[Winstonm]

In the U.S. there were recently two days in which the yield curve inverted; as a yield curve inversion has historically pointed to a coming recession (although I believe it takes a longer run to be significant) and the G8 members are all talking about concerns over inflation, I was wondering what was the concesus of the bright minds who inhabit this forum: is recession around the corner (2-4 quarters from now)? How significant a problem is inflation? Stephen Leeb is predicting oil prices over $100 a barrel and $1500 gold prices due to the emergence of China as a wealth-building nation and the demand that country will create. Is he off his rocker or are tough times really not too far in the future?

[pbleighton]

The economy has changed so much in the last half century that I'm not too worried about the yield curve. Parallel examples:

I remember back in 73-74, I was taking freshman ecenomics, which stated that inflation and unemployment could never happen at the same time. Then I would read the papers.

Another example: many (most?) economists believed that due to the natural rate of unemployment, that the low rates of unemployment in the mid and late 90s were impossible without setting off huge inflation.

We will be facing higher oil prices, due to the increased demand, the fact that we are already burning oil twice as fast as we are finding it, and the fact that we are a very shortsighted species.

We'll survive, but we will probably needlessly fall off an oil cliff first.

As for gold prices, they are a red herring.

As for whether recession/inflation is around the corner, If I could predict short term economic trends I wouldn't have to work

Peter

[helene_t]

Peter said it all, I've nothing to add.

[jdeegan]

One common reason for an inverted yield curve is that there is a surge in short term borrowing from manufacturers who suddenly find that sales are falling short of expectations, and the old checking account is too low to meet payroll, etc. The polite term is that they are 'financing an unexpected inventory build up', but having been there a few times myself, it doesn't feel very good in the pit of the old stomach.

Anyway, when lots of businesses start borrowing short term all of a sudden, it affects short term rates, driving them temporarily higher than long rates, sometimes by two or three hundred basis points. I don't know what is causing it these days (or even that it has been happening). It may be due to some other cause.

The reason people watch this so closely is that it signals the start of an inventory driven recession long before any government data are available. Look for some other reason why this might be happening. The most likely other explanation is that the Fed is tightening, thus affecting short rates, while long term rates remain low due to ??? possibly weak loan demand.

[whereagles]

Bar some unlikely scientific advance in the field of energy production, the economy is clearly heading for a major recession when oil production starts to lag behind demand. That is expected to happen somewhere between 2008 and 2020 (actual date is author-dependant).

When demand for oil starts to clearly outstrip supply, whole hell breaks lose for a while. The chances for a world wide resource war are big, and great care will need to be exercised by leaders to avoid mass destruction.

Maybe non-conventional oil sources and/or nuclear fusion can ease the passage from oil to other sources of energy, but right now there's a lot of technical issues to be sorted out before those provide the necessary mitigation to the problem.

[pbleighton]

"Maybe non-conventional oil sources and/or nuclear fusion can ease the passage from oil to other sources of energy, but right now there's a lot of technical issues to be sorted out before those provide the necessary mitigation to the problem."

I think it is more a question of political will, which is lacking worldwide, and completely MIA in the U.S.

We could get switched over in time to prevent major disruptions, but we won't.

Peter

[whereagles]

It's not a political issue. It's really technical.

For instance, fusion plants aren't yet working, and it's not even clear they'll crunk out more energy than that needed to ignite/stabilize the nuclear fusion.

As for non-conventional oil, the problem is that it's difficult to get high rates of flow for the end-product. Processing non-conventional oil is a slow process. Sure, with appropriate investment it might be made faster (just use 10 times as many machines), but those investments, even if done, will take time to start working and during that time the decline rates of light sweet oil might prove too high for non-conventional sources to compensate for.

In any case, non-conventional oil reserves are as limited as conventional ones, so we'd just be delaying the process a couple of years more. The reasoning is as simple as "you can't take 2 litres out of a 1 litre bottle".

[P_Marlowe]

Hi,

the US spend more money than it possed
over the last couple of years.
This looks to me, a non economist, similar to
the situation of the Regan aera.
What people forget, looking back at those
golden years:
Under Bush senior you had to pay the prize
for this golden years.
Bush junior does the same as his hero, or
is Regan the hero of Cheney / Wolfowitz?

