Peak Oil, The Global Financial Crisis and Inflation - Why Energy Prices will Rise.
These three topics are all linked, especially since the current global financial crisis was triggered by Peak Oil. Peak Oil is probably the single most important thing that affects our lives today but very few people know much if anything about it. This is a term that is being used more often in mainstream media these days as countries around the world are starting to listen to the scientists and business people who have been researching this for years.
I will assume that everyone who is reading this site probably has at least some idea of why global oil production is falling. If you want a great summary of what peak oil is please read The Energy Bulletin. Peak Oil refers to the maximum production rate for oil or gas the world is every likely to obtain.
How will you ride the slide?
"The Boom-time Train..." I know we all have short memories these days, but a couple of years ago we were all on the "boom time" train, the housing market was in full swing, everyone you knew was talking about how much money they made flipping houses, it seemed like every second person you know was signing up as a Realtor. The construction industry was going crazy and during this time though, the oil price was climbing and climbing until it reached $147 / barrel. Although people complained about the cost to fill their fuel tank, but in general the attitude was "who cares - business is great".... Then the bubble started to deflate.
"No one saw the collapse coming.." Even back early 2007, for the keen eyed amongst you, you will have noticed a few small news articles around the world that things were not quite so rosy. Little articles about housing developments 100 miles from a city were suddenly not selling so well. People decided that buying a cheap 3000 ft2 house, 100 miles from their work and driving the Hummer to work every day was not such a great prospect now oil and gas was getting more expensive. Airlines the world over were failing, you cant operate low cost flights to Vegas or Mexico for $100 when oil is $147 a barrel.
The economy kept going, everyone ignored the signs, except a handful of people writing articles that some of us were lucky enough to read!
If you got off the Boom-time Train, even just for a minute, and looked around, the crash was inevitable. There were hundreds of warning signs, economists, business people and independent media outlets were all screaming this was about to happen, News papers and new sites, bloggers all predicting with frightening accuracy what was going to happen and then reveling in the "I told you so" glory.
Demand for Oil and Gas collapsed and prices fell taking down the global financial system with it. Even now, at $80 a barrel seems cheap, a couple of years ago when it hit $80 people were "oh my god, $80 a barrel, that's insane". Now its more like ".... $80 a barrel, at least its not $147...". Natural gas is now basically free. At $4 a GJ, even the oil and gas companies cant make money when gas is $4 a GJ hence drilling for new wells has also decreased.
David Hughes has studied the Energy Resources of Canada for nearly 40 year including 32 years with the Geological Survey of Canada. To hear what he has to say about Canadian Oil, Gas, and Coal watch the video below.... I saw him speak at the Banff Center a year or so ago, it was a fascinating speech and I would recommend every one watch it. The only issue with this video is that it was recorded in Vancouver and you cant see the slides that accompanied the presentation. His presentation is a bit dry but the content was excellent.
The data he presented showed a huge volume of data, including that in Canada we now drill about 4 times the number of Natural gas wells per year than we did 10 years ago but the gas production level has remained fairly constant. Simply put the drilling rate needs to increase just to maintain production at today's levels, a trend that's continuing. The Oil sands are no solution either, the volume of gas the oil sands need just to operate is truly mind blowing.
The Bubble Machine - Fractional Reserve Banking
You might be asking "whats thats this all got to do with Oil and Gas and in particular Solar Energy?" I'm getting there.....please bear with me!
The high cost of oil basically triggered of the collapse of demand for goods and services and before long the banking system fell to its knees dragging the housing market with it. Even the Government of Canada bailed out the banks.
You might be asking yourself what have the banks got to do with Energy Price rises. Well the answer is simple, they have everything to do with price rises?
All banks in the world, in particularly in the "West", operate what is called a "fraction reserve banking system". We all grew up under the impression that when you put your savings into a bank, the nice people at the bank hold onto this money until someone came along wanting a loan. The nice bank then lends this money to other people and charged then a few % interest.
