Saturday, November 30, 2013

Oil and economy: The shale oil revo-illusion [Part 2]

Canadian Trends: Oil and economy: Understanding the risks [Part 1]

In part 2 of this series (boy was it stupid of me to start 2 separate series posts at the same time! Stay tuned, more Key Concepts on the way) we're going to look at shale oil and some likely affects it's going to have on short term to medium term oilsands development, profitability, as well as whether or not shale oil represents the saviour energy it's being touted to be.

Shale oil and gas: The transition fuels?

Perhaps the most popular belief about shale oil and gas is that it is a "transition fuel". With conventional oil and gas long past peak the shale revolution perhaps represents a "last chance" to power society while we transition into a new economy, and new energy systems.

The problem, though, is this isn't happening. The result of rapid shale production in the U.S. has been to simply declare the boom times are back, spending can continue, debt can be serviced, so there's no reason to worry. Yet despite the huge increase in production global oil prices are still well within the range extreme energy requires of $80 - $100. Were hearing about how the world is awash in oil yet the price seems to say a different story.

Now, I know many of you are saying.. but.. but.. manipulation! That artificial scarcity and market manipulation is solely the cause of current oil prices, and in a way it is. However, my take on the logic behind this manipulation is slightly different from the conventional thinking. It's not just "manipulated higher for greater profits", that doesn't make sense for many reasons.

First, high oil prices are not sustainable for long periods of time and a high oil price means that production prices of oil will be going up shortly afterward. This is why when referring to the cost of energy you must use energy ratios, as the currency's value is a function of the available energy. So no a higher cost in currency does not translate to more profit over the long term for extreme energy producers (though it does for conventional oil producers which is why OPEC was manipulating prices before).

So yes, when energy was a lot cheaper this logic made sense, however these days we are at the ceiling of affordability. Pushing the price higher just means you can expect a drop in price sooner which for extreme energy producers then means they are put into a situation where oil produced at a higher cost is sold at a lower price. Temporarily it could be beneficial but in the long term it'll come back to bite you.

My conclusion on the way the oil markets work is that oil is being manipulated both higher, and lower, depending on the requirements of oil producers, to ensure maximum stability of oil production. All manipulation of course only works to a point, manipulation can not overcome an overwhelming market move there just isn't enough weight behind it against natural forces on an ongoing basis.

Ok, anyway, back to the point of this section: the transition aspect. Shale oil and gas perhaps represents the greatest IQ test of humankind and our collective ability to overcome the challenges ahead, and so far we're failing, miserably.

A transition utilizing shale oil and gas and oilsands means no more "Black Fridays". These resources must be diverted and INVESTED into the transition to make it possible. This doesn't mean switching all of our cars to LNG and installing over a million new natural gas stations and the infrastructure to support them while we continue to fall behind on the cost of our oil based transportation network, the highways, the roads, the tar. We must move away from personal transport, it is unsustainable in it's current form.

We must treat these extreme energies for what they are, our children's heritage. We, the world, which largely in this case means the U.S. - squandered this generation's resource wealth on trinkets and crap. Very little has been invested into the future, in fact none of it has really been invested in the future because we're borrowing FROM the future to pay for growth now. These extreme energies represent that future, for our children, that we are now depriving them of.

These extreme energies are what the future generations are going to need to deal with the problems we've already created for them, stripping them of these resources to pay our frivolous debts not only leaves them with no wealth to actually enact change, they are also going to compound the problems they face as utilizing these energies in our wasteful society is going to cause immense damage in the form of climate change, and perhaps more directly - just plain pollution. Dirty water, dirty land.

I've written before on why any transitions are going to be a net-loss in today's economic terms. It is an investment in the future, at a cost of the future because we've squandered the wealth of today. A true transition ISN'T going to have any profit in it, none, zip, zero. It's going to cost us, and it should cost us, because we don't deserve any reward for fixing a mess of our own creation using wealth that isn't even ours. We deserve NO REWARD for waiting until the last minute though I think it can be argued now we're past the last minute and no stable transition may be possible as two scientists recently argued.


What is 'the transition' exactly?

The transition is much more than just changing the sources of energy we use. It is a change in our idea of success, dropping the GDP standard. It is a change in the way we prioritize energy and resources, ensuring that anything resources go into provide long term value for society. No more garbage products, and the highest bidder can't always win.

This all may sound somewhat draconian, and it is, or rather it would be if we attempted to implement it with rules and authoritarian control, surveillance, monitoring. This is not what I'm advocating. As I said, this is really the greatest I.Q. test of humankind, can we collectively come to the realization that changing the natural order of society is in our best interest? I don't know, but I would submit that if we are not mature enough as a species to come to the realization, then we are not mature enough as a species to accomplish the transition under any order. If the change does not come voluntarily, individually, as a result of freedom of thought then it will not come at all. It's not something that can be legislated.

A skewed value system

In our growth and debt oriented value system current extreme hydrocarbon energy is both simultaneously over and under-valued. It is over-valued in today's growth atmosphere with the bitumen bubble providing the best example. Bitumen is of a much lower quality than conventional oil and there should be a spread between bitumen and WTI. The real bitumen bubble is when the price of bitumen approaches the price of Canadian oil, it is now overvalued in today's terms with a speculative bubble on future outlooks providing the added value.

However, bitumen is also extremely undervalued as valuing these non-renewable resources on the same scale as we value all aspects of the growth economy is just plain wrong. These resources represent the difference between prosperity and poverty for future generations. These resources will be needed to maintain and provide any technological base we hope to utilize to overcome the challenges in the future. Used today to pump up GDP and the markets and service the minimum payment on debt is a dangerous, irresponsible, and ultimately futile usage of these resources. But used sparingly, responsibly, and with a focus on value-added production of long term technologies they represent the hope we have of not simply regressing back to the stone age as we keep lowering the bar to make life appear affordable.

This skewed value is even worse for shale oil and gas.

An apparent "glut" in the U.S. has dropped prices for these extreme energies to recent lows. The rapid rise in production is being compared to the very discoveries of oil and gas themselves. But they are not the same at all in terms of quality. A high quality of energy got us to where we are today, this rate of expansion simply just can not continue on a lower quality of energy.

Canadian Trends: Peak Canada? No, it's still peak oil

Why is shale a lower quality?

While "total reserves" is the most touted stat of energy, rates of production and depletion rates are much more important and paint a different story than "total reserves" initially indicates. Business Insider put out a pretty good piece on it (however I disagree with their conclusion which we'll get to). Go ahead and check out those charts, then we'll continue.

So as you can see from those charts the U.S. is "fracking up a storm" but the depletion rates of shale wells are abysmal meaning the number of wells that must be drilled is incredible, yet they've concluded that shale is here to stay because the total number of wells that can be drilled is quite large. They make a note of all the problems with it like water usage, and earth quakes, but that doesn't seem to concern them. It does for me.

Massachusetts seeks 10-yr ban on gas fracking after series of Texas quakes
A Texan tragedy: ample oil, no water

The boom is really just kicking off and already they are hitting significant limits to growth. This form of energy can not supplement conventional oil for the type of consumption we've become accustomed to. It's really as simple as that, and attempting to use it as such is a huge waste and will create an environmental debt that will take generations upon generations to repay.

Now, Mound's question on shale was related to Australia. Report questions economic benefit of shale gas extraction.
Australia may have over 1000 trillion cubic feet in undiscovered shale gas resource but the enormous cost of infrastructure needed to extract it may outweigh its economic benefit unless shale gas prices rise, a new report has found.
Like Canada, Australia lacks the infrastructure needed to seriously take a cost-advantage of the mass production of extreme energy. Of course, they're going to try anyway, and like Alberta I imagine they will use "austerity", "conservatism", accounting tricks etc to hide the true reality from their population. But like Alberta, I'm sure they'll notice that "living within their means" is getting harder and harder to accomplish no matter what the price of their resource is or how much they produce. Already their industry is working hard to hide the environmental reality.
Australia's coal seam gas industry has rejected a peer-reviewed report that suggests greenhouse gas emissions from drilling and fracking are 50 per cent worse than thought.
Shale does represent an economic threat to oilsands, and that's a good thing

Will oilsand demand be affected by shale developments? Absolutely, but ultimately I think that represents a good thing. It's a chance for Canada to utilize foreign resources and save the oilsands for future generations. It's a chance for Canada to transition at a relatively cheap cost utilizing the stupidity of other nations and their desire to get all of their resources out the door in exchange for U.S. debt as Canada is doing currently.