With kind regards
Marlowe

[pbleighton]

"It's not a political issue. It's really technical."

There are a lot of difficult technical issues, but there are also more opportunities than your post admits.

If we had shown some foresight 30 years ago when the oil embargoes hit, we would have accomplished FAR more on:
1. Conservation, in its many forms
2. Solar power, and other renewable energy sources
3. Fuel cell technology

We might have also made progress on fusion, though, as you say, that is technically problematical.

It may be literally too late to avoid huge disruptions, even if we were to get our act together now. It's unclear when oil prices will turn permanently stratospheric (at least as long as oil is used as a major energy source). Personally I think we may have another 20-30 years or so - but maybe not.

What is crystal clear is that if we don't do something major soon, we will be in the soup.

Peter

[the saint]

Before any of this happens, a massive cultural shift is required. Starting at the White House.

This won't happen until things are far too far down the line because politicians think of winning elections first and doing the right thing second.

Perhaps Mad Max wasn't so far fetched after all.

[mike777]

Everyone take a deep breath, We will never never run out of oil, repeat after me, we will never run out of oil. Even Mad Max did not run out of oil.
In fact there were billions and billions of barrels left untouched in shale and tar sands, etc. Oil was not the problem, security was.......

[whereagles]

pbleighton, on Jun 27 2006, 03:38 PM, said:

"It's not a political issue. It's really technical."

There are a lot of difficult technical issues, but there are also more opportunities than your post admits.

If we had shown some foresight 30 years ago when the oil embargoes hit, we would have accomplished FAR more on:
1. Conservation, in its many forms
2. Solar power, and other renewable energy sources
3. Fuel cell technology

We might have also made progress on fusion, though, as you say, that is technically problematical.

It may be literally too late to avoid huge disruptions, even if we were to get our act together now.  It's unclear when oil prices will turn permanently stratospheric (at least as long as oil is used as a major energy source). Personally I think we may have another 20-30 years or so - but maybe not.

What is crystal clear is that if we don't do something major soon, we will be in the soup.

Peter

Well, I was thinking more of transportation fuel. Depending on the country, that's about 40-60% of total energy needs. Right now it's pretty hard to replace oil's 90-97% 'market share' of transportation fuel.

But I agree lot could be done, even with respect to transportation fuel. For instance:

#1 Suburbia expantion done with criteria and serviced by an efficient mass transit
#2 Very strict control of the state over #1
#3 Switch to fuel efficient vehicles where #1 is not easily applicable

This, together with your points 1,2,3 and appropriate funding for energy research would go a long way to help a smooth transition to a new world order.

All of this is feasible, but unfortunately humans insist on being short-sighted. The odds we'll be in the soup are pretty big. And that soup is gonna be boiling..

[whereagles]

mike777, on Jun 27 2006, 05:41 PM, said:

Everyone take a deep breath, We will never never run out of oil, repeat after me, we will never run out of oil. Even Mad Max did not run out of oil.
In fact there were billions and billions of barrels left untouched in shale and tar sands, etc. Oil was not the problem, security was.......

4 phases of oil crisis

1. depletion
2. denial
3. inability to keep hiding the problem
4. panic

getting ready, huh?

[hrothgar]

mike777, on Jun 27 2006, 08:41 PM, said:

Everyone take a deep breath, We will never never run out of oil, repeat after me, we will never run out of oil.

The issue at hand is not whether we are going to "run out" of oil. I am perfectly happy to accept that it will always be possible to extract another gallon of oil provided that one willing to spend enough money.

With this said and done, if extraction cost gets high enough your going to run into some very real problems...

[Sigi_BC84]

hrothgar, on Jun 27 2006, 08:06 PM, said:

With this said and done, if extraction cost gets high enough your going to run into some very real problems...

Very easy to see if you simply assume extraction costs which are higher than the extracted value (in terms of energy used and energy potential gained).

--Sigi

[mike777]

hrothgar, on Jun 27 2006, 01:06 PM, said:

mike777, on Jun 27 2006, 08:41 PM, said:

Everyone take a deep breath, We will never never run out of oil, repeat after me, we will never run out of oil.

