22 Apr 2013
Opposition to austerity programs due to the Reinhart-Rogoff Excel depression debacle is rapidly mounting to the ignition point for a full blown Hysterical Focus .
1.See Appendix A . If the European Unity is to be preserved , discredited debt theories will be quite decisively , if not violently , rejected .
2.Japanese quantitive easing (anti-austerity)
Open-ended stimulus was promised , starting with $520 bn . The G20 endorsed this , in effect scuttling the whole EU austerity program .
"Japan not only escaped criticism, but on the contrary won praise as a country that was fulfilling its global obligations," IronFX global forex strategy head Marshall Gittler said.
3. US quantitive easing (anti-austerity) is well known ,
4. This leaves the EU politicians and bankers out on a rather slender limb , after their theoretical support of the Reinhart-Rogoff 90% debt ceiling was kicked away by Herndon . They are already furiously back-pedalling (see appendix A) .
5.Will this save them ?
I doubt it . About 400 million Europeans are really , really pissed off . And most have cellphones , twitter and facebook . In democracies .
See Appendix B .
6. To add insult to injury : The falling cost of energy due to fracking and clathrates will in any case lead to a huge pulse of wealth .
See Appendix C
The Japanese stimulus must be seen in this light . They expect cheap energy by the end of 2014 .
7. The nation or group of nations that does not invest in the new low-cost energy sources will be left high-and-dry .
The austerity cost then becomes the opportunity cost of losing out on at least a fourfold economic boom .
They have to invest , even if they have to print the money .
8. A full-blown hysterical Focus will not be kind to the Austerians . Last seen somewhere in the Oort Cloud .
Interesting times .
Last updated: April 21, 2013 1:52 pm
Eurozone anti-austerity camp on the rise
By Peter Spiegel in Brussels and Peter Ehrlich in Berlin
Flaws found last week in an academic treatise on the effect of high public debt on economic growth have heaped pressure on governments to relax austerity, above all in crisis-stricken Europe, long seen as an incubator for austerity-driven policies.
But even before the arguments among economists over the merits of expansionary fiscal contraction reached a new pitch, policy makers in the eurozone had begun to ease up – with the tacit approval of disciplinarian Germany.
ON THIS TOPIC
As many as six eurozone countries have received or are seeking waivers on tough EU-mandated deficit targets when they come up for review next month, a move that has thus far met little objection from Berlin – an unexpected acquiescence that has led many to believe the anti-austerity camp is suddenly in ascendance in Brussels, at least for now.
“The speed of consolidation is certainly going to be lower now,” said Guntram Wolff, an economist at the influential Brussels-based think-tank Bruegel. “The European Commission has agreed on that already.”
Olli Rehn, the commission’s top economic official, has frequently cited the central finding of the now-disputed study – co-authored by Harvard economists Carmen Reinhart and Kenneth Rogoff – that economic growth falls drastically in countries when sovereign debt rises above 90 per cent of gross domestic product.
In an interview, Mr Rehn – who is responsible for deciding whether eurozone countries will be allowed to miss their deficit targets – said that while he has “cited this study in the past as illustrative”, he insisted that his office does not set its policy on “any single piece of research”.
“We design our policies on the basis of a holistic assessment drawing on a wealth of studies – but also of course on our own analyses,” Mr Rehn said.
Indeed, Mr Rehn himself has frequently been in the vanguard of EU officials insisting that blindly sticking to headline deficit targets is counter-productive, arguing instead that countries should be judged more on reform programmes to liberalise their economies.
Mr Rehn’s push, which has backing of the International Monetary Fund, has already gained traction in bailout countries, where Greece has been given two more years to reduce its deficit below the EU-mandated 3 per cent of GDP and Portugal last month was granted a second year’s leniency.
Elsewhere in the eurozone periphery, Spain was given a pass this year and is expected to get a further waiver in May. And Italy, where nervous markets are watching the political turmoil closely, was given the green light to spend an extra €40bn in unpaid government bills despite the risk of breaching its 3 per cent barrier.
But the weakening economic picture is also wreaking havoc on “core” eurozone countries, with both France and the Netherlands publicly acknowledging they, too, will miss their 3 per cent targets this year.
