The global economy is constrained by oil production

[jeemie]

http://m.motherjones.com/kevin-drum/201 ... ned-future

Old article, and laugh at the source if you want...but everything as described in the article is happening right now.

It ain't about how much...it's about how fast, and at what cost?

[BethlehemSteel]

Ive lowered my need on gas due to the prices 4 dollar gas.

As the price has depressed, and our need for foreign oil has lessened due to the US becoming a leading oil exporter.....our economy has rebounded due to the common man having more cash in his wallet to buy goods and services. The other areas in the world are having difficulties to due to many factors, but our economy will slide based on a global slowdown.

The oil economics are a fixed / fudged numbers game. The oil companies are still reaping mega billion profits.

[jeemie]

Ive lowered my need on gas due to the prices 4 dollar gas.

As the price has depressed, and our need for foreign oil has lessened due to the US becoming a leading oil exporter.....our economy has rebounded due to the common man having more cash in his wallet to buy goods and services. The other areas in the world are having difficulties to due to many factors, but our economy will slide based on a global slowdown.

The oil economics are a fixed / fudged numbers game. The oil companies are still reaping mega billion profits.

The Bakken boom will only be temporary because it doesn't provide new oil fast enough at a cheap enough price to support a robsutly growing economy.

So those people in the Dakotas and Montana with money in their pockets won't have it long...and there'll be fewer things to buy with that money anyway.

The other hidden cost that people don't think about is not all sources of oil are equivalent.

It takes energy to make energy.

The more of the global energy supply that is used to just produce the global energy supply, the less there is to make anything else on the backs of which people's wages can increase.

In the 50s, the return on oil was about 30 barrels of oil produced for every barrel of oil expended.

That ratio is around 3:1 today.

Almost everything we see...sluggish wage growth, increased debt (with decreasing debt productivity), slower year on year marginal growth...can be explained by the energy constraints we face today.

It's so obvious that hardly anyone sees it.

[jeemie]

Low prices are already killing the Bakken.

LINK

[BethlehemSteel]

good story there

not sure if these is already online

http://www.theguardian.com/business/201 ... er-horizon

http://www.chevron.com/chevron/pressrel ... exico.news

[955876]

So is it a good idea to add a $10 tax to a barrel of oil?

[jeemie]

So is it a good idea to add a $10 tax to a barrel of oil?

Counter-intuitively, yes.

At least the tax part...what he wants to do with it (improve oil-based transportation infrastructure) is stupid.

[StillerInCT]

Ive lowered my need on gas due to the prices 4 dollar gas.

As the price has depressed, and our need for foreign oil has lessened due to the US becoming a leading oil exporter.....our economy has rebounded due to the common man having more cash in his wallet to buy goods and services. The other areas in the world are having difficulties to due to many factors, but our economy will slide based on a global slowdown.

The oil economics are a fixed / fudged numbers game. The oil companies are still reaping mega billion profits.

The mega-cap oil companies are (BP, Exxon, etc.) because they have scale. The smaller guys are getting crushed. You'll see consolidation in the energy sector.

I wonder what happens to Texas now. For the past few years it's been a hot bed for people to move to for jobs.

[jeemie]

good story there

not sure if these is already online

http://www.theguardian.com/business/201 ... er-horizon

http://www.chevron.com/chevron/pressrel ... exico.news

Deep ocean drilling is expensive oil, not cheap oil.

Especially the depths they are having to drill to to get to these pockets of oil.

Deep sea finds also deplete rapidly. One could make a cogent argument that the prosperity of the 80s-90s were fueled by the North Sea oil fields...when they started to deplete in the late 90s/early 00s, the growth in the global economy also started to decline.

One last thing- a sign that oil is getting harder to produce is, paradoxically, an INCREASE in the number of wells being dug.

[955876]

So is it a good idea to add a $10 tax to a barrel of oil?

Counter-intuitively, yes.

At least the tax part...what he wants to do with it (improve oil-based transportation infrastructure) is stupid.

Why is the tax good? I don't want a vague response.

Why is adding that tax a good thing?

Who is it good for?

Who will pay the tax?

[Legacy User]

The global economy is constrained by too many consumers not willing to break habits and not enough labor participation.

Imagine if the Steelers had a cap and still had to carry the salaries of Alan Faneca and Hines Ward, but neither one was willing to change their lifestyles or take a pay cut and you couldn't fire them.

So the Steelers decided to go massively in debt to make everyone happy.

That's America in a nutshell.

There is no way out of this without pissing off half of America and most of the world.

[955876]

And the way "out" is to do what?

[jeemie]

So is it a good idea to add a $10 tax to a barrel of oil?

Counter-intuitively, yes.

At least the tax part...what he wants to do with it (improve oil-based transportation infrastructure) is stupid.

Why is the tax good? I don't want a vague response.

Why is adding that tax a good thing?

Who is it good for?

Who will pay the tax?

A tax on oil is a good things because of the negative externalities that are not priced into oil currently.

The most efficient way to pay for negative externalities is to tax the thing that are those externalities' proximate cause.

