GET PREPARED: The U.S. Economic Collapse is Still Coming

THE END IS NEAR

The U.S. Economy is still heading for a train-wreck, but you wouldn’t know it if you pay attention to the information and data coming out of the Main Stream Media.  I am completely surprised at the apathy and nonchalant behavior of the investing public as the economic conditions continue to deteriorate.

At some point in time, these conditions will disintegrate more rapidly into an exponential free-fall.  Once the U.S.A. Titanic finally sinks this time, there will be no coming back.  This will be the time we will experience the great wealth transformation from paper to physical… especially gold and silver.

I saw the foreboding economic collapse coming back in 2005.  My wife and I lived in a large city in the southeast and after a few years, decided it was time to sell the business and move to the country.  So, in the beginning of 2007, during one of the biggest ice-storms to hit the mid-west, we picked up our belongings, loaded the dogs in the truck and moved out west.

We live in a small ranching community in the west, and I have to say, many of the people here know what’s coming.  Furthermore, the folks here are in much better shape to weather the coming economic storm compared to their city-folk brethren.

Say Good-bye to Orthodox Analysis

I have said this before, and I will say it again…. the majority of analysis out there is completely worthless.  Moreover, some of the forecasts coming from the precious metal community may turn out to be incorrect as well.  More on this in future articles.

However, here are three typical examples of the failure of the MSM analyst community to properly forecast the heartbeat of the market:

AIG PRICE SHIFT

CITI PRICE SHIFT

FANNIE MAE PRICE SHIFT

The talking heads on CNBC and Wall Street were beating the drum for these and other stocks right up until the time they collapsed.  Within a year, the prices of these equities imploded to a fraction of their original value.

Did this phase the Wall Street Analyst-For-Hire-Treadmill from continuing to put out worthless garbage?  Of course not.   Today, we still have the same overpaid analysts putting out Rosy forecasts as the economic conditions continue to disintegrate.  Thus, orthodox analysis has outlasted its usefulness and is now, completely dead.

The Time for Unorthodox Analysis has Finally Arrived

In order to survive and to protect ones wealth in the future, investors must look outside the box and into the realm of the “Unorthodox” mind.  There are many excellent examples of these analysts in the precious metal community, but the one that comes to mind more than most is Jim Willie.

Early on, Jim was writing about the corruption in the Wall Street Banking system which he calls a criminal syndicate.  His label seems fitting as there have been no arrests or convictions to date of anyone from Wall Street since the collapse of the Banking and Housing Market in 2008.  Sure, maybe a few fines have been levied, but when the Fed is handing out printed money to the member banks, it’s basically an inside joke to the establishment.

One of the major flaws I see made by the analyst community (including many in the precious metal camp), is the failure to incorporate energy into their forecasts.  Truth be told, I don’t include Jim Willie in this group because he understands the dire ramifications of the energy situation going forward.

This is the very reason why I started to research how energy would impact the precious metals, mining and the overall economy — I just didn’t see anyone else really doing it.

For example, the top 5 gold miners diesel consumption for each ounce of gold produced increased 72% from 2005 to 2011.  This turns out to be a 9% annual increase of diesel consumption per ounce of gold as production remained flat or slightly decreased during the period.

Moreover, the results for 2012 are coming out, and I have to say the trend seems to be getting worse.  If we look at the chart below, we can see that AngloGold’s diesel consumption for each ounce of gold produced increased a staggering 31% from 2011 to 2012:

AngloGold Diesel Consumption 2005-2012

In 2011, AngloGold consumed an average of 18.2 gallons of diesel per oz of gold, but in 2012 this amount increased to 23.8 gallons of diesel per oz of gold.  Furthermore, this 15 million gallon increase of diesel consumption from 2011 to 2012 was on the back of falling gold production — 3.9 million oz in 2012 down from 4.3 million oz in 2011.

So, here we can see that it is taking a great deal more energy to mine and produce gold than it did a mere decade ago.  The problem is compounded when we consider that the price of a barrel of oil has increased more than four-fold from $25 in 2002 to $111 in 2012.

