James Lentz from Toyota talks for 2 minutes about their view on Peak Oil (PO):
http://peakoil.com/consumption/toyotas-jim-lentz-predicts-peak-oil-by-2020/
More and more business insiders are coming out with views on PO which differ
from what governments and the MSM are saying.
Lentz says in this short clip that it doesn't really matter if PO is in 2017, 2020
or even 2025. He talks about the increasingly prohibitive price of gasoline, but in my opinion fails to grasp a few things. Whether he actually doesn't understand, or if he is bound by his job at
Toyota not to think or speak about the negative effects of PO on his industry doesn't really
matter. What does matter is this :
- Once PO really hits, that is, once the demand actually outstrips supply at prohibitive price levels (and we are getting very close, it is already happening in the poorer parts of the world), people will lose purchasing power.
Nothing happens wihtout energy, and the price of oil is extremely closely correlated with economic growth. High oil prices = low or "negative growth".
This means (among other things) : less jobs (all the while population keeps growing), less money to spend on non-essential items, increasingly expensive food & energy, less tax revenue for the state and so on.
- The car industry as a whole would have been seriously trimmed down during the recession if it weren't for government intervention all over the world (specially in the US and Europe).
What they essentially did was move future purchases towards the present through tax-deduction and buyback schemes (Some companies were also rescued outright by the state, like GM). Sales will look good for a while as everyone who has been planning to buy a new car in the near future scrambles to take advantage of the free money. The result : plummeting sales once this very short term boosting effect ends. This is a matter of fact, as it has already happened.
- Toyota, like all the big manufacturers, are heavily dependant on the price of oil to make their cars. Higher oil prices = more expensive cars.
- The infrastructure, not only roads and gas stations, but also the vast network of subcontractors that every car manufacturer depends upon, is heavily dependant on the price of oil. Producing on the margin now? You will go broke once oil prices go up 30-40-50% if you can't pass the costs on to the buyer (and eventually to you, the consumer). Of course, paycuts and lay-offs are always options too.
- Companies which don't grow, will contract or disappear. If you have a business model which depends on more and more people buying your product every year, and sales plummet, you will either shrink or disappear. It is doubtful governments would let their automanufacturers die so easily, but they will be on lifesupport until they are either self-sufficient or suck so much money out of the system that it
is obvbious that everyone would be better off without them.
So, in an environment in which people have less money, oil is more expensive, cars are more expensive (at least the true cost, governments can hide the cost through different programs effectively subsidizing cars) and consumers psychology will turn towards saving and making do, Toyota thinks that electric cars and natural gas driven vehicles will be the new big thing.
I think we will see the continuation of the current trend, which is declining sales. More and more people will make do without cars and simply go away from the market. More and more will simply keep their old cars longer and repair them (good news for automechanics, at least in the short term). Car sharing and renting, or taking a taxi when you actually need a car will really start to make sense.
The good news : less pollution, less traffic and more parking spaces:)
NB: I don't necessarily agree with Lentz on the timing of PO. It all depends on how you define "oil", but the most important oil (light sweet crude) seems to have already peaked a few years ago. The real peak is something we will only see in the rearview mirror once a few years have passed. Meanwhile, we will probably continue to experience wild oscillations in oilprices as supply struggles to keep up with demand, speculation grows and economic growth picks up or slows down. It is possible oil will quickly rise to 150USD again, and then crash down to 20USD (as such high prices would devastate economic growth as we saw last time it happened).
It is also possible that it will simply hover around 100USD for the next few years, or even go down without a price spike due to aggregate demand falling over time. A lot of governments around the world are subsidizing the domestic price of gasoline and oil, and thereby increasing demand for it. We are seeing some countries (like Iran), ending or reducing these subsidies now due to the high cost (and obvious unsustainability) of these programs. What is also happening, is that more and more oil is being taken off the market by bilateral agreements
(China and Russia have stepped up these sort of arrangements). This will also have a negative impact on price, as the ones who have to buy oil on the open market will bid for a piece of the increasingly shrinking pie. If the financial system should once again seize up, as some think will happen once the "extend and pretend" phase has run its course, then all bets are off. The US, UK, EU and others are already printing money, and once that cat is out of the bag it's very hard to get it back in.
