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Govt reports budget deficit for 2012/13 of NZ$4.4 bln, which was 30% better than forecast in May 2013; on track for 2014/15 surplus

Govt reports budget deficit for 2012/13 of NZ$4.4 bln, which was 30% better than forecast in May 2013; on track for 2014/15 surplus

By Bernard Hickey

Higher than expected tax returns from corporate profits and much lower than expected spending on the Canterbury rebuild have put the government into a stronger fiscal position heading into an election year.

But Finance Minister Bill English was insistent in the releasing the Crown Accounts for 2012/13 that there was no room for any slackening off of the government's fiscal discipline or any room for "political lolly scrambles."

He said the economy still faced headwinds from a strong New Zealand dollar and the risks of an international hiccup from the likes of the US debt ceiling debate, still-weak European banks and even a Chinese credit slump. New Zealand's economy was forecast to grow 1% in each of the September and December quarters, and the Reserve Bank was forecasting 3.5% GDP growth by the middle of 2014, English said.

"However, there remain significant challenges. The exchange rate is still too high. While it's contributing to keeping the costs of inputs down, it remains a headwind for our export sector," he said.

"A runaway housing market would be a risk to the export sector through pushing up interest rates higher and sooner, and also a potential threat to financial stability."

He reiterated the government's planned sequence was for a return to an operating surplus by 2014/15, followed by a return to cash surplus that would power debt repayments and a move to reduce net debt from a peak of almost 29% in 2014/15 to under 20% by 2020. Only then could the government look to resume contributions to the New Zealand Superannuation Fund, English told a news conference.

The Government reported a NZ$4.4 billion budget deficit for the year to June 30, 2013, which was down from the NZ$9.2 billion reported in the 2011/12 year and below both the NZ$6.3 billion forecast in the May 2013 budget and the NZ$7.9 billion originally forecast last year.

English was asked repeatedly about the potential size of any forecast surplus for 2014/15 and whether there might be room for tax cuts to be announced ahead of the November 2014 election. He said the Treasury had not re-forecast the current 2013/14 or the 2014/15 year yet, given this is scheduled for the mid-year Economic and Fiscal Update due for December. It forecast a deficit in 2013/14 of NZ$2 billion that turned into a NZ$100 million surplus in 2014/15.

He acknowledged any surplus in 2014/15 could be bigger than the NZ$100 million forecast, as long as favourable economic conditions continued. 

"What's more important than the number is the choices about how those surpluses might be used," he said. He downplayed the prospects for tax cuts, given they would require much bigger surpluses. He pointed instead to likely reductions in ACC levies in the coming couple of years and the government's need to review EQC. It may need increased capital contributions from the government.

NZ Super Fund?

English said it was unlikely the surplus could be delivered in the current 2013/14 fiscal year. He also downplayed the prospect of resuming contributions to the NZ Super Fund before repaying debt. 

"We think paying down debt would be a higher priority because you've got better liquidity with debt than with the super assets. If we get into another recession we can't sell down super assets, but we can run up debt. It's simply more flexible from the point of view of government," he said.

"Building New Zealand's resilience is best done by getting the debt down in the shorter term. In the longer term of course you want that Super Fund growing because it will help our resilience in the future."

Housing area news?

English later said there would be significant announcements later in the week about Special Housing areas. The areas are mandated under just-passed central Government legislation to allow the fast-tracking of areas for new house building within Auckland. They are designed to encourage new house building under the current Auckland Plan, which is due to be super-ceded by the new Unitary Plan due in 2016.

"The announcement later this week will show some of the scale of the impact there could be on housing supply," he said, adding later it could be bigger than last week's announcement of a social housing project at Weymouth in South Auckland to build 282 homes at a cost of NZ$102 million.

Auckland's housing market was not expecting much new supply on the market, but the Government had worked with the Auckland Council to create the conditions for developers to fast-track substantial new builds and drive towards their Accord target of 39,000 new houses in three years.

"Any announcement will have a beneficial impact on expectations," he said. "The ancedotal evidence is that developers are getting pretty keen."

Political reaction

Labour Finance spokesman David Parker said the Government was creating a two-speed economy where property speculators thrived while manufacturing exporters struggled and laid off workers.

“This is a two-speed economy where older New Zealanders’ income rises, while the young struggle with falling wages. It is one where neglected regions haemorrhage jobs and skilled people because the Government’s eye is only on Auckland voters and the Christchurch rebuild," Parker said.