The Value of Gold is Tied to Energy

I am not going to get into details here, but the value of most goods, commodities and services is based on the degree of energy consumed in the total process (in all forms and all stages).  While I do agree that supply-demand forces and marginal utility play a role in determining the price of gold, energy is the overwhelming factor.

Thus, analysts who believe gold is heading to $650-800 totally miss the mark because they have no comprehension of the energy market.  Now, I am not saying that the paper price of gold can’t spike down and go lower, but for it to stay below $1,000 for an extended period, is not logical…. that is, if you abide by the true laws of physical economics.

The U.S. economy is heading for a disaster because of the energy situation — the money printing and U.S. Treasury calisthenics by the FED is just a sideshow.  Shale energy is not a savior.

According to Art Berman of Labyrinth Consulting Services and their excellent field by field analysis, the Shale Gas Industry has been a COMMERCIAL FAILURE.  None of the shale gas companies are making any money if you realize they are spending 2-4 times more money on CAPEX than they receive in cash flow.

Shale Energy is a Ponzi Scheme that would even make Charles Ponzi jealous.  Once the truth gets out that Shale Energy was just another delusion to keep the Fiat Monetary Regime alive a little longer, the greatest transfer of wealth from paper to precious metals will occur.

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22 Comments on "GET PREPARED: The U.S. Economic Collapse is Still Coming"

  1. what do you think would happen to metals IF there is already the possibility of free energy? If we were enslaved under the oil and now as we approach the mountain wall, they let us know what Nikola Tesla solved many years ago?

    • bengan… while Tesla came up with some great inventions, Free Energy is not all that its cracked up to be. Much like solar energy, Tesla’s free energy generator needs to be built and you need a great deal of electrical infrastructure. Furthermore, this paragraph wraps the notion of FREE ENERGY rather well:

      Free Electric Power:

      Many Tesla fans claim a conspiracy theory stopped Tesla from making “free” electric power distribution wirelessly. First of all infrastructure is still needed and there is no way power will ever be “free”. Wireless power distribution is not practical since it is extremely inefficient with huge losses over even a short distance. The final killer of Tesla’s idea is the enormous danger of wireless power transmission for wildlife (birds) and damage to humans. Given the big debate on danger of cellphones to humans, and cellphones contain very low power levels, you can only imagine the danger of high powered wireless transmission.
      ——————————

      Of course Tesla’s electric generator is different than the solar panel, but both give you free energy. However, you have to harness that energy and transport it to place for it to be used. Again, this takes infrastructure.

      Lastly, I could see the oil industry holding onto old fashion technology if it paid well, but let me tell you, the Majors are getting into shale reserves because there is nothing left. This is the only way they can keep their stock prices high by stating they are in fact replacing reserves.

      Unfortunately, these shale deposits that they are adding to their supposed reserves, are not true reserves at all…. not in the conventional sense.

      That being said, shale energy is a BIG MONEY LOSER. So, if the big energy companies understand this (and they do), why on earth would they not use Tesla’s FREE ENERGY if it really worked and they could control it by making trillions??

      Anything that is too good to be true…. IS TO GOOD TO BE TRUE.

      steve

      • Numerous researchers have already discovered the 5th element, the aether, with which Tesla controlled his wireless motors.
        Thats the many stupid remarks from old-matrix-thinkers, trying to explain Tesla’s inventions with science of today. Law of thermodynamics is a very dumb and short-reaching law.
        There are yet already too many demonstrations that show the cosmic forces are way more than simple alternative currents.

        Also, Tesla, among others have discovered the world energy grid with positive and negative centers. Tesla built his inventions on one of the crossing energy lines to disperse energy.
        Guess where NORAD is build?

        I suggest the readers to look up Bruce Cathies books, good explanations with so much truth in it, it kills the mind of apathic people trying to think they live in a free world.

        Why don’t people try to wake up once and for all. Just why does people want to remain so utterly stupid and narrow minded.