In short, expect more shit to hit the fan.
Friday, January 21, 2011
Wednesday, November 17, 2010
Sunday, October 31, 2010
Currency wars - Killing people with numbers
We are now hearing more and more in the media about the upcoming currency wars. It is generally depicted as being somewhere between bad behaviour and protectionism. In reality, it will have deadly results on the people who are already living from hand to mouth.
I would first like to clarify what inflation really is. Most think inflation is rising prices. Everything costs more next year, and when asked why that is, most answer "inflation" and leave it at that. The fact is that rising prices is not the cause of inflation. Inflation is the cause of rising prices. This is a very important distinction. Basically, we can think of the economy as a total of money chasing a total of goods and services. The traditional monetarist view is that banks create money (via credit and debt), and lend it out to people who then expand economic activity. Thus a sort of equilibrium is established between the sum of money in the system versus the sum of goods and services. In practice, economies are biased towards slight inflation (in Norway the goal is 2.5% per year) because it is better to have a little inflation than deflation. Money therefor has no absolute value, it is always relative to the goods and services available. Inflation is therefor an increase in the moneysupply versus the amount of available goods and services. It manifests itself as rising prices, more money chasing the same amount of goods and services. Deflation is the opposite, the decrease of moneysupply in relation to goods and services.
We can now begin to understand what currency wars are. They are attempts at lowering or increasing the value of currencies relative to other currencies. It is only possible in a fiat economy, where money can be "printed" into existence. Basically, any country can inflate their moneysupply by the press of a few buttons. The US Federal Reserve is currently discussing the size of the so called QE2 (Quantitative Easing part 2, a euphemism for printing money). The hope is that by flooding the economy with cheap credit and low interest rates, savers will be punished for sitting on their cash (with negative real interest rates) and will therefor start taking risks and making the economy grow. No country has ever inflated its way to prosperity, but that still doesn't stop them from trying. Usually, countries have more or less balanced currencies. There is sort of a "gentlemans" agreement that no civilized country will print more money relative to all the others, and thus keep the balance about the same, even though nominal prices increase yearly in the individual countries. What we are hearing now, is that some countries are "misbehaving", and printing more money than they should. This is of course true. China is manipulating its currency quite openly, but so is the US. The political posturing is quite absurd, as they all know that they are doing it but they won't admit to it in public. The US really wants to look like the good guy, while in reality they are the biggest bully in the yard. When countries inflate their moneysupply without economic growth to back the increase, they are trying to change the balance of purchasing power and/or manipulate interest rates. A lower relative currency value is good for countries in debt, as the debt can be paid back in currency that is worth less. A high currency value is good for countries who import most of what they need. They obviously want to get the most for their money. Likewise, countries which rely heavily on exports want to keep their currency value low, so that other countries will buy more from them.
So, what will most likely happen when the US prints money? This is especially interesting, since the USD is the worlds reserve currency. Almost everything is priced in dollars in international trade. Well, what has happened in the past? What happens when the economy is stalling, people aren't lending or spending and loads of fresh money enters the system via the banks? What we see is that it goes mostly into speculation. Since there is very low or no real growth to speak of, but pension and money funds and hedge funds and all the other funds still need a good return on their money, liquidity flows into the stock markets and commodity markets. Now that the housing market is declining in most western countries, the only moneymakers left there are foreclosures and fees to be sucked out of people.
