[Jack]

One of our theories is that peak oil will lead to a shrinking economy. Oil appears to have peaked. Has the economy?

If we look at U.S. GDP, it appears to be increasing - for example, during the third quarter it was up some small percentage.

I suppose that increase has factored in the GDP deflater (i.e., real GDP is published). You can see some values at: LINK

However....what if true inflation is higher than the deflater? If that's true, then the economy is shrinking - adding further corroboration to the theory and timing of peak oil.

Thoughts?

[EnergyUnlimited]

I think, economy can take kindly first few % of oil depletion, if only due to existence of above ground reserves.
So perhaps 2008 will be the last year of economic growth, if you are lucky.
So you should buy more guns and ammo, because you may face shortages later...

[Eli]

Jack it is early.

We have just peaked or are in the process of peaking, 100 dollar oil is not that much but given time I think unfortunatley everything we have been saying will come true.

We have been missed a little on the timing of things but overall we have been right on.

And economically speaking the Fed and others have been pulling out all the stops trying to hide how fucked we really are. CPI is bullshit, Fed printing money like mad letting Banks hide their losses the list goes on and on. TPTB are doing a lot of smoke and mirrors right now and hiding the true state of things, but it is coming apart and it will be uglier than we care to imagine.

[Jack]

Yes, I know it's early. Yes, it's entirely reasonable that a few percent change in oil availability might be absorbed with minimal consequence.

Let me try this again.

Theory: The economy is presently contracting.

Underlying premise: True inflation is greater than reported inflation.

Nominal GDP, net of inflation, is increasing. However, if the inflation adjustment is less than it should be, then GDP is shrinking right now.

And that is exactly what is predicted in the Hirsch report to the DOE. It would be validation of the general expectation of economic contraction as a consequence of peak oil.

So...do you think that real inflation is greater than reported?

And...if that is the case, isn't it interesting that the economy is already contracting?

[Andrew_S]

$this->bbcode_second_pass_quote('Jack', '
')
So...do you think that real inflation is greater than reported?

And...if that is the case, isn't it interesting that the economy is already contracting?

[Eli]

Well duh, yeah real inflation is much higher than is being reported.

The inflation rate reported by the Fed excludes food and energy costs which is complete bs.

And if you have not noticed the dollar has had a significant decline in value which also leads to real price inflation. Your dollar buys less and less every day which is another way to hide inflation. We are going to see serving sizes start going down too. This happened in the seventies you go to the store and by bread and they started to reduce the size of the loafs.

[Jack]

Per the Bureau of Labor Statistics, the average wage for a U.S. production worker in October, 2007 was $594.20. In October, 2003, it was $518.11.

It appears that the average price for a gallon of gasoline in October, 2003 (regular, both reformulated and otherwise) was $1.542; in October 2007, it was $2.872 (This from the EIA).

Per the Bureau of Labor Statistics, $518.11 in 2003 has the same buying power as $587.07 in 2007. So, using THEIR figures, the average worker is slightly ahead.

Gold appears to have had a maximum price of $380 in 2003, versus $800+ recently.

Do you see my point? Official inflation seems a lot less than actual inflation.

[Jack]

$this->bbcode_second_pass_quote('Eli', 'W')ell duh, yeah real inflation is much higher than is being reported.

The inflation rate reported by the Fed excludes food and energy costs which is complete bs.

[Eli]

I see it and completely agree. What was a gallon of milk 2 bucks or less now it is closing in on 4.

[MacG]

$this->bbcode_second_pass_quote('Eli', 'I') see it and completely agree. What was a gallon of milk 2 bucks or less now it is closing in on 4.

[TheDude]

GDP, SchmeeDP. Markets have learned to breath an atmosphere of quite dense fog.

From 1996:

$this->bbcode_second_pass_quote('', '2'). GDP treats all transactions as positive. Crime, divorce,
pollution, and depletion of natural resources are all treated as
gains. Thus GDP treats the breakdown of the social structure,
and the natural environment as gains. If someone buys a car, GDP
goes up. If the car gets into an accident and requires major
repair, GDP goes up. If the driver is hospitalized, GDP goes up.
If a lawsuit follows, GDP goes up again. GDP makes no
distinction between activities that contribute to well being and
those that diminish it. It's like keeping accounts using a
calculator that has an "add" function but no "subtract" function.
So long as money changes hands, GDP increases. Any business
that kept its accounts this way would never know where it stood.
Such a business would have an exceedingly rosy picture of its
condition, but it would be a false picture. So it is with
countries that rely on GDP to measure well being.

