30 ноября, 03:35

Low Oil Prices: An Indication Of Major Problems Ahead?

Authored by Gail Tverberg via Our Finite World blog, Many people, including most Peak Oilers, expect that oil prices will rise endlessly. They expect rising oil prices because, over time, companies find it necessary to access more difficult-to-extract oil. Accessing such oil tends to be increasingly expensive because it tends to require the use of greater quantities of resources and more advanced technology. This issue is sometimes referred to as diminishing returns. Figure 1 shows how oil prices might be expected to rise, if the higher costs encountered as a result of diminishing returns can be fully recovered from the ultimate customers of this oil. Figure 1. Chart showing expected long-term rise in oil prices as the full cost of oil production becomes increasingly expensive due to diminishing returns. In my view, this analysis suggesting ever-rising prices is incomplete. After a point, prices can’t really keep up with rising costs because the wages of many workers lag behind the growing cost of extraction. The economy is a networked system facing many pressures, including a growing level of debt and the rising use of technology. When these pressures are considered, my analysis indicates that oil prices may fall too low for producers, rather than rise too high for consumers. Oil companies may close down if prices remain too low. Because of this, low oil prices should be of just as much concern as high oil prices. In recent years, we have heard a great deal about the possibility of Peak Oil, including high oil prices. If the issue we are facing is really prices that are too low for producers, then there seems to be the possibility of a different limits issue, called Collapse. Many early economies seem to have collapsed as they reached resource limits. Collapse seems to be characterized by growing wealth disparity, inadequate wages for non-elite workers, failing governments, debt defaults, resource wars, and epidemics. Eventually, population associated with collapsed economies may fall very low or completely disappear. As Collapse approaches, commodity prices seem to be low, rather than high. The low oil prices we have been seeing recently fit in disturbingly well with the hypothesis that the world economy is reaching affordability limits for a wide range of commodities, nearly all of which are subject to diminishing returns. This is a different problem than most researchers have been concerned about. In this article, I explain this situation further. One thing that is a little confusing is the relative roles of diminishing returns and efficiency. I see diminishing returns as being more or less the opposite of growing efficiency. Figure 2. The fact that inflation-adjusted oil prices are now much higher than they were in the 1940s to 1960s is a sign that for oil, the contest between diminishing returns and efficiency has basically been won by diminishing returns for over 40 years. Figure 3. Oil Prices Cannot Rise Endlessly It makes no sense for oil prices to rise endlessly, for what is inherently growing inefficiency. Endlessly rising prices for oil would be similar to paying a human laborer more and more for building widgets, during a time that that laborer becomes increasingly disabled. If the number of widgets that the worker can produce in one hour decreases by 50%, logically that worker’s wages should fall by 50%, not rise to make up for his/her growing inefficiency. The problem with paying higher prices for what is equivalent to growing inefficiency can be hidden for a while, if the economy is growing rapidly enough. The way that the growing inefficiency is hidden is by adding Debt and Complexity (Figure 4). Figure 4. Growing complexity is very closely related to “Technology will save us.” Growing complexity involves the use of more advanced machinery and ever-more specialized workers. Businesses become larger and more hierarchical. International trade becomes increasingly important. Financial products such as derivatives become common. Growing debt goes hand in hand with growing complexity. Businesses need growing debt to support capital expenditures for their new technology. Consumers find growing debt helpful in affording major purchases, such as homes and vehicles. Governments make debt-like promises of pensions to citizen. Thanks to these promised pensions, families can have fewer children and devote fewer years to child care at home. The problem with adding complexity and adding debt is that they, too, reach diminishing returns. The easiest (and cheapest) fixes tend to be added first. For example, irrigating a field in a dry area may be an easy and cheap way to fix a problem with inadequate food supply. There may be other approaches that could be used as well, such as breeding crops that do well with little rainfall, but the payback on this investment may be smaller and later. A major drawback of adding complexity is that doing so tends to increase wage and wealth disparity. When an employer pays high wages to supervisory workers and highly skilled workers, this leaves fewer funds with which to pay less skilled workers. Furthermore, the huge amount of capital goods required in this more complex economy tends to disproportionately benefit workers who are already highly paid. This happens because the owners of shares of stock in companies tend to overlap with employees who are already highly paid. Low paid employees can’t afford such purchases. The net result of greater wage and wealth disparity is that it becomes increasingly difficult to keep prices high enough for oil producers. The many workers with low wages find it difficult to afford homes and families of their own. Their low purchasing power tends to hold down prices of commodities of all kinds. The higher wages of the highly trained and supervisory staff don’t make up for the shortfall in commodity demand because these highly paid workers spend their wages differently. They tend to spend proportionately more on services rather than on commodity-intensive goods. For example, they may send their children to elite colleges and pay for tax avoidance services. These services use relatively little in the way of commodities. Once the Economy Slows Too Much, the Whole System Tends to Implode A growing economy can hide a multitude of problems. Paying back debt with interest is easy, if a worker finds his wages growing. In fact, it doesn’t matter if the growth that supports his growing wages comes from inflationary growth or “real” growth, since debt repayment is typically not adjusted for inflation. Figure 5. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy. Both real growth and inflationary growth help workers have enough funds left at the end of the period for other goods they need, despite repaying debt with interest. Once the economy stops growing, the whole system tends to implode. Wage disparity becomes a huge problem. It becomes impossible to repay debt with interest. Young people find that their standards of living are lower than those of their parents. Investments do not appear to be worthwhile without government subsidies. Businesses find that economies of scale no longer work to their advantage. Pension promises become overwhelming, compared to the wages of young people. The Real Situation with Oil Prices The real situation with oil prices–and in fact with respect to commodity prices in general–is approximately like that shown in Figure 6. Figure 6. What tends to happen is that oil prices tend to fall farther and farther behind what producers require, if they are truly to make adequate reinvestment in new fields and also pay high taxes to their governments. This should not be too surprising because oil prices represent a compromise between what citizens can afford and what producers require. Figure 7. Illustration indicating that the world has already reached a point where no oil price works for both oil suppliers and oil consumers. In the years before diminishing returns became too much of a problem (back before 2005, for example), it was possible to find prices that were within an acceptable range for both sellers and buyers. As diminishing