More than any other country, I think the shale boom represents a last chance for Canada to take advantage of the future and make the needed changes now. A 100 year plan of strategic investment in our children's future is what's called for. The world is providing the perfect opportunity for us at a cost to themselves and we'd be stupid not to take it. Let's import shale oil from the U.S. and slow oilsands development right down. Let's savour the massive bounty of resources we've been blessed with.

Low oil prices are affordable prices, and our government has been working hard to make Canadians forget that fact. Investment in our future is best done when energy is cheapest and right now energy is the cheapest that it's going to be for the foreseeable future. We can either take the opportunity in front of us or we can chase U.S. debt down the extreme energy rabbit hole of the American Jesus and squander everything we've got left in the process. It's our choice, that's the beauty of freedom.


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Friday, November 29, 2013

Canadian MSM scrambles to defend NSA spying

The National Post and Toronto Sun have both put out pieces trying to justify the NSA's presence as "just doing their jobs". The only problem? The jobs they assume they were doing are completely different, arriving at two completely separate conclusions for their purpose of being here.

The Toronto Sun claims:
For some sensitive souls — oh, all right, the CBC — that is enough to start hyperventilating when it’s revealed the Harper government allowed the U.S. National Security Agency (NSA) to do covert work in Canada during the 2010 G20 summit.

Something they do all the time on a global scale as part of the Five Eyes multi-national intelligence network.

The Five Eyes is a club that consists of the Unites States, the United Kingdom, Canada, Australia and New Zealand.

Each member has its own internal and external agencies that for almost 70 years have shared everything they gather. Sometimes within their own borders, sometimes outside.

Not only that, the respective members of this elite club mirror political systems and inherited versions of British law that makes this possible with limited judicial oversight.

They are far from alone.

Spying is an international trade that knows no borders. The advent of the digital age has made it easier than ever to see what people look at online or discuss during telephone conversations.

The argument that just because everyone does it somehow makes it right is of course spurious, but the greater good is served if a potential terror attack is thwarted.

Think of the first question that is always asked after terrorists do their work: “Why didn’t somebody see this coming?” is universally uttered by those most affected.

Andrew Parker, director of the U.K.’s peak security service MI5, made it clear in a speech in London last month that spies exist for a reason.

They are there to watch us. We might not like it, but they do it all the same.

“Being on our radar does not necessarily mean being under our microscope. The reality of intelligence work in practice is that we only focus the most intense intrusive attention on a small number of cases at any one time,” Parker said.

The NSA was in Canada because it saw a threat to U.S. interests in general and its human capital in particular. Simple as that.

They didn’t watch everyone, read every e-mail or listen to every conversation. As Parker points out, security agencies do their work in a targeted manner because they don’t have the ability to be everywhere at once.
So, according to the Toronto Sun they were there because they "saw a threat to U.S. interests". Which is interesting isn't it? They couldn't trust our $1billion summit's super-security lockdown even though CSIS had declared prior to the summit there were "low terrorism risks"?
The upcoming G8 and G20 summits in Huntsville, Ont., and Toronto do not appear to be the subject of terrorist chatter, the head of Canada's spy agency said Monday.
"I think [there is] surprisingly little on the terrorism front," Richard Fadden, the director of the Canadian Security Intelligence Service, told the CBC's Peter Mansbridge in an exclusive interview.

"We don't think there is anyone who is really interested in doing any harm from that perspective."

"Anarchist groups" and "multi-issue extremists" are a different matter, however, Fadden suggested.

"Nothing attracts the world media like the G8 and G20, so anyone who is interested in getting their issues in front of the public, I think, are interested in being in Toronto," Fadden said at his Ottawa office. He predicted turnouts of "a substantial amount of people."
So there wasn't a threat terrorism wise, right out of the mouth of CSIS, yet there was a threat "anarchist and multi-issue extremist" wise. Going back then to the author's point of asking "why didn't somebody see this coming?", one has to ask how 10000 police, the NSA, CSIS, and CSEC all couldn't see the "black bloc" riot coming, even though they were expecting it to happen, even though it was triggered by a flare, even though mainstream media said prior "we're expecting some trouble", even though the entire Toronto downtown core was covered by CCTV.

The author also goes on to say these 5-eyes share information, both "inside and outside their borders", then assures you all you weren't the target.

Let's see what the National Post has to say.
The allegations contained in the CBC report are interesting, no doubt. The NSA reportedly set up a command post in the U.S. Embassy in Ottawa, and worked closely with a “Canadian partner” to gather intelligence on foreign delegations, to provide “support to policymakers.” In other words, listening into what the foreign delegates were saying to each other, and then quietly passing that information onto the U.S. and Canadian leadership.

We do not have confirmation that Canada spied directly, but it almost certainly did, or at least facilitated U.S. efforts.

Both the chief of CSEC, John Forster, and Defence Minister Rob Nicholson said Thursday that CSEC cannot eavesdrop on Canadians or visitors here, nor can it ask a foreign friend to do so on its behalf. However neither would say what would happen if the NSA offered to do so.

Even when dealing with allies, every country in the world does its best to analyze what a partner’s negotiating position is going to be. How far will they bend to get a trade deal? Just how concerned about a border dispute are they? A lot of the information that governments seek is available to them through conventional means — news media, public statements, regular diplomatic channels. Some of it has to be obtained clandestinely.
First of all, CBC's release explicitly states that:
The NSA and its Canadian "partner," the Communications Security Establishment Canada, gather foreign intelligence for their respective governments by covertly intercepting phone calls and hacking into computer systems around the world.

The secret documents do not reveal the precise targets of so much espionage by the NSA — and possibly its Canadian partner — during the Toronto summit.
There is no mention of "foreign delegates". The national post is taking previous reports of spying on delegates at other G20s and assuming the case is the same here. And why? Oh, for the "trade" aspect. Getting that insider info, you know?

So, two posts claiming that you have no reason to be concerned and the reasons are clear why they were here even though the "obvious" reasons are on completely different ends of the map and neither post really even bothers to investigate the legality of it which really should be the focus here, shouldn't it? Plus the NSA show no regard for laws anyway.

Canadian Trends: The G20 is the nexus of everything Canadians really need to know


Click here to recommend this post on progressivebloggers.ca and help other people find this information.

Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Wednesday, November 27, 2013

UPDATE-1: The G20 is the nexus of everything Canadians really need to know

Senate scandals and off-shore tax havens have nothing on the G20 when it comes to the amount of ignorance claimed by "government officials". Just now we have a great little gem out of CBC.

New Snowden docs show U.S. spied during G20 in Toronto
The briefing notes, stamped "Top Secret," show the U.S. turned its Ottawa embassy into a security command post during a six-day spying operation by the National Security Agency while U.S. President Barack Obama and 25 other foreign heads of state were on Canadian soil in June of 2010.

The covert U.S. operation was no secret to Canadian authorities.

An NSA briefing note describes the American agency's operational plans at the Toronto summit meeting and notes they were "closely co-ordinated with the Canadian partner."

The NSA and its Canadian "partner," the Communications Security Establishment Canada, gather foreign intelligence for their respective governments by covertly intercepting phone calls and hacking into computer systems around the world.

The secret documents do not reveal the precise targets of so much espionage by the NSA — and possibly its Canadian partner — during the Toronto summit.

But both the U.S. and Canadian intelligence agencies have been implicated with their
British counterpart in hacking the phone calls and emails of foreign politicians and diplomats attending the G20 summit in London in 2009 — a scant few months before the Toronto gathering of the same world leaders.

Secret documents released by U.S. whistleblower Edward Snowden have provided new insight about the level of U.S. and Canadian spying on allies and foreign diplomats. (The Guardian/Associated Press)

Notably, the secret NSA briefing document describes part of the U.S. eavesdropping agency's mandate at the Toronto summit as "providing support to policymakers."
The G20, the most lavish display demo of the security state infrastructure being implemented.

No investigations of this summit were ever allowed in jurisdictions that could touch the PMO! The investigation ended at the police commanders and the expenses. The denials and claims of ignorance you're seeing now by the likes of Harper, his corrupt senators (which by the way the "honorable" Senator Patrick Brazaeu is working on a tell-all book that he'd like to sell, nothing like capitalizing on the cronyism and destruction of democracy to show you truly care), Jim Flaherty, and everyone else in the government's fiat currency free trade fan club are the same denials and claims to ignorance that you saw following the G20.

The G20 is the key folks. The NSA, CSEC, CSIS, the spying in general, the suspension of civil rights, the B20, the banking cartels, the corruption. It's all tied in together! The G20 is the mega-scandal of all recent scandals but at the time much of Canada's Conservatives were blinded by a staunch partisanship. Perhaps now that Harper's "conservatism" is in question they will entertain the idea he may not be conservative at all, but rather a globalist.

