Prof Keen Explains Inflation

This is a good explanation of what is coming, and how those in charge lack the intellect to deal with it.

This is my way of explaining what he's describing: I want to cut down a tree in my backyard, but my axe handle is broken. I can choose to use the axe with the broken handle, and take a long time, or I can buy a new handle. The new handle costs $20 now, when it used to cost $10. Adjusting interest rates won't make the handle cheaper as energy is used to make all axe handles, and so no matter what I do, I am faced with paying more or going without and taking a long time to cut down that tree. Because all economic output consumes energy, if you restrict the flow of energy, prices rise and consumer behaviour has nothing to do with it.

Some will point out that we have had no shortages of fuel, the stock has always been there when needed. That is correct, but why the price of energy rose is due to the reserves being depleted. When Trump surrendered he appears to have done so after being told that the world had about 90 days of oil reserves left. The world had been running by topping up using reserves. Thus, we saw no empty tanks at gas stations, but in the background the feedstock was running low. 

Now we are faced with trying to rebuild refining capacity in the Gulf, and trying to get shipping back to normal. This may take a year or two. In the wake of that, we may be about to experience a major collapse, along with the AI bubble and all the other bubbles.

Jet Fuel Running Out

The opening of the Strait of Hormuz didn't last long, and now we are looking at airlines shutting down or going out of business. This is not a pricing issue, it is an absolute scarcity of the key resource - kerosene. Only a small proportion of each barrel of oil turns into kerosene, otherwise known as jet fuel.

Oil - Lots of It

What does a barrel of oil contain, what products are derived from it, and what are the different types of crude oil?

1. Types of Crude

2. Refining Process - Like Making Moonshine

 

3. Refining Output - Various Products

Australia Allows Heavier Loads

It makes sense to allow trucks to carry more each load, it will save fuel, although roads will get knocked about more.

How Some Countries Are Responding

Some countries are taking action, while others like New Zealand and Australia, have their heads in the sand:

New Zealand Fuel Crisis - Action Required NOW

Here's my plan for sorting this:

1. Emergency declared under existing legislation, wartime economy. Government puts the entire liquid fuels infrastructure under direct government control.

2. Get the University of Canterbury and University of Auckland mechanical and chemical engineers on board, together with the NZ Army engineers (Sappers);

3. They've got 60 days to come up with a distillation solution producing enough diesel to keep the wheels and machinery moving;

4. The government enters the spot market for diesel, anywhere, any quality;

5. Get all farmers and transport operators to disable or remove their emissions systems, and get ready to run regular high sulphur fuel;

6. Bring the fuel in through existing shore facilities, price controlled and distributed according to direct state orders;

7. Arrest anyone who gets in the way, and prosecute any price gouging.

8. In the medium term, once this framework is established within 48 hours, begin feasibility studies on immediate production of biodisesel and lignite to diesel;

9. With immediate effect, ban the export of NZ crude oil and LPG;

10. Import LPG conversion kits for cars and vans.

11. With all this underway and framework stabilised, then worry about fertiliser (this prioritises tractors, machinery and trucks over chemicals in the ground - it is what it is).

Now, get on with it. Why is the government not taking action? Reports are that even if the conflict is resolved tomorrow, it will take 6 months to get the flow normal again. But, the likelihood is this conflict will be all year at least. We must act NOW.

Australia on Edge of Cliff

 Australia is in a bad position at the onset of the oil crisis.