[Tyler_JC]

To be fair, food and energy are not the only things that consumers spend money on.

Consumer goods prices are dropping or at least not increasing dramatically, cars are cheaper or at least not rising, etc.

I think real inflation is probably in the 4-6% range rather than the 2%-3% that the Fed is reporting so yes, the economy is not growing right now.

But it's difficult to get accurate data on anything these days.

The biggest implication of this inflation under-reporting scheme is that it buys Social Security a little more time.

Here's an example.

Let's say you were supposed to get $30,000 per year in benefits for the next 20 years (adjusted for inflation every year).

At a 2% cost of living adjustment every year, your total payout over the twenty year span is $728,921.

At a 2.5% cost of living adjustment every year, your total payout over the twenty year span is $766,340 .

That's a difference of $37,419!

And we're only talking about ONE person.

Imagine the impact of that kind of financial massaging with MILLIONS of people.

Social Security will only be solvent if benefits can be cut thanks to inflation reporting fraud.

[FoolYap]

$this->bbcode_second_pass_quote('Tyler_JC', 'L')et's say you were supposed to get $30,000 per year in benefits for the next 20 years (adjusted for inflation every year).

At a 2% cost of living adjustment every year, your total payout over the twenty year span is $728,921.

At a 2.5% cost of living adjustment every year, your total payout over the twenty year span is $766,340 .

[Jack]

$this->bbcode_second_pass_quote('pstarr', 'U')ntil the United States confronts its own 'Peak Military', it will continue to 'off shore' its pain, economic or otherwise, around the world. Zimbabwe and other 3rd-world economies seem to shrinking. Cleveland and Detroit's economies are shrinking. So I guess the proper question would be, 'are the economies of Non-Suburban Dreamlands shrinking?'

[Bas]

The economies of Europe, China, India and Russia among others still seem to be doing fairly well, in fact most of the world is growing, and robustly in Asia. What seems as an American downturn has maybe more to do with the end of the housing bubble. Either way, expensive and less abundant oil will make an impact soon enough I expect, and we might be in a worldwide "recession" before we know it. On the other hand, the first few years of declining oil production will be the relative easy part compared to what is to follow, as we still waste alot of oil in ways that are not beneficial to the economy and hence are the easy options when it comes to mitigation. Times will get really tough once we are out of excess "fat" to cut away.

[Tyler_JC]

$this->bbcode_second_pass_quote('FoolYap', '')$this->bbcode_second_pass_quote('Tyler_JC', 'L')et's say you were supposed to get $30,000 per year in benefits for the next 20 years (adjusted for inflation every year).

At a 2% cost of living adjustment every year, your total payout over the twenty year span is $728,921.

At a 2.5% cost of living adjustment every year, your total payout over the twenty year span is $766,340 .

[Plantagenet]

[web]http://upload.wikimedia.org/wikipedia/en/9/95/Energy_Intensity.png[/web]


This plot of energy use (in Mj) versus a dollar of GDP economic activity shows that there is a lot of variability in energy efficiency between different countries. As peak oil starts to really hurt and produce recessions, those countries with the best levels of energy efficiency are likely to do a bit better, as their economies are a bit less dependent on energy consumption.

[sjn]

There seems to be some confusion between the CPI and the GDP deflator. They are not the same thing. Believe it or not but the CPI is probably closer to reality than the GDP deflator has been recently. For example for the latest GDP report, the deflator was 0.7% annualized.

From http://mason.gmu.edu/~tlidderd/104/ch5ppt.ppt

Measuring Inflation with Price Indexes
GDP deflator - CPI differences

* GDP Deflator
o All final goods and services included
o Quantities variable
o Imports excluded
* Consumer Price Index
o Only goods and services purchased by households included
o Quantities fixed (the market basket)
o Imports (of consumer goods) included

Edit:
Anyway, true inflation = total growth in the money supply - money leaving the economy