The G20 was a massive intelligence operation orchestrated by world governments and international corporations against the citizens of this country. It bypassed typical police budgets and equipped the nations forces with paramilitary style crowd control equipment. It was the biggest mass arrest in Canadian history and a preview of things to come.  If you're going to demand an inquiry into anything, it should be this.

Watch. Share. Inform.

What really happened at the G20:

"I know it's a loss of national sovereignty but it's a simple reality" - Stephen Harper:


Update-1

Canada's top spy won't answer questions about G20 surveillance
John Forster, chief of the Communications Security Establishment of Canada (CSEC), and Defence Minister Rob Nicholson both pointed to international security and said they couldn't answer questions about top secret documents retrieved by U.S. whistleblower Edward Snowden.

The documents show Prime Minister Stephen Harper's government allowed the National Security Agency (NSA), the U.S.'s largest spy agency, to conduct widespread surveillance in Canada during the 2010 summits.

Forster wouldn't answer repeated questions about whether Canada would let its allies perform those activities inside Canadian borders.

"I do partnerships with the Five Eyes allies but I do not ask them to perform actions that is against the law for me to perform in Canada."

The Five Eyes is the name given to the intelligence-sharing partnership between U.S., U.K., Australia, New Zealand and Canada.

Defence Minister Rob Nicholson also refused to say whether Canada let the NSA spy during the 2010 G8 and G20.

"I don't comment on an international security operation but under the law, CSEC cannot target Canadians. They are required to follow the law of this country," he said.

"I look at the independent audit of this organization and they have come up with positive results in the sense that they comply with Canadian law and by law they can not target Canadians."

No, CSEC can't target Canadians, they also can not invite foreign intelligence agencies to target Canadians either, or to do anything here. Notice the wording: "international security". Not "national security". These people don't answer to this country. "This isn't Canada". "It's a loss of national sovereignty". Notice a central theme in all the responses on G20? CANADA doesn't mean shit.


Click here to recommend this post on progressivebloggers.ca and help other people find this information.

Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Oil and economy: Understanding the risks [Part 1]

In my last post on the bitumen bubble I was prompted with some questions on the global situation. My answer has become quite complex, so it's been made now into it's own post.

Hi Richard. Just how does this madness end? In terms of the larger, global Carbon Bubble, the world seems content to continue defying gravity - for now.

The world is not so much content as the banking system and those invested in such a system are content. Pete McMartin put out a great piece recently "who pays for climate change?":
As usual, there were fundraising drives. Emergency response teams were dispatched. Government dedicated relief funds and promised to match private donations. The chaos on the ground and the rising death count was leavened — here, anyway — by Feel Good stories of charity.

But this time, something was different. Typhoon Haiyan was so abnormally big it left behind more than a devastated Philippines. It left in its wake a heightened sense of the global divide of climate change. The rich play, the poor get their homes flattened. And the poor, who are most affected by climate change and least able to mitigate its effects, are growing increasingly angry.

At the United Nation’s Framework Convention on Climate Change, now being held in Warsaw, Poland, the Philippines climate negotiator Naderev Sano, who drew a direct link between Typhoon Haiyan and climate change, first thanked the developed countries for their help, then told them that the poor countries of the world need more than their charity. And he was not the only delegate there to do so.

They needed compensation, he said. They needed a global fund established to mitigate the damage the big greenhouse gas-emitting countries were causing. And they needed those rich countries to accept their moral responsibility for doing the most harm over the longest period to the global climate.
 
He then vowed to starve himself until they did.
So, referring to the world as a singlular entity I don't think is correct, much of the world is at the tipping point already, it's a small minority driving the status quo. As I wrote in my (incomplete) coverage of the 2012 budget:
A few other paragraphs confirm for me that the government believes fully in climate change and that it is occuring now and is inevitable as earlier signs have indicated.

Canada’s Economic Action Plan laid the groundwork to establish a world-class research station in the North. As announced by the Prime Minister in August 2010, the station will be located in Cambridge Bay. Once established, the station will provide a year-round presence in the region and anchor the network of research infrastructure across Canada’s North, making a significant contribution towards the Government’s Northern Strategy. The Government will be announcing next steps in the establishment of the Canadian High Arctic Research Station in the coming months. Combine the link, the "research station", and the explicit mission we have for research directly from section 3.1:

The Government’s science and technology strategy, Mobilizing Science and Technology to Canada’s Advantage, emphasizes the importance of ensuring that federally supported research contributes to the commercialization of new products, processes and services that create high-value jobs and economic growth.

Guided by this strategy, the Government provides significant resources to support research, development and technology. It's not unreasonable to assume the research station will be heavily involved in arctic mining research as thats one of few products, services, or processes that can be commercialized. This compliments another paragraph in regards to climate change (from the section on GMO research):

•Increasing the competitiveness of the forest industry. Spruce trees are the most widely used species in Canada’s forest plantations. Researchers at Universit√© Laval are working to develop tools and protocols that make it possible to select high-performance spruce trees with better quality wood and high potential to adapt to climate change. Government and industry have partnered to transfer molecular breeding technology to commercial application across a broader range of tree species, to increase the competitiveness of the Canadian forest industry.
I'm more convinced than ever now that the government's climate change strategy is adaptation and not prevention (indeed I believe they believe it is now impossible to prevent). Take note of the wording "better quality wood with high potential to adapt to climate change". It's current tense and matter-of-fact.

I anticipate most policy will be geared towards adaptation with climate change simply becoming a reality.
There is no "seeming" about it, adaptation, not prevention or mitigation, is the chosen path forward. Any talk otherwise by the major powers in control of this situation is just talk, or in the case of carbon trading or taxing, a scam meant to inflate an economic bubble greater than the current currency bubble itself. Explaining why this is would require an entire post on it's own (which I will do one day if I get the time), but I can sum up the logic simply as: If currency is backed by future production then currency itself can not be the limiting factor in future production. Proponents of these systems simply do not understand how the monetary system operates making the implicit assumption that currency represents historic wealth (or a store of value) rather than future wealth.

I am wondering whether the industrialized and developing nations aren't locked into some fossil fuel extraction paradigm they cannot shake.

The paradigm they can not (or more accurately will not) shake is that of infinite growth and debt.

I posted yesterday a great set of youtube videos that explain the infinite debt monetary system really well, but something Mike Malony doesn't get into, or perhaps himself doesn't understand, is that the USD isn't backed by nothing literally - rather it is backed by future production, future production made possible by the people, powered by oil.

It is the burning of carbon (though more recently banking shell games and fraud) which enables the current standard of GDP. Andrew Leach recently put out a great analysis of pipeline efficiency and the obsession with "productivity" which provides, in example, an explanation of the paradigm world governments are currently trapped within, deliberately by the banks.
The CEPA study is the perfect example of what’s wrong with using I/O models to measure the benefits of infrastructure, either existing or proposed.

Ideally, pipelines would be cheap to build, would use little energy, and thus would allow resources to reach their markets at minimal cost, maximizing the value realized from extraction of our scarce resources. By enhancing the value of resources, efficient transportation would enhance the implied productivity of labour in the resource sector. The method used in the CEPA study would value a pipeline system which was costless to operate at something approaching zero, and leave us all wishing for more expensive pipelines so that they’d have more economic impact. If you can’t see how that’s backwards, you’re just not giving it enough thought.

The CEPA study looks at the annual operating revenues of pipelines, and treats those as a shock to the economy – money which would not otherwise be spent. Of course, nothing could be further from the truth. Operating revenue of pipelines is revenue not earned by resource production or refining, depending on the dynamics of the particular energy market, or money not saved by consumers at the pump. This is not money which is magically added to the economy. Rather, it’s part of the value of resources lost to the costs of transporting them to market. The higher the transportation costs, the lower are taxes, royalties, net revenues to producers, margins of refiners or the higher are consumer costs. These lower margins would either mean less employment or lower wages or both in the upstream sector, while higher costs would lower welfare for consumers, all as a result of the lower productivity that we’re told is a source of great benefit to the economy. It’s as close to zero sum as you can get.
Leach unfortunately doesn't go far enough in his analysis to realize that's the same across the board, that the entire economy is now looking at "cost for cost's sake" as an indicator of economic health. You now look at central banks saying "there is no inflation so we're keeping rates at zero", but their entire idea of inflation is off base:
Perceptions can be skewed by big-ticket items, like houses and the appliances needed to fill them. A look at the cost of daily or weekly needs provides a different picture, one of mostly weak increases and equally narrow growth declines.