“National’s obsession with crony capitalism and corporate welfare rewards its rich friends while the rest of New Zealand pays the price."

(Updated with more detail from news conference, Labour reaction)

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65 Comments

Gosh, GOVERNMENT TO STOP PUSHING THE EXCHANGE RATE UP. Better get on ebay and aliexpress right away. Get those bargains while I can.

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Roger , do you find EBAY harder to roam and to do deals on than our humble TradeMe ?

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Yes, ebay is a horrible website. Why the yanks can't do website design I don't know. Actually, I do know, they can't do design as we understand it, Apple design is done by a Brit. However, if you persevere it is possible to find things sometimes. The trick is to search how they tell you to, not how you think. You know the yanks, in general they do what they are told to, or else. So there are certain ways you are allowed to search and you have to make do with that.

If you ask questions you might strike it lucky and get a human reply, or more likely you will get something like " We are unable to check the measurements on individual garments due to the high number of items we stock", but keep at it, there is a lot of good stuff out there at great prices.

These people are good

http://www.ebay.com/sch/Mens-Clothing-/1059/m.html?_nkw=&_armrs=1&_ipg=…

 

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I find this Chinese based outfit suits my purchase priorities.

 

Very nice altimeter, for those that maybe interested - LOL.

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Yes, I'm trying to choose something like this instead of a cell phone.

http://www.aliexpress.com/item/MD719-3G-Phone-Tablet-7-Inch-Capacitive-…

 

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Yes and no....I cant buy what I want here so I have to use Ebay....postage hurts!

regards

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Indeed, Roger, I noticed the same new emphasis on the exchange rate, exports and by definition, the current account. After 5 long years, Bill English might be finally becoming a half competent Finance Minister, and understanding where the country's financial management emphasis should have been all along.

Am not sure I trust his colleagues to back him up; nor do I feel any need to reward him for his first five years of current account neglect. It still would need different monetary management to avoid foreign capital racing into a private rather than public void, but there maybe Mr Wheeler has had a word to him; and arguably the LVR moves reinforce that new emphasis. Nevertheless, promising tones. 

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Actually I think Bill has a better grasp than most. The difficulty is how to sort the current account and get re-elected.

I found this very informative

https://www.bis.org/publ/work424.htm

 

Basically Germany and China run a surplus by underpaying the workers and recycling the profits fast. It's a bit more complicated than that but if you want savings to go up then the money needs to go to people or businesses who don't spend it. Not exactly vote buying stuff. Especially as central banks are under the delusion that 2% inflation is a good thing.

 

Did you see the David stockman article I posted on the top ten:

http://www.zerohedge.com/news/2013-10-05/david-stockman-explains-keynes…

It explains why the Americans are so messed up, angry and depressed.

 

My own guess is that oil prices will halve soonish and allow interest rates to rise so that capital mis-allocation starts to decline. This seems to confirm the idea

http://finance.yahoo.com/news/special-report-education-chinas-oil-00045…

 

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Roger,

Agreed on nearly everything. The rest of Europe should stare down the Germans, to get them to either start consuming their surplus, or print money for the rest of Europe to do so.

China may be trying to start consuming.

The US does seem to have been captured by very powerful groups.

Am afraid I don't see oil prices halving ever; may be wrong, but the cost of dredging the stuff up isn't going to get that much cheaper.

It seems to me that the least bad way out of the western world's now worsened inequality, and asset bubbles, is inflation of wages and commodities, but not capital assets. Am not advocating that NZ takes this path on its own, but that if that is the result in US Dollar terms in other countries, especially the US, then rather than fight the trend, NZ may be best to ride it up to a point. 

Given high unemployment in many countries, I accept this may be some time off.

Some flexibility with the Reserve Bank then would be critical.

 

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Yes, I admit my oil price halving idea seems a bit of a stretch since we have been led to believe that the stuff is in precious short supply.

 

There are three strands to this thought, the first is who has led us to this belief? Is it the PDKs and Stevens of this world, or are they the innocent mouthpieces of those who benefit from high oil prices. Those who benefit include the US military/industrial/political/financial sectors, the most powerful on the planet. Lots of lobbying money there and personal interest and social propaganda via a controlled media.