  2. http://youtu.be/8LAhKkPUo_A

    Tesla did some interesting stuff, but never actually came up with anything that counts as an exception to the laws of thermodynamics.

    Now that we are on the backside of peak oil, one analysis that I’m pretty sure will be proven correct: the real economy will decline in direct proportion to the availability of this key energy source, give or take a small amount of economic noise. There are other sources of energy but none of them will ever match liquid hydrocarbons for ease of use and energy density.

    • DIYer.. I totally agree. What is interesting NOW, is that total U.S. oil consumption has declined 2 million barrels a day since 2007. This turns out to average something like a 1.5-2% decline in consumption annually.

      What people don’t realize, if you can’t INCREASE YOUR ENERGY SUPPLY, you can’t increase your REAL GDP. Except for a blip up in energy consumption in 2009, the U.S. should have been subtracting 1.5-2% from its Annual GDP. However, we see the Bankers and U.S. Govt put out rosy GDP figures for the past several years that show we have been growing.

      This is another good INSIDE JOKE for the bankers.

      steve

  3. Thanks for your reply and thank you for a great site! I guess you’re right about the Tesla. What do you think about cold fusion?
    I only invest in gold and silver but is afraid that when these metals get their true value, the world will be a pretty horrible place to live on ..
    It feels more like a survival insurance to me. I’m not so sure I will be able to enjoy spending this money. So in a way, I hope that there is a better solution to the major problems that are approaching.

    keep it up!

    Bless

  4. Steve,

    You say “Shale Energy was just another delusion to keep the Fiat Monetary Regime alive a little longer”. It’s very interesting to me and I don’t see how this could serve as a delusion. As if plenty of available energy helps keeping the dollar alive longer. Could you explain this a bit?

    Thanks for your site and your analysis!

    Yannick

    • Yannick… I believe gold and silver are true forms of money because they act as a currency and they also are a store of value. The reason why the precious metals act as a store of value is due to the fact that they store “Economic Energy” or what I call “Trade-able Energy Value”.

      We must remember, all we are really doing in our complex economy is trading energy for energy. I don’t mean by trading oil for natural gas, but if someone purchased a pair of shoes, the overwhelming value of those shoes are found in all the energy… in all forms and in all stages from production to transportation in which they end up on the retail stores shelves.

      Fiat money such as the U.S. Dollar is a currency but not a store of value…basically its a piece of high quality paper worth a few cents. Furthermore, the Dollar is a debt based instrument that is backed by U.S. Treasuries which are more debt based paper.

      Simply, to pay back a debt, you need to burn energy and create economic growth. Once all the costs are paid, and there is a profit or interest left over, then it can be applied to paying back debt.

      So, in order for the Dollar to keep its supposed value, the energy supply must continue to grow to be able to pay back these debt based instruments. Now, because Shale Energy is only an ILLUSION of increased energy supply, it is allowing the Dollar to survive a little longer.

      However, once the world realizes that Shale Oil & Gas are not the energy saviors, we will see how serious annual decline rates of 40-50% impact the energy supply.

      steve

      • Steve, thanks for your answer. One more question if you’ve got time to answer:

        If Shale Energy were for real, would it be still an illusion regarding the Dollar survival? I mean, if we would suddently find a 1000:1 EROI worldwide source of energy, readily available and in infinite quantity, do you think the Dollar would survive significantly longer? Or maybe it’s the fact that shales are mainly in US and not “worldwide” that would make a real huge shale energy reserve keeping the Dollar alive longer? Because of exportation?

        Your posts on TFMR made me understand that everything revolve around energy. That money and energy were the same. Here (in your comments), I’ve just realised a corollary of that is that real GDP must be proportional to energy consumption. So all the nice intention to reduce our energy consumption were either to deceived us or were thought of by ignorants. Maybe they meant reduction of fossil energy. Anyway…

        Yannick

    • Yannick – “Shale Energy was just another delusion to keep the Fiat Monetary Regime alive a little longer”

      To flesh it out a bit, what Steve is referring to here is the bookable discoveries of shale and tar sand reserves. You’ve seen it repeatedly in the msm these last several years, The numbers are massive and the general public takes that at face value.

