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  • gregor- the fed and peak cheap oil

    The Federal Reserve Enters Decline

    The Federal Reserve is an artifact of the Abundance Economics that have governed Western economies over the past 250 years. For nearly 250 years exactly we have climbed the ladder of ever increasing energy density, and ever increasing energy supply. That era has now come to an end. You can see that view, the end of the abundance era, expressed by a number of different writers, whether it’s today’s longish piece from Matterhorn Management, last year’s piece by Richard Heinberg on the End of Growth, or some of the shorter (free) posts I write here at Gregor.us. To keep things simple, oil is no longer available to fund world growth. Oil is certainly available to fund existing systems as they are currently set up, but not new growth. You can only fund new growth with an energy supply that is growing. That’s why the developing world has turned to coal, not oil, to fund its growth. Based on the most recent data, let’s update the chart of global crude oil production:

    [sorry i can't get the chart- shows flat oil production since 2005]

    The credibility of the United States Federal Reserve is closely aligned with its ability to induce economic activity, by the provision of money and credit. But you can see the problem: if there is not an expanding supply of energy, credit is less useful as credit cannot be paid back very easily in a future of either flat, or declining growth. Now that the return on the Fed’s credit provision has gone into decline, then its incumbent on the Federal Reserve to rethink its approach. But the Fed, governed by post-war economists, is apparently unable to learn from new information.

    There is another limit to the Fed’s provision of money and credit: and that is the quantity of debt already being carried in the economy. As debt levels rose in the US economy over past decades, the Federal Reserve simply kept repeating itself in a kind of argumentum ad infinitum, providing ever more money and credit as though completely unaware of the levels to which debt was rising. Now, presently, the Fed has declared a war on debt-deflation. But, the Fed indicates no understanding of the core thrust of debt-deflation. I’ll help out: there can be no kick-starting of economic activity, until debt levels are reduced significantly. What the Fed is looking for is not the effects of more credit provision, but instead, debt jubilee.

    The Federal Reserve is now in permanent, irreversible decline because it has no tools to fight both the limits placed on the economy by oil, and, current debt levels. Were the Fed to conduct debt jubilee on a scale sufficient to restart demand, that would vaporize the currency. But even if it were possible to manage a workable debt jubilee, then the economy would come more squarely back into confrontation with the energy limit. And there too the Fed would discover that its role as provider of money and credit was reduced, as credit itself relies on future growth.

    The Federal Reserve came into existence during the fattest part of the abundance curve, made possible by the extraction of energy-dense fossil fuels. The early part of the last century was the moment when the world started to transition from Coal to Oil, with the fullness of oil’s resource spread out before the industrial economy like a broad forest. As an artifact, not a creator, of this abundance the Fed was merely a mediator of wealth and performed (at best) a smoothing operation as the economy traded credits on future labor and future growth. Like most institutions in decline, the Fed can either reform itself now and embark on a substantially new mission, or, it can decay into irrelevance as it attracts lower quality intellects, and is dismembered of its power. Indeed, if you look around the edges, that process of decay in the Federal Reserve has already begun.

    -Gregor



    http://gregor.us/fossil-fuels/the-fe...rus+(Gregor.us)

  • #2
    Re: gregor- the fed and peak cheap oil

    As an institution it is not good for much if it can not control inflation or deflation - especially to the money changers.


    Originally posted by Sapiens;126317

    http://www.itulip.com/forums/showpost.php?p=125007&postcount=19


    Originally Posted by FRED
    Remember there are four factors that produce either inflation or deflation:

    Supply of goods
    Demand for goods
    Supply of money
    Demand for money

    For any particular good, and for the particular channel of money available to purchase that good (e.g. mortgage loans for houses), prices over time are determined by the simplified formula below.

    Oil Supply/Oil Demand
    --------------------------------- = Goods Price
    Money Demand/Money Supply

    Assume from a starting point:

    Supply of oil = 10
    Demand for oil = 10
    Supply of money = 10
    Demand for money = 10

    10/10
    ------ = 1
    10/10

    Decrease oil demand 50% relative to supply, hold money demand and supply steady: price falls by 50%.

    10/5
    ------ = .5 (deflation)
    10/10

    Increase oil demand 50% relative to supply, hold money demand and supply steady: 100% inflation.