returns has become an increasing problem, the price that consumers can afford has tended to fall increasingly far below the price that producers require. This is why oil prices at first fall a little too low for producers, and eventually seem likely to fall far below what producers need to stay in business. The problem is that no price works for both producers and consumers. Affordability Issues Affect All Commodity Prices, Not Just Oil We are dealing with a situation in which a growing share of workers (and would be workers) find it difficult to afford a home and family, because of wage disparity issues. Some workers have been displaced from their jobs by robots or by globalization. Some spend many years in advanced schooling and are left with large amounts of debt, making it difficult to afford a home, a family, and other things that many in the older generation were able to take for granted. Many of today’s workers are in low-wage countries; they cannot afford very much of the output of the world economy. At the same time, diminishing returns affect nearly all commodities, just as they affect oil. Mineral ores are affected by diminishing returns because the highest grade ores tend to be extracted first. Food production is also subject to diminishing returns because population keeps rising, but arable land does not. As a result, each year it is necessary to grow more food per arable acre, leading to a need for more complexity (more irrigation or more fertilizer, or better hybrid seed), often at higher cost. When the problem of growing wage disparity is matched up with the problem of diminishing returns for the many different types of commodity production, the same problem occurs that occurs with oil. Prices of a wide range of commodities tend to fall below the cost of production–first by a little and, if the debt bubble pops, by a whole lot. We hear people say, “Of course oil prices will rise. Oil is a necessity.” The thing that they don’t realize is that the problem affects a much bigger “package” of commodities than just oil prices. In fact, finished goods and services of all kinds made with these commodities are also affected, including new homes and vehicles. Thus, the pattern we see of low oil prices, relative to what is required for true profitability, is really an extremely widespread problem. Interest Rate Policies Affect Affordability Commodity prices bear surprisingly little relationship to the cost of production. Instead, they seem to depend more on interest rate policies of government agencies. If interest rates rise or fall, this tends to have a big impact on household budgets, because monthly auto payments and home payments depend on interest rates. For example, US interest rates spiked in 1981. Figure 8. US short and long term interest rates. Graph by FRED. This spike in interest rates led to a major cutback in energy consumption and in GDP growth. Figure 9. World GDP Growth versus Energy Consumption Growth, based on data of 2018 BP Statistical Review of World Energy and GDP data in 2010$ amounts, from the World Bank. Oil prices began to slide, with the higher interest rates. Figure 10. Figure 11 indicates that the popping of a debt bubble (mostly relating to US sub-prime housing) sent oil prices down in 2008. Once interest rates were lowered through the US adoption of Quantitative Easing (QE), oil prices rose again. They fell again, when the US discontinued QE. Figure 11. Figure showing collapsing debt bubble at the time US oil prices peaked, and the use of Quantitative Easing (QE) to stimulate the economy, and thus bring prices back up again. While these charts show oil prices, there is a tendency for a broad range of commodity prices to move more or less together. This happens because the commodity price issue seems to be driven to a significant extent by the affordability of finished goods and services, including homes, automobiles, and restaurant food. If the collapse of a major debt bubble occurs again, the world seems likely to experience impacts somewhat similar to those in 2008, depending, of course, on the location(s) and size(s) of the debt bubble(s). A wide variety of commodity prices are likely to fall very low; asset prices may also be affected. This time, however, government organizations seem to have fewer tools for pulling the world economy out of a prolonged slump because interest rates are already very low. Thus, the issues are likely to look more like a widespread economic problem (including far too low commodity prices) than an oil problem. Lack of Growth in Energy Consumption Per Capita Seems to Lead to Collapse Scenarios When we look back, the good times from an economic viewpoint occurred when energy consumption per capita (top red parts on Figure 12) were rising rapidly. Figure 12. The bad times for the economy were the valleys in Figure 12. Separate labels for these valleys have been added in Figure 13. If energy consumption is not growing relative to the rising world population, collapse in at least a part of the world economy tends to occur. Figure 13. The laws of physics tell us that energy consumption is required for movement and for heat. These are the basic processes involved in GDP generation, and in electricity transmission. Thus, it is logical to believe that energy consumption is required for GDP growth. We can see in Figure 9 that growth in energy consumption tends to come before GDP growth, strongly suggesting that it is the cause of GDP growth. This further confirms what the laws of physics tell us. The fact that partial collapses tend to occur when the growth in energy consumption per capita falls too low is further confirmation of the way the economics system really operates. The Panic of 1857 occurred when the asset price bubble enabled by the California Gold Rush collapsed. Home, farm, and commodity prices fell very low. The problems ultimately were finally resolved in the US Civil War (1861 to 1865). Similarly, the Depression of the 1930s was preceded by a stock market crash in 1929. During the Great Depression, wage disparity was a major problem. Commodity prices fell very low, as did farm prices. The issues of the Depression were not fully resolved until World War II. At this point, world growth in energy consumption per capita seems to be falling again. We are also starting to see evidence of some of the same problems associated with earlier collapses: growing wage disparity, growing debt bubbles, and increasingly war-like behavior by world leaders. We should be aware that today’s low oil prices, together with these other symptoms of economic distress, may be pointing to yet another collapse scenario on the horizon. Oil’s Role in the Economy Is Different From What Many Have Assumed We have heard for a long time that the world is running out of oil, and we need to find substitutes. The story should have been, “Affordability of all commodities is falling too low, because of diminishing returns and growing wage disparity. We need to find rapidly rising quantities of very, very cheap energy products. We need a cheap substitute for oil. We cannot afford to substitute high-cost energy products for low-cost energy products. High-cost energy products affect the economy too adversely.” In fact, the whole “Peak Oil” story is not really right. Neither is the “Renewables will save us” story, especially if the renewables require subsidies and are not very scalable. Energy prices can never be expected to rise high enough for renewables to become economic. The issues we should truly be concerned about are Collapse, as encountered by many economies previously. If Collapse occurs, it seems likely to cut off production of many commodities, including oil and much of the food supply, indirectly because of low prices. Low oil prices and low prices of other commodities are signs that we truly should be concerned about. Too many people have missed this point. They have been taken in by the false models of economists and by the confusion of Peak Oilers. At this point, we should start considering the very real possibility that our next world problem is likely to be Collapse of at least a portion of the world economy. Interesting times seem to be ahead.