 

The second strand is that the low interest rates forced on the US by their own wanton profligacy over many decades have resulted in massive investment in new energy technology. The US private oil and gas industry have made a huge leap forward and natural gas is now a quarter of the price that the rest of the world pays. The Chinese and Germans have likewise thrown money at solar energy to the point where it is on the cusp of being cheaper to have distributed solar electricity generation than centralised coal fired generation.

 

Thirdly, Iran and Iraq both have large conventional oil fields which have been kept out of operation by US foreign policy reinforcing regional conflict. This could be changing. America and Iran could finally get around to burying the hatchet. Remember it was Reagan who made friends with China and that led to the current resurgence of China (and helped the USSR to destroy itself).

 

It may be that oil prices and interest rates are tied together, both cannot be high together.

 

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you just have to apply logic. When they're down to fracking, they'veexhaustedthe easier sources. Weknow fracking peaks and falls faster than conventional recovery (hardly surprising) and that you get into Red-Queen territory increasingly; running harder to stay still.

Price isn't the allof it - given the dislocation between what is 'paid' and the real value vis-a-vis permanent scarcity/real resultant pollution.

And PV isthe correct goal, but won't support anything like our energy-hungry way of life.

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That is a rational or line of thinking, but it is not a statement of formal logic.

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Clueless, lets see were to start on this....

a) Short supply, we have already or will within 5 years reach a peak of crude oil production output. Its very likely it was 2005~2006, Its certain from what I can read that there wont be another peak after 2018. By that time too many old fields depleting for new to even keep up with that let alone go higher and sustain it...

b) You can try and claim oil prices are a cartel driving us to $120US and sure in the past with OPEC that was possible. Or you could read the oil geology/history and realise its supply and demand with that marginal extra supply in the $90~$95 range. Consider how easy it was to drill in Saudi and that every drill rig in existance is drilling like mad...and here we are trying to make shale oil work? Would shell etc really spend that much $s on such hard stuff?

c) Gas isnt crude oil....

d) Iran is more gas than oil and its likely its highly depleted in oil. Iraq might climb a bit yet but its the last conventional oil fields country in the world...so it gets say 1mbpd more, yippee doo daa. 

e) Massive new technology, uh no fracking has been around for decades, it never made commercial sense and, it doesnt seem to now.....watch the go bust.  Oh and its oil we need not gas.

f) Supply, To keep up with expected depletion rates and demand we need to find an equiv of Saudi every 3 to 4 years from now on....

How many have been found in the past 5?

none, zilch, nada.

If you look at 2008 price collapse, yes sure $50 is possible again, briefly....it wont stay there unless we are in a mega depression like the 1930s.

I odnt know wwhere you get your info from on oil fields in various nations but frankly its fantasy on your part.

Look at the data....

regards

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I don't doubt your belief in the facts as you see them, but theories and facts come and go. Some say science progresses one death at a time. Also, you may very well be right.

 

From the David Stockman article above:

"The Pentagon budget was $450 billion in today’s dollars during the year in which the Berlin Wall came tumbling down.

Now we have no industrial state enemies left on the planet: Russia has become a kleptocracy led by a thief who prefers stealing from his own people rather than his neighbors; and China, as the Sneakers and Apple factory of the world, would collapse into economic chaos almost instantly---if it were actually foolish enough to bomb its 4,000 Wal-Mart outlets in America.

Still, facing no serious military threat to the homeland, the defense budget has risen to $650 billion----that is, it has ballooned by more than 40 percent in constant dollars since the Cold War ended 25 year ago."

 

What this says to me is that a realistic Pentagon budget of a third of peak cold war spending would be $500 billion a year less than its current level. What does this get spent on? Labour and energy. So there you have the equivalent of a good few oil wells being wasted. The US military will not let go of their funding easily but events are forcing them to do just that.

 

History is not pre-determined.

 

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theories come and go, facts don't. They stay.

 

And history? Read some Jared Diamond. If you make the same mistakes, you get the same outcomes. Hamster 1, Bart nil. Ow, Ow, Ow.

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Oh, dear me, why on earth did I think that facts change. How silly of me. Oh, now I remember, those silly people used to think the earth was flat. How silly of them. Of course it wasn't a fact then.

 

I must believe in global warming.

I must believe in global warming.

I must believe in global warming.

I must believe in peak oil.

I must believe in peak oil.

I must believe in peak oil.

I must not argue with the teacher.

I must not argue with the teacher.

I must not argue with the teacher.