However, this bears no resemblance to how bank actually operate. Money lent out to buy a house is created out of thin air. By you signing the loan document, you agree to pay it back, this basically creates the money. You are promising to "repay" the money to the bank, to do this you have to go to work and earn $$ to "payback" something that didn't exist in the first place!
Dont worry this is perfectly "legal", the banks are basically acting as agents to follow Government Policy so when they want more money in circulation the banks lower lending standards and everyone borrows money. Dont let the fact that the money was created out of nothing worry you!
This is probably on of the most important videos you will ever see. It was written by Paul Grignon as a guide to how the banks actually work. You need to understand this before we go on to why the pace of Oil and Gas price are accelerating.
Money as Debt - How the Banking System Works
There is supposed to be a "Fractional Reserve" element to this, i.e. banks have to hold a % (usually quoted as 10%) of all loans they lend out of "cash assets". However due to some very nice deregulation these reserve ratios are virtually zero, Canada's reserve ratios are slightly higher than a lot of other countries but they are still not very high. Goldman Sachs is one huge bank that has got a lot of press recently due to its role in the collapse of Greece and the huge sovereign debt crisis currently becoming a global epidemic. Not to mention Goldman Sachs is famous for its list of "ex" employees who now work in very prominent positions.
Watch a classic video from a famous Financial Analyst, Max Keiser, on what Goldman are up to, or to hear why Goldman are now being sued by the SEC, watch this interview with Matt Taibbi. Matt Taibbi originally wrote the story for Rolling Stone Magazine called "The Great American Bubble Machine" where he wrote "Goldman Sachs are...a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money" Its a classic piece of journalism which will begin to explain how the financial system works.
Canadian Financial System You may think Canada is immune from the Global Banking Crisis and Goldman's influence but you may know the name you may have heard the name Mark Carney. He is the the Governor of the Bank of Canada, he is also another Goldman Sachs Alumni after spending his entire career working for Goldman. He recently exempted Goldman Sachs from Flahertys Income Trust Tax!
"Green Shoots of recovery" or Inflation - What is more likely? The main stream media seem to be constantly trying to convince us that the economies are recovering, however globally everything is rapidly getting much worse. Every Western Country, including Canada, bailed out its banking system to the tune of billions and trillions of dollars. "So what" you might ask, so what if the banks get bailed out, to really appreciate how much money has simply been created out of thin air, here is a 1 minute video.
As a country prints money out of thin air, you devalue the currency already in circulation, ie your savings become worth less. As a result of this prices rise as all the suppliers round the world now want more of your $$ to buy anything because they are worth less. This applies to all prices of all goods and services in every country year after year. It is only when your earning potential (you wages) increase faster than inflation are you able to keep up with the price rises. If you earn less than inflation everything gets more unaffordable as time goes on.
We all know prices seem to rise by much higher rates than the 1% or 2% that is usually quoted by government departments. When you leave out price rises of all the things that rise in price (ie Food and Energy) its easy to keep the "inflation rate" to 1% or 2%. The reality is that energy price rises have average over 10% per year for over a decade and this doesn't even count the "Admin Fees" that get added to every monthly bill.
If you have a spare hour to kill and want to know how inflation works then this video is good. Its written based on the US Debt levels but it applies to us here in Canada as well. We all have the same banking system, and like it or not, the US$ is the global reserve currency and what happens in the US affects us all. This video has interviews with all the people who predicted the current financial crisis. Peter Schiff, Dr Marc Faber, Gerald Celente, Congressman Ron Paul and others. Inflation occurs when countries start printing money with no control.
This has occurred more often than you probably remember. This is likely coming to a large number of countries around the world, it probably wont happen in Canada, but when it starts happening to Europe, the UK and the US it will affect Canada. Global currencies are being devalued by the huge currency "printing presses" running, global prices of Energy in the next few years are going to accelerate - rapidly. So whenever you read in the news about "Quantitative Easing" or "Monitising Debt" or " Sovereign Debt Crisis" or "Bail Outs" it all means the same thing, INFLATION.
Energy prices are on a one way trip higher.