But not to then dump those taxes into some other spending project. That's dumb.

Also, right now, because we have a huge over-supply problem right now, a tax on production is actually a good way to try and balance that out (although taxes never go away, so that's not as good a reason).

[955876]

The most efficient way to pay for negative externalities is to tax the thing that are those externalities' proximate cause.

That's a good answer on an Econ 101 exam. Does it really apply to taxing oil in this environment though?

Also, who ultimately ends up paying the tax and how does that help them? The economy in general?

Cutting production is needed now. Does it take a tax to accomplish that?

I'm not saying your answers are necessarily incorrect, I just can't get my arms around an additional tax being a good thing. Especially given how fragile that market is right now.

[Legacy User]

The way out is Schlumpeter...creative destruction...which the Paul Krugmans and the Goldman Sachs of the world won't let happen.

Hey I agree with Bernie Sanders on something:

http://www.breitbart.com/video/2016/02/ ... ose-to-10/

not that any of his supporters actually want to work and reduce that number.

[jeemie]

The way out is Schlumpeter...creative destruction...which the Paul Krugmans and the Goldman Sachs of the world won't let happen.

Hey I agree with Bernie Sanders on something:

http://www.breitbart.com/video/2016/02/ ... ose-to-10/

not that any of his supporters actually want to work and reduce that number.

If future growth in the economy is constrained by energy, as I believe it is, the "creative destruction" is going to cause enormous dislocations, as the economy re-equilibrates to a level that can be sustained by future energy output.

Unless a new miracle cheap energy source comes along.

[jeemie]

The most efficient way to pay for negative externalities is to tax the thing that are those externalities' proximate cause.

That's a good answer on an Econ 101 exam. Does it really apply to taxing oil in this environment though?

Also, who ultimately ends up paying the tax and how does that help them? The economy in general?

Cutting production is needed now. Does it take a tax to accomplish that?

I'm not saying your answers are necessarily incorrect, I just can't get my arms around an additional tax being a good thing. Especially given how fragile that market is right now.

That's why it shouldn't be an additional tax, but a replacement tax.

It should be offset by tax cuts elsewhere.

Which is why I said what Obama wants to do with the tax...dump it into another round of spending...is dumb.

Government spending comes from economic surpluses.

We don't have that in our economy today, but as Dan Smith pointed out...we keep going all out to try and keep Business as Usual going instead of adapting.

So we keep getting huge deficits and negative interest rates.

[955876]

Oh come on, you don't want to buy a negative interest rate bond...

[jeemie]

Oh come on, you don't want to buy a negative interest rate bond...

Those who are espousing negative rates aren't thinking about what I want to do...

[StillerInCT]

Earlier today, we discussed how after 8 long years spent wandering punch drunk through a dream-like Keynesian wonderland where all financial assets rise inexorably, the world finally woke up last month with a terrible hangover only to discover that after 637 rate cuts and $12.3 trillion in asset purchases, “quantitative easing” has been a “quantitative failure.”

The race to the bottom began in 2008-09 when the US started cutting rates to create asset inflation which would ultimately create inflation in other areas or so they hoped. Essentially all they did was fire the first shot in an 8 year long currency war and a race to devalue currencies. While supply has a lot to do with the energy crisis the other part of the equation is the strengthening of the USD. You can argue that energy started crashing well before the Fed was going to boost rates thus creating upward pressure on the dollar (Meaning downward pressure on crude prices), but the interest rate adjustment was starting to get priced in 2014 around the time oil started cratering. Of course, the Saudi's only compounded matters by flooding the market with supply to drive out competitors that couldn't survive prices this low. Should be a nice consolidation in the energy sector soon enough if prices stay this low.

Then there's China which was the domino that started this towards the end of 2015. The situation in China was rosy for so long, growth couldn't slow down...ever, right? Well, when you have global central banks printing money you're going to have a search for yield. What better place to put your money than in China which was booming. What's the end result? Roughly 60% of China's GDP was from capital investments. What happens when you have that much of GDP in capital investments? Too much building and not nearly enough resource utilization. It was doomed to collapse. That's not to say it won't recover in the long run, but it was certainly due for a massive correction.

Where are we now? China, the global driver for the past decade+ is slowing down. Europe's banking system is about to get fucked by Deutche Bank (May not even have enough reserves to cover losses from energy), which will have plenty of spill over. The US Federal Reserve made a huge policy error in December (Raising rates when it's clear the global economy is slowing down). There's no longer any bullets in the gun with the exception of experimenting with negative interest rates (Fucked).

So much money has been pumped into the Global economy from this failed 8 year long economist experiment that there's no way to save it. If there's trillions upon trillions of dollars getting thrown into the economy and you STILL can't generate meaningful inflation......there is something systemically wrong. It's time to let things reset and stop kicking the can down the road. Markets are markets for a reason. At the end of the day, you can't avoid falling back to equilibrium. Unfortunately, with reckless monetary policy we're so far from equilibrium that this is going to really hurt. The Great Reset!