04 июня, 16:42

Индийской «GAIL» получена первая партия СПГ по контракту с концерном «Газпром»

По сообщению «GAIL», индийской государственной компанией получена первая партия сжиженного природного газа по контракту с «Газпромом». В сообщении, которое опубликовано в официальном аккаунте «GAIL» в социальной сети Twitter пишут: «Первая партия СПГ по долгосрочному контракту «GAIL» и «Gazprom Marketing and Trading Singapore» прибыла сегодня на СПГ терминал компании «Petronet LNG» в Дажедж». Еще в начале […]

02 апреля, 10:17

Индийская GAIL получила первую партию СПГ из США

Москва. Индийская государственная нефтегазовая компания GAIL получила первую партию сжиженного природного газа (СПГ) из США. Об этом заявил в своем аккаунте в Twitter министр нефти и газа Индии Дхармендра Прадхан. "Dabhol стал новым энергетическим ...

22 марта, 20:30

ELIZABETH WARREN’S RESEARCH HARDEST HIT: Study: Medical bankruptcies may not be as common as though…

ELIZABETH WARREN’S RESEARCH HARDEST HIT: Study: Medical bankruptcies may not be as common as thought. Medical bills can push patients over the financial cliff, but a new study says this may not happen as often as previous research suggests. Hospitalizations cause only about 4 percent of personal bankruptcies among non-elderly U.S. adults, according to an […]

