Sunday, July 25, 2010

US Financial Terrorists and "Top Secret America", a manipulation/spying scam

Image of Max Keiser [found here on interesting webpage]

Is Goldman Sachs more of a terrorist organization, a world threat, more so than the pretend ones alleged to be phantoms hiding in caves?

Is "Top Secret America" about bankrupting African economies over cocoa price manipulation showing how US Financial Spooks are wrecking the world economy? Well check out the Max Keiser
[video within this post]

Is the SEC, Securities and Exchange Commission, using software to fudge its books? Aren't they supposed to be financial regulators? Check out the Corbett Report [video within this post]


Documents Detail $4.3B In Goldman Sachs Payouts

by The Associated Press

International banks and financial companies were indirect beneficiaries of the government's 2008 bailout of American International Group Inc., according to newly released documents.

The documents released by Sen. Chuck Grassley, R-Iowa, contain a list of the 27 banks, hedge funds and financial companies that received $4.3 billion from Goldman Sachs Group Inc. The money was to reimburse them for losses on investments called credit default swaps that plunged in value during the financial crisis.

The money trail actually began with AIG, which sold the swaps to Goldman. The big investment bank in turn sold them to its customers, including the international banks and financial companies. When AIG received a bailout worth $182.5 billion, it reimbursed Goldman and other banks, which then repaid their customers.

Credit default swaps are essentially contracts that insure against the default of bonds and corporate debt. Sellers of swaps, such as AIG, are obligated to repay customers if the value of the underlying bonds or debt declines.

Much of the federal rescue money for AIG was used to pay its obligations to its Wall Street trading partners on credit default swaps. The biggest beneficiary of the AIG money was Goldman, which received $12.9 billion.

According to Grassley, the documents show that the five banks or companies ultimately receiving the largest amount of taxpayer money were DZ Bank AG in Germany, which received $1.18 billion; Banco Santander Central Hispano SA of Spain, which received $484 million; Ireland's Zulma Finance PLC, which received $416 million; Infinity Finance PLC in Britain, which received $277 million; and Britain's Sierra Finance PLC, which received $223 million.

Another $173 million went to Hongkong & Shanghai Banking Corp., which has HSBC operations throughout the U.S.

Goldman had previously disclosed that it had made payments to its customers, but did not say who the recipients were. It gave the information to Grassley after he threatened to subpoena the bank. Grassley released the documents showing the payments late Friday.

The payments have been controversial because of concerns that the banks should have absorbed more losses on their investments rather than be reimbursed with taxpayer money. Last month, a watchdog panel raised new doubts over the likelihood taxpayers will be fully repaid for the government's bailout of AIG.

"The government determined that a collapse of AIG would be systemically disastrous," Goldman Sachs spokesman Lucas van Praag said. "And of course if a systemic problem had ensued, we along with every company in the world would likely have been affected."

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Are Saudi Arabia oil fields going dry where water is needed to be pumped across Turkey for a process to extract the last of the oil? Is Russia now a bigger oil producer than Saudi Arabia?

The below posts found on [] out of Massachusetts

How does Energy play into the financial crisis?

Friday Notebook: Artful Data

Scale is a difficult dimension for society to grasp whether we are talking about national debt, geologic time, or global energy systems. Here at I primarily use writing to disclose the fullness of scale, and am constantly aware of what a challenging task that can be. Over the years however I have conducted a kind of ongoing tour of visual displays of scale, to see how others are handling the problem. There is of course the classic short film by Charles and Ray Eames, Powers of Ten. Also, whenever someone clever comes along and creates a unit such as a Cubic Mile of Oil, I take note.

What’s clear is that the problem of using a two-dimensional form to illustrate scale, depth, time, and development remains a hurdle. This year I’ve found myself dipping into books by Edward Tufte to broaden my perspective in my own chart-making, and this past week I found a new book titled Diagram Graphics, which I’ve been studying. Let’s take a look at one example, below: a 1990 branching graphic of the various software programs that ran on Apple Computers, from MacLife Magazine:

When I see a diagram such as this, it opens up some compelling choices to those of us who chart energy use and supply. For example, China was very much in the news this week as it surpassed the US in energy consumption. But as I pointed out, the energy profiles of China and the US could not be more different with the US a big user of Oil, and China a colossal user of Coal. Accordingly, the more organic looking approach as seen here could be used to not only display China’s energy use profile, but each “branch” could be sized for thickness to show growth rates of oil, natural gas, hydro, and coal. By doing so, one could begin to approach better in a flat, two-dimensional form the richer aspects of a country’s development as it travels down the energy adoption path.