Such leniency has been resisted by senior German central bankers, but it has been met with resignation by the German government, which instead has signalled it will mount more resistance in 2014, after this year’s national election. Chancellor Angela Merkel last week sought to play down the issue, saying France’s impending breach was “not new” to her, telling reporters she would leave it up to Mr Rehn to decide.
Instead, she insisted Paris had to present measures to keep its deficit in line with EU rules next year – a clear sign Berlin would accept a 3.7 per cent French deficit this year but would put pressure on Paris to deepen economic reforms.
“It would be good for France to start structural reforms immediately because the positive impacts of reforms take time”, Michael Meister, the financial affairs spokesman for Ms Merkel’s Christian Democrats in the Bundestag, told the Financial Times.
Wolfgang Schäuble, the German finance minister, backed last year’s easing in Spain, Portugal and Greece, and government officials said he would not risk a big fight with France as long as the eurozone remained economically fragile.
In a further sign of growing acceptance in Berlin, during Thursday’s Bundestag debate over the €10bn Cypriot bailout – which the German parliament passed overwhelmingly – Mr Schäuble took the unusual step of expressing concern for the economic upheaval in the eurozone’s periphery.
“The people in Greece, Spain, Italy, Portugal and now Cyprus are living in hard times,” he said, before adding: “They have to suffer during the reforms to have the chance of a better future.” Ms Merkel has struck a similar position in recent interviews, telling Bild newspaper that southern Europe “more or less have started the reforms they need”.
It could be a difficult balance for Ms Merkel to strike in an election year. Even as she shows empathy with the economic difficulties of southern eurozone countries, she cannot be seen to ally herself with French President François Hollande’s increasingly vocal crusade against austerity.
“There is nowadays much talk about austerity”, Ms Merkel told reporters last week. While the Reinhart-Rogoff findings may be in doubt, Ms Merkel said she felt debt in the eurozone was still too high. “That is of course not good in the long run”.
The Excel Depression
19 Apr 2013
“Quantitive easing was right after all !” AW
The theoretical economic justification for austerity measures have been proved to be due mainly to an Excel spreadsheet error . This will have major political ramifications , especially if an Hysterical Focus forms .
1.Broad summary :
Two respected academic economists (Reinhart and Rogoff) purportedly showed that GDP fell over a cliff if debt exceeded 90% of GDP
This formed the basis of austerity policies , especially in the EU . When subjected to the scientific requirement for replication , it was found to be in error . See Appendices A , B ,C .
2. There will be major repercussions .
2.1 The EU will nearly certainly switch to the Quantitive Easing US model .
2.2 This will preserve the EU .
2.3 Stockmarkets will boom .
2.4 The present EU recessions will ease to minor growth at first .
2.5 Everybody will blame Reinhart and Rogoff . Convenient scapegoats for bad governance .
3.Hysterical Focus :
See Appendix D
An Hysterical Focus of major proportions will form , especially if attempts are made to continue with austerity programs .
This news just broke , so it is still percolating down the information strata . Democratic politicians will have to change tack sharply if they wish to remain in office (German elections due in September) .
This will be an ugly Hysterical Focus .
Millions of people have been hungry , had careers ruined , been fired , etc . All because of an Excel blunder and governance gullibility
Remember , one of the defining characteristics of a big Hysterical Focus is that it does not go away . Examples are the phone hacking in UK or pedophiliacs .
4. Misery Index .
Economists are becoming rivals to religious fundamentalists and conquerors in the sheer human misery their half-baked ideas have caused . Adam Smith (“Invisible hand”) or Karl Marx (“Communism”) or others . Remember conglomerates ?
5. The way out : Ostrum Systems .
6. Legal recourse :
The Granddaddy of all class-action suits.
Negligence by academe and governments caused the mess . So sue them .
Perry Mason , where are you when the ministers need you ?
Finally, Ms. Reinhart and Mr. Rogoff allowed researchers at the University of Massachusetts to look at their original spreadsheet — and the mystery of the irreproducible results was solved. First, they omitted some data; second, they used unusual and highly questionable statistical procedures; and finally, yes, they made an Excel coding error. Correct these oddities and errors, and you get what other researchers have found: some correlation between high debt and slow growth, with no indication of which is causing which, but no sign at all of that 90 percent “threshold.”
