$this->bbcode_second_pass_quote('MonteQuest', '
')
Read this in Depletion Modeling:
Exxon, and the Implications of 8%
PeakOil is You
Peak Oil doesn't matter
Re: Peak Oil doesn't matter
by robsmith » Fri 02 Dec 2005, 12:07:48
The assumption that decline rates will continue to be 8% seems unrealistic. It doesn't take into account the effect of price increases. The price of oil has really been shooting up, sending a strong signal to markets that is increasingly being taken seriously. Predictions of $100/bbl oil in the short term (say, one year) are not that rare right now. If you had a gold coin in your hand right now and you believed you could sell if for $500 right now or $900 a year from now, would you sell it now to "meet demand"?
Despite earlier assurances from Saudi Arabia that they would pump enough oil to keep the price in the neighborhood of $28/bbl, they haven't come through. These high prices are great for them. And they can look forward to more of the same. Why would they pump oil to "meet demand"? They haven't been doing it and they won't do it IMHO, but will act in their own best economic interest. Not that they will admit it. They will say whatever they think likely to minimize political damage, like "we had to cut production because the world is running out of oil; we must conserve for the long run". The consequence is that they are more likely to be cutting production than increasing it when oil hits $100.
I'm not saying you're wrong, just that I haven't seen any serious argument of just why it is everyone is going to want to run out and sell an asset that's showing phenomenal returns.
$this->bbcode_second_pass_quote('MonteQuest', '
')If real estate values are growing at 15 to 20% and current inflation is 4.35%, I would say that the money taken out of inflated equities and spent into the economy shows up as nominal GDP and real GDP.
Otherwise, inflation would have to be at the rate of real estate price rises.
Most people don't see rising real estate values as inflation , but "wealth generation". That is an illusion. If it is, then GDP is only growing due to "financial speculation", fudged CPI, and increasing debt load.
I think you simply don't understand how what real GDP is or how it is computed.
Real GDP is the total value of final goods and services PRODUCED each year, adjusted for inflation. If Bob sells his house to Carol for $500,000, who then sells it to Ted for $1,000,000, that's just an asset changing hands. No final good or service is produced. If instead, Bob's house is revalued upward (by the market) from $500,000 to $1,000,000, again no good or service is produced. If Bob borrows money on that increase and spends it on a new SUV, again no change in real GDP occurs. Of course, that may lead to the car company producing more SUV's, but that is a REAL increase in GDP requiring REAL resources. It could also lead to a higher price for SUV's, but that's simply inflation, which the computation of real GDP will adjust for.
You seem to think that because house price inflation exceeds overall inflation that an increase in real GDP occurs. This is not the case. To get real GDP, you evaluate this year's production at a base year's prices. This COMPLETELY ignores price inflation. That's how the economists at the BEA do it.
You're right that home-owners see house price inflation as a real increase in wealth. It is if the homeowner sells his house and never wants to buy another. (Meanwhile, it is a real decrease in wealth for those who aspire to home ownership.) Those who fail to realize that increase, but use it to borrow money for consumption spending will be hurt greatly when house prices plunge. That's unfortunate and, possibly, catastrophic for our political-economy thereby resulting indirectly in a reduction in real GDP, but neither the earlier spurt in consumption nor the consequent plunge in consumption are themselves a part of real GDP.
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Re: Peak Oil doesn't matter
by MonteQuest » Fri 02 Dec 2005, 18:55:32
$this->bbcode_second_pass_quote('robsmith', 'T')he assumption that decline rates will continue to be 8% seems unrealistic. It doesn't take into account the effect of price increases. [/quote}
The only swing producer is Saudi Arabia. What their fields do does not affect the rest of the world's oil field decline rates.
$this->bbcode_second_pass_quote('', 'T')he price of oil has really been shooting up, sending a strong signal to markets that is increasingly being taken seriously. Predictions of $100/bbl oil in the short term (say, one year) are not that rare right now. If you had a gold coin in your hand right now and you believed you could sell if for $500 right now or $900 a year from now, would you sell it now to "meet demand"?
The only swing producer is Saudi Arabia. What their fields do does not affect the rest of the world's oil field decline rates.
$this->bbcode_second_pass_quote('', 'T')he price of oil has really been shooting up, sending a strong signal to markets that is increasingly being taken seriously. Predictions of $100/bbl oil in the short term (say, one year) are not that rare right now. If you had a gold coin in your hand right now and you believed you could sell if for $500 right now or $900 a year from now, would you sell it now to "meet demand"?
Gold is not the energy source that powers the world.
$this->bbcode_second_pass_quote('', 'I')'m not saying you're wrong, just that I haven't seen any serious argument of just why it is everyone is going to want to run out and sell an asset that's showing phenomenal returns.
Because if they don't, we will invade them.
I fail to see your point in all of this. If Saudi Arabia withholds production, peak oil arrives early, makes no difference if it is geological, policitical, or economical. Supply does not meet demand.
$this->bbcode_second_pass_quote('', 'I') think you simply don't understand how what real GDP is or how it is computed.
Real GDP is the total value of final goods and services PRODUCED each year, adjusted for inflation. If Bob sells his house to Carol for $500,000, who then sells it to Ted for $1,000,000, that's just an asset changing hands. No final good or service is produced. If instead, Bob's house is revalued upward (by the market) from $500,000 to $1,000,000, again no good or service is produced. If Bob borrows money on that increase and spends it on a new SUV, again no change in real GDP occurs. Of course, that may lead to the car company producing more SUV's, but that is a REAL increase in GDP requiring REAL resources. It could also lead to a higher price for SUV's, but that's simply inflation, which the computation of real GDP will adjust for.
So, you maintain that borrowing money from the Chinese, selling our houses to each other (2 out of 3 are speculation with no intention of ever living there) and taking that cash and spending it into the economy does not drive GDP growth? Shit, it is what constitutes the American economy today.
You just admitted it does right here:
$this->bbcode_second_pass_quote('', 'I')f Bob borrows money on that increase and spends it on a new SUV, again no change in real GDP occurs. Of course, that may lead to the car company producing more SUV's, but that is a REAL increase in GDP requiring REAL resources.
40% of the money driving GDP growth is from financial speculation. Companies produce in anticipation of growth. If the engine behind that growth is 40% speculation, what happens when the refi-ATM is over? They don't call it the "housing bubble" for nothing.
We have a 248 trillion dollar derivatives market in a 40 trillion dollar economy. We have the Carry Trade.
Any credible financial website will back up this point.
$this->bbcode_second_pass_quote('', 'Y')ou seem to think that because house price inflation exceeds overall inflation that an increase in real GDP occurs.