18 марта, 22:05

Our Latest Oil Predicament

Authored by Gail Tverberg via Our Finite World blog, It is impossible to tell the whole oil story, but perhaps I can offer a few insights regarding where we are today. [1] We already seem to be back to the falling oil prices and refilling storage tanks scenario. US crude oil stocks hit their low point on January 19, 2018 and have started to rise again. The amount of crude oil fill has averaged about 365,000 barrels per day since then. At the same time, prices of both Brent and WTI oil have fallen from their high points. Figure 1. Average weekly spot Brent oil prices from EIA website, with circle pointing to recent downtick in prices. Many people believe that the oil problem, when it hits, will be running out of oil. People with such a belief interpret a glut of oil to mean that we are still very far from any limit. [2] An alternative story to running out of oil is that the economy is a self-organized system, operating under the laws of physics. With this story, too little demand for oil is as likely an outcome as a shortage of oil. Oil and energy products are used to create everything, even jobs. If all humans have is energy from the sun, plus the energy that all animals have, then humans would be much more like chimpanzees. All humans would be able to do is gather plant food and catch a few easy-to-catch animals (earthworms and crickets, for example). They certainly could not extract oil or find uses for it. It takes a self-organized economy to support the extraction and sale of energy products. We need a complex web that includes: Equipment to extract the oil Training for engineers and other workers Devices that use oil, such as vehicles, farm equipment, road paving equipment A financial system to enable transactions to purchase oil Buyers with jobs that pay well enough that they can afford to buy goods made with oil The things that go wrong with this economy can be on the buyers’ end of the economy. Buyers can have jobs, but these jobs may not pay well enough for the buyers to afford the output of the economy. A falling share of the population may be able to afford cars, for example. [3] It is possible that a recent rapid increase in oil supply is contributing to the current mismatch between supply and demand.  Data of the US Energy Information Administration indicates that US oil supply has recently begun to surge. It is not just crude oil production that is higher. Natural gas liquid production is higher as well. As a result, Total Liquids production is reported to have been more than 16 million barrels per day in November 2017. Figure 2. US Liquids Production, based on International Energy Data provided by the US EIA. Oil production of the rest of the world has been relatively flat, as planned. Figure 3. World excluding the US oil production by type, based on EIA International Energy data through November 2017. Total world production, combining the amounts on Figures 2 and 3, set a new record of 99.1 million barrels of oil per day for November 2017, based on EIA data. This level is above the November 2016 level, which was the previous record at 98.9 million barrels per day. At this high level of production, it is not surprising that the economy cannot absorb the full amount of extra supply. There are also a number of issues that affect buyers’ demand for oil. [4] The percentage of US residents who can afford to buy a new automobile or light truck seems to be falling over time.  If we look at the number of autos and trucks sold in the US, per 1000 population, we see a pattern of falling humps, as a smaller and smaller share of the population can afford a new car or light truck, each year. The big drops occur during the gray recessionary periods marked on the chart. Figure 4. Figure showing US Passenger Cars and Light Trucks Purchased per Year per 1000 Population. Original graph by FRED (Federal Reserve of St. Louis). Retitled by author, because units were confusing on original chart. The first peak came in 1978, at 67.3 units. The second, slightly lower peak came in 1986, at 66.7. The third peak came in 2000 at 61.5 units. The fourth peak came in 2015, at 51.6 units. Early 2018 amounts suggest that the trend in units sold per 1000 population will continue its downward trend. Part of what is happening is that vehicles are becoming longer-lasting, so that there is not as much need to buy new cars frequently. But having a short-lived, cheap car has an advantage, if it makes cars available to a larger percentage of the total population. With a vehicle, a person has a much better ability to participate in the US workforce. US Labor Force Participation Rates peaked in about the year 2000, which is about the time of the third peak in affordability. Figure 5. US Labor Force Participation Rate. Chart by FRED (Federal Reserve of St. Louis). [5] There was a steep rise in the cost of auto ownership in the 1995- 2008 period. This has since fallen back, but the cost is still high relative to the wages of many workers. One estimate of the cost of auto ownership is the reimbursement rate that the US government allows businesses to pay workers who use their own cars for company business. Figure 6. Auto reimbursement rates as compiled on this list. Amounts shown on “As Stated” basis, and also at the 2017 cost level, based on CPI Urban. These costs peaked about 2008 and were reflected in high reimbursement rates for 2009 as well. More recently, buyers of cars have been helped by longer term loans and ultra-low interest rates. If interest rates rise at all, the share of people buying or leasing new vehicles can be expected to fall further from the level shown on Figure 4. [6] Building homes also requires oil. There has been a sharp drop in US home building, both on an absolute basis, and on a per capita basis, since 2008. Figure 7. US Housing Units Completed, related to US population. Population from Census Bureau; population from UN 2017 population summary. Building homes is part of oil demand. It takes oil to transport all of the materials used (lumber, siding, wiring, pipes, appliances) to the place where the house will be built. Furthermore, many of the materials used in building a home are produced using petroleum products. The number of homes built depends on the number of new households that can afford a separate place to live. The low level of building makes it look as if the economy is still seeing a pattern of young adults living with their parents much longer than in the past. If buildings are to be replaced every 75 years, my calculation suggests that about 6 housing units per 1000 residents need to be built each year. About 2.5 units per thousand are needed, just to keep up with rising population, if upgrading and remodeling can be done almost indefinitely. The fact that there is little home building reduces the number of jobs available in the building industry. The lack of jobs in this industry helps hold down the demand for oil, because these workers would use their wages to buy goods for themselves, such as food and vehicles. Food is grown