Does High Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogo
Download 421 kB
Herndon, Ash and Pollin replicate Reinhart and Rogoff
and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. They find that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0:1 percent as published in Reinhart and Rogo
ff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower.
The authors also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff
's claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.
Media requests: please contact Jared Sharpe.
>> Download the paper here1
>> Download the data and code files upon which the results are based
>> Download a text document that describes the files in the code and data archive
>> Download Robert Pollin and Michael Ash's op ed in the Financial Times
1 The current version of this paper was updated at 1:35 pm on April 17, with the following corrections:
(1) The notes to Table 3: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Canada, and Denmark from the analysis." is corrected to read: "Spreadsheet refers to the spreadsheet error that excluded Australia, Austria, Belgium, Canada, and Denmark from the analysis."
(2) Page 13: “Thus, in the highest, above-90-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950-2009 sample declines to only 2.5 percent per year in the 1980-2009 sample” is corrected to read "Thus, in the lowest, 0–30-percent public debt/GDP, GDP growth of 4.1 percent per year in the 1950–2009 sample declines to only 2.5 percent per year in the 1980–2009 sample."
SEARCH PERI >>>>>>>>>>>>>>>
Who did it ?
The Econ Student Who Challenged Reinhart-Rogoff on Debt
April 18, 2013
When Thomas Herndon, a student at the University of Massachusetts Amherst's doctoral program in economics, spotted possible errors made by two eminent Harvard economists in an influential research paper, he called his girlfriend over for a second look.
As they pored over the spreadsheets Herndon had requested from Harvard's Carmen Reinhart and Kenneth Rogoff, which formed the basis for a widely quoted 2010 study, they spotted what they believed were glaring errors.
"I almost didn't believe my eyes when I saw just the basic spreadsheet error," said Herndon, 28. "I was like, am I just looking at this wrong? There has to be some other explanation. So I asked my girlfriend, 'Am I seeing this wrong?'"
His girlfriend, Kyla Walters, replied: "I don't think so, Thomas."
In the world of economic luminaries, it doesn't get much bigger than Reinhart and Rogoff, whose work has had enormous influence in one of the biggest economic policy debates of the age. Both have served at the International Monetary Fund. Reinhart was a chief economist at investment bank Bear Stearns in the 1980s, while Rogoff worked at the Federal Reserve, passing through Yale and MIT before landing at Harvard.
Their study, which found economic growth slows dramatically when a government's debt exceeds 90 percent of a country's annual economic output, has been cited by policymakers around the world as justification for slashing spending.
Former U.S. vice presidential candidate Paul Ryan, a Republican congressman from Wisconsin, is one influential politician who has cited the report to justify a budget slashing agenda.
Using the two professors' data, Herndon found that instead of a dramatic fall in growth, the decline was much milder, slowing to about 2.2 percent, instead of the slump to minus 0.1 percent that Reinhart and Rogoff predicted.
Things tend to move at a glacial pace in the world of academic research papers, but within 24 hours Herndon and his two teachers, who co-authored the report, Michael Ash and Robert Pollin, found themselves swept up in a global debate. Herndon's paper began life as a replication exercise for a term paper in a graduate econometrics class. He expected to replicate Reinhart and Rogoff's results, then challenge the idea that high public debt caused growth to slow.
But he never got that far. Repeated failures to replicate the results roused his interest. Pollin and Ash encouraged him to pursue it after he convinced them he was onto something. "At first, I didn't believe him. I thought, 'OK he's a student, he's got to be wrong. These are eminent economists and he's a graduate student,'" Pollin said. "So we pushed him and pushed him and pushed him, and after about a month of pushing him I said, 'Goddamn it, he's right.'"
Herndon approached Reinhart and Rogoff earlier this year for the spreadsheets they used in their paper. The two professors provided them at the start of April, unlocking the mysteries of the data that had stumped Herndon.
Herndon said only 15 of the 20 countries in the report had been used in the average. He also said Reinhart and Rogoff used only one year of data for New Zealand, 1951, when growth was minus 7.6 percent, significantly skewing the results.