The issue at hand is not whether we are going to "run out" of oil. I am perfectly happy to accept that it will always be possible to extract another gallon of oil provided that one willing to spend enough money.

With this said and done, if extraction cost gets high enough your going to run into some very real problems...

Yes, I just have more faith in technology and free market economics coming together to stop this problem in its tracks. In fact much sooner than later.
We have more Phd's or the equivalent alive now then in the whole rest of history.
We have more free or freer markets now than in the whole of history.

Yes and if buggy whips get too expensive we may stop making those, how can we survive then? This always reminds of the horse dropping problem, by the year 2000 we will all be covered in dung.

[Al_U_Card]

Look to the past to see the future. The U.S. like the Brits and the French and the Romans and the Greeks etc. before them are in the virulent decadence phase of their reign. Japan never really got going but China will soon. India may also be hobbled but Brazil is waiting in the wings.

The US will spin out of control as it chases it's "security" tail to dizziness. (Did you know that the Brits in the 1850's were fighting the rebel "Talibs" in Afghanistan? They also took on the Jihadists in the subcontinent in the 1940's.) It is already turning its attention to monitoring and chastizing its own population. The end is nigh. As far as the economy is concerned, they will continue to limp along much as Britain and France did in the 18 and 1900's. When the Chinese barbarians at the "Gates" finally "invade" (it will likely be a "cyber" invasion) there won't be much left to take over.

[mike777]

Al_U_Card, on Jun 27 2006, 01:50 PM, said:

Look to the past to see the future.  The U.S. like the Brits and the French and the Romans and the Greeks etc. before them are in the virulent decadence phase of their reign.  Japan never really got going but China will soon.  India may also be hobbled but Brazil is waiting in the wings. 

The US will spin out of control as it chases it's "security" tail to dizziness.  It is already turning its attention to monitoring and chastizing its own population.  The end is nigh.  As far as the economy is concerned,  they will continue to limp along much as Britain and France did in the 18 and 1900's.  When the Chinese barbarians at the "Gates" finally "invade" (it will likely be a "cyber" invasion) there won't be much left to take over.

ok...and then who comes after the chinese or India? In the meantime does that mean we all must live in the South of France or as Sir McCartney does? Darn those Brits and French.

So you are saying while the Chinese and Indians work 80 hours a week we get vacations like the Greeks and Romans do now?

[whereagles]

mike777, on Jun 27 2006, 06:23 PM, said:

1.
Yes, I just have more faith in technology and free market economics coming together to stop this problem in its tracks. In fact much sooner than later.

2.
We have more Phd's or the equivalent alive now then in the whole rest of history.

1. I sure hope you're right, otherwise we'll be in big trouble. Being a physicist myself, I know what the technical problems are and how difficult it is to surpass them.

2. Research is not linear. It is logarithmic-random. We have thousands of PhDs nowadays because we're at a stage where any advance requires a bucket-load of effort. If it were easy to make progress, 10 bright guys would be all we needed

[mike777]

whereagles, on Jun 27 2006, 02:04 PM, said:

mike777, on Jun 27 2006, 06:23 PM, said:

1.
Yes, I just have more faith in technology and free market economics coming together to stop this problem in its tracks.  In fact much sooner than later.

2.
We have more Phd's or the equivalent alive now then in the whole rest of history.

1. I sure hope you're right, otherwise we'll be in big trouble. Being a physicist myself, I know what the technical problems are and how difficult it is to surpass them.

2. Research is not linear. It is logarithmic-random. We have thousands of PhDs nowadays because we're at a stage where any advance requires a bucket-load of effort. If it were easy to make progress, 10 bright guys would be all we needed

Thank goodness the physics is only half or less of the problem. The economics will be a large part of the solution that is driven home in the near future. I believe the effect will be logarithmic and not linear in the solutions to the energy "problem"

I think almost of all the concern comes from looking at this as a linear problem.

Here is one simple example:

Bill Gates in just one of his health initiatives started back around 1998 has saved over one million children. Yes that means over one million children are alive from just one of his programs in 8 years. That is a logarithmic solution combining science, economics, and good management.