and transported using vehicles powered by oil. The lack of home building also contributes to the nation’s homelessness problem. If there were plenty of inexpensive apartments, there would be fewer homeless people. [7] There is no longer an oil price at which both oil exporters and oil importers are satisfied. Oil prices today are too low for oil exporters. I started writing about oil producers complaining that oil prices were too low in early 2014. At that time, oil companies were looking back at prices of over $100 per barrel in 2013. They were saying that $100+ prices were too low to provide adequate funds for reinvestment in new fields. Now prices are in the $65 range, which is even farther below the desired level. Oil exporters are especially unhappy about today’s low prices, because they need high prices in order to collect needed tax revenue. This is why OPEC members and Russia have been holding back production. The plan is to deplete the glut of oil in storage, and thus get prices up. It is not at all clear, however, that consumers in oil importing countries can really withstand higher prices. The fact that Brent oil prices could only stay above $70 per barrel for one week on Figure 2 (in the red circle), suggests that consumers in major oil importing countries cannot really withstand oil prices at this high level. I have observed previously that a sustainable price, without adding a huge amount of debt each year, is only about $20 per barrel. [8] If we analyze vehicle purchases by country, we can see that low oil prices since 2014 seem to be helping major oil importers but are hurting Tier 2 countries that are commodity-dependent. Figure 8. New vehicles (private passenger and commercial combined) purchased per capita for selected groupings of countries. Amounts shown are from OICA estimates by country. In this chart, the grouping of Advanced Economies includes: USA Europe Japan Canada Australia For this grouping, growth in auto sales is again rising, but has not regained its prior level. This is somewhat similar to the indications in Figure 4, for the US only, looking at cars and light trucks. The main difference is in the last two years. Changes in currency relativities may be helping recent vehicle sales for the other countries in the grouping. On this chart, the Tier 2 grouping includes: Brazil Russia South Africa South Korea Malaysia Mexico This group includes several oil and other resource dependent countries. South Korea is perhaps more like the industrial countries in the first grouping. This grouping shows a downturn in the purchasing of vehicles in the last three years, when commodity prices have been depressed. If oil prices were higher, this group would probably be buying more vehicles. Figure 8 shows that China’s auto sales have been growing rapidly. In fact, China has surpassed the Tier 2 average in per capita sales. In the past year, China’s growth in auto sales has flattened. But with China’s huge population, the absolute number of vehicles sold is still very high: 29.1 million vehicles, compared to 17.6 million for the United States, and compared to 20.9 million for Europe. India and the Rest of the World account for surprisingly few vehicles sold. On Figure 8, their lines overlap at the bottom of the chart. [9] The push toward raising interest rates and selling QE securities will tend to reduce oil prices and add to the oil glut. I wrote about some of the issues involved in Raising Interest Rates Is Like Starting a Fission Chain Reaction. When interest rates are higher, economies are pushed in the direction of recession. All kinds of discretionary spending are reduced. Use of oil will almost certainly be reduced. This could lower oil prices significantly, as it did in 2008 (Figure 1). [10] To a significant extent, China has been helping hold up world oil consumption, with its rapidly growing economy. It is hitting headwinds now, however. The International Monetary Fund recently showed an exhibit indicating how China’s debt is growing very rapidly, but its growth in output is slowing. The combination could very easily lead to a credit crisis. Figure 9. Exhibit from IMF Working Paper called Credit Booms: Is China Different? Now, the rest of the world depends on China for many imported goods. If China should have problems, it would indirectly affect oil demand elsewhere as well. Even China’s recent ban on importing certain types of materials for recycling can be expected to have an adverse impact on oil demand. Very often, if a container is sent from China to the US or to Europe, there will be no exported goods to send back to China, except for material for recycling. If China refuses to take recycling, containers will need to be returned empty. Recycling generally needs to be subsidized. Part of what this subsidy is used for is to pay the cost of shipping material to be recycled to China. If China does not take the recycling, this payment for shipping materials in the otherwise-empty containers will not be made. The shipping company will need to charge exporters more for the one-way trip, if the shipping company is to be profitable. This higher cost, by itself, is a deterrent to trade. In many ways, the higher shipping cost is like a tariff. [11] Conclusion. My expectation is that the general direction of oil prices is likely downward, especially if interest rates rise. A major financial disruption of any kind would have a similar effect. Gluts of oil can be expected with lower prices. Many groups, including the IEA, have been warning about oil shortages because of inadequate investment in new production. Oil shortages, and energy shortages in general, have a multitude of adverse impacts on economies. One of them is loss of jobs, because jobs require the use of energy, for example, to deliver goods in a truck. If many more people are unemployed, there is less demand for oil. Thus, it is not at all clear that a shortage of oil leads to high prices; it may very well lead to lower prices. Many people are confused about this issue, because the word demand gives a misleading impression of the mechanism involved. Lack of demand comes from part of the population not being able to afford cars and homes. It also comes from cutbacks in government spending and from failing businesses. In an interconnected system, even failing banks tend to reduce oil demand. Another adverse impact of oil and energy shortages tends to be fighting and wars. The fact that the US seems to be raising its energy production, in apparent disregard for countries that have been trying to cut back, is likely to make some oil exporting countries quite angry. It could sow the seeds for another war. Economists do not seem to understand that GDP growth rates don’t tell very much about the well-being of individual citizens in an economy. A major issue is wage disparity. If there are many very low wage people, there is likely to be downward pressure on the sale of automobiles, and on the purchase of petroleum products. Economists are likely to think everything is fine, up until a major crisis occurs.