So, the play of the day becomes driving prices up and sell before the bubble pops. Since there is no increase in economic activity to justify higher prices, everyone knows that it's a game, but everyone wants in. The hope is that there is always a "greater fool" who will be standing when the music stops and the chairs are all taken. Of course, this is well known among politicians and economists. In fact, they are counting on it. When there is no economic growth, it has to be manufactured by stealing money from all of us to prop up the markets. How is it stealing? It is easier here to think of money as purchasing power, not of a real number or value. If more money in the system is driving up prices, but you are earning the same amount of money as you were last year, then you have less purchasing power. Where did it go? It went to the people who got a larger share of the moneysupply when it was inflated, ie. the banks and the different funds. Inflating the moneysupply to grow the economy will in the end destroy the system. The imbalances will grow so large, that it will change one way or the other. How that change will manifest has yet to be seen, but historically we've seen wars and revolutions.
We are therefor likely to see a lot more suffering and death in the coming years. When price increases in food staples like rice and corn, which is the basic meal of billions of people every day all over the globe, become so high that fewer and fewer are getting the calories they need to live, we may see hunger and disease and unrest on scales we can't even imagine. Once one country starts printing, the others have to follow or suffer the consequences. It's really a race to the bottom, and is in the end about power and who will come out on top of a now much smaller pile after the dust clears. We already know who will lose, it's the people who's income aren't "inflation adjusted".
We here in the northern part of Europe are lucky. A loss in purchasing power for us isn't so drastic. Even rising prices in the commodity markets due to all the free money being pumped into the system won't do more than restrict our vacation choices or maybe hold off on buying that new car until next year. At least for the short term. However, for the vast majority of the people on this planet who live on a few dollars a day, this will mean less food and basic necessities. Monetary protectionism (either via direct intervention like import taxes, market restrictions or subsidies) or indirectly via monetary policies and institutions (like the World Bank or IMF) have always been worst for the poor. Poor people starve every day because of the way nations keep other nations down with "free trade" policies. They aren't about freedom at all. They know that free markets would redistribute parts of our livingstandard to the poor nations. Our high prices and wages wouldn't be artificially propped up anymore, and more and more people would enter our markets with their products or services at prices which would undercut ours (This is called "social dumping" here in Norway). Free markets are therefor true socialism, the great equalizer between all nations and all people. An important part of a free market is money. While money is controlled by politicians and the global banking cartel and can be printed into existence, there can be no real freedom. The first step to help the poor should therefor be to change the way money works and open our markets to them. Right now, we are doing the exact opposite, and i don't expect it to change soon.
I would first like to clarify what inflation really is. Most think inflation is rising prices. Everything costs more next year, and when asked why that is, most answer "inflation" and leave it at that. The fact is that rising prices is not the cause of inflation. Inflation is the cause of rising prices. This is a very important distinction. Basically, we can think of the economy as a total of money chasing a total of goods and services. The traditional monetarist view is that banks create money (via credit and debt), and lend it out to people who then expand economic activity. Thus a sort of equilibrium is established between the sum of money in the system versus the sum of goods and services. In practice, economies are biased towards slight inflation (in Norway the goal is 2.5% per year) because it is better to have a little inflation than deflation. Money therefor has no absolute value, it is always relative to the goods and services available. Inflation is therefor an increase in the moneysupply versus the amount of available goods and services. It manifests itself as rising prices, more money chasing the same amount of goods and services. Deflation is the opposite, the decrease of moneysupply in relation to goods and services.