 

 

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give it a rest zed. you're over-working your rich-trash image

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My apologies for getting carried away there. I think global warming and peak oil are perfectly plausible theories with sufficient supporting data that they may well be right. That is not the same as believing they are true. Facts are just data points you believe in. "Laws" in Physics are just observed relationships that appear to hold true under certain conditions. They may or not hold true at all times and places, we just cannot know that.

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Yes, you were getting a little carried away, and you introduced 'believe', an emotion. Always the giveaway   :)

 

AGW is not the first cab off the rank, and I regard it as background noise. A bit like having a cold, but still needing to get into the lifeboat.

 

Peak of anything finite, is fact. The only variable is time. Draw a horizontal line. Put two marks on it - the left one is where you start, the right one is where you will stop. It is shiftable, but not removable. Somewhere betweem them, the graph of consumption must rise (on the left) and sink (on the right. There is no debate about that.

 

So somewhere between them, the rate of consumption must peak. Fact.     :)

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Yes, you were getting a little carried away, and you introduced 'believe', an emotion...

This is not correct, belief is not by definition an emotion.

Belief can be (and usually is) based in rationality and/or scientifically verifiable fact as well as other factors like experiences.

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Wrong.

Scientifically-verifiable fact is knowledge.

You don't need belief then.

Belief can indeed be based on experiences, but that is no guarantee of continuance - ask any dead person. And it is often not based on rationality - look at religion. All religion. Look what happened when belief was faced with fact (the understanding of evolution) and the unwillingness of so many to let belief go.

Emotion got the better of them - overrode logic. Belief - in the face of knowledge - suggests an pre-held emotional need to continue the believing.

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You are not correct in multiple ways.

1.  As logic statements your sugesstions are completely lacking.

Assumption: Only something arrived at through the scientific process can be knowledge.

Conclusion:  No other knowledge can exist.

2.  You are historically wrong.

IF there was a time when the scientific process did not exist, which is an historical fact, THEN your assumption cannot be true because no knowledge could exist to create it.  We could extend this logic with; THEREFORE because science exists belief alone created it.

3.  You yourself are using belief in your argument.

You assert science is knowledge but rely on others to do the science (unless you have verified all science is true personally). This by definition means you believe (at the very least) two things; one, the process in use is not (or cannot be) flawed in any way, and two, the people telling you the results are not lying.

4.  For someone who demands evidence you don't offer any.

Simply because blind belief *can* exist is no prove of any kind that evidence based belief *cannot* exist.

 

The only statement that seems to be true is that belief in the face of knowledge often has an emotional connection.

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Ralph : When Sir Bob Geldorf told an audience in Johannisburg that the world would end in 2030 , he said definitively that mankind would become extinct then , not that he believed it would ...

 

... therefore it must be true !

 

And all the 100's of others , who also jetted into South Africa , from far flung corners of the world , to lecture us on the folly of human wastage , burning fossil fuels ... they concurred with him ....

 

...the  question is , do you still have some party hats and balloons left over from the last few times that the world was supposed to end ?

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On the basis that he hasn't died yet, GBH announces his immortality.

 

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.... works for me , my immorality ....

 

I'm only peeved that a notable Kiwi , such as Ken Ring , didn't come up with the 2030 thing , first ...

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You're failing to take into account scale. While Hubbert may have rightly predicted the 1970 peak in U.S.  oil production, but its less tenable when you account for unknown deposits of oil in parts of the world that geologists weren't even looking for, because of they wasn't needed at the time. 

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Scale? Never beats doubling-time. Not ever. Last doubling beats you every time. I suggest that the cranial failure is in the misunderstanding of  exponential math.

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Is the rebuild cheaper, slower, or less going to be rebuilt than first estimated, because those would seem to be the options for much lower than expected Canterbury spending.

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dh,

Logical and obvious questions as always. They are such obvious questions, that you wonder why the statement coming out with the deficit announcement doesn't explain in one sentence which of these options it is; or, if all three, in roughly what proportion.

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Does anyone have any current figures on insurance payouts/expenditure to date and government spending on the Canterbury rebuild? I have read $30 billion for insurance payouts but not sure if that is the expected total or actual payouts. And $9 billion for government payments.

 

If these are accurate figures then the rebuild isn't costing the government anything because taxes on the insurance payments probably amounts to about $9 billion. GST alone would be $4.5 billion.

 

This would also explain how the government is getting back to surplus in the face of a once in a lifetime global financial crisis and national disasters. While not raising taxes or insignificantly reducing government spending commitments. For instance by raising the retirement age.

