The Peak Oil Economic Depression Has Arrived

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The Peak Oil Economic Depression Has Arrived
from ASPO-USA PO News

THE PEAK OIL ECONOMIC DEPRESSION HAS ARRIVED

By Clifford J. Wirth, Ph.D. 
Surviving Peak Oil

A headline from Chicagotribune.com states: "Jobless rate bolts to 8.1 percent, 651K jobs lost in
February." 

"The net loss of 651,000 jobs in February came after even deeper payroll reductions in the prior two
months, according to revised figures. The economy lost 681,000 jobs in December and another 655,000
in January," based on U.S. Department of Labor statistics."

But the real unemployment rate is now more like 12 or 13 percent, according to analyst Lee Adler, writing
in "The Wall Street Examiner." Adler concludes that, "today’s deterioration is at least as rapid, and
probably more rapid, than the beginning of the Great Depression."

Dow Jones concludes that today's stock market decline mimics the Great Depression.

Thus, both increasing unemployment and declining stock values indicate that we are entering an
economic depression similar to the Great Depression.

Although it is difficult to determine how much of this economic depression is caused by Peak Oil impacts
and how much stems from mismanagement of the economy as well as from business and government
corruption, ASPO-Ireland explains that Peak Oil plays a major role.

But the current economic depression is permanent, due to declining global oil production, according to a
recent post on EnergyBulletin.net.

We are entering the "Greatest Depression."

In the Great Depression of the 1930s, government programs and the build up for World War II stimulated
the economy. The East Texas oil boom powered the factories, highways, trucks, tractors, trains,
transportation, and infrastructure to make it possible.

Now, the problem is declining oil production, and there is no energy boom to help us pull ourselves up by
the bootstraps. 

There is no plan for developing energy alternatives that will power trucks, trains, ships, tractors, and
combines, nor is there time or capital to develop alternatives. Capital is scarce due to declining oil
production. Chris Shaw explains that energy is the source of capital, and hence, as capital declines as oil
production drops.

A review of government and scientific studies indicates that regardless of the time or capital available, no
alternatives will begin to make up for declining global oil production.

Whatever alternative energy we attempt to develop will consume valuable oil (mining, manufacturing, and
transportation) and not deliver the liquid fuels that we need. Chris Shaw call this the "quicksand effect."

The Congress and president will be at a loss of how to manage this ever-worsening economic collapse.
They would be wise to commission the National Academy of Sciences (NAS) to provide the nation with
advice. Chaos will result from the advice of contradictory interest groups, organizations, bloggers, and
individuals. The NAS is the most credible source for such advice. The NAS and other scientific sources
have already undertaken the basic research needed for a policy study to advise the nation. The NAS
could provide an energy policy study within a year and could then provide advice on a continuing basis.

The best advice for individuals and organization is to prepare for Peak Oil impacts. No federal or state
agencies are studying Peak Oil impacts and contingency planning. A few local governments and
organizations are beginning to make plans.

This is what we must plan for. With increasing costs for gasoline and diesel, along with declining taxes
and declining gasoline tax revenues, states and local governments will eventually have to cut staff and
curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers
won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and
gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing,
and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the
parts, large transformers, steel for pylons, and high tension cables from great distances. With the
highways out, there will be no food coming from far away, and without the power grid virtually nothing
modern works, including home heating, pumping of gasoline and diesel, airports, communications, water
distribution systems, waster water treatment, and automated building systems.

My Photo
Clifford Wirth
Small Town, State of Veracruz, Mexico
Cliff Wirth is a policy analyst who
writes, speaks, and advises individuals and organizations about Peak
Oil impacts, alternatives, survival, preparations, and relocation. He
holds a Ph.D. in Policy Analysis and a Master of Public Administration
(MPA) degree and taught policy analysis, energy policy, public
administration, global urban politics, and Mexican politics at the
University of New Hampshire for 27 years. Consider relocating here.
Email: clifford dot wirth at yahoo dot com.

 

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Re: The Peak Oil Economic Depression Has Arrived

Yeah... but Mike;

The reduction in oil production is reflected by the economy because the reduction in demand.  If/once the demand picks back up, so too will the production.

Since no one really knows the extent to which extractable oil exists, I don't think we should worry about the production but rather the limitations of production, no?

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Re: The Peak Oil Economic Depression Has Arrived

Yeah sure oil is peaking. That explains why prices have been dropping so fast and the industry is laying off people. Keep the faith Mike. Maybe in some other life, you'll be right.