[955876]

The US Federal Reserve made a huge policy error in December (Raising rates when it's clear the global economy is slowing down).

Care to speculate why such presumably smart people would make such an error?

You raise raise rates to slow an overheating economy. There was no legitimate data to show our economy was overheating. Data to the contrary was more prevelent.

Hard to make the case before the people that the economy is strong if rates were never lifted from zero.

Hard to believe there wasn't/isn't political pressure or "nudging" to move rates.

If you don't agree then what is an alternative view?

Any kid 3 weeks into an Econ 101 class would be able to see that the timing of this rate increase was poor.

[jeemie]

If there's trillions upon trillions of dollars getting thrown into the economy and you STILL can't generate meaningful inflation......there is something systemically wrong.

Exactly...

[jeemie]

The US Federal Reserve made a huge policy error in December (Raising rates when it's clear the global economy is slowing down).

Care to speculate why such presumably smart people would make such an error?

You raise raise rates to slow an overheating economy. There was no legitimate data to show our economy was overheating. Data to the contrary was more prevelent.

Hard to make the case before the people that the economy is strong if rates were never lifted from zero.

Hard to believe there wasn't/isn't political pressure or "nudging" to move rates.

If you don't agree then what is an alternative view?

Any kid 3 weeks into an Econ 101 class would be able to see that the timing of this rate increase was poor.

This is why the Fed said they did it...but the reasoning is so poor that you are right- there had to be some political reason behind it.

Or maybe the banks bitched so much about their profitability getting squeezed- I don't know.

http://www.nytimes.com/interactive/2015 ... ainer.html

[955876]

I've been following this very closely anyways so was already aware of the reasons they have given.

Just not buying it in its entirety.

Especially when Obama makes the type of comments he has made recently about how strong the U.S. economy currently is. Need something to support that and a Fed stuck zero percent for 8 years most certainly counters his propoganda.

[jeemie]

I've been following this very closely anyways so was already aware of the reasons they have given.

Just not buying it in its entirety.

Especially when Obama makes the type of comments he has made recently about how strong the U.S. economy currently is. Need something to support that and a Fed stuck zero percent for 8 years most certainly counters his propoganda.

Obama's a lame duck...why would the Fed kowtow to him now?

[955876]

Don't know. Especially considering the Fed is supposed to be bipartisan.

I guess the answer could simply be that Yellen is an idiot.

Still frustrating to listen to Obama put such a false spin in the current economic environment.

[StillerInCT]

The US Federal Reserve made a huge policy error in December (Raising rates when it's clear the global economy is slowing down).

Care to speculate why such presumably smart people would make such an error?

You raise raise rates to slow an overheating economy. There was no legitimate data to show our economy was overheating. Data to the contrary was more prevelent.

Hard to make the case before the people that the economy is strong if rates were never lifted from zero.

Hard to believe there wasn't/isn't political pressure or "nudging" to move rates.

If you don't agree then what is an alternative view?

Any kid 3 weeks into an Econ 101 class would be able to see that the timing of this rate increase was poor.

They said jobs growth. But jobs growth isn't the indicator I would use to signal a healthy economy. You can manipulate the jobs number by excluding discouraged workers, which they have. The absolute key statistic to show a strengthening economy is wage growth. Along with inflation, wage growth has done nothing since the financial crisis. We did have a small uptick last month I believe, but based on what I"m seeing now, that won't last.

We had a bunch of Economics teachers put Keynes on steroids for damn near a decade. The only thing they accomplished was more leveraging (Doh!) and a massive, massive asset bubble.

Another concerning thing today is that distressed debt spreads are the widest they've been since the financial crisis.

[StillerInCT]

Don't know. Especially considering the Fed is supposed to be bipartisan.

I guess the answer could simply be that Yellen is an idiot.

Still frustrating to listen to Obama put such a false spin in the current economic environment.

It'll be interesting to see what the banks do if Yellen goes with negative rates. It's an indirect tax on banks that was not voted on through legislation. The Fed chair is nominated by the President and confirmed by the Senate, but the fed is technically a private bank. Will banks have any recourse?

[Kodiak]

A tax on oil is a good things because of the negative externalities that are not priced into oil currently.

The most efficient way to pay for negative externalities is to tax the thing that are those externalities' proximate cause.

But not to then dump those taxes into some other spending project. That's dumb.

Also, right now, because we have a huge over-supply problem right now, a tax on production is actually a good way to try and balance that out (although taxes never go away, so that's not as good a reason).

What? First you say the oil is too expensive, then you advocate making it more expensive by tax.

What negative externalities? Or at least what new ones that haven't been around for decades? Oil is CHEAP on an inflation adjusted basis, and the economy was booming not that long ago when oil was $140 a barrel.

Oil becoming more expensive to extract does not make it a limit to growth, because at the same time goods/products are becoming more energy efficient.

There's plenty of oil and the price is fine. That's not the reason for the current slowdown.

[Kodiak]

We had a bunch of Economics teachers put Keynes on steroids for damn near a decade.

Keynes must be rolling over in his grave "You fucking idiots, you don't understand even half of my theory"