Inflation — like the data shows and the Bank of Canada keeps reminding us — is nowhere close to being a problem that would require jacking up interest rates.

That’s not likely to happen for another year at the earliest — not until the Canadian economy is chugging steadily along and inflation is holding around the central bank’s ideal 2% target.

For now, the consumer price index is struggling to stay around the 1% mark.

Unless there is deflation somewhere, prices are still rising [overall] and the cost of living for consumers is still going up,” says Mel Fruitman, vice- president of the Consumers Association of Canada.

“The ordinary consumer doesn’t look at the inflation number put out by StatsCan, they look at how much it costs them every month to live. We’re not seeing any decline there,” he says.

“At the end of the year, we’re still going to have less in the pocket than we did last year, no matter what. All we know is that if inflation is high. It’s going to cost us more to live. If inflation is low, it’s not going to cost us as ‘much’ more.”

Philip Cross, former chief economic analyst at Statistics Canada, says the difference in price perceptions comes from comparing everyday items to durable goods with longer lifespans.

“We buy groceries. We fill up with gasoline. So, we see price increases in these areas,” says Mr. Cross, now a private consultant.
Inflation is not only being hit by excessive monetary printing, but also by a major increase in the cost of energy. In other words, not only does a unit of energy now require more monetary units to purchase, the energy itself is also providing less of a return compounding the problem. Government's are hiding massive inflation (really devaluation) by both exporting this inflation to other countries (through the practice of free trade agreements) and by comparing the price of hamburgers and TVs. The CPI in it's current form only accurately describes inflation if you have enough disposable income to actually buy products across the board, for the poor whose spending is limited the necessary items they need to buy are all incredibly inflated leaving them little money to "save" on the cost of a TV.

Utilizing this skewed inflation scheme government's are justifying rapid amounts of currency creation which is supposed to "fuel growth" and "recovery", however with an energy supply that has now become many hundred times more expensive than conventional oil production the excess energy (wealth) required to actually create real growth is gone. All growth, all growth estimates, all budget estimates, are being based on a record low interest rate environment. Just imagine what Alberta's budget would look like with normal interest rates attached to the debt, or Edmonton's arena. As a society we're calling this sort of deficit spending "affordable" because of record low emergency interest rates and the normalized expectation that the required productivity needed to service these debts is possible, this expectation is based on our recent historical observation of energy ratios. We're still spending like oil has a 100:1 ratio, when in reality it now has closer to a 5:1 ratio. That's a massive amount of expected future wealth that has just evaporated, yet we are not accounting for this evaporation in our expectations moving forward.

A good example of the mentality here would be someone who makes over $100,000 and has adjusted their lifestyle to make use of that sort of income suddenly losing their income source. While the very reality of perhaps a new income level of only $30,000 is obvious and apparent, the mentality of the person is likely still stuck in the spending patterns of a $100,000 income. It's very easy and natural to move up the chain of a standard of living, it's very challenging to move down the chain. High cost hydrocarbon energy is the entire world moving down the chain together, and stimulus is an attempt to counter that. This is evident by the continual "ceiling to growth" we continue to hit:
Customers at St. Albert gas stations were in for a surprise Thursday morning as fuel prices dropped to about 99 cents. Some may have welcomed the reduced hits to their wallets but economists warn that lower gasoline prices also point to possible shifts in the local economy.

Although oil supplies continue to ramp up, Alberta still lacks the ability to move a large amount of its product out of the province, said John Rose, chief economist for the City of Edmonton. This keeps prices at the pump low but could drive investment out of the province in the long run, he said.

“Over the last couple of months we've seen a very significant gap open up. Great for refiners, that supports their margins. Great for people who are buying gasoline because it helps to drive gasoline prices down,” he said. “But in terms of continuing investment in the oilsands, not such great news.”

Gasoline made out of the oilsands is a relatively expensive product compared to other sources of oil, said Rose.

In order to create increased investment and production, Alberta oil should sell for no less than $60 to $80 a barrel. Once the price drops below that number, and Alberta finds no additional pipeline capacity in the United States, the West Coast or Eastern Canada, Rose said oil companies may start backing away from major projects.
I would actually submit that with currency inflation the "floor" price is no longer $60, but actually $80 with a new ceiling of $100. I've been documenting the economy bouncing between these two limits for some time and so far every prediction based on them has turned out. This is again a function of a severe underestimation of how fast the cost of living is actually rising.

What risks are the federal and Alberta government exposing us to by recklessly committing us to a truly high-cost, high carbon unconventional petroleum?

The number of risks from pursuing these projects grows exponentially everyday, while the number of benefits is approaching zero. This has been the centralized theme of my opposition to the oilsands. They are an economic blackhole whose wake of destruction outweighs the wealth remaining that would be needed to repair this destruction.

Perhaps the scariest thing about them is that because they represent a downgrade globally in the general quality of energy and thus available future wealth by the time the reality of the destruction reaches an obvious crisis point governments will be so indebted they will be unable to mitigate the damage just as Japan, after decades of deflation and stimulus spending, now does not have the resources to address Fukushima and so decided a coverup will work just as well. In fact Japan is only being kept in economic limbo because of the support they receive from the U.S. which has now entered it's own liquidity trap and will be unable to help them much longer at which point it's likely Japan will have to default and Fukushima will go unaddressed.

As real wealth evaporates governments are going to accelerate "cost cutting" measures to balance budgets. I think Lac-Megantic shows the end result of that pretty well:
LAC-MEGANTIC, Que. - Ottawa and Quebec shared a rare moment of solidarity Thursday, agreeing to split the estimated $190 million price tag to decontaminate the devastated town of Lac-Megantic.
The company responsible has already gone bankrupt leaving the government, meaning the people, to pick up the tab. There are many, many, more Lac-Megantic or Fukushima scale disasters waiting for us over the coming years as maintenance costs continue to be cut and infrastructure spending falls further behind, as we are now seeing in Quebec with the Champlain bridge. All of this cost cutting, deferring maintenance, and halting infrastructure spending to "balance the budget" in the 90s (and now) was simply an attempt to mask a declining standard of living but ignoring those costs don't make them go away, it simply deferred and amplified them into the future.

The short term risk to Alberta, and Canada, by pursuing the oilsands is an unpayable monetary, structural, and environmental debt. What good is a twinned highway to Fort McMurray after these projects die off? Infrastructure spending happening today in Alberta is not to support the people, it's to support the industry. It's shortsighted, and a major waste of non-refundable wealth. Alberta literally spends all of it's wealth on the industry that's providing the wealth in the first place and increasingly has to cut back on social service to meet this growing cost of infrastructure. Alberta provides perhaps the most minimal and privatized service in every department of all provinces across the country even as it's population and tax base is growing. This does not indicate wealth in my books, Alberta's collective wealth is decreasing overall.

The medium term risk (which partially addresses your second question regarding shale oil) is that as energy supplies get tighter and more expensive, market volatility is going to rise.

Alberta's come out with the cute name of "bitumen bubble" to essentially describe periods of market activity that don't favour it's economics, perhaps similar to how a gambler may grasp at straws for arbitrary reason to explain why "their system" was defeated. As you've eluded to with your new post on these shale gas finds and your second question bitumen's demand is highly dependant on the availability of higher quality energy sources. However, Shale Oil - while being a higher quality than bitumen is of a lower quality than conventional oil. Everything I've stated above remains true, whether we're talking shale oil or bitumen society as a whole is looking at a downgrade, and not an upgrade, of collective wealth. I'll get more to shale oil in a separate post. The irony of oilsands or shale oil developments is that they need a good availability of higher quality energies to subsidize the cost of production and ensure energy stability, on top of government subsidies and the subsidy provided by cheap liquidity in the form of low-interest loans.


The long term risks? Leaked Climate Change Report Predicts Violent, Poorer, Sicker Future

I will get to the meaning of shale oil for the oilsands in a separate post as it's a fairly complex subject on it's own.