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Re: The Peak Oil Economic Depression Has Arrived

Peak Oil arguments aside, the price of oil will spike in the next year or so.  That's a natural consequence of production declining in response to lower prices. 

Eventually, the diminished amount produced will match demand, and upward pressure on prices will return.  The problem is that if we are still in a depression, which I think is so likely I consider it a "given", capital will be scarce and will only be invested on production activities once prices get so high that such an investment is a "no-brainer". 

That bodes ill for an economy already in the gutter.  Add the peak oil scenario on top of this, and things only get worse.  

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Re: The Peak Oil Economic Depression Has Arrived

I can ensivage a long and sustained depression broken up by some mini "booms" as we butt up against oil price spikes and dives.  Maybe this is the start of the final show, but perhaps not the curtain call

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Re: The Peak Oil Economic Depression Has Arrived

Hey Ray -

I think I've tried to explain this before: Prices are down artifically so big oil can buy little oil at a reduced rate. It's cheaper for them to buy out small companies than go drilling new wells. Demand is up 1.?% from last year. To think the prices are actually market driven is nieve. 

As for peak production - theoildrum.com indicates Mexico & Venezula  peaked around 2004 - 2005 mark. Correct me if I'm wrong butthis is where the U.S. gets about 1/3 of its imported gas/oil. I set my "impact" date at about 2012 for when the supply will be reduced -if a politican, hurricane or other form of disruption didn't happen first. Big oil (in my mind) will want complete control by then so they can control the price & flow.

That said, as we saw with US wells, they can be left to "rest" and oil refills the well - but only to the point the "oil line" levels out. The "rest period" in was about 15 years for the US wells (maybe longer?).  So this creates a gap either way you look at it  . . . regardless of demand. 

Best use of energy now is to use it to reduce the need for future use

EGP

 

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Re: The Peak Oil Economic Depression Has Arrived
Ray Hewitt wrote:

Yeah sure oil is peaking. That explains why prices have been dropping so fast and the industry is laying off people. Keep the faith Mike. Maybe in some other life, you'll be right.

The only "faith" on the table here, Ray, is yours in orthodox economic theories and the idea that "markets" are "free" enough to produce anything remotely like legitimate economic information, in this case, in the form of "price signals," though Mandelbrot long ago debunked this. Of course, you'll typically claim that markets aren't free because of the meddling governemnt but your above statement only makes sense if you believe them to be free; otherwise, why would you reference the recent plunge in prices as somehow being indicative or reflective of total supply. Your desperate fear of the human race being up against resource depletion/scarcity -- and the responsibility that entails -- is palpable and actually beneath someone of your intellectual capacity.

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Re: The Peak Oil Economic Depression Has Arrived

No Caroline, read the links....  oil is now so cheap, dozens of now unviable oil wells are being capped, waiting for the price to go back up.  Production is now falling faster than the economy.

I recently posted the item below from the Oil Drum.  Hardly anyone seems to have noticed the implication of this scenario, which I happen to believe is highly likely.  Have a look at the chart - it shows oil production falling by 2/3 in two years...... 

http://www.theoildrum.com/node/5160

I obviously don't know precisely what would happen to world crude
oil production if the world's financial system crashes, but here is one
possibility:


Figure 2. One view of expected future crude oil production, after a world financial crash.

Hubbert's curve gives us an idea of what maximum oil production
might be, given geologic constraints. My forecast is more at the
opposite end of the range--what the worst case might look like, if the
current debt unwind results in a major world-wide financial collapse.
It is impossible to assign a probability to this type of event
happening, but even if the probability is very low--say 1%--it would
affect planning models that consider a range of outcomes.

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Re: The Peak Oil Economic Depression Has Arrived
Damnthematrix wrote:

No Caroline, read the links....  oil is now so cheap, dozens of now unviable oil wells are being capped, waiting for the price to go back up.  Production is now falling faster than the economy.

I recently posted the item below from the Oil Drum.  Hardly anyone seems to have noticed the implication of this scenario, which I happen to believe is highly likely.  Have a look at the chart - it shows oil production falling by 2/3 in two years...... 

http://www.theoildrum.com/node/5160

I obviously don't know precisely what would happen to world crude oil production if the world's financial system crashes, but here is one possibility:


Figure 2. One view of expected future crude oil production, after a world financial crash.

Hubbert's curve gives us an idea of what maximum oil production might be, given geologic constraints. My forecast is more at the opposite end of the range--what the worst case might look like, if the current debt unwind results in a major world-wide financial collapse. It is impossible to assign a probability to this type of event happening, but even if the probability is very low--say 1%--it would affect planning models that consider a range of outcomes.

thank you 4 the graph... it's helpful

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Re: The Peak Oil Economic Depression Has Arrived

In fact Ray, it DOES!