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16 марта, 19:47

Regulator axes trans-India gas pipeline

India’s Petroleum and Natural Gas Regulatory Board has revoked authorization for state-owned GAIL (India) Ltd. to lay a 2,112-km pipeline to carry imported natural gas from the west to east coasts. 

16 марта, 15:24

Gone Girl's gone, hello Eleanor Oliphant: why we're all reading 'up lit'

With Gail Honeyman and Joanna Cannon on the Women’s prize for fiction longlist, uplifting stories about kindness and community are proving a hit on bestseller listsLast week, Gail Honeyman’s Eleanor Oliphant Is Completely Fine was longlisted for the Women’s prize for fiction. The debut author, who has gone from writing competition to publishing bidding war to the Costa first novel prize, joins Joanna Cannon, with her second novel Three Things About Elsie. What’s more surprising than two relative newcomers sitting alongside heavyweights including Arundhati Roy and Nicola Barker is that these novels are decidedly upbeat accounts of the kindness of strangers.Branded “up lit” by publishers, novels of kindness and compassion are making their mark on bestseller lists, with Ruth Hogan’s The Keeper of Lost Things also proving a hit, and this summer’s The Lido by Libby Page continuing the positive trend. Continue reading...

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14 марта, 14:39

10 Things You Should Never Do on a Cruise and 2 Things You Must

Going on a cruise should be a relaxing experience. We'll show you 10 things to avoid doing and the two things you must do on a cruise.

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14 марта, 12:30

Легкомоторный самолет совершил жесткую посадку на городской улице во Флориде. Видео

Воздушное судно совершило вынужденную посадку практически сразу после взлета. В результате жесткого аварийного приземления самолет частично разрушился. Никто из людей, находившихся на борту, не пострадал.

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08 марта, 03:01

Women's prize for fiction reveals 'outward-looking' longlist

Judges acclaim the boldness of a 16-strong selection that ranges from a future utopia to the arrival of a mermaid in Georgian LondonFrom murderers to mermaids, the “whole wealth of experience” features on the longlist for the 2018 Women’s prize for fiction, according to chair of judges Sarah Sands, giving the lie to “that stereotype of women’s fiction”.The 16-strong longlist for the £30,000 award for “excellence, originality and accessibility in writing by women in English from throughout the world”, was announced on Thursday. The award, previously known as the Baileys prize, places two major names, Pulitzer winner Jennifer Egan and Booker winner Arundhati Roy, up against six debuts. The latter include Gail Honeyman’s Eleanor Oliphant Is Completely Fine, which won the Costa first novel award, and Imogen Hermes Gowar’s The Mermaid and Mrs Hancock, a tale set in Georgian London in which a mermaid is captured. Continue reading...