We can now begin to understand what currency wars are. They are attempts at lowering or increasing the value of currencies relative to other currencies. It is only possible in a fiat economy, where money can be "printed" into existence. Basically, any country can inflate their moneysupply by the press of a few buttons. The US Federal Reserve is currently discussing the size of the so called QE2 (Quantitative Easing part 2, a euphemism for printing money). The hope is that by flooding the economy with cheap credit and low interest rates, savers will be punished for sitting on their cash (with negative real interest rates) and will therefor start taking risks and making the economy grow. No country has ever inflated its way to prosperity, but that still doesn't stop them from trying. Usually, countries have more or less balanced currencies. There is sort of a "gentlemans" agreement that no civilized country will print more money relative to all the others, and thus keep the balance about the same, even though nominal prices increase yearly in the individual countries. What we are hearing now, is that some countries are "misbehaving", and printing more money than they should. This is of course true. China is manipulating its currency quite openly, but so is the US. The political posturing is quite absurd, as they all know that they are doing it but they won't admit to it in public. The US really wants to look like the good guy, while in reality they are the biggest bully in the yard. When countries inflate their moneysupply without economic growth to back the increase, they are trying to change the balance of purchasing power and/or manipulate interest rates. A lower relative currency value is good for countries in debt, as the debt can be paid back in currency that is worth less. A high currency value is good for countries who import most of what they need. They obviously want to get the most for their money. Likewise, countries which rely heavily on exports want to keep their currency value low, so that other countries will buy more from them.
So, what will most likely happen when the US prints money? This is especially interesting, since the USD is the worlds reserve currency. Almost everything is priced in dollars in international trade. Well, what has happened in the past? What happens when the economy is stalling, people aren't lending or spending and loads of fresh money enters the system via the banks? What we see is that it goes mostly into speculation. Since there is very low or no real growth to speak of, but pension and money funds and hedge funds and all the other funds still need a good return on their money, liquidity flows into the stock markets and commodity markets. Now that the housing market is declining in most western countries, the only moneymakers left there are foreclosures and fees to be sucked out of people.
So, the play of the day becomes driving prices up and sell before the bubble pops. Since there is no increase in economic activity to justify higher prices, everyone knows that it's a game, but everyone wants in. The hope is that there is always a "greater fool" who will be standing when the music stops and the chairs are all taken. Of course, this is well known among politicians and economists. In fact, they are counting on it. When there is no economic growth, it has to be manufactured by stealing money from all of us to prop up the markets. How is it stealing? It is easier here to think of money as purchasing power, not of a real number or value. If more money in the system is driving up prices, but you are earning the same amount of money as you were last year, then you have less purchasing power. Where did it go? It went to the people who got a larger share of the moneysupply when it was inflated, ie. the banks and the different funds. Inflating the moneysupply to grow the economy will in the end destroy the system. The imbalances will grow so large, that it will change one way or the other. How that change will manifest has yet to be seen, but historically we've seen wars and revolutions.
We are therefor likely to see a lot more suffering and death in the coming years. When price increases in food staples like rice and corn, which is the basic meal of billions of people every day all over the globe, become so high that fewer and fewer are getting the calories they need to live, we may see hunger and disease and unrest on scales we can't even imagine. Once one country starts printing, the others have to follow or suffer the consequences. It's really a race to the bottom, and is in the end about power and who will come out on top of a now much smaller pile after the dust clears. We already know who will lose, it's the people who's income aren't "inflation adjusted".
We here in the northern part of Europe are lucky. A loss in purchasing power for us isn't so drastic. Even rising prices in the commodity markets due to all the free money being pumped into the system won't do more than restrict our vacation choices or maybe hold off on buying that new car until next year. At least for the short term. However, for the vast majority of the people on this planet who live on a few dollars a day, this will mean less food and basic necessities. Monetary protectionism (either via direct intervention like import taxes, market restrictions or subsidies) or indirectly via monetary policies and institutions (like the World Bank or IMF) have always been worst for the poor. Poor people starve every day because of the way nations keep other nations down with "free trade" policies. They aren't about freedom at all. They know that free markets would redistribute parts of our livingstandard to the poor nations. Our high prices and wages wouldn't be artificially propped up anymore, and more and more people would enter our markets with their products or services at prices which would undercut ours (This is called "social dumping" here in Norway). Free markets are therefor true socialism, the great equalizer between all nations and all people. An important part of a free market is money. While money is controlled by politicians and the global banking cartel and can be printed into existence, there can be no real freedom. The first step to help the poor should therefor be to change the way money works and open our markets to them. Right now, we are doing the exact opposite, and i don't expect it to change soon.
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