Reinhart and Rogoff have admitted to a "coding error" in the spreadsheet that meant some countries were omitted from their calculations. But the economists denied they selectively omitted data or that they used a questionable methodology.
For Ash, the findings mean the claim that high public debt causes growth to stall no longer holds water. "Their central thesis has been substantially weakened," he said.
Reinhart and Rogoff, however, say their conclusion that there is a correlation between high debt and slow growth still holds. "It is sobering that such an error slipped into one of our papers despite our best efforts to be consistently careful," they said in a joint statement. "We do not, however, believe this regrettable slip affects in any significant way the central message of the paper or that in our subsequent work."
Now that Herndon has ably crossed swords with some of the most eminent figures in his field, he is thinking about expanding his work into a Ph.D. thesis.
Read more at http://www.thefiscaltimes.com/Articles/2013/04/18/The-Econ-Student-Who-Challenged-Reinhart-Rogoff-on-Debt.aspx#dVQhQSbHjpIc9zxY.99
Inside the Ignition of an Hysterical Focus.
28 Jun 2010
The spontaneous formation of order into a random set of 40 million diverse humans grew out of at most 50 humans , but the tinder was dry .
I was privileged to follow the ignition process . I never thought I would experience this rather rare phenomenon .
I was listening to CapeTalk 567 , a talk radio program in the Western Cape .
At about 10h00 on 4th June 2010, they reported receiving numerous SMS , emails , twitter and calls about delays in the issuing of tickets .
I expected the whole thing to die down , as disgruntled citizens just gave up on it as another example of incompetence . (Sepp Blatter's nephew was in charge)
The opposite happened .
Really amazing !
The small group interaction of the queuer's via twitter , SMS, emails , cellphone was amplified by the inrush of new connectors because of long-range network information systems like CapeTalk radio .
By 11h00 the tone had been set . Note network theory . The long-range network elements like Twitter and TalkRadio had spread and the resultant inpour of messages escalated the system into a runaway positive feedback system .
By 12h00 the system had lurched into the present benign mode of "Foreigners with money-good , foreigners like Zimbabweans , Somalis – bad : get them later ."
This will get externalised as wars .
The sheer speed of it was amazing . By the afternoon , I was living in an entirely new society .
This is typical of an Hysterical Focus .
A seemingly trivial matter precipitates a phase change , focusing large-scale frustrations into a Focus . The Focus then fractures the society in totally unforeseen ways . When the breaks anneal , you have a new , more competitive society (cf French Revolution) .
Has it happened before ?
Yes , but they had to work hard at it . Newspaper owners in the USA , UK (Like Hearst) thought they could ignite Hysterical Foci . They could , but only with months of saturation propaganda .
Barack Obama got elected mainly because of a minor ignition of the effect via Facebook .
Can it happen again ?
Of course . It is every marketer's wet dream . A small , controllable group influencing millions of other people .
Why Twitter ?
The interesting point here is that this is first hint of a workable system to break the 150 person tribal ceiling . This ceiling is hard-wired in by genetic , epigenetic and meme systems . Twitter paradoxically bypasses this by the limitation on number of characters allowed (140 , amusingly near the tribal ceiling . Not surprising) .
The right of reply and fairness .
Fairness is hardwired in humans . Abuse of Right of reply leads directly to systems like Twitter , where there is no reply . 140 characters cannot give sufficient data-space
The lack of fairness can only be compensated for by large numbers of twitters of various other persuasions . The totality sums .
We can actually put some numbers on this :
See http://andreswhy.blogspot.com "Inside of zero " and others . We need only 26 different centers of uniqueness to describe any particular Universum .
This translates into a minimum necessary sufficient of 27 individuals to ignite a Hysterical Focus .
Notice that 26=27-1
This is known as God's Mercy .
Infinite descent is possible .
The cocktail party .How many guests to invite .At last we can put a minimum number to it . And it is 27 .
Bagh. I am sick and tired of it .
etroleum Price and Clathrates
17 Apr 2013
A fierce price-war between Clathrate and Fracking energy production will drive the Petroleum price down to the $36-$72 per barrel range much sooner than previously estimated .
1.Natural gas production by fracking is already a boom industry . Natural gas prices in the US is about 25% of that in Japan or China .