Photo: BNN of Japan designed graphic for MacLife Magazine, 1990 from Diagram Graphics by Abe and Nishioka.

China’s Just a Place

The mainstream press is abuzz this week with the “news” that the United States, after 100+ years, has now been surpassed as the world’s No. 1 energy consumer. IEA Paris, following the BP Statistical Review in June, has decided to call this race in favor of China. However, this is really not a story of today. Rather, it’s a story of the past decade. Only the confluence of several powerful forces could have delivered China to its current position. The press should have been paying closer attention. Moreover, the real story here is in China’s growth in coal consumption–the energy source China drew upon to first match, and then surpass, the United States.

Let’s take a look first at BP’s data assessment for 2009 energy use, vs. IEA Paris. Our unit of account here is the mtoe–million tons oil equivalent. This is a unit of energy, not volume, and measures BTU. Also, a note: IEA Paris apparently is including Hong Kong in their data so I have added Hong Kong also to mainland China from the BP Statistical Review (which tracks them separately). For 2009, BP has China edging the USA by nearly 19 mtoe, and IEA Paris has China exceeding the USA by a more substantial 82 mtoe. | see below: BP vs IEA Paris: China and USA 2009 Energy Use in MTOE.

What the chart doesn’t tell you is the composition of each country’s energy consumption. While many are aware the US is a heavy user of oil, there is less attention paid to China’s heavy use of coal. Let’s compare the two, shall we? Oil in the US represents nearly 39% of total energy use from all sources. But in China, oil barely represents 19% of total energy use. Most important of all: China’s coal use is four times its oil use.

Whereas in the United States oil demand is not a reflection of strong exports, in China the extraordinary mix of coal to oil use is very much of a reflection of worldwide manufacturing, and global demand for those goods. In other words, China is just a place where the world performs a great deal of its physical labor. Perhaps this is why Beijing is “unhappy” with this week’s media focus on the country’s energy demand. Or, perhaps not. China appears to be refuting the data itself, rather than making the more salient point: much of that coal demand is from you and me, here in the West. China’s coal consumption is merely our own power consumption, offshored. And while the composition of that demand will surely tip in the year’s ahead to a more domestic focus in China, this is yet another illustration that the world’s demand for energy is still very much satisfied not by oil, but by coal.


Friday Notebook: Oil and Sugar

A trip this week to the new Institute of Contemporary Art in Boston was a chance to discover that a number of artists right now are addressing issues of land, population, water, resources, and energy. Tara Donovan’s landscapes, which are often made of light-catching plastic for example, recreate topographical mysteries. And, as the new ICA building practically hangs out (and over) Boston Harbor, I saw Donovan’s work as an exploration of shorelines. Indeed, in her broader work, that she can make landscapes out of plastic cups goes to both her talent, and perhaps her concerns: water, light, and land. Also investigating issues of scale and repetition is Kader Attia, who has made a few installations that address Découvrez">population and global slums. Or, as they are often called, mega-slums. At the ICA, he has a four minute film titled Oil and Sugar No. 2 that shows crude oil being poured over a block of white sugar cubes. The film struck me as both timely, and, as a meditation on collapse and how large systems break down. While I was not able to find the film online in its entirety (no surprise) you can at least catch a few frames in this short video posted below, that covers Attia’s recent work.


Video: short video on the work of Kader Attia from CultureBox.

Global Crude Oil Supply Update

Global crude oil supply fell in April, after a surprising revision upwards to the March totals, of approximately 200 kbpd. Volatility in the data is currently coming out of the North Sea. This will continue as Norway is expected to see production falls when the next few months of data is reported. Globally, oil production stood at 73.552 mbpd in April. On an annual basis, through the first 4 months of 2010, global crude oil production is averaging 73.458 mbpd. The current peak year for global crude oil production remains 2005, at 73.719 mbpd.