07 марта, 17:16

Индийская GAIL начала закупки СПГ в США

Первая отгрузка осуществлена с завода Sabine Pass в Луизиане.

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07 марта, 15:18

THE OBAMA ADMINISTRATION’S INSANE SCHOOL-DISCIPLINE POLICIES LED TO THE PARKLAND SHOOTING. Now ther…

THE OBAMA ADMINISTRATION’S INSANE SCHOOL-DISCIPLINE POLICIES LED TO THE PARKLAND SHOOTING. Now there’s this paper by Gail Heriot and Alison Somin: The Department of Education’s Obama-Era Initiative on Racial Disparities in School Discipline: Wrong For Students and Teachers, Wrong on the Law.

22 февраля, 03:10

Gail Tverberg: "Raising Interest Rates Is Like Starting A Fission Chain Reaction"

Authored by Gail Tverberg via Our Finite World blog, Central bankers seem to think that adjusting interest rates is a nice little tool that they can easily handle. The problem is that higher interest rates affect the economy in many ways simultaneously. The lessons that seem to have been learned from past rate hikes may not be applicable today. Furthermore, there can be quite a long time lag involved. Thus, by the time a central banker starts seeing an effect, it may be clear that the amount of the interest rate change is far too large. A recent Zerohedge article seems to suggest that problems can arise with 10-year Treasury interest rates of less of than 3%. We may be facing a period of declining acceptable interest rates. Figure 1. Chart from The Scariest Chart in the Market. Let’s look at a few of the issues involved: [1] The standard reason for raising interest rates seems to be concern about inflationary impacts occurring as a result of rising food and energy prices. In practice, the impact of such an interest rate change can be quite severe and quite delayed.  Figure 2 is an illustration from the Bureau of Labor Statistics website showing one of today’s concerns: rising energy costs. Food prices are not yet rising. Normally, however, if oil prices rise, the cost of producing food will also rise. This happens because modern agricultural methods and transportation to markets both require the use of petroleum products. Figure 2. Figure created by the US Bureau of Labor Statistics showing percentage change in the Consumer Price Index between January 2017 and January 2018, for selected categories. In fact, raising short-term interest rates seems to have been associated with trying to bring down rising food and energy costs, as early as the 1970s and early 1980s. Figure 3. US three-month treasury interest rates. Chart prepared by St. Louis Federal Reserve. The reason why an increase in short-term interest rates is helpful is because it reliably induces a recession. A person can see the close connection between short-term interest rate increases and recessions (gray bars) in Figure 3. Recessions in turn damp down food and energy prices. The reason why this damping down effect occurs is because when there is a recession, many people are laid off from work. These people purchase fewer goods and services. With people out of work, “demand” for goods and services falls. (Demand is very closely related to “amount affordable.”) We might think of demand for goods and services as helping to maintain the “production” of new homes, new cars, upscale food products, toys, and even consulting services. When demand falls, fewer goods of practically every type are made. This indirectly leads to less need for commodities of many types, including oil, natural gas, metals, and food. Commodities have very long production cycles, and only modest storage facilities. When lower demand for a commodity such as oil occurs, prices tend to adjust sharply downward, in order to signal the need for lower production. Figure 4 shows that interest rate spikes corresponded to the 1973-1974 oil price spike, the 1979 oil price spike, the 2004-2008 price run-up, and perhaps to other shorter oil price spikes. Figure 4. Annual averages of Brent oil prices (in 2016$) and 3-month average interest rates, based on data similar to that shown in Figure 3 from “FRED.” The annual data in Figure 4 loses the detail of month-to-month variations. Because of this, it makes the impact of the Great Recession look much less severe than it really was. Figure 5, using monthly data for recent periods, shows more clearly the severe fall in oil prices following the run-up in short-term interest rates in the 2004-2007 period. Figure 5. Three-month US Treasury interest rates and Brent oil prices, both on a monthly average basis. Graph by FRED. If a person looks at the indirect impacts on the economy as a whole, it becomes clear that the rise in short-term interest rates was one of the proximate causes of the Great Recession of 2008-2009. I talk about this in Oil Supply Limits and the Continuing Financial Crisis. The minutes of the June 2004 Federal Reserve Open Market Committee indicate that the committee decided to start raising interest rates at a rate of 0.25% per quarter for the purpose of stopping the rise in energy and food prices. The huge financial problems that indirectly resulted did not occur until four years later, in 2008. It is likely that most economists are unaware of the connection between the decision to raise rates back in 2004 and the Great Recession several years later. [2] Higher energy prices squeeze a person’s “spendable income.” Higher interest rates have the same effect. Economist James Hamilton showed that ten out of eleven recent recessions were associated with oil price shocks. We would argue that if an economy is subject to higher interest rates in addition to higher oil prices, the economy is doubly likely to go into recession. Figure 6 shows an illustration of the situation. Figure 6. Image by author showing recessionary impact of rising energy costs and interest costs. A wage earner’s pay does not normally increase as energy costs rise, or as interest costs rise. Even if energy and interest costs are well buried (in higher food costs, or in the higher cost of goods transported across the country, or in higher student loan payments) the amount of income that a person has available to spend on discretionary goods and services falls if energy and interest costs rise. Having both energy and interest costs take a bigger share of available income at the same time is especially a problem. [3] Reduced interest rates can be used to conceal the adverse impact of rising energy prices. This is another version of what we saw in Figure 6. If interest rates can be reduced, they can offset most of the bad impacts of higher energy prices. For example, if oil prices are higher, it helps if auto loans and mortgages loans are lower in cost. Figure 7. Image by author showing that artificially low interest rates can mostly offset the impact of rising energy costs. Of course, central bankers don’t necessarily think this through. To what extent is today’s economy really dependent on very low interest rates? [4] Falling interest rates have an almost magical impact on the economy. Rising interest rates reverse these magical impacts, and replace them with very negative impacts. We saw in Figure 6 how falling interest rates could more or less conceal a rise in energy prices. The following are a few of the additional magical things that falling interest rates can do: (a) Falling interest can raise asset prices of many kinds, including homes, stock prices, resale prices of bonds, and the price of land. (b) Falling interest rates can raise commodity prices, making it possible to extract more fossil fuels and metals. Resources that previously did not look economic to extract, suddenly become economic to extract. This change occurs because with lower interest rates, more people can afford to purchase goods that use oil, such as cars and motorcycles. This tends to raise demand for oil products, and thus prices. (c) Because higher-priced energy extraction becomes feasible at lower interest rates, more advanced technology, at higher prices, suddenly becomes feasible. Jobs open up in research areas that would not previously have made sense at lower energy prices. (d) Falling interest rates can make the balance sheets of companies holding stocks and bonds as assets look better, because of their rising prices. (e) Rising asset prices “feed back” into spendable income. People with homes that have risen in value can refinance, and use the proceeds to fix up their home (add an additional room or an updated kitchen, for example). Individual citizens and companies can sell shares of stock that have risen in value and use those proceeds to augment other income. If interest rates rise rather than fall, the impacts can be expected to be extremely recessionary. The stock market may crash. Homes are likely to lose value because of a lack of buyers that can afford them. Energy resources that seemed to be available can suddenly seem not to be feasible because of low prices. [5] The economy was able to reasonably tolerate the run-up in interest rates in the 1950 – 1980 period because the economy was growing very rapidly.  