2.Japan is totally dependant on imported energy , except nuclear . And that is being scaled down . But it has large clathrate reserves .So no wonder it has force-developed the technology to extract methane from clathrates . See Appendix A .
2.They estimate large-scale production by 2018 , but they are in a race , both price-wise and strategically with shale-gas produced by fracking . Humans can actually get a move on in situations like these .
So , expect production within about 1/3 x(2018 – 2013) = 1.6 years ie 2014.
3.This is reflected in the inexorable fall in the petroleum price (+- $100 Brent today) . See Appendix B .
4. It might easily fall below $36 per barrel if large scale gas-to-gasoline plants like Sasol’s Lousiana plant is extended to clathrates .
The present civilization is a high-energy society , and relative power shifts with the energy costs and availability .
See Appendix C .
The availability of gas from shale or clathrates is assured for at least a 100 years . These deposits are in every country , not just a fortunate few . The only other real factor is then cost .
6.Expect ferocious competition , especially in respect of subsidization . Nation states like Japan will subsidise clathrate production .
7.Economic activity : they will be able to afford it because the cost of energy is the basal input in a high-energy civilization .
The fall in energy prices will trigger an economic boom . A sort of inverse 1972 oil-shock , only a bigger boom because of higher technological levels . The fiat-money being created by the various fiscal stimuli will overhauled by real wealth creation .
8. The quick quadrupling of wealth only happened once before : See Appendix D . Jethro Tull’s little invention quadrupled wealth in Europe within 2-3 years . The effects were far reaching . We are still living through them .
9.Now , we will have something similar . Let’s hope this will also birth a new age of Reason .
10. An interesting aside :
Note from the general argument (see Appendix B) , that if the petroleum price falls much below $36 pb , the whole petroleum industry will probably implode . This is because the heavy cost of the old infrastructure can no longer be supported . Also , capital will flow to the gas technologies , where there is a higher rate of return and government subsidy .
You will not be able to give a barrel of oil away . Would actually have to pay somebody to remove the pollutant .
What irony ! All those huge stockpiles of petroleum becoming a liability .
Not to mention the whole Middle East .
11.How long ?
The gas production : fracking is already being done . Clathrates , 2014-2015 . Infrastructures will take a bit longer . But there are incredible profits to be made . Positive feedback systems result . Read up about what happened to inventions after 1700 AD .
12.Stock markets : these discount the future . Expect a huge stock-market boom .
13. Environment :
13.1 Global warming is happening , regardless of the cause . This threatens clathrate burps , causing unpredictable , large-scale releases of methane . This is a real baddie for so many reasons that you will need a hole in the ozone to illuminate it .Utilizing the clathrates smooths this process .
13.2 The economic boom , combined with large capital flows and a new intellectual Age of Adventurism should be able to fix most of the planet’s problems .
14. Best of all : it is happening NOW !
Not after some conference , summit , meeting of talking heads or similar command performances .
This process is driven from the bottom up by profit principles . And everybody can share via the Internet and Cellphones .
Many people in the USA went from near-homeless to rich in fracking states like Dakota , Lousiana , etc.
This will be dwarfed by clathrates .
15. Ostrum principles :
It will be interesting to see how Ostrum Principles treat the communal ownership of shale-gas and especially clathrates .
Both touches other human communal resources like water tables , fishing grounds , fishing or aquatic farms , etc .
Big companies should not repeat the mistakes of Shell in the Niger delta .
Note that many clathrate deposits are slap-bang in the middle of powerful political communities , all connected .
16 .There is still hope for your Grandchildren !
Nil Carborundum .
Japan extracts 'fire ice' energy resource from its seabed in 'world first'
13 MARCH 13 by LIAT CLARK
It looks like Japan may have a reprieve in its energy plight, after claiming it's the first country to extract methane hydrate "fire ice" from its seabed. Officials say the plan is to have viable production technologies in place by 2018/19.
The state-run Japan Oil, Gas and Metals National Corporation (Jogmec) made the announcement 11 March, revealing that a year-long expedition to the watery depths had finally paid off.
