Anandakos

PIMCO's Bill Gross Sees a Bleak Future

Jimbo,

I worked for ten years in the geo-stratigraphic departments of Shell and various BP antecedents (Sohio and Amoco). I wasn't a geoscientist myself; I wrote programs and databases for them.

But I got to know them and they ALL understand and recognize the difficulty of Peak Oil. The fact is that oil was sourced only in certain sedimentary environments, and must have been trapped by impervious deposition above the source rock. The necessary antecedents were fairly uncommon but frequent enough to have produced large accumulations in a few regions of the globe.

Since the oil industry was created in the United States, we spent the first sixty years of the oil age poking holes throughout the contiguous 48 states. There are over 2 million 10 digit API numbers, each of which identifies a penetration of the surface of the Earth with the intention of finding and/or producing liquid hydrocarbons.

Obviously they are clustered in the reef and dome formations that are characteristic of North American oil deposits. It makes a lot more sense to drill next to a well which is producing oil than one hundred miles away. But they are nearly EVERYwhere that granite doesn't protrude.

Certainly modern geoscience technology and enhanced recovery technologies have allowed us to extract a greater percentage of the original oil in place. Horizontal drilling has allowed us to exploit thin deposits that would not have been economic with vertical penetration.

But THERE ARE NO MORE GLORY HOLES ONSHORE in North America. Or offshore in less than 1000 feet of water. Every day there are dozens of aircraft and seismic trucks fanned out over the continent looking for that little squiggle in some electric field plot nobody has noticed before. They rarely succeed.

There are significant deposits in the deep water Gulf, but nobody is blocking development of them except possibly off the west coast of Florida. Possibly because there is no direct proof that accumulations in likely deposits have been trapped properly. There has as yet been no actual drilling in the precincts of interest that would show accumulated captured hydrocarbons.

I was in Anchorage when Sohio shut in the Mukluk well in the Beaufort Sea. The seismic results show a beautiful structure in the same sandstones that supply the Prudhoe and Kuparuk fields, at about the same mean sea level depth. Sohio was willing to bet $1 billion in the late 1970's and early 1980's that there was a lollapalooza field there. So sure they built a gravel island on which to place the exploration wells. It turned out that there was only one exploration well, because the caprock was fractured. There is clear sign that oil once inhabited the formation but that it leaked out several million years ago.

Obviously neither of us can be sure about the "agenda" you suppose, but it may be true. Certainly from a national security point of view, it's a good idea. Most of the places that have large accumulations of oil don't much like us and will be happy -- at least temporarily -- to take yuan instead of dollars for oil.

But the truth is the world MUST!!!!!!! convert to a green energy economy. ANY alternative that depends on non-renewable resources, be it "sequestered" coal, fission -- even the holy grail of fusion -- will run out one day. The resources the Earth has today can only be depleted by a technological civilization. It is far better to save them for use as chemical inputs and use the genuinely permanent sources of solar theromofusion (solar and wind) and gravitation (tides) to power our civilization.

The necessary technologies are available. The only thing stopping it is entrenched wealth.

On May 31 10:42 AM Jimbo wrote:

> I see inflation coming sooner, rather than later. I fear that we
> may have a "double dip" recession(depression?). The looming resets
> of mortgages, together with a poor employment picture,seem to combine
> for the perfect storm. The price of oil is now determined by a world
> market. If other countries increase their use, this means higher
> prices for a stressed U.S. economy and we can do nothing about it
> with an administration and Congress dead set against increasing domestic
> production. I suspect the agenda is to starve the oil based economy
> to force a "new age" of green fuels. But what if this plan fails?

Treasurys Are Getting Crushed

EMS News,

Your points about the Federal Reserve are literally correct: the dollar has lost 90% of its purchasing power vis a vis those things which were purchasable in 1913. The Fed has done some pretty outrageous things in pursuit of growth in the past.

But do you seriously think that elected governments would do better? The reason that the Fed was created was to prevent manipulation of the money supply by officials in Treasury appointed by elected governments.

Now of course, it isn't completely "independent"; the five "voting" governors are all approved by the Senate, so politics is not completely firewalled. But it is less prevalent than it would be with monetary policy emanating purely from Treasury.

The truth is there is not "magic bullet". A specie-based system cannot support the sorts of rapid growth that technology generates, and a fiat system will inevitably inflate. I think if you look around you you MUST agree that a managed specie system produces greater happiness for a greater number than any variety of "hard money". IT produces greater happiness for bondholders.

Not that there's anything wrong with bondholders. "Bondholders" includes the insurance companies and pension funds which help undergird the lifestyle of the middle class. So it's very important to continued prosperity that a fiat system be well-managed in order that those bond-based institutions succeed.

But "changing back" to a specie-based system would severely limit the opportunity to benefit from technological change; there would simply be insufficient money to apply the bonanzas.


On May 01 11:08 AM EMS News wrote:

> IMF Graphs Showing Great Depression II This is a link that has lots
> and lots of IMF graphs. One of them clearly shows that the efforts
> to reinflate the credit bubble is going to cause definite inflation
> by 2012. Since many institutional bond buyers read these sorts of
> graphs and understand the projections are pretty good since it is
> painfully obvious, the Fed wants at least 2% inflation.
>
> We know from history that every time the Fed tried to manufacture
> inflation, they succeed. Beyond their wildest dreams. Since Helicopter
> Bernanke is working hard at this project, his success is guaranteed.
> Only, he will overshoot his mark just like the Fed always overshoots
> its mark when it decides to have 'controlled' inflation.
>
> This is why the dollar has lost over 90% of its value since the creation
> of the Federal Reserve, one of the stupidest things the US ever did,
> was create a private consortium of banks that can openly and outrageously
> manipulate the currency. Which the Constitution makes clear, is
> supposed to be the business of the Treasury.