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

UPDATE-1: The simplest explanation of the monetary system yet












Update-1


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Tuesday, November 26, 2013

The Bitumen Bubble is back from holiday

With the latest slump in WTI oil prices and the potential nuclear deal with Iran laying a foundation for even further easing (who would have thought "ethical oil" needed "conflict" to be "economically viable", eh?) Alberta is already preparing it's excuses for the next round of budget mayhem. That's right folks, the bitumen bubble is back from holidays!
“We are only now starting to see the costs of the flooding show up on our bottom line. In addition, the bitumen bubble is back from its holiday, highlighting the need to remain focused on building new markets and fiscal prudence as part of our Building Alberta Plan.”
It's still unclear how exactly a depressed price of the overvalued bitumen asset is a "bubble" but I don't think we'll be getting an answer on that from Alberta's top notch gambler economist, Doug Horner, anytime soon. In the meantime Alberta's population is exploding:
Alberta’s population has passed the four million mark; a record 105,200 net migrants came to the province during the 2013 census year.
Alberta has apparently realized though some significant savings in the recycling of old propaganda, as along with the "bitumen bubble" the province is sticking with it's separation of "operational" and "capital" budgets. Thankfully our tax dollars are not going to a team of P.R. professionals hired to make bad news digestible by the "fiscally prudent" population.
Capital plan results were on track with the budget estimate, with capital spending at $2.4 billion. Direct borrowing for capital purposes was $1.7 billion. 
Yet this "economic engine" of a province cuts more and more "operational expenditures" to continue "living within it's means" (despite the loans for "capital spending") because as we all know being rich is all about constantly checking and constraining to make sure you're "living within your means", instead of, you know, increasing spending to meet a higher standard of living:
Circumpolar research has been hit hard by funding cuts the University of Alberta.

The U of A’s grad student association is speaking out after the Canadian Circumpolar Institute was hit by cuts, and the Circumpolar/Boreal Alberta Research funding was eliminated entirely.
Funny how there was no "living within our means" talk when Alberta was actually getting a return on the oilsands from an exponentially rising unidirectional oil price and an almost all-out freeze on "capital spending". I guess the meaning of being "the richest province" has changed now that oil price is bi-directional.

Clearly the Alberta government continues to work hard to ensure that Albertan's don't realize that these "capital" costs will be ever growing and ongoing so long as "oilsands expansion" remains the province's primary goal and the population keeps rising, and are not a "one time" expense as they are being sold. That means expect many more "operational surpluses" and "capital deficits" from now on.

All of the infrastructure spending happening today is to support the population that moved here from the last boom! Remember when rental vacancies were down to 0.1% and bachelor rents upwards of $1200 / month? We didn't have the needed infrastructure then, and we're just catching up to those levels now that we've surpassed them population wise.

So welcome back, Bitumen Bubble, Albertan budget excuses just wouldn't be complete without you. Saudi Alberta - We're living within our means!


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Wednesday, November 20, 2013

Key Concept 3: The Peaks

In key concept 2 we looked at how diminishing energy returns are effecting the economy and the steps the elite are taking to mitigate that issue (for themselves). In key concept 3 we'll be looking at the other side of this equation, how oil enables the foundation of the current control system and what peak oil means for that situation.

Betting on 'more'

The infinite growth economy operates on the principal that the future will always be larger than the present. When we talk about risk in loans that risk derives from the likelihood that the loan can be repaid. The likelihood that the loan can be repaid is based on the odds that there is enough productive capacity that can be utilized by the loan to generate enough real wealth to cover the bet plus incurring interest.

"Growth" is extremely important within the current control system as to keep the hamster wheel spinning there must always be more debt to pay than actual currency to pay it. The result of this is that all debt is actually paid by other debt. Every dollar you own is someone else's debt and if all debts were somehow able to be repaid there would be no currency in circulation.

Let me give you a practical example:

Person 'A' takes out a mortgage to afford a house, this mortgage has compound interest attached to it. to pay off this mortgage person 'A' gets a job with company 'B'. Company 'B' to pay their employees and expand takes out a loan which likewise has compound interest attached to it. For company 'B' to pay off their loan they must sell products, which are likely being paid for by people or companies who themselves are utilizing loans for capital or are employed by companies using loans for capital, and so on and so on. Consumer banks themselves also borrow from the central bank at interest.

Each loan is a bet on future production, that there will be more future production, or in other words that the future will be larger than the present. This isn't a big problem so long as the underlying energy supply continues expanding relative to the rate of growth. With conventional oil it was quite easy to expand the underlying energy supply, with extreme energy like shale or oilsands this has become a major challenge.

Expansion is much more than just production numbers, production numbers don't clearly show how much of past production or the wealth generated by past production is being utilized for current production. sure the U.S. production numbers are climbing to levels not seen since their initial decline from peak production but they are also using a lot more than they had to historically to accomplish that. Despite a glut in supplies, prices remain high because high prices are required to produce these numbers in the first place.

Viewing peak oil through an economic lens

What's commonly misunderstood about peak oil is that not only is it not describing 'oil depletion', if peak oil theory is accurate then oil depletion is actually impossible. The reason it is impossible is that economically it is both natural and logical to go after the easiest or cheapest to produce oil first. So oil companies initially sought after conventional oil deeming the other oil to be "nonviable". Now we've moved on to extreme energy which is a lot harder, and more resource intensive (expensive) to produce. We produce oil discoveries in the order of the easiest to produce to the hardest to produce. The harder the discovery is to produce, the less energy returned on energy invested you get from it.

It is inevitable that we will hit discoveries that have an energy return ratio of 1:1 which to produce would have no net benefit at all. There is no reason to produce a barrel of oil if it took roughly as much energy to produce as you get in return. To actually deplete the world supply of oil would require more energy than there is oil to accomplish it. Depletion in a practical sense simply means that we've hit that 1:1 ratio.

The reality though is that oil production is unlikely to even reach that point as oil production itself relies on a healthy and functioning supply chain which is operated by the economy. When oil becomes too expensive the supply chain seizes up, consumers have to direct more of their spending towards gas and to absorb other increased cost, and ultimately demand is destroyed before we even test the limits of production.

We witnessed this in 2008, in fact it can be argued that it was the price of oil and not the ponzi scheme in housing which actually triggered the collapse of 2008. Yes the ponzi would have eventually collapsed regardless but the reason it collapsed when it did was likely due to the price of oil which hit a record $147 / barrel. This price caused consumers to drastically alter their spending habits, eat significantly into their credit and ultimately default on their loans. The expansion required of cheap energy to meet the existing debt obligations was not possible to achieve. The bubble popped, and the rest is history.

Demand for oil after this event almost completely dropped off entirely, temporarily bringing the price down into the $40 range which then began causing problems for extreme energy projects like the oilsands. What's important to note though is that despite $147 representing incredible demand and diminishing supply the economy itself became unstable long before oil supply would have become unstable. Oil shortages won't be happening because demand exceeds supply as the economy itself can not support that situation, oil shortages will be coming when the economy can no longer remain stable for periods long enough to maintain oil production.

As we covered in key concept 2, expanding the currency supply without being able to expand the underlying energy to support an expansion in the means of production and new wealth simply means that the currency is devaluing. The efforts to print currency to kick start growth are all in vein as the moment that growth places demand on energy that is unaffordable to your average consumer, or business, demand drops off.

You can see this effect playing out right now. When oil price is relatively low (80-90) money printing kicks off a new run at growth and the "recovery" resumes. By the time the recovery has truly taken hold though the price of oil has risen to upwards of $100, which I have determined to be the current ceiling of affordability. Shortly after we hit this ceiling the recovery "stalls", demand for oil is destroyed and the price returns to an affordable amount and we start all over again.

The amount of capacity built up in the credit markets before 2008 allowed the oil price then to overshoot the ceiling as to continue affording oil people dipped into their credit to get by. However, now that this credit has been used up the market is reacting almost directly to the affordability of oil within very short time frames. The window of opportunity for growth is very small, between 80-100 / barrel, which has resulted in a growth economy that's not provided enough room to build up the momentum to carry growth on it's own. By the time growth starts heating up we hit our $100 ceiling and within a few short months demand is destroyed and oil price drops again.

It's not just oil

Peak oil is the most prominent of the 'peaks' but is certainly not the only one. Peak oil is incredibly important because oil is perhaps the most ubiquitous resource we have with so many uses that you can pretty well declare that the modern industrial economy is founded on it. It is the basis of our technological prowess; without oil we couldn't mine the lithium or materials needed for more advanced forms of technology.

Major advances in our technological ability have always rode on the back of major energy finds. It's always been a move to energy of a better quality, not worse. The world's population never surpassed 1 billion people until oil provided the capability to sustain more than that through industrial agriculture. A transition to a lesser form of energy has never happened, and all other forms of energy available to us do not match oil's density, mobility and versatility combined.