When demand could not be met last year, the price skyrocketed, and I was one who fully expected it to go to $200.  But the economy could not even afford $147, and Peak Oil broke the economy.  Sure there were other issues, but PO was the trigger that broke the camel's back.... 

Now ther economy is going to break the oil companies.  The ultimate irony methinks..

Mike 

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Re: The Peak Oil Economic Depression Has Arrived

Hey Mike,

Was just reading that article last night at the Drum myself. Now that chart you post represents an extreme turn of events that would more or less spell endgame. However, a downturn even at a rate of one-quarter of that would still be devastating. It seems like some kind of chain of over reactions could be in play. Meaning, growth and oil production were going bonkers with no thought to a period of slowing down or, more importantly, how to deal with a slow down. Then things hit a wall and are now over reacting in the opposite way with production and manufacturing in some places and in some industries dropping by over half, which -- as is the point of this Oil Drum article -- could result in a crash of oil production irrespective of remaining reserves.

Of course, as reality unfolds the energy crisis is only exacerbated by the utter house of cards the global economy and financial system has been revealed to be along with the jellyfish will of all of the world's so-called leaders.

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Re: The Peak Oil Economic Depression Has Arrived

So.. when/if we bounce back from this so-called "recession" will the price of barrel go up and if so, how much do you suspect it will go up by?

Thanks.

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Re: The Peak Oil Economic Depression Has Arrived
Damnthematrix wrote:

In fact Ray, it DOES!

When demand could not be met last year, the price skyrocketed, and I was one who fully expected it to go to $200.  But the economy could not even afford $147, and Peak Oil broke the economy.  Sure there were other issues, but PO was the trigger that broke the camel's back.... 

Now ther economy is going to break the oil companies.  The ultimate irony methinks..

Mike 


Yes... but doesn't this "recession" help the PO end of the scale?

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Re: THE PEAK OIL ECONOMIC DEPRESSION HAS ARRIVED

We haven't locked horns in a long time, Coon.

I think we can presume there is some unknown quantity of oil in the ground. Government intervention has had the effect of reducing consumption of oil and all other forms of energy by massive amounts. So it's safe to say that whatever amount of oil is in the ground will last that much longer. That's all. If I understand Mike correctly, he argues that this downturn is equally bad for peak oil. I just don't see it. Here we have we have the conservation peak oilers have long wished for and they still complain.

I thought Austrian Theory had a lot of credibility on this site and you still bash me. 

Your desperate fear of the human race being up against resource
depletion/scarcity -- and the responsibility that entails -- is
palpable and actually beneath someone of your intellectual capacity.

What? I've long considered the fear of resource depletion (and population explosion) bunkum on the grounds that societies self correct for better or worse.

You have no credibilty with me. So our feelings are mutual.

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Re: The Peak Oil Economic Depression Has Arrived

Endgame, I'm not into that oil company conspiracy stuff. Commodity prices are down accross the board as well as stocks and real estate. We are in a deflationary phase right now.

I think something like 80% of the oil fields in the world are nationalized. You're giving the oil companies too much credit.

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Re: The Peak Oil Economic Depression Has Arrived

psss... we'll have to wait until Mike gets back...

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Re: The Peak Oil Economic Depression Has Arrived

Mike

I think what you attribute to peak oil has more to do with turbulant currency markets. I remember well last March when commodity prices crashed and the dollar index zoomed up. My memory is vague on the details but it had to do with short sellers having to buy dollars to honor their contracts. Some sources say the US engineered it to drive oil prices down in their economic war against Russia and the oil producing state. The dollar as well as gold now are seen as safe havens.

I think the oil producing nations are in more trouble than the oil companies.

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Re: The Peak Oil Economic Depression Has Arrived
Ray Hewitt wrote:

I think the oil producing nations are in more trouble than the oil companies.

Well, we're in agreement on that. In fact, I think we're in agreement on perhaps more than you think. I was just crafting a response to your last couple of posts and to elaborate on my first one, but it will have to wait as my family is calling for the stuffed pepper dinner I promised earlier today. Maybe I'll see you later tonight.

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Re: The Peak Oil Economic Depression Has Arrived

As an aside, I have a feeling that the problem of peak water is more acute that peak oil. I've been reading reports of major droughts all across the globe. That is sure to have an effect on the quantity of food and food prices.