"It is the world's first offshore experiment producing gas from methane hydrate," an economy, trade and industry ministry officialsaid to AFP, though other tests have been carried out before. Jogmec began drilling the seabed in January, and has just begun a so far successful two-week long extraction and production experiment to prove that the tricky substance's potential can be tapped into. The methane hydrate has been extracted from depths of about 300 metres below the seabed, with the team lowering the naturally high pressure present at those depths to separate the gas from its icy surrounds. The free gas was then piped to the surface.
The successful extraction has massive potential for Japan.
It's estimated that 1.1 trillion cubic metres of natural gas are trapped within the methane hydrate off Shikoku island. To separate methane from the icy, solid clathrate that forms under the sea is to release an estimated 11-year's worth of gas supply for Japan, which has been struggling under the pressure of soaring energy prices since the 2011 Fukushima disaster. After the event, most of the nation's nuclear reactors were forced to shutdown until July 2012. Public support for the nuclear power sector plummeted in the interim, and the government made the announcement in September 2012 that it would shift to other fuel sources by 2040, closing all 50 functioning nuclear reactors. But what it intended on replacing that energy source with remained vague.
Until March 2011, a third of Japan's energy supply came from its nuclear reactors -- only two of which are now currently in operation -- and it had planned to increase that ratio to 50 percent. Its reliance on importing gas since the 2011 meltdown has been a financial strain; it is already the world's largest buyer of liquid natural gas and the second largest importer of coal. A few weeks ago, Prime Minister Shinzo Abe appealed to Obama to allow exports of its shale gas to the fuel-hungry country. So turning methane hydrate extraction into a viable business could mean independence for Japan -- "Japan could finally have an energy source to call its own," Takami Kawamoto of Jogmec said. But why then, hasn't anyone done it before?
Methane hydrate was first discovered in the 1800s, and by the 30s it was still known only as that annoying ice that clogs up pipelines in the cold. It was only when the substance was discovered to occur naturally in Siberia that energy scientsits realised it was not something to consider an irritant, but an opportunity. Large deposits have since been found in Alaska, Canada and the Nankai Trough off Japan. According to William Dillon of the US Geological Survey organic carbon present in gas hydrates is about twice as much as in all other fossil fuels, and the methane present is 3,000 times as much as is in the atmosphere (one cubic metre of methane hydrate equals about 160 to 170 cubic metres of gas).
But conducting extraction experiments on a substance that resides a kilometre below sea level was never going to be easy. Once there, deposits are still usually uncovered hundreds of metres below the seabed and found in areas where the seabed begins to drop away from the shelf, making it difficult to line pipes up. Making matters more difficult is the fact that the methane has to be separated from the clathrate at the point of extraction -- otherwise, the gas is likely to escape when brought to the surface as the pressure changes.
Jogmec also needs to confirm it can achieve stable extraction, not just production. Removing large surface areas from the seabed could cause a shift in sediments where the substance is trapped. The worse case scenario would be if removal caused anunderwater landslide that triggered a tsunami. In a piece warning about the dangers of methane hydrate extraction, professor of civil and environmental engineering at Lehigh University Tae Sup Yun also warned that accidentally releasing methane into the atmosphere could be a huge danger, considering its aforementioned concentration in gas hydrates.
Like any new extraction process, it's likely to take plenty of time before the full go-ahead is given. Fracking continues to cause controversybut has been embraced, a fact economy, trade and industry minister Toshimitsu Motegi pointed to at a press conference. "Shale gas was considered technologically difficult to extract but is now produced on a large scale," the New York Times reports him as saying. "By tackling these challenges one by one, we could soon start tapping the resources that surround Japan."
Fracking and the Oil price
4 May 2012
The Oil price will permanently (100 years) be lower to a new sustainable level . We try to calculate the boundaries of this price from basic principles .
Fair price : what the price should be taking into consideration profits , reserves and exploration reserves . There is an extra value , which represents the present value of future demand (ie speculation) . This collapses to zero as fracking becomes commonplace .
See Appendix I
On recalculation (allowing for 5% pa inflation over 5 years) , the costs become :
Oil per barrel at the well-head : $6
Transport per barrel anywhere on-planet : about $6
Total cost per barrel at refinery : $12 =(6+6)
Markup factor about 200% : cost per barrel about $36= (12+2*12) .