Oils combined energy density and mobility is unmatched by any other source. Its important to understand that the cost of all other forms of technology is subsidized by oil. When you see reports that solar, for example, has improved its energy return and therefore it's cost, these reports often exclude the resources required in the first place to construct them. They probably ignore the oil powered supply chain which moved these materials around the world. Oil is so embedded in our society and economy that it is almost impossible to fully quantify the size of the subsidy it provides as each stage in the supply chain is also subsidized by oil as they are dependant on other parts of the supply chain, subsidized by oil. Alternative energy should rather be called derivative energy, as it is technology that is made possible by oil either directly or indirectly. This introduces additional problems to using the market as a solution for climate change or peak oil, for example in the form of carbon trading, as I've written about previously.

Because of oil's core position in economic growth peak oil is able to act as a reasonable template with which to explain the increases in the cost of living and guess where approximately we are on the path of decline but we're reaching peak in many other resources too and as extreme energy exploration requires more of these resources than conventional energy to produce there is now additional strain being placed on these resources as well.


Living like kings

Oil drives our standard of living and how affordable it is. If you look back to the time of monarchy and what made a king a king, it was the amount of raw energy they had at their disposal (mostly in the terms of 'human resources', horses, etc). A king may have had a castle because slaves built it, today we have homes built by machines that run on oil. Oil is the common man's slave. Today even the poorest of us are living like the kings of the past when you look at the amount of cheap energy available to them even at more recent inflated prices.

Our drive to be a functioning member of society comes on the back of a promise made by elected officials and the financial system in general that the future will be greater than the past. It's the unspoken social contract that policy and public relations revolves around. No politician is promising a 'contracted future', it's always a grander future. Our expectation is that at a minimum there is a fair opportunity to improve your standard of living, if not an outright entitlement to it. It is this promise made by the control system that is the reason the elite are preparing for civil unrest as we discussed in key concept 2.

The world's peasants today are enjoying more wealth and mobility then has ever been available to them before and this is largely because of oil. Peak oil theory dictates however that this trend is now reversing and we're now at the point where this reversal is becoming plainly visible. Political theatre and economic stimulus are efforts by the elite to hide this reality from the peasants while they prepare a new neo-feudalist system in the background and emergency measures to deal with the coming infrastructure failures as affordability and maintenance declines.
CERDAFIED-The United States, Canada and Mexico has just finished simulating an electrical grid failure as part of a joint drill conducted by thousands of utility workers as well as FBI agents, governmental agencies, anti-terrorism experts, and private businesses in the power grid drill held on Wednesday and Thursday (Nov 13 & 14).

The American Society of Civil Engineers (ASCE) issued their
power grid grade card of our antiquated electrical system as it approaches the end of its service life. Barely passing with a D+ means there is strong likelihood that the system will fail. Major power outages have increased from 76 in 2007 to 307 in 2011. These figures do not include storm related outages.
For further exploration of the relationship between the economy and energy see this article (with video).


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Tuesday, November 19, 2013

Key Concept 2: Currency = Money = Energy

Key concept 2 is to understand that currency represents money and money represents energy. Today is really a great day to discuss this key concept as several reports have come out recently, accumulating with the OECD report on Canada which underscore the points I am going to make.

This post is just going to focus on energy and currency in general, describing the system itself, Key concept 3 will delve into peak oil and why this monetary system is destined to failure. Some of the flaws can't be avoided as they are fundamental to the way the system works but I will try and keep it as focused on the operation of the monetary system for now.

Energy is the ultimate form of money

With year after year of emergency economic stimulus the emergency has become the new normal and economic growth has become meaningless. New "record highs" on the markets simply represent the rapid expansion of currency while wages, benefits, and taxes purposely ignore it instead opting to utilize the always changing CPI calculations governments use to mask the inflationary pressures they are creating at the behest of their banking masters.

There is one simple root reason why industrialized nation's populations are getting poorer, and why the middle class is getting destroyed: the cost to produce energy has risen exponentially. The reasons why this cost has risen will be explored in key concept 3 but for the purpose of this post what's important to understand is that new energy projects like the U.S.'s "shale oil revolution" or Alberta's oil sands are significantly more expensive to produce which means ultimately there is less spare energy capacity. An IEA analyst recently explained this:
Nor does Mr. Birol expect the surge in tight, light oil production in the United States to drive down global crude prices over the medium to long-term. He dismissed concerns raised by some experts, including Saudi billionaire Prince al-Waleed bin Talal in The Globe and Mail this past weekend – that the world will soon be awash in crude “The era of cheap oil is over,” he said. “Over the last three years, oil prices have averaged $100 (U.S.) a barrel for Brent [the most widely quoted international crude], and I don’t expect this to go down.”

He said many of the most prolific American fields require a price of at least $80 a barrel to break even.
The oilsands likewise have a requirement of roughly $80 / barrel to break even.

Conventional oil, the kind our societies were built on and economies designed around has an extremely good energy returned on energy invested ratio which can range anywhere from 100:1 to 200:1. This means that it takes 1 barrel of oil (in energy equivalence) to produce 100-200 barrels of oil while extreme energy production has a ratio closer to 3:1 - 5:1. A big difference.

When you look at this money printing, the free trade agreements, temporary foreign workers, endless spending cuts and the destruction of the social safety net, Alberta's accounting trick of separating infrastructure and "operational" spending, etc, etc, pretty well any government policy today that revolves around "jobs and growth", they are all an effort to counter and mask this decline in the means of production.

In key concept 1 we discussed political theatre, the reason for this political theatre is to avoid addressing the root problem with our economy and society those in power and the elite are well aware exists: the industrial standard of living is now too expensive to sustain. The elite's actions however tell a very different story and whether "left" or "right" all political figures are striving for the same goals.

If you're following along then you might be saying to yourself that if what I say is true regarding energy and our cost of living the implementation of austerity must be necessary, this is after all the only response to the problem possible, so why is it bad?

Control Systems

The implementation of austerity wouldn't be bad if the problems it was trying to address were open to the public and transparent. It wouldn't be a problem if the negative effects of austerity were distributed proportionately amongst the population. As it stands now austerity is simply the name we've given to a transformation into neo-feudalism. To put it simply the industrial control system is failing and so the elites (who have always been in control) are returning us to a modern implementation of the previous control system.

There has, historically, always been a control system operated by the elite. The control system is what maintains the status quo and keeps the peasants in line. Contrary to popular belief the elite have no interest in micro-managing the peasants so long as the peasants stay out of their way and don't challenge their authority.

The current control system works like this: The elites have controlling stakes in banks which produce currency through loans with compound interest attached. Ninety-five percent of currency in circulation is produced by banks through loans while only 5% is produced by the government. Central banks call this 5% 'M1'. The currency produced by banks is codified and legalized as the only currency you can use to buy items, namely energy.

Energy production is kept centralized. It's not that there is a global conspiracy against "renewable energy", and indeed big oil owns most of the patents to renewable energy, there is a global conspiracy against "energy independence". Big oil doesn't care what type of energy the world uses so long as they are the centralized supplier of it. Decentralized renewable energy sources are not road blocked because big oil views oil as important, but rather because having to buy energy through them gives meaning to a currency codified by the banks.

With energy tied up in global cartels which are themselves funded through bank loans people are forced to use the bank's currency to purchase energy which is required for the operation of society. This currency can only be acquired by working where the emphasis on jobs comes into play, you need a job to get the currency to buy the energy. Businesses and people take out loans to expand and these loans are generated out of think air thanks to the magic of fractional reserve banking and you put in real work (energy) to pay them back, plus interest.

This is the essence of the industrialized hamster wheel that keeps the peasants in line. The elites sit on top, loaning out currency at unsustainable interest rates which the peasants work for and fawn over. The difference between an elite and a peasant has nothing to do with their net wealth, it has to do with their purpose in life. Do they work to earn currency, or do they use currency as a tool to make others work?

Investment Manager Explains Why 99.5% Of Americans Can Never Win
The Upper Half of the Top 1%

Membership in this elite group is likely to come from being involved in some aspect of the financial services or banking industry, real estate development involved with those industries, or government contracting. Some hard working and clever physicians and attorneys can acquire as much as $15M-$20M before retirement but they are rare. Those in the top 0.5% have incomes over $500k if working and a net worth over $1.8M if retired. The higher we go up into the top 0.5% the more likely it is that their wealth is in some way tied to the investment industry and borrowed money than from personally selling goods or services or labor as do most in the bottom 99.5%. They are much more likely to have built their net worth from stock options and capital gains in stocks and real estate and private business sales, not from income which is taxed at a much higher rate. These opportunities are largely unavailable to the bottom 99.5%.
Just because you're relatively rich doesn't mean you're part of the elite. If you are working to earn currency you are in the same hamster wheel as a guy making $30k / year even if you are making millions a year.