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Re: The Peak Oil Economic Depression Has Arrived
endgameplayer wrote:

I think I've tried to explain this before: Prices are down artifically
so big oil can buy little oil at a reduced rate. It's cheaper for them
to buy out small companies than go drilling new wells. Demand is up
1.?% from last year. To think the prices are actually market driven is
nieve.

Do you have any proof that prices are "down artifically", or is this just what would have to be true in order for your pre-conceived notions to be true?

Demand is NOT up.  Please cite your source. Demand is down and supply has just started to be drawn down. (sometimes it's cheaper to continue operating a money-losiing well than to shut it down completely.  Shutting these babies down is expensive).

And to others (man, there's been a lot of activity since I was last here!):

Prices are down because there was more supply than demand (when demand suddenly dropped).  And, peak oil did not break the economy, peak debt did. 

Yes, companies with lots of cash and little debt will take advantage of this situation and buy up smaller players who may not be able to service debt at current oil prices.  The same happens in industries accross the board.  

 

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Re: The Peak Oil Economic Depression Has Arrived

Caroline, if there ever is an attempt to recover, that recovery would immediately run into the oil production wall.  The oil needed to combat the depletion of all the cheap stuff we are now buying at ~$40, costs ~$100 or more.  So any recovery would see the oil price spike again, and I envisage the economy would by then have been so savaged that a price rise of that magnitude would send it back spiralling down a new black hole.....

We had a very successful Peak Oil movie showing here as part of our Transition Town Initiative.....  more than 60 people turned up, which I think is great for a population of some 700.  We had an expert speaker (he is actually in the movie we showed) and he says we need a floor under the oil price at ~$100.  Then we need to ration gas, so everyone, regardless of income, gets, say 5 to 10 gallons a week (pick a figure...).  That would really get to the hummer drivers, but it would mean anyone driving a frugal car would fare a lot better.  I think his idea is even better than a carbon tax actually, because anyone with loads of money would just thumb their noses at the cost and just pay for however much they want to use, whilst the poor would be unable to buy much at all.

MIke 

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Re: The Peak Oil Economic Depression Has Arrived

Mike

You have an obsssion for control. Gives me the shivers.

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Re: The Peak Oil Economic Depression Has Arrived

Patrick said "And, peak oil did not break the economy, peak debt did."

Yes and no.  I don't agree with you.

Sure debt was getting out of control, but what REALLY happened, in my opinion, is this:  Peak Oil caused gas to go to $4+ a gallon.  THAT caused the price of everything to go up, not least food.

THEN, the morons in charge, not even understanding that inflation is NOT the cause of prices going up but merely a symptom of it, decided to increase interest rates.  We were NOT facing inflation then, we were facing LIMITS TO GROWTH.

The consumer was then faced with three problems:

couldn't afford to put gas in the SUV to get to work AND

couldn't afford to put food on the table AND

couldn't afford the payments on their mortgages/plastic SIMULTANEOUSLY......  They could afford one or two of those costs of living, but not all three.

So a lot stopped servicing their debts, and the subprime crisis was born. 

Mike 

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Re: The Peak Oil Economic Depression Has Arrived

You're wrong you know Ray....  I'd prefer nothing was done and the whole house of credit cards just collapsed in a bloody great heap!

Mike 

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Re: The Peak Oil Economic Depression Has Arrived

 

Mike,

It was artificially cheap money (i.e. debt) that allowed our economy to behave as if it was on steroids.  That preceded the spike in oil prices by several years (I would argue since 2001).  That is, if it weren't for artifically cheap money (debt), oil would not have gone to $150/barrel.  Certainly expensive gasoline didn't help, but as a percentage of then-disposable income, it was manageable.  Certainly some oil-price level will put the brakes on any economy.  I just don't think those levels were reached because another limiting factor (credit collpase) was reached first in this case.

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Re: The Peak Oil Economic Depression Has Arrived

Hey Mike,

Glad you brought up this point as I was going to later tonight. Another way of looking at it is that peak oil caused peak debt (or at the very least was one of a couple significant contributors). There's obviously strong correlations between surplus energy, the ready availability of it and the complexity and decadence of societies/civilizations, which Chris M. addresses in the CC.

I see the cornucopia of cheap and abundant energy as one of the causes of our Ponzi scheme way of life over the past half-century or so. As energy costs sky rocketed the input side of the scheme was growing distressed and therefore the output side had to be pinched. If oil had stayed at a constant price over the last several years I just can't imagine things unfolding in the manner that they did.