This is the historical markup . Also the optimal markup . See http://andreswhy.blogspot.com "Optimal Markups"
To pay for the infrastructure of refineries , garages , etc
The argument goes that adding provision for reserves and the optimal markup on these reserves gave a fair price as long as petroleum was the only source .
Logically speaking , this gives a lower boundary of about $36 .per barrel . The upper boundary would be the optimal markup (200%) ie $72 per barrel .
Fracking reserves are well known and accessable .
Removing them from the cost reserve structure results in a much lower oil price per barrel .
Exeunt America from the Middle East .
The probability (95%+) is that the oil price will fluctuate between $36-$72 per barrel , with competition driving it to the lower levels ,
Environmental concerns will take a very back seat .
The USA will become a net exporter of energy (surprise!) .
Global warming :
This technology will exploit the methane clathrates on the seafloor . Preventing the dreaded cataclysmic methane surges .
Let one problem solve another one .
This model held up fairly well . See other posts .
http://andreswhy.blogspot.com” Financial Crisis Dec 01 2008 : Petroleum Price “ Dec 2008
Basic ab-initio Cost Estimate of Petroleum Prices at 30 Nov 2008 .
Oil per barrel at the well-head : $5
Transport per barrel anywhere on-planet : about $5
Total cost per barrel at refinery : $10 =(5+5)
Markup factor about 200% : cost per barrel about $30= (10+2*10) . This is the historical markup . Also the optimal markup . See http://andreswhy.blogspot.com "Optimal Markups"
To pay for the infrastructure of refineries , garages , etc
The system needs reserves if it is not to die on us .
As discussed (See http://andreswhy.blogspot.com "Infinite Probes" )
There are two schools of thought :
1. General Reserves of about 1/3 of this gives cost per barrel about $40 = (30*1/3+30)
2. But we need reserves for exploration , which is expensive .
We use the optimal markup factor of 200% on $30 to $40 .
This gives us price boundaries of $60 to $80
US Fed : Republican End-Run
21 Feb 2013
US Conservatives have by-passed Congress and focussed on the Federal Reserve Governors. Dissent here destabilizes the Quantitive Easing effects on Stock Markets . It shuts the taps on the bubble . Exactly what they want .
“As stipulated by the Banking Act of 1935, the President appoints the seven members of the Board of Governors of the Federal Reserve System; they must then be confirmed by the Senate and serve for 14 years. Once appointed, Governors may not be removed from office for their policy opinions. “
“Bernanke's second term ends on January 31, 2014.”
The current members of the Board of Governors are as follows:
At least three are Conservatively inclined . Look at expiry dates .
Only one swing vote is required . (Note fluctuation of E.A.Duke .Her absence disturbed the balance of power.)
February 1, 2006
January 31, 2020
January 31, 2014 (as Chairman)
October 4, 2010
January 31, 2024
October 4, 2014 (as Vice Chairman)
May 30, 2012
January 31, 2018
August 5, 2008
January 31, 2012
January 28, 2009
January 31, 2022
October 4, 2010
January 31, 2016
January 31, 2014
3.What is going on ?
Somebody really smart has done an Oblique Approach attack .
He yielded on the Congress flank (granting Credit-Ceiling extension ) , then hammered on the institutional flank (The Fed) actually doing the printing of money (Quantitive Easing) . Complete surprise was achieved . The risk-averse panic and flee . The flanks are rolled up and the pursuit ensues .
Few prisoners are taken .
This is happening now (05h14 2013/02/21 GMT) .
Stock markets are sharply correcting as that future income stream of $84Bn per month Quantitive Easing becomes much more uncertain .
This is enough to make the faint-hearted flee.
4.Some did get uneasy :
The Germans are still hypersensitive to hyper-inflation .
5. I got suckered , too .
I expected another bruising battle on the Congress front .
So , the correction is occurring , but not in the way I thought .
6. How does it work ?
All they have to is induce an uncertainty > 28%
Look at the Seven Governor voting decision table below .
1/7 = 14.3%
To destabilise the system , all you need are 2/7 supporters and one maybe . This exceeds reserves .
Since this system determines the Quantitive Easing , ($84Bn/per month) , any uncertainty here gets magnified as all those little computer programs in the futures markets get busy discounting .