To put this in perspective consider that during the early reign of Nazi Germany when they were gathering the Jews into ghettos the Nazis deliberately favored certain Jews who were willing to tow the line and gave them privilege over the others. These Jewish lords kept the other Jews in line both by giving them a faux authority and also by giving the other Jews something to "aspire to". The Jews largely kept themselves in line with the Jewish lord's petty selfishness and ego clouding the big picture that they were all in the same boat. When the time came for exterminations these Jewish lords were shown no favoritism and died just like the rest.

Understanding devaluation

Inflation is often confused with devaluation but the two are quite different. Inflation represents a true expansion of wealth or the means of production which requires the creation of new currency to represent the new wealth. Assuming a constant energy ratio, true inflation represents an increase in the collective buying power which ultimately means that prices must rise to meet this new buying power and this is because the energy demand ratio relative to the means of production hasn't changed. If the price of goods didn't rise in this instance then the economy would essentially be declaring that not only are we producing more but we are using less to accomplish it.

Real inflation means that currency is being created to represent value that is already in the system. The added value should be driving the demand for new currency.

However, in today's economic climate the exact opposite is true. Governments and central banks are attempting to use cheap currency as the driver for "economic growth". This is in itself admittance that whenever "officials" discuss inflation targets they are actually discussing devaluation targets. New currency that is being produced is simply taking the value away from existing currency because the underlying energy and means of production are not expanding.

"Inflation targets" today don't seem to be making a lot of sense. We're told that "inflation is low" and yet the cost of living is sky rocketing. From house prices to grocery staples to gas prices, over the past 10 years you've easily seen prices triple and yet we're told there has been 1% or 2% inflation as every year the government modifies it's formulas and excludes more and more of the items experiencing price spikes.

The true loss of buying power is masked by governments focusing on the amount of "utility" you can purchase. Basically this means that if the price of steak skyrockets then "consumers" will just replace steak with some other cheaper product and the end result will be that they have the same amount to eat or "the same utility". This is a fancy way to justify a declining standard of living while not admitting directly that it is declining.

Economic growth today is largely artificial, to visualize what's happening picture the economy as a game of Jenga. So you open the box, and start growing the economy one block at a time until you have your completed Jenga tower, but uh oh, what's this, you've run out of Jenga blocks? The goal of Jenga is to continue growing your tower on a thinner and thinner foundation until the whole thing comes crumbling down. To grow the tower beyond the finite pre-determined size you take blocks from the bottom and place them on top. The more you want to "grow" your tower the more blocks must be take from the bottom and placed on the top but no matter how tall you grow that tower there are two certainties:
  1. The number of actual finite blocks doesn't increase.
  2. Eventually the base of the tower can no longer support the top and the whole thing comes crashing down.
If you want to understand why the wealth gap is increasing at an exponential rate then you must understand that what stimulus and low interest rates are trying to do is dilute the currency and send more of the physical wealth to the top. Picture devaluation as though you are taking those finite Jenga blocks and cutting them in half. The number of blocks may have doubled but the total volume remains the same. When central banks and governments engage in stimulus without a subsequent increase in wealth all they are doing is dividing your share of the global economic Jenga wealth pie into smaller and smaller pieces.

A Calculated Crash

The elite's have a limited amount of time to implement a new control system before this one expires. What does this look like? The OECD explains:
The Paris-based organization notes that Canada's central bank has declared that given continued slack in the economy and below-target inflation, interest rates will not be raised for an extended period.

"However, with spare capacity narrowing by the end of 2015, monetary policy tightening may need to begin by late 2014 to avoid a buildup of inflationary pressures," it said.

"It is assumed in the projection that the first policy rate increase occurs in the fourth quarter of 2014 and that the rate rises steadily to 2.25 per cent by the end of 2015."
Note the wording, "spare capacity narrowing", "to avoid a buildup of inflationary pressures". They are not talking about real inflation, but rather hyperinflation which isn't really inflation at all but rather extreme devaluation. Why hyperinflation? This chart helps explain:


This chart shows that by roughly 2015 there will be no additional GDP benefits provided by federal stimulus. This marks the point when "deflation" becomes "hyperinflation" and from this point forward the U.S. is going to have to print more and more, faster and faster to service their debts and remain in operation. If you thought the "partial shutdown" was bad, you haven't seen nothing yet.

I've written previously about how hyperinflation is already waiting for the U.S. and about how Canada to save itself will have to raise interest rates before the U.S. (because the U.S. won't be raising them or "tapering" despite talk of such) which will have the side-effect of increasing the value of our currency beyond the affordability of the U.S. consumer.

If the USD devalues, we'll all devalue, it'll be anarchy

Why is the Canadian government repeatedly "intervening" in the housing market while the central bank keeps interest rates at record lows? Why does the "Minister of Finance" keep declaring there is no housing bubble in Canada despite plenty of evidence to the contrary?

Calgary resale home prices forecast to eclipse half-million dollars by 2017

Faux confidence is the only tool Canada has in it's economic arsenal. We can not raise interest rates, even though we should be, because of our large dependence on U.S. trade.

Canada Dollar Rises to 4-Week High on Rate-Increase Speculation

Canada, with an economy that is 60% dependent on U.S. exports, can't afford to have a currency that is valued higher than our American counterparts. So long as the U.S. maintains their stimulus and Canada's trade depends on the U.S. we must keep up with their rates of devaluation. Talk of Dutch Disease is complete misdirection, the Canadian currency is not getting stronger, the U.S. currency is getting weaker and Canada is just barely keeping up to their rate of devaluation.

The OECD is saying that Canada must increase it's interest rates by 2015 to "avoid inflationary pressures" because it is in 2015 that the USD we are trying to keep up with will enter hyperinflation and if we are still trying to keep up with it then we will enter hyperinflation as well as will any other currency still coupled with the USD.

This explains why Canada has been in such a hurry to "diversify it's economy" at seemingly any cost as the window of opportunity is quickly closing. If Canada has not replaced that 60% of our trade with the U.S. with another customer by that time then we will not have the economic foundation needed to decouple from the USD. Already it seems that Canada is behind in their plans, hitting roadblocks at every turn. As time grows shorter I expect Canada to take more and more risks and give up more and more control over it's sovereignty as compensation and payment for entrance into rising trade blocks and the inevitable competing BRIC currency system.

Edit: I discovered this article after I published this post: US could ‘derail’ economic recovery – OECD

The Transition

From domestic spying to the "dry run" performed at G20 in Toronto to the practice "lockdown" in Boston, the infrastructure for the new neo-feudalist system owned and operated by international corporations and the global elite is being implemented right under our noses. Governments are being put under crushing debt loads after the initial wealth transfer in 2009. Eventually it becomes so bad that the police simply become enforcers of corporate and bank policy as Greece, the canary in the neo-feudalist coal mine, has been experiencing first hand.

The name for the disenfranchised has already been declared: terrorists, and as we move further and further into this feudalist system "domestic terror" will take the spotlight. Domestic terrorists will simply be those broken by the system with nothing to lose, those who are fed up with a political and economic system draped in double standards, wealth transfers, and criminality.

With diminishing energy returns, real wealth growth will increasingly come from the dismantling or outright destruction of society, for instance, Alberta and the federal government are considering the "economic activity" of Alberta's flood rebuilding efforts "growth". You can bet the elite of the world are greedily eyeing the "growth opportunities" in rebuilding the Philippines. We view the cheap exploitation of prisoners as "economic growth". We view institutionalized slave labor through free trade as "growth". We view planned obsolescence, forcing people to re buy products earlier than they should have to as "growth". None of this is really growth though, it is simply the process of taking the blocks out of the bottom of the Jenga economy and transferring them to the top.

Wealthiest 1% earn 10 times more than average Canadian

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Wednesday, November 13, 2013

JP Morgan's Twitter Q&A trolled to death


And a snapshot of #AskJPM



Click here to recommend this post on progressivebloggers.ca and help other people find this information.

Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

Key Concept 1: Political Theatre

As some readers of this blog may know it's been getting harder and harder to put my thoughts down on current events. There are many reasons, some of it is because the events themselves are repetitive, and stupid. How many times can one write about how markets and budgets are pointless and meaningless so long as central banks use "stimulus" to maintain the illusion of growth? Another portion of this difficulty has been time, I'm busier now than when I started this blog and I don't have as much time to put into the posts I make.