Friday Notebook: Drive, Roads, Infinitum

Bottomless wonders spring from simple rules which are repeated without end. –Benoit Mandelbrot

Andrew Filippone’s short film Commute is reminiscent of both the early days of cinema, when the miracle of moving images was used to resolve questions about motion, and also the avant-garde period much later in the 1960′s when filmmakers used the camera to break the world down, into component parts. In my ongoing work into the economic sensitivity of our built environment to energy costs, I found this short film to be helpful. If, for no other reason than its ability to refresh our awareness of what a repeated action, like a daily car commute, means in energy terms. For those interested in these questions, I also highly recommend some of the quantification work done by Saul Griffith in his 2009 presentation at the Long Now Foundation and his particular attention to embodied energy in US road infrastructure. (see below the video for all references and links).


Film: excerpt from Commute (53 minutes; video; color; sound; 2002) | Andrew Filippone Jr., Director/Producer/Camera/Editor | Stefan Girardet, Music & Sound Design | Synopsis: Five consecutive days of travel on Southern California’s 101 freeway become one in this split-screen meditation on stasis, silence, and inaction. | H/T Alexis Madrigal

Quote: Benoit Mandelbrot, from his 2010 TED Talk. | H/T Paul Kedrosky

Saul Griffith: see minute 17:00 of Griffith’s 2009 Long Now talk, and pay attention to Slide No. 28 from the deck to that presentation.

Hollow Men of Economics

Left unaddressed during the past 3 years in most of the debates between economists has been the problem of energy. The reason is simple: post-war economists don’t do energy, except as an ever-expanding resource that the credit system and technology makes available. For the post-war economist, the supply curve of energy–save for brief lags–is always coming back into rough equilibrium with the economy. Accordingly, the ongoing dispute between Keynesians and Austrians (or Austerians if you like) is exceedingly boring in this regard. As late as 2008, for example, economist Paul Krugman was at least an infrastructure-and-engineering Keynesian. However, Paul quickly converted to becoming just a throw lots of money at the existing system Keynesian. The hollow nature of Krugman’s debate with Niall Ferguson meanwhile comes via their shared belief that the system will self-organize, if you follow their respective prescriptions. They are indeed the inheritors of Adam Smith. However, neither allowing the economy to deflate further from here via austerity, nor throwing more debt-marked stimulus will solve the present day problem. For the United States, along with the rest of the developed world, has reached a boundary in energy.

Only an economist could wonder in their leisure now, whether energy played a significant role in our current crisis. Indeed the public remarks of Ben Bernanke on the matter of energy, during the 2005-2010 period, were at least as clueless as his embarrassing commentary on the historic bubble in housing and credit. As the nation’s chief economist, Bernanke saw no problem with credit, with derivatives, with the fast inflation in housing prices, or with energy prices. And as an American economist, he was not alone.

As state’s see their budgets collapse and start a new round of layoffs, we should consider the fact that house price inflation masked the lack of wage growth in the United States. And now that house prices continue their descent for a 5th year, American workers are more fully exposed to the decade-long march higher in energy costs. They can experience this individually through energy prices, or more generally through the overall energy cost to the economy. Hence, the chart above.

Unlike many who were either shocked or angered at the ridiculous paper released by Richmond Fed Economist Kartik Athreya, Economic is Hard, I was delighted. For, the paper confirms that at the Federal Reserve, just as in the post-war economics profession, competency has been replaced with authority. Indeed, this was in fact Athreya’s central point: that only a PhD in economics conferred the proper access to discuss economic issues. The most beautiful rebuttal came from Ambrose Evans-Pritchard, who made a point dear to me and one that I have made for years: economics is a social science, not a science. In other words, economists are working down here, alongside the rest of us humanists. History, literature, psychology, and anthropology to mention a few disciplines are all equally competitive fields of knowledge to understand the system of behavior known as an economy. Accordingly, it behooves post-war economists to dislodge themselves of the view that their discipline neatly explains energy and energy supply. Lose the attitude. The problem of energy limits awaits you.