But notice , this uncertainty is not Beth(0) (ie like flipping a coin) .
What is happening is that a lot of traders went out on a limb using computer systems they do not understand .
The uncertainty shift is from 28.6% to 42.9% . Black-Scholes systems cannot handle this abrupt discontinuity .
They might not lose their shirts , but the male bra might make an abrupt reappearance .
7.Strategic Surprise .
This was a major strategic surprise .
DARPA mission statement : “To create or prevent strategic surprise”
DARPA seems to have decided that the USA does not need to subsidise all the planet’s fat cats .
See “Fracking” , “Reshoring” , etc .
Expect more strategic surprises .
(Fracking was a DARPA project . )
Why should DARPA suddenly play a more active role ?
Because they have come into competition with those sincerest of admirers , competitors .
To maintain their mission statement , they have to start intervening in internal USA affairs .
The clunky and gridlocked US state needs a swift kick on the behind if they do not want to end up speaking Chinese .
And stopping funding your main competitors is high on this list .
8. What does all this yakkity-yak mean ?
The USA intends to restore it’s energy , manufacturing and financial bases .
8.1 Energy : Fracking .
8.2 Manufacturing : Reshoring
8.3 Financial : Happening as we speak . Stop funding losers .
DARPA is only one of it’s agencies .
It is a large , smart system going into the singularity .
I cannot compete . Apart from the large databases , there are ripple-effects of workable mind-computer interfaces .
And persons who are as smart or smarter than I am .
9. So what is a poor small investor to do ?
Cash , or US Treasuries . Shares and properties are about to go into a prolonged period of instability . You can’t win , but at least you will lose the least possible .
10 .Societies :
There are only degrees of winners . But there are definite losers . The societies being propped up by the USA will lose heavily .
This is most of Europe , China , India , Korea . All the US clients will find their markets drying up and capital being withdrawn .
Big mark-ups will disappear to about 2%-3% . Actually , below the wealth-growth rate . Competition . This is happening now.
11.Growth rates slow to match reduced population growth rates .
12.Corollary : There is more resources for Blue-Sky research . The system gets richer much faster than population decreases .
Cf Chinese One-child system .
Interesting times .
Jethro Tull – Super Hero
In 1701 an Englishman called Jethro Tull invented the seed drill . By quickly and reliably planting seeds at the optimal spacing and depth , this invention enabled about a fourfold increase in yield within one season .
This invention created the largest pulse of wealth in history . Bigger than the invention of fire . Bigger than the invention of agriculture . Bigger than the invention of the internal combustion engine or transistor .
It kick-started the Industrial Revolution .
Most wealth was agricultural.
The increase in wealth was within one season . Malthusian population growth would take about 2 to 3 generations to catch up . Imagine getting a 400% raise in your salary in one year without inflation . This was the effect . This pulse of wealth propagated onwards , giving leisure and incentive to inventors . (ref Baby Boomer Pulse)
The result was a pulse of wealth stimulating other individuals to make similar inventions . The Age of Reason was born . The problem was the massive increase in population made possible by the efficient mechanized systems .
The large number of surplus males and the means to support large armies led to the First Large War (Napoleontic) . This gave the Age of Reason a knock (Nationalism), but you could still state unpopular beliefs without being killed for it . The Second Large War (WWI) destroyed the Age of Reason and ushered in the ideologies (Communism , Marxism , Fascism , Capitalism ). If you stated an unpopular belief , you stood a good chance of being heavily penalized for it . The demise of ideologies collapsed the system back to Religious Fundamentalism , where you can be killed for stating an unpopular belief . The Age of Reason is finally dead . This is the state at circa 2006 AD .
The Age of Reason only lasted a century , but gave rise to our present wealth .
When evaluating ideas like that of Huebner ( see “Waiting for the lights to go out” in Sunday Times of Oct 16 2005 ) , it is important to remember that changes come in pulses . Things might seem to be going to hell in a hand-basket (cf horse-poop in New York circa 1890’s) , but discontinuities generate pulses of change and wealth . You might as well try to explain a transistor using Newtonian mechanics . In other words , analyzing pulses of change as simple statistics of numbers of people over time is garbage .