When I combined this reasoning the path forward became clear. I use several key concepts when making my forecasts and commentary of trends and each key concept pretty well deserves a post all on it's own. Almost every post I write references one of these key concepts and often I find that providing the back story of the concept is just beyond the scope of whatever post I'm currently writing. I can't, for instance, go into depth of the concept of peak oil every time I bring it up but for many reading my newer posts it probably feels as though information is missing (because it's been described in past posts).

The solution to these problems is to lay out my key concepts so they can be referenced moving forward. this post will describe the first of my key concepts: political theatre.

What is political theatre?

Political theatre, also known as the Left vs Right smokescreen, is the premise that the majority of debate and opposition within the political system is for show and that ultimately on the issues that matter to the global elite little or no debate is had.

The current "senate scandal" and CETA provide a good example. Some journalists have sort of been asking the right questions regarding this scandal (though it seems the answers still evade them): Stephen Harper chose latest Senate fight. The question is, why?

Yes, why indeed, especially just as the negotiations around CETA concluded. I would submit that the senate scandal was timed perfectly to coincide with CETA and ensure that CETA (the product) gets just enough coverage and that CETA (the content) gets little or no coverage. "Free Trade" deals sound great until you realize that they reconfigure laws and interfere with national sovereignty. If there wasn't a senate scandal to occupy journalists then some, with nothing better to do, might put their time into other things, like demanding to see and release the text of CETA or even questioning the legality of keeping it secret in the first place.

The senate scandal might be fun to watch, but how much real work and how many real problems are being addressed in the meantime? The senate scandal amounts to nothing more than entitled and corrupt individuals flinging shit at each other. $90,000? After all of the financial waste and fraud and lies and $1billion on G20 everyone is up in arms about $90,000?

After year after year of lies we're now all worried that Harper lied? Or that Duffy lied? My God, when will we stop giving these criminals the benefit of the doubt? My default position whenever a politician or banker says anything these days is to simply assume they're lying. As far as I'm concerned the onus is now on public servants to prove they're telling the truth, they've lost the privilege of having the benefit of the doubt.

As Andrew Coyne says in his speech on 'the alarming state of Canadian democracy', the problem we face in our Canadian democracy (and democracies worldwide) is a [deserved] complete lack of confidence in politicians. Even the politicians who tell the truth can't get anyone to believe them. I would add to this though that there is no reason anyone should believe them. The cloud of dishonesty and theatre that hangs over politics diminishes every single politician for even if they are telling the truth about the policy or portion of the society of which they are talking about, it is always within the context of acceptance of other lies.

A good example of this might be the management of government funds. All of the different party platforms describe the allocation of funds within the current system, but few challenge the system itself. No political parties are challenging the government to return the borrowing authority to the Bank of Canada. No political party is suggesting that a way to help balance the budget would be to stop interest payments on public debt landing in the hands of private investors or foreign entities.

There is an ultimate status quo, one that's hidden behind bureaucracy and the political control we think we have. I liken our political system now to the management of a corporation. The CEO, CTO, CFO, etc, of a corporation might change, the implementation of corporate policy might change, and  even, within constraints, the vision of the corporation might change, but the ultimate mission never changes: to serve the shareholders. The shareholders of government policy are not the citizens, but those who purchase government debt which enables the government to enact policies. Tax money doesn't pay for future policies, it pays for past debt. Is it any wonder the government doesn't listen to the "taxpayer"?

One of my favorite moments from Star Trek: Deep Space Nine is the episode in which Quark's employees decide to create a union. In the lead up to the creation of this union one of the Ferengi is asked why essentially it's part of Ferengi culture to be stepped on during employment. The answer is that all Ferengi aspire to one day do the stepping. This is exactly how our economic culture works and perhaps even more so how our political culture works. No politician is ever going to seriously reform either system so long as it remains possible that they may eventually benefit from it even if it currently hampers them. Politicians don't mind being stepped on so long as one day they may get to do the stepping.

People Issues, Justification Issues, and Real Issues

The majority of issues politicians "debate" today in the joke we call question period are what I like to call "people issues". People issues are issues that while very important personally to many people are completely inconsequential to the global political agenda or the elite. They are issues meant to be primarily consumed by the peasant class and are usually framed in such a way that they create divisions and play well into the "team concept" of modern politics.

People issues tend to be subjective, based primarily on emotion, religion or prejudice rather than logic and necessity. They are the type of issues that can routinely be brought up and are never truly resolved. Some examples are gay marriage, and abortion. The debates around these two issues exist solely for you to take sides on and always crop up conveniently when there are important issues the elites don't want you to focus on. They tend to invoke a major response, and major participation, causing people to expend massive amounts of energy "defending their view" while losing sight of what's really going on.

Now, this is not to say that "people issues" are not important especially to people. They are, of course, that's the point. But do you think government's ordering the bombing of children or defending the Apartheid policies of Israel actually care if gays get married? Or if babies are aborted? Do you think the elites pulling strings around the world care about people issues?

Justification issues are ones which generate little response from the public and end up being generally accepted based on a false principal the government is claiming it respects. They are usually used to reinforce the belief that some sort of moral authority is guiding government's actions and play well into our national identity of self, an example of such an identity being 'Canada is a country of peacekeepers', or 'Canada has high environmental standards'. In the end justification issues are issues that exist to justify the existence of government, or more accurately: "lawmakers".

One of the prime examples of a justification issue is smoking. Alberta has just passed legislation which makes it now illegal to smoke in a car (when children are present - because "it's for the children"). It's an issue that is meant to garner massive support while framing the government as concerned for children and environmentally responsible. Of course, this is the same government that defends the oilsands in face of spikes of cancer, contaminated water, and constant denial. All of these things will be disproportionately affecting the children they claim to protect. The irony of no smoking in the car isn't lost on me either when our growth doctrine demands we must sell more cars, and so as a result we have children walking along roads breathing in carbon monoxide and our economy demands there must be more cars sold. The car itself represents far more danger to the children, in example: Would you rather be locked in a garage with me, smoking, or your car, running? Which is going to kill you faster?

Every other month "lawmakers" are passing new restrictions on smoking, or rather, on smokers. While regulations and monitoring for cancer causing industry is cut. By focusing on the smoker, and not on the tobacco companies themselves the government gets to play both sides of the fence. Being simultaneously against smoking, and also in support of smoking and the tax money it generates. Instead of constantly raising the tax on cigarettes which just disappears into "general revenue" the "lawmakers" could focus on say banning tobacco companies from putting deadly and unnecessary chemicals into cigarettes. Much could be done, and isn't being done, in the name of health regarding smoking without prejudice against the smoker themselves but none of that would play into the justification for existence provided by continually addressing the same problems over and over again.

Lawmaker self-justification is a huge problem. Is our society really in such chaos that we need a full time career called "lawmaker"? How many laws do we really need made these days? How many laws being made are pointless, unnecessary, and seemingly only exist to exist? these laws are made not because society needs them, but to justify the existence of "lawmakers" and government and garner support by appearing to work for the people when in reality they are choosing a single tree out of the forest of problems they are creating and having everyone focus on that. Do you really believe the Alberta government cares about children while they downplay continual reports of rare cancers as a result of oilsands activity just because they spend most of their time debating smoking which they profit off as well? Think about it.

Finally, we have real issues. Real issues are the issues the elite's actually care about. They are actual events that have impact on the world. They are decisions which affect the standard of living and quality of life of millions of people every day. They are the issues we rarely talk about, and never debate. Political parties are just unanimous of how great CETA is, none want to appear to be "against trade" (even though being against free trade has nothing to do with trade). CETA is a real issue, one the elites care about, unlike the senate scandal which ultimately means nothing to the elites, especially those involved as they all have nice cushy careers ready for them in the corporations they've been helping while in office.  Real issues, when out in the open, tend to contradict the morality of justification issues and the passion behind people issues. Whenever you hear Harper talk about 'Canada' and 'protecting our sovereignty', 'Canadian interests', etc, remember that in the context of real issues he's selling us out.

Marketing democracy

Politics today is largely political theatre meant to market the idea of democracy rather than actually implement it. A real democracy would not stand by while it's dealings with foreign countries are negotiated in secret especially when it has the potential to affect the ability for the will of the people to be acted out. In a real democracy reporters are free to ask questions of the politicians, scientists are free to report their findings. A real democracy by the people for the people has no need for arbitrary information control or propaganda campaigns designed to have the population come around to "the government's point of view". A real democracy doesn't care what flag you fly and certainly isn't going to arrest you over it. A real democracy will engage their citizens not frame and then mass arrest them. A real democracy is about fostering debate about real issues and lacking that political theatre is needed to fill in the void.

Click here to recommend this post on progressivebloggers.ca and help other people find this information.

Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.