 

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Who told you that was a "once in a lifetime financial crisis"?

 

You implying it's over? I guess you can correctly describe a permanent state of affairs as 'once'. People might get the wrong idea, but.

 

:)

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2008 financial crisis was probably the worst globally since the 1930's and the Christchurch earthquakes the worst national disaster since the Napier earthquakes also in the 1930s hence my once in a lifetime comment.

 

I hope we still have a few more years before we hit peak oil but I agree with your logic above that fracking etc is a sign we have cherry picked the easy/cheaper supplies of oil and gas. : )

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Is that enormous surplus of ACC's included. If so, then all those people who have been declined their entitlements due to "degenerative conditions" should take a bow. You have done your country proud

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... that's actually not a " bow " they're taking ... I think it's permanent spinal curvature ...

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Perhaps a GST refund to purchasers of new homes?  That would boost supply. "There would be an announcement this week underscoring the Government's determination to address supply shortages, which it saw as a key driver of the recent spike in house prices."

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Interesting idea.

 

  • How would it work? Can a purchaser claim a GST refund without being GST registered?
  • Will there have to be associated persons rules to prevent selling to yourself, then on-selling to a third party at market price?
  • Will that also erode second-hand house prices by 15%, and will those home owners (voters) be happy?
  • How many houses can the government afford to subsidise at 15% of the total cost?
  • Will building product suppliers simply raise prices by 15% to cash in?
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Why build 280 new homes in Weymouth - nobody wants to live there! Plenty of cheap homes already available but no takers: http://www.trademe.co.nz/property/residential-property-for-sale/auction-635890468.htm

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Near sh1...

Good transport in?

Is it an awful area?

and why?

On google maps it looks a location....just off an estuary?  ppl usually pay OTT for that...

Interesting thing is look at say London.  Chelsea, very expensive and sought after, next door battersea, dirt cheap. Battersea prices climbed as ppl moved there, more than chelsea...a good profit maybe.

Now sure Im sure everyone wants to live in the equiv of Chelsea (Ponsonby?) but realistically they cant.

So 250k?  frankly if ppl who only have that much dont want to live there, well tough, need to be realistic....seems lots of ppl are not.

regards

 

 

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I don't know if your belief in a halving of the current price of oil is tenable, though I agree with most of what you wrote.

 

Key drivers of the oil price are a) volume, b) demand, c) marginal cost,  c) competition from other energy sources, d) oil market rigging and e) geopolitics/security premium

 

 In terms of volume of supply, in recent years there has been an orgy of exploration around the world, the problem being most discoveries have been in the most politically unstable regions of the globe, South China Sea and the Horn of Africa.  Even if oil production goes onstream, the facilities will be as vulnerable to "terrorist" attacks as those in Iraq and other parts of the Middle East. The problem is security, not supply. Theres a lot dirty and bloody power struggles going on behind events in recent media headlines that are linked to oil politics. The foreign powers don't even need to get their hands dirty in this new era of African colonialism. They have eager elites who's armies and paramilitaries are armed and equipped both through official channels and all sorts of opaque and shady back door arrangements.

 

http://www.upi.com/Business_News/Energy-Resources/2012/02/29/East-Africa-hits-it-big-in-oil-gas-boom/UPI-28311330532003/

 

http://www.tesfanews.net/the-role-of-sinclair-oil-in-the-eritrea-ethiopia-federation/

 

http://content.time.com/time/world/article/0,8599,1848772,00.html

 

The recent massarce in the Mall in Kenya was a response to Kenya's (and Ethiopia's) proxy war in Somalia on behalf of their American benefactor. Somalia has long beeen eyed by American oil interests, even before Bill Clinton's very public attempt to arrest Somali warlords in the late 1990s, who ironically enough up to that point were on the CIA payroll. With oil receiving subpar prices there was no incentive to drill, because extra supply would only further depress prices. With recent price rises, its spurred a scramble by oil companies around the world to scramble to lock in oil claims to access those reserves. Both Kenya and Somalia are involved in overlapping oil.  Most of the recent oil prospecting in the region has been conductied by international competitors of American oil companies, and therefore regional stability, which provide steady growth in production aren't in the interests of American oil players or of financial interests who rig the oil markets

 

Global oil demand is stagnant and even falling in the most recent period as China's economic growth slows and with economic and political troubles in Europe and the United States continue.

 

http://www.foxnews.com/world/2013/09/26/oil-falls-on-signs-slower-us-growth-waning-demand-for-fuel/

 

Orthodox economic theory asserts that price is determined by the cost of marginal production, which the oil industry claims is as high as $100 dollars a barrel, though a recent study shows otherwise.

 

http://www.mees.com/en/articles/7403-upstream-costs-do-they-justify-high-oil-price

 

Chris Cook, former director of the London Oil Exchange has revealed that the international energy markets are being rigged by multinational financial firms. Speculation isn't the problem, the whole market is rigged.

 

http://www.theguardian.com/commentisfree/2012/nov/13/energy-pricing-market-manipulation-whistleblower

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Anarch - you make some reasonable points, thoughtfully delivered. Thanks for that.

But I ask the question: is it really demand that is slowing? Or is it that below a certain EROEI, you simply cannot maintain the effort you did hithertofore?

And if the effort is what underwrites the proxy with which you are bidding, is money the correct valuer of where we are at?

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EROEI ratio does not matter when there's an abundance of Energy to Invest. The problem becomes one of developing effective and timely ways of harnessing that Energy.

 

 
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A13 - It didn't matter. Not 'doesn't". The tense has changed. .

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Well, EROEI did not matter, still does not matter and, if effective ways to harness the Sun's (virtually unlimited) energy are developed in a timely manner, it will not matter.

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We will indeed end up with solar power, and nothing else.

But yes, it will matter. You don't 'develop energy', you develop ways to capture it. They come with varying efficiencies: they take energy to build and maintain and replace and serve. They require processed raw materials to be built of, maintained with, replaced by, served by.

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What you said is both true and trivial, except that the doomsters' favourite ER/EI ratio argument was, is and, hopefully, will remain irrelevant as long as EI is in abundance and ways to harness it get developed.

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Hopefully -  is that an emotion?   Ralph?

 

A13 - my study, for the longest time, has been energy supply, and the infrastructure required. That's why I'm seen as a 'doomer' - most folk simply don't grasp  the enormous bang-for-their-buck they get from oil. They rabbit on about electric cars - coal cars in the US) and so on, as if the morph will be painless to their way  of life. No idea.

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Hello PDK.

Hope is not an emotion pure and only.  I suspect most people would be able to give a *reason* for their hope (if they had some), which would suggest it is a reasoned thing.  At least in part.

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Yes, hope is an emotion. So what? Don't underestimate emotions and their role mate. Emotions are part of being a human and, in the context of the EROEI, I do hope that as a species we won't go extinct but will be able to develop ways to harness the abundant energy to "invest" in order to get the required form of energy in return, even if the ER is less than EI. It is in this context that I claimed that the EROEI was, still is and, hopefully, will remain irrelevant. Well, some folk cannot grasp this... :-)

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Hope has an emotional component but reason can also provide a foundation for hope.  One does not preclude the other.

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If I were looking to point out something that has a high emotional component I would probably choose fear. In my experience fear is almost always without rational basis and is usually supported by extremely poor reasoning.

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Now you got me worried....

 

:)

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I think the point is that to be accepted within Mr PDK's fact filled world , you cannot be hopeful , you must be hopeless ....

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No, clued up and prepared to work at it.....not carry on in denial that the financial make believe world us humans have created is going to carry on.....

regards

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" clued up " ! .... oh dearie me , that is a subjective emotional response .... I'm afraid to say that your lord & master , the PDK , will be pretty damned krappy with you , matey ...

 

... tsk tsk !

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We will indeed end up with solar power, and nothing else.
 

Nothing else?

Check this out

When property becomes a solar obstacle

solar-review-casts-shadow-on-high-rises

Nothing is ever simple

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if....if.....if

lots of these, no answers....

There are conversion processes going on inside this mythical "did not matter" world of ours that you are not looking at, or are unable to.

"Sun's (virtually unlimited)" this shows your inability to understand the expotential function and the resulting doubling time.

regards

 

 

 

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Admittedly, it took me a while to decide as to how to reply to your comments. What does one say to somebody who uses trivial elementary school notions like “exponential function” and “doubling time” to demonstrate their non-existing (but relentlessly claimed) expertise in “maths and engineering”, when in fact possessing a very superficial knowledge of either? Additionally, your posts are aggressive, even abusive – and the only purpose of this is to conceal your lack of expertise in the discussion subject. I decided that the best way to handle your posts is by ignoring them, as the case is hopeless in my opinion.

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Well we can let the reader make their mind up, live in your fantasy land or live in reality.

Their choice....the information has been provided.

regards

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Have you ever looked at the energy in celery?  it has a 1 to 1 in eating it, so the energy you gain is used up in digesting it (more or less).  Consider if someone offered you a job paying celery to plant and grow celery....you's starve to death as your body used up its internal fats to give you the energy to do  the work. This is what our world economy faces.

EROEI means who many units of energy to get from one unit.

Now if you want to throw your money at alternatives after copious warnings be my guest.

regards

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upsteam costs....hmmm so one article by an unknown V the entire oil industry? Id suggest that you need multiple independant sources to support that view and not one.  Now I can agree that we have a limit in demand and that reflects in higher prices...the suppliers are sure happy as they (like Saudi) need to funding to bribe their over-population, with no jobs, powder keg.

One thing that I think has surprised the oil execs is that there is a limit in what ppl can afford to pay, they didnt realise this. Hence previous production costs of $150USD from Horizon etc were accepted as they expected ppl to pay no matter what....reality....we cant pay much above $120USD.  So ultra deeps sea etc I dont think now will be privately developed, ever....unless Govns cough up....

Futures markets are of course rigged these days where there is a limit of supply....so whats the true price?  hard Q to answer....

The Q \to ask is with such hight prices where are the viable alternatives?

hmm scarcer than oil itself.

regards

 

 

 

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Yes demand is slowing, particularly in China, because many of its least profitable and most energy profligate industries are shutting down. China's government is following a policy of moving its economy up the value chain at a far quciker pace than the United States managed even under the auspices of the American System and the Post World War Fordist model of development. They're intending on transforming their economy to focus more on high value, high technology products which until recently were the province of high tech industrial nations of Northern Europe and the United States, but China will be able to achieve economies of scale that those nations can only dream of. Perhaps emerging economies such as Vietnam and Mynmar will fill the void in the global  low cost, low return value chain left by China and energy use may escalate there, but at least in Myanmar's case they're also energy exporters too. 

 

http://www.businessweek.com/stories/2008-03-26/chinas-factory-blues

 

Energy consumption has decisively shifted away from oil and coal in recent years and is projected only to further increase in the future.  So far supply has outstripped demand and China's willingness to increase gas prices, likely will suceed in moderating excessive consumption. It will likely mean that consumers won't be encouraged by the price divergence between gas and oil to needlessly waste the energy resource like the low oil prices which prevailed up until 2004 did. 

 

Price is largely driven by marginal production cost, (EROI is a component) or at least that's what orthodox economics tells us. Marginal production cost relates to the cost of the most expensive part of the supply, but it doesn't necessarily hold true. Many high cost oil production facilities were driven out of business by the abrupt price swing back in the mid 1980s, theough oil consumers can no longer rely on Saudi Arabia to take their side, because their geopolitical stance has shifted. They're no longer prepared to be America's Head Servant. So far this shift has favored U.S. oil interests who call the shots in Washington so there has been no complaints from that direction. And its not a constant quantity. High costs of exploration and production spurs development of both exploration equipment and further exploration which in the long run moderates prices. 

 

Money isn't a proxy for effort. Only idealists like the Austrians think that. Its almost entirely intangible and largely symbolic. As long as banks restrain themselves to accomodate a rise in the price of real goods, through credit growth hyperinflation is a distant fear. Heyerinflation is caused by government who print excessive paper currency  in an effort to mask very serious underlying economic problems and fail to redeem it at a quick enough pace, which in the end is catastrophically devalued.

 

 http://www.businessinsider.com.au/worst-hyperinflation-episodes-in-history-2013-9?op=1#france-may-1795-november-1796-8

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money that isn't a proxy for effort, isn't underwritten. Real goods require real energy expenditure, and I am assuming you understand the diffo between EROI and EROEI

 

Good post, but...

 

:)

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PDK,

 

Money is never fully underwritten even in an era of abundant energy. Even during the late 1920s when the price of energy fell 40% between 1920 and 1926, three years later the United States suffered perhaps the greatest economic crisis in history. Money is as vulnerable to the vagaries of human nature as anything else.

 

 

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That's what I'm saying. The money that is underwritten, is fine. The 'money' that isn't - shares, investments, inflated valuation of the existing - isn't. The 20's, it wasn't. Agreed. I say large parts of the global expectation, aren't underwriteable now.

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