      EROI, the icon of this site, is the key here. 100 years ago the reserve number would have to subtract 1 or 2 percent for extraction. Now it’s above 90%. In some of these money loosing ventures, it’s 100%. Without taking into consideration EROI, the illusion of cheap oil/energy is possible. That’s the delusion.

      To Bengan’s points regarding Tesla and free energy –
      I think Tesla’s concepts are fascinating and we likely have more to learn from them.

      But let’s skip that for a moment and assume (incorrectly, in my opinion) that free energy is possible. What did humanity do with the underground bank account of ancient sunlight, once we learned to harness it? We spent half of it and grew humanity from 2 billion to 6 billion. What would we do with free energy or more cheap energy? Does free or cheap energy mean we get free or cheap copper? Or food? The concept that (useable) energy can be free seems to overlook the fact other commodities are indisputably finite.

      Now, assuming energy is not free, right now, we still have the problem that human population grew during the cheap energy phase of Hubert’s Peak. That in-and-of-itself is a problem, if we can’t spend energy at the same rate that got us here.

      • Dale,

        I just read your reply. As you can read in my last post, what I don’t understand well is of a huge energy source (be it an illusion or a real one) can postpone the agonising dollar death. If I understand Steve correctly it’s because a real new flow of energy could start back real GDP growth that would allow US to pay back its debt… and make the dollar live a long and healthy life! If it’s an illusion, dollar life will be a bit longer but will die soon anyway.

        But, officially (MSM), we are not it a situation where energy is limited. So shales or not, we already have the illusion of plenty of energy.

        What do you think?

        Yannick

  5. Hello, Steve. I want to ask you on your thoughts about this article:

    SORRY… Had to remove the link as the site was infected

    • Sinhue… the daily bell is referring to TOD – The Oil Drum. I have been reading and commenting on The Oil Drum for years. The folks that run TOD, mentioned last week that they were going to put the site on basically “IDLE STATUS”, because of a lack of good quality contributing work. They just couldn’t get enough good material from contributors to keep the site fresh…. according to them.

      However, the majority of members commented otherwise. Regardless, what is taking place on TOD is taking place in the precious metal markets…. SENTIMENT IS IN THE TOILET.

      Peak Oil is more a factor today, than it was say 5 years ago. As I mentioned in the article, Art Berman of Labyrinth Consulting Services did an exhaustive study of many of the Shale Gas Fields from data provided by the companies and states.

      Art found that all of the top Shale Energy Companies are spending 2-4 times more money on CAPEX then they are receiving from CASH FLOW. This only gets worse going forward as SWEET SPOTS in these fields have already been exploited. Thus new production isn’t as prolific as prior years, which means they have to add even more wells each year just to keep production flat.

      Sinhue, here is a link to Art Berman’s video presentation. If you decided to check it out, let me know if you see any holes in his analysis. I think he’s spot on.

      SHALE GAS: After the Gold Rush

      http://www.resilience.org/stories/2012-06-20/after-goldrush-learning-us-shale-gas-experience

      This gets increasingly expensive, which means they lose even more money going forward at current natural gas prices.

      steve

      • Nice, this ASPO conference was only a couple of dozen of km from where I live, in lower Austria. Why do I always miss this? Like Marc Faber speaking in Vienna last year.

  6. Thaks for your answer.

  7. SRS, it doesn’t change your point but if diesel fuel use to produce the same ounce of gold increases 72% over 6 years, I don’t think that’s a rate of increase of 12% per year. You would actually get a neear doubling of fuel use in 6 years if you went from base 100 to 112 to 125.4 to 140.5 to 157.3 to 176.2 to 197.4.

  8. comex gold aug. contract’s OI rolled into december. so the OIs seem to be fine. false alarm.

  9. Thank you Steve for