Truth be told this is obviously an incredibly complex and dynamic situation that we'll probably never be able to say exactly what caused what and for what reasons, but to dismiss oil's role in the current crisis I think is unwise from a desire to understand point of view.

Oil is pixie dust.

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Re: The Peak Oil Economic Depression Has Arrived

Coon, I posted that TOD article on my Aussie Running on Empty list, and one of our more prominent peakniks wrote this in response:

 

That's nowhere near "adverse" enough. If Israel attacks Iran and Iran attacks the US fleet in the Gulf and closes the Straits of Hormuz with mines and sunken ships, then there will be an instant 40% drop in oil output. That could very well happen next week and is certainly more than a 1% chance in 2009.
 
The US might then invade Canada, Mexico and Venezuela, and Chavez might well put his oilfields to the torch before the invaders get to it. Russia might then cut off its oil and gas exports to Europe to avoid a European attack on them,and China would dump all its US Treasury Bonds to crash the dollar, before invading Taiwan and both Koreas and Kyrgystan and Mongolia.India would be keen to invade Myanmar for its oil, and Pakistan and Bangladesh, Assam, Bhutan and Sri Lanka
to restore itself to its former British glory.
 
Australia already has invaded East Timor for its oil, and would have to go back into PNG to ensure it controlled its gas and minerals.
 
And that is just for starters. All those military plans have already been drawn up and exercised.
 
I find the ultra-US-centric OilDrum is way too positive about the future, and Gail the Actuary is typical. They just can't get their heads around the idea that the US is finished.
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Re: The Peak Oil Economic Depression Has Arrived

No Patrick, Oil went to $147 because production peaked in 2005.  Demand everywhere was going up, especially in China and India.  Demand coudln't be met for years...

Mike 

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Re: The Peak Oil Economic Depression Has Arrived
mainecooncat wrote:

Another way of looking at it is that peak oil caused peak debt (or at the very least was one of a couple significant contributors). There's obviously strong correlations between surplus energy, the ready availability of it and the complexity and decadence of societies/civilizations, which Chris M. addresses in the CC.

Hi Mainecooncat,

Isn't it cheap oil not peak oil that caused peak debt.  Or maybe it was cheap debt that caused peak debt.  This is confusing.  But if I recall correctly, it was suggested by CM that government intervention in commodity prices (when oil was at 147 and food price increases starting to cause rice exporting countries to ban exports)  was poorly executed and caused a price collapse that necessitated the Hedge Funds and big Banks to sell off assets to cover positions that exacerbated the economic crisis is the real economy that was already starting because of the problems in the shadow banking system caused by the subprime crisis.  (Okay, that would have eventually happened anyway, but the timing suggests the government intervention in commodities as a closer "cause" to the problem.)  The CC suggests that the history of the 3E's point to the  mutually supporting conditions for the current problems with the 3E's, so it doesn't make too much sense (or difference) to say which caused what, or what caused which.

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Re: The Peak Oil Economic Depression Has Arrived

All I'm saying is that the financial dominoes fell first, led by mortgage defaults by people whose mortgages were reset to higher rates (even though real interest rates were flat).  Could they have afforded a higher rate if oil had not spiked?  Maybe, but that would have just delayed the problem for 6 months to a year (depending on their mortgage) until the next interest reset. Eventually, these people were destined to become toast.  They were given a low "teaser" rate to begin with for the express purpose of making the derived debt instruments last long enough to sell to some sucker (bank, municipality, insurance company).  That means the originators knew the borrowers couldn't afford a market rate!

Bottom line is these mortgage defaults led the train, starting with Freddy & Fannie, then Bear Stearns, Lehman, etc.  If there had not been an enormous pool of dollars all over the world chasing a return, there would have been nobody to sell these extravagant and incomprehensible mortgage-backed-securities and collateralized-debt-obligations to.  Who made these dollars available?  The Fed and US Treasury led money system, which for 25 years has been enabling a trade deficit that requires borrowing money back into the system just to keep it going even though a 5-year old can tell you there is no such thing as an endless bag of candy.

(breathe)

Of course oil affected this whole scenario, but what I'm saying is that only more time would have passed before being where we are today if oil had stayed at $60/barrel.  The end result would be the same, save for time.

 

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Re: The Peak Oil Economic Depression Has Arrived
Mike wrote:

No Patrick, Oil went to $147 because production peaked in 2005.  Demand
everywhere was going up, especially in China and India.  Demand
coudln't be met for years...

Yes Mike, but what was feeding demand?

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