Chart: United States Energy Expenditure as a Percent of GDP 1999-2008. Data used is the latest available. GDP series comes from the US Department of Commerce, Bureau of Economic Analysis. Energy Expenditure data comes via EIA Washington’s SEDS series, for all states and also the country as a whole. I put these two data series together on my own, but, checked it against EIA Washington’s own calculation of Total Energy Expenditures vs GDP. 2009 is not omitted from the chart by choice, but rather, because expenditure data is not easily available yet for that year. Background photo is of a rooftop sculpture by Antony Gormley from his project Event Horizon, which was displayed in both London and New York.

Cantarell Finally Slips Below 500 kbpd

It’s odd that people believe something truly new is possible in the world of global oil discovery. Oil deposits on earth follow a fairly well defined pattern: a handful of giant fields, and a great number of smaller fields. Unsurprisingly, 150 years of oil exploration and discovery has done nothing to upend this distribution. The giant fields were all found earlier in the oil age. Now we are into the latter part of the oil age, when the large fields have peaked and gone into decline, and we spend more capital, more labor, and more energy to extract oil from the smaller fields.

A nice example of the pattern is Mexico. They inherited a giant, Cantarell. But now that Cantarell has been in fast decline since its peak in 2004, Mexico is left with a complex of smaller fields called Ku-Maloob-Zaap, and also the very low quality Chicontepec. It’s kind of sad that Mexico’s Energy Ministry has been touting for years the promise of Chicontepec. It’s a dog’s breakfast of an oil field, with its deposits widely dispersed and hard to extract. After all this time, it produces a feeble 40 thousand barrels a day.

As you can see from the chart, Cantarell Crude Oil Production 2008 – 2010, Mexico’s single giant finally slipped below 500 thousand barrels per day of production in May, to 499,286 kbpd. It’s still pretty astonishing to reflect that just two years ago, Cantarell was still producing a million barrels per day. The Mexican government, like the average layperson, continues to trade publicly in the idea that some new discovery could occur in Mexico that would alter the country’s production decline. But unlike the layperson, PEMEX knows better. (Indeed, insider reports on PEMEX indicate they’ve known for years).


Cheap is Nice, But it’s Not Everything: Natural Gas

A barrel of oil contains 5.8 million BTU and can be purchased today for $77.00. But in natural gas, using today’s price of $4.80 per million BTU, you can obtain the same quantity of energy for $27.85. This price discount started developing as far back as 2005, but did not reach its current levels until after the deflationary crash of 2008. Natural gas, it should be mentioned, had always carried a small discount to oil owing to the latter’s versatility as a liquid and its greater penetration into industrial society. The present day discount is historic however. Especially with respect to its duration.

There are a number of factors at play here. First, North American natural gas supply is trapped as no export facility exists to ship LNG to the rest of the world. (This will change when the Kitimat LNG project comes on line circa 2013). Accordingly, North American natural gas sells at a persistent discount to global volumes of LNG. Second, North America is a heavy user of oil-based transport but as a continent we are really defined by our remaining coal and natural gas resources–not our depleted crude oil resources. Finally, the 6 straight years in which global oil production has remained flat to declining reflects sturdy, structural changes that are now embedded in the price of oil. Accordingly, because the price spread is so enormous, a number of analysts think that the price of natural gas will eventually catch up again, to oil. And possibly soon. Not only do I think otherwise, but I think it could take a decade or more for the BTU in natural gas to price once again near the BTU in oil. If ever.

That the energy in natural gas costs only 35% of that in oil will understandably lead many to conclude a transition to natural gas from oil is imminent. The hurdles to any fast switch to natural gas are formidable, however. There is the problem that natural gas has to compete with coal, for instance, which also prices itself way, way below oil for an equivalent amount of BTU. The larger barrier is of course the built environment (nicely illustrated by the above photo of Los Angeles). North America is very much built out for oil. Not natural gas.