A person can see the pattern of short-term interest rates in Figure 3, above. Long-term (10-year) interest rates follow a somewhat similar, but smoother, pattern (Figure 8). Figure 8. Monthly average 10-year Treasury interest rates, through January 2018, in chart by FRED. World per capita energy consumption was rising very rapidly in the 1950 to 1970 period. Even in the troubled 1970 to 1980 period, per capita energy consumption continued to rise, although not as quickly (Figure 9). Figure 9. World per capita energy consumption, with 1950-1980 period of rapid growth highlighted. World Energy Consumption by Source, based on Vaclav Smil estimates from Energy Transitions: History, Requirements and Prospects (Appendix) together with BP Statistical Data for 1965 and subsequent, divided by population estimates by Angus Maddison. When world per capita energy consumption is growing this rapidly, jobs tend to be plentiful and wages tend to rise faster than inflation. According to Figure 10, US wages rose more rapidly than inflation in the 1950 to 1970 period, without wage disparity becoming a problem. Even in the 1970 to 1980 period, when high oil prices were a problem, US wages were able to rise quickly enough to keep up with inflation. Rising wage disparity did not become a problem until after 1980. Figure 10. Chart comparing income gains by the top 10% to income gains by the bottom 90% by economist Emmanuel Saez. Amounts are inflation adjusted. Based on an analysis of IRS data, published in Forbes. The share of US citizens in the workforce also rose during the period up to 1980, as an increasing percentage of women joined the workforce (Figure 11). Figure 11. Employment as a percentage of the population, aged 25-54. Chart from FRED, using OECD amounts. The thing that made the 1950-1970 period unusual was the growing availability of inexpensive fossil fuels. With fossil fuels, it was possible to add expressways where they had never been before. This allowed more interstate trade and improved the productivity of truck drivers. Labor saving devices allowed women to join the workforce. Farming continued to become more productive, with all of its labor saving equipment. Even as energy prices rose in the 1970 to 1980 period, citizens were able to continue to buy energy products because their wages were rising enough to keep up with inflation. The growth in productivity was so great that wages plus government benefits (as measured by “Disposable Personal Income”) rose almost too fast. This added inflationary pressures to the economy. It is my opinion that these inflationary pressures contributed greatly to the oil price run-up in the 1973-1974 and the 1979-1981 periods. Figure 12. Three-year average growth in Disposable Personal Income compared to inflation as measured by CPI-Urban. DPI from US Bureau of Economic Analysis; CPI from Bureau of Labor Statistics. Per Capita Disposable Personal Income is calculated by dividing DPI by US population, also from the BEA. The run-up in oil prices also to some extent reflected a scarcity problem; note the two spikes in CPI-Urban in the 1970s in Figure 12, which are higher than would be expected, if the problem were simply a problem caused by the very high per capita Disposable Personal Income growth. A major problem of the 1970s was a decline in US crude oil production for the area outside Alaska. Figure 13. US crude oil production by type, based on EIA data. This scarcity problem was significantly mitigated by the development of oil fields in Alaska, Mexico, and the North Sea in the next few years. One of the things that substantially helped fix the oil problems of the 1970s was the fact that the US, as well as other developed countries, was able to make changes that substantially reduced their oil consumption. These changes included: Moving to smaller, more fuel-efficient cars Finding fuel substitutes when oil was being used being burned to create electricity Changing oil-based home heating to approaches that used other fuels Figure 14. Oil consumption by part of the world. Data from BP Statistical Report of World Energy 2017. The combination of these approaches brought supply and demand more into balance. There was small dip in consumption in the 1973-1975 period, and a larger dip in the 1979 to 1984 period. In comparison, the Great Recession of 2008-2009 hardly made a dent. An indirect impact of these changes was the fact that the US economy needed to become more integrated into the world market. The US started importing smaller, more fuel-efficient vehicles from Japan, since Japan was already making these cars. Japan started making other kinds of goods as well to sell to the US and other markets. The US and other countries built nuclear electric generation to replace some of the oil-fired electricity generation. These plants were capital intensive and required growing debt. Especially after 1981, changes started to take place in the US economy, reflecting its changed role in the world. US companies grew in size, as they began to add overseas markets to their local markets. Wage disparity became more of an issue, as high tech operations required more specialized high-wage workers and fewer of those with only a general education. Increased competition for jobs with workers from lower-wage countries also tended to hold down wages of those without advanced training. [6] The situation is very different now, compared to the 1970s. It is doubtful that today’s economy could tolerate a spike interest rates. Today, we are not seeing rapid growth in per capita energy consumption, the way we were in the 1950 to 1980 period (Figure 9). In fact, world per capita energy consumption is almost flat (Figure 15), the way it was during the period of the Great Depression of the 1930s, and the way it was at the time of the collapse of the former Soviet Union in the 1990s (Figure 9). Figure 15. World energy per capita and world oil price in 2016 US$. Energy amounts from BP Statistical Review of World Energy, 2017. Population estimates from UN 2017 Population data and Medium Estimates. There are other similarities to the 1930s period. Short-term interest rates are back to the low level they were in the 1930s (Figure 3). Growth in Disposable Personal Income per capita is persistently low (Figure 12). Wage disparity is at the high level experienced back in the 1930s (Figure 16). Figure 16. U. S. Income Shares of Top 1% and Top 0.1%, Wikipedia exhibit by Piketty and Saez. It is probably because of this renewed wage disparity that we are having difficulty with oil gluts. Oil gluts were also experienced in the 1930s. People with inadequate wages cannot afford goods made with oil products. These gluts occur because of affordability problems–inadequate wages for part of the workforce. Figure 17. US ending stock of crude oil, excluding the strategic petroleum reserve. Figure produced by EIA. Figure by EIA. Despite the spike in oil prices that central bankers are concerned about, oil prices are currently too low for producers. Oil exporting countries, such as Venezuela, Saudi Arabia, and Nigeria, depend on high oil prices so that they can collect high tax revenue. These countries are especially hurt by today’s low oil prices. An increase in interest rates could very easily create a recession and drop oil prices even lower than they are today. Of course, that is precisely the intent of the central bankers. Our problem is that the economy cannot operate without energy products, particularly oil. The cost of producing oil is rising because of diminishing returns. It simply is not possible to drop its price as low as oil-importing countries would like it to be. [7] Economists and central bankers think that they have good models of how the economy operates, but they really do not.  The economy is a self-organized system that is able to create goods and services using energy products. In fact, it cannot continue its existence, without continued very substantial energy consumption. The economy gradually builds itself up, with new businesses, new consumers, newly invented products, and with transportation and financial systems. I envision the economy as looking something like a child’s toy that is built from many pieces. If one or more pieces are removed, the system could collapse. Figure 18. Dome constructed using Leonardo Sticks The economy has been built based on the laws of physics. It requires sufficient energy. It is in many ways like a hurricane that loses power if it is forced to go over land for any distance. A hurricane gets extra strength if it is able to pass over very warm water, which provides the energy it needs. Right now, the world economy is showing signs that it does not have sufficient energy; the standard of living of young people around the world is falling. The return on energy investment is far too low. While it may be true that the US economy looks like it is at full employment, based on the number of people looking for jobs, the percentage of people aged 25-54 with jobs tells a different story (Figure 11). This percentage has fallen since 2000, at least partly because of globalization. Unfortunately, the approach that economists are taking to model the economy cannot provide a good representation of how the economy really works. A self-organized system has many feedback loops that are difficult to understand and model. One change leads to other changes that are hard to see in advance. The problem with current models is that they are likely to produce misleading indications. [8] Conclusion We have heard the saying, “That which does not kill you makes you stronger.” The theory behind raising interest rates seems to follow a similar line of reasoning. If central bankers can raise interest rates, economies will be stronger. The catch is that we are too close to the “edge” to be testing an increase in interest rates. Economies, below a certain “stall speed,” cannot repay debt with interest, and cannot hope to provide entrepreneurs with an adequate return on investment. Our low rate of growth is already close to this stall speed. Given where we are today, it would be quite possible to accidentally “kill” the economy with rising interest rates. This would be especially the case if short-term and longer-term interest rates rise at the same time. A budget with large deficits could cause longer-term interest rates to rise. So could selling large amounts of QE debt. Also, feedbacks don’t come quickly enough to make necessary course corrections. This makes raising interest rates way too much like playing with physics reactions we don’t fully understand. Interest rate increases (like fission reactions) start chain reactions. In an open environment such as the world economy, we have limited understanding of the outcome of these chain reactions.

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