:28pm

    #33
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    Re: One of THE BEST Articles that I Have EVER Read!

kemo,

In a situation where peak oil enters mainstream awareness and is an immediate threat, you can be rest assured that supply (current and estimated future) will fall much faster than demand is destroyed from credit contraction. Our entire industrial economy depends on access to cheap energy (including our food production systems), so you will see drastic shortages of many goods and basic necessities such as food. Demand for these basic necessities will become inelastic to price changes if there are severe shortages.

The point in GL’s article is also that the perception of sustained commodity price inflation by investors/speculators will lead to a sovereign debt crisis as people dump treasuries for risk plays and eventually all hard assets will be bid up in a self-reinforcing manner.

[quote=Vanityfox451]

ashvinp,

A lead onto what kemosavvy has written was covered in depth by Gail The Actuary at ‘The Oil Drum’ back in June of this year, with her post : –

What happens when energy resources deplete? 

[quote=Gail The Actuary]

Snippet

[Another] view, popular among those concerned about peak-oil, is that oil and energy prices will just keep rising. If scalable substitutes aren’t found, some expect that oil prices will rise from their current price of $75 barrel, to $100 barrel, to $200 barrel, to $300 barrel, and eventually to $1,000 barrel or more.

The problem with this view is that it doesn’t take into account the amount of money people actually have available to spend. Just because oil or energy prices rise doesn’t mean that people will get additional income to cover these higher expenditures. In real life, prices can’t keep going up.

{Continued …}

[/quote]

I also highly recommend you listen to Nicole Foss (also known as Stoneleigh of The Automatic Earth), who gave a lecture as part of the Transistion Town Totnes workshop on June 8th of this year called : – 

Making Sense of the Financial Crisis in the Era of Peak Oil

Ruhh put up a thread for it, and here’s a link to that also.

I’m certain these links will give you plenty to think about …

Take Care,

~ VF ~

[/quote]

I never said oil would reach $1000/barrel or more, and it doesn’t have to in order to trigger hyperinflation and a currency crisis. I think supply may be rationed or completely cut off to some before it actually hits a nominal price of $1000. But supply disruptions of almost all goods will be so severe that demand destruction will not offset it. In fact, as Stoneleigh (who I greatly admire and follow closely) likes to point out, the massive debt deflation will actually set up a supply collapse in produced resources due to extremely low investment levels in a depression.

  • Thu, Sep 02, 2010 - 08:22pm

    #34
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=ashvinp]

I never said oil would reach $1000/barrel or more, and it doesn’t have to in order to trigger hyperinflation and a currency crisis. I think supply may be rationed or completely cut off to some before it actually hits a nominal price of $1000. But supply disruptions of almost all goods will be so severe that demand destruction will not offset it. In fact, as Stoneleigh (who I greatly admire and follow closely) likes to point out, the massive debt deflation will actually set up a supply collapse in produced resources due to extremely low investment levels in a depression.

[/quote]

Ashvinp,

I’m in full agreement with your thinking. I also believe that the proverbial rug would have been pulled out from the global economy as a whole if oil were to reach $1000 a barrel, though as Kemosavvy was pointing out, would $500 be the equivalent value of todays $75 in the article synopsis from Gale The Actuary? And what would Third World Food cost be to those living in the Third World if the importing nations could afford such prices against inflation to such a summit? I feel speculation has a value as I fear the future does not look so bright … 

Food for thought indeed …

Thankyou for your thoughtful reply,

Paul

  • Thu, Sep 02, 2010 - 09:10pm

    #35
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    Re: One of THE BEST Articles that I Have EVER Read!

In the article that GL wrote he mentions that the fiat US dollar is backed up by the full fatih and credit of the US government and I think that this statement is inaccurate. As any good student of the CC would know, the treasury pretty much lives hand to mouth and has very little cash on hand, thus the government has no money. It makes nothing, it only institutes policies and governs.

The true backing of the US dollar is the ability of the Treasury to enforce taxation on its citizens. All taxpayers are responsible to pay their share of the debt incurred by the gov’t. All borrowing and wars are funded directly by current and future tax dollars. How else does the gov’t make money? I can’t think of any other source of income other than taxes and fees.

If you don’t think this is true, try avoiding paying taxes. The IRS has the power to police, it has the power to imprison, and it has the power to confiscate. The power to enforce taxation is the backing of the US dollar. If there was some sort of societal cohesion against taxes and the citizens revolted against paying taxes all simultaneously the backing of the US dollar would then be in jeopardy. There is also the possibility of citizens being unable to service the debt load, which may not be that far off (this is what is meant by default).

Steve

 

 

  • Thu, Sep 02, 2010 - 09:30pm

    #36
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=kemosavvy]

In the article that GL wrote he mentions that the fiat US dollar is backed up by the full fatih and credit of the US government and I think that this statement is inaccurate. As any good student of the CC would know, the treasury pretty much lives hand to mouth and has very little cash on hand, thus the government has no money. It makes nothing, it only institutes policies and governs.

The true backing of the US dollar is the ability of the Treasury to enforce taxation on its citizens. All taxpayers are responsible to pay their share of the debt incurred by the gov’t. All borrowing and wars are funded directly by current and future tax dollars. How else does the gov’t make money? I can’t think of any other source of income other than taxes and fees.

If you don’t think this is true, try avoiding paying taxes. The IRS has the power to police, it has the power to imprison, and it has the power to confiscate. The power to enforce taxation is the backing of the US dollar. If there was some sort of societal cohesion against taxes and the citizens revolted against paying taxes all simultaneously the backing of the US dollar would then be in jeopardy. There is also the possibility of citizens being unable to service the debt load, which may not be that far off (this is what is meant by default).

Steve

 

 

[/quote]Steve: Congratulations on having Mish on your show!

With all respect: Full faith includes QE. Right now tax revenue is in the toilet. Bernanke is covering the difference. If he didn’t we wouldn’t have full faith, we’d have default or a re-negotiation of our debt and likely a massive cut to entitlements. 

  • Thu, Sep 02, 2010 - 11:35pm

    #37
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=steve]The true backing of the US dollar is the ability of the Treasury to enforce taxation on its citizens[/quote]

Yep, the “print out of thin air” claim is false.  It goes beyond just taxation.  Dollars are backed by the people’s indebtedness (income) and their collateral (assets).  So it attracts global capital because it’s the one that most efficiently allows financiers to tie into the people’s income during inflation, and transfer to their own balance sheets the assets of the people during deflation.  It’s enforced by the IRS, the entire legal system, court system, police, sheriffs, etc.  This is the true meaning of “full faith and credit.” 

Young Wharton MBA Neel Kashkari demonstrated this better than anyone else.  As he handed $750 billion of the people’s money over to capital holders with no strings no accountability no transparency, he kept saying “we’re a nation based on rule of law and the sanctity of contracts.”  Just gotta laugh.  What he was saying was “we honor the claims of senior capital holders…constitution, bill of rights, 5th amendment takings clause be damned.”  And he’s right…that’s the current state of the rule of “law” in the US.

 

  • Fri, Sep 03, 2010 - 02:39am

    #38
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=machinehead]’Worst of all, driving long yields farther down would recruit a whole new crop of Bond Bubble Believers, like the folks I saw the other day wheeling a shopping cart full of empty soda bottles toward a broker’s office, hoping to exchange their worldly goods for a small denomination T-bond to secure their financial future.[/quote]

LMAO. MH, I just love this stuff for the clarity it reveals, you do it so well that I look forward to it in your posts.

 

 

  • Fri, Sep 03, 2010 - 03:41am

    #39
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    Re: One of THE BEST Articles that I Have EVER Read!

[quote=machinehead]

A failed Treasury auction, even for technical reasons (for instance, 9/11 happened on a Tuesday, but if it had occurred the morning before, what then? — the stock market closed for the rest of the week), would be a serious event. The US government is highly dependent on these auctions going off smoothly. The Treasury doesn’t usually keep enough cash on hand to pay off maturing debt. It needs to roll over existing debt, and add more. This is the same sort of short-term financing risk which forced commercial paper issuers to scramble for backup bank credit lines during the Lehman crisis.

[/quote]

This single paragraph (and the emphasized sentences) sums up quite succinctly the thought that keeps me pushing my preps forward with all due speed and in spite of the puzzlement of folks around me.  

I’m way past trying to ‘splain it to them (‘less they come to me w/???).  I just keep on keepin-on…

Thanks for the succinctitude, dude…

Viva — Sager

  • Fri, Sep 03, 2010 - 07:21pm

    #40
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    Re: One of THE BEST Articles that I Have EVER Read!

SagerXX

[quote]I’m way past trying to ‘splain it to them (‘less they come to me w/???).  I just keep on keepin-on…[/quote]

I hear ya.

Doug

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