    10/20
    ------ = 2 (inflation)
    10/10

    Hold oil demand and supply steady, decrease the supply of money 50% relative to demand: 50% deflation.

    10/10
    ------ = .5 (deflation)
    20/10

    Hold oil demand and supply steady, increase the supply of money 100% relative to demand: 100% inflation.

    10/10
    ------ = 2
    10/20

    Decrease oil demand 50% relative to supply (deflationary), increase the supply of money 200% relative to demand (inflationary): 100% inflation.

    10/5
    ------ = 2
    10/40

    In the last case, demand falls 50%, yet prices double. Why? Because the purchasing power of each unit of money used to purchase oil fell more than the value of a unit of demand.

    Keynes noted that as fast as demand can fall, the value of money can always be made to fall even faster.





    Ah, you have almost cracked the Rockefeller Algorithm, you are in the right path. A clue, a BTU in its separate substrates defined in the unit of input, another, per capita demand and consumption of the above.
    "that each simple substance has relations which express all the others"

    Comment


    • #3
      Re: gregor- the fed and peak cheap oil

      Originally posted by jk View Post
      The Federal Reserve Enters Decline

      The Federal Reserve is an artifact of the Abundance Economics that have governed Western economies over the past 250 years. For nearly 250 years exactly we have climbed the ladder of ever increasing energy density, and ever increasing energy supply. That era has now come to an end. You can see that view, the end of the abundance era, expressed by a number of different writers, whether it’s today’s longish piece from Matterhorn Management, last year’s piece by Richard Heinberg on the End of Growth, or some of the shorter (free) posts I write here at Gregor.us. To keep things simple, oil is no longer available to fund world growth. Oil is certainly available to fund existing systems as they are currently set up, but not new growth. You can only fund new growth with an energy supply that is growing. That’s why the developing world has turned to coal, not oil, to fund its growth. Based on the most recent data, let’s update the chart of global crude oil production:

      [sorry i can't get the chart- shows flat oil production since 2005]

      The credibility of the United States Federal Reserve is closely aligned with its ability to induce economic activity, by the provision of money and credit. But you can see the problem: if there is not an expanding supply of energy, credit is less useful as credit cannot be paid back very easily in a future of either flat, or declining growth. Now that the return on the Fed’s credit provision has gone into decline, then its incumbent on the Federal Reserve to rethink its approach. But the Fed, governed by post-war economists, is apparently unable to learn from new information.

      There is another limit to the Fed’s provision of money and credit: and that is the quantity of debt already being carried in the economy. As debt levels rose in the US economy over past decades, the Federal Reserve simply kept repeating itself in a kind of argumentum ad infinitum, providing ever more money and credit as though completely unaware of the levels to which debt was rising. Now, presently, the Fed has declared a war on debt-deflation. But, the Fed indicates no understanding of the core thrust of debt-deflation. I’ll help out: there can be no kick-starting of economic activity, until debt levels are reduced significantly. What the Fed is looking for is not the effects of more credit provision, but instead, debt jubilee.

      The Federal Reserve is now in permanent, irreversible decline because it has no tools to fight both the limits placed on the economy by oil, and, current debt levels. Were the Fed to conduct debt jubilee on a scale sufficient to restart demand, that would vaporize the currency. But even if it were possible to manage a workable debt jubilee, then the economy would come more squarely back into confrontation with the energy limit. And there too the Fed would discover that its role as provider of money and credit was reduced, as credit itself relies on future growth.

      The Federal Reserve came into existence during the fattest part of the abundance curve, made possible by the extraction of energy-dense fossil fuels. The early part of the last century was the moment when the world started to transition from Coal to Oil, with the fullness of oil’s resource spread out before the industrial economy like a broad forest. As an artifact, not a creator, of this abundance the Fed was merely a mediator of wealth and performed (at best) a smoothing operation as the economy traded credits on future labor and future growth. Like most institutions in decline, the Fed can either reform itself now and embark on a substantially new mission, or, it can decay into irrelevance as it attracts lower quality intellects, and is dismembered of its power. Indeed, if you look around the edges, that process of decay in the Federal Reserve has already begun.

      -Gregor



      http://gregor.us/fossil-fuels/the-fe...rus+(Gregor.us)
      Matterhorn piece here: http://matterhornassetmanagement.com...no-double-dip/

      Comment

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