As we saw in the 2009 BP Statistical Review, natural gas was the big loser in 2009. Cheaper than oil, but not cheaper than coal, natural gas currently has no edge as either an easy replacement for oil in infrastructure terms, or, as a competitor to coal in price terms for power generation. It’s also a bit of problem, to say the least, that there is punk demand growth for electrical power in North America owing to our weak economy. Demand for power in the US was hit very hard in 2009. This brings us to an irony of energy transitions that may have been a part of the painfully long transition from Wood to Coal, and also Coal to Oil: cheaper is not the holy grail of transition. The path dependency of your built environment can trump the price attractiveness of an alternate source of energy for a long time. I expect that for years to come, people will be asking in bewilderment, “Why aren’t we transitioning to cheap, domestic, plentiful, natural gas?”


Photo: from the series, Lighter than air: A view of downtown L.A. from the Goodyear blimp, by John W Adkisson, LA Times.

Crouching Oil, Hidden Coal

The bible for energy data, the BP Statistical Review, was released yesterday and I continue to make up charts using the fresh news. Today I update Global Energy Use by Source 2009, which shows the contribution to total world energy by source, and without question there are changes here worth a comment. But before getting to the relative mix, let’s briefly review the absolute changes from 2008.

First, total world energy use from all sources fell by 1.1% last year. Given the state of the world economy, that’s no surprise. Though, I should mention, 1.1% is much lower than many had anticipated. Digging back into my data archives, for example, to the time of the Great Depression–when coal was still the primary energy source for the world–I find that in 1931 coal use fell over 11% from 1930. Oil is of course now the world’s primary energy source (though not for much longer) and in 2009 total world oil use fell by 1.7%. Total world use of coal was flat in 2009, by contrast. And in natural gas, total global use fell by 2.1%. Given these absolute falls, let’s now look at the chart of relative use, by source:

Oil still makes the largest relative contribution to global consumption of energy. However, compared to 2008 (revised), coal increased its global contribution from 29.04% to 29.36%, while oil’s contribution fell from 35.00% to 34.77%. That may look like a small change, until you consider the scale of global energy use and the trend of the past 10 years. It’s also notable that both natural gas and nuclear power lost relative position as well, with nuclear’s contribution now falling even further below hydro power. Fun fact: hydro power has contributed a very steady 5.50-6.50% to global energy supply since 1965.

The most important story from yesterday’s data release, of course, is that global coal consumption was flat in 2009 as consumption of oil and natural gas fell. Coal remains the big story, and will become an even bigger story as we head to 2015.


Peak Oil, FTW

Six years of data show that global production of oil started to plateau in 2005. But there are other ways to measure the world’s faltering ability to increase oil supply. We can show the increase in cost structure, as the capital required to bring on the new barrel rises. We can show the decline rates from existing fields. We can quantify how much oil comes from expensive, technically challenging fields such as tar sands or global offshore. And, we can also show oil’s share as a percentage of total world energy consumption. Given that the annual BP Statistical Review was released today, I made up the following chart to show oil’s contribution to world energy use, on a BTU basis:

Oil still provides the largest share of primary energy, ahead of coal and natural gas. But as you can see from the chart, its share is not exactly in gentle decline. The deficit is not being made up by natural gas, or renewables, or hydro, or nuclear. Indeed, if you’re a regular reader of this blog, you’ll already know the deficit is being met by coal. I thought the writers described this well just today, upon the release of the BP Statistical Review:

Coal’s share of global energy consumption rose last year to its highest level since 1970 as use of natural gas fell the most on record, a tendency that may continue, BP Plc said in a report. Coal accounted for 29 percent of world energy use, BP said today in its annual Statistical Review of World Energy. The report measures consumption of oil, gas, coal, nuclear energy and hydroelectricity.

Subscribers to Monthly, readers of this blog, and attendees to my talk at the CFA Society of San Francisco in April were all keyed in earlier to the revelations in today’s data release. | Hat tip: I am pleased that Neil Reynold’s of The Toronto Globe and Mail cited my work in his excellent and thematic coal piece last week, which surveyed in conversant fashion the ideas of Warren Stanley Jevons. | As we can see, the inexorable advance of coal and the shrinking share of oil gives us another lens through which to understand peak oil. For a world that has enjoyed oil’s high energy-density for the past 70 years, the transition to lower energy-density sources presents “a problem” to say the least. The debate over whether the world has peaked in oil supply, however, can now be laid to rest.


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More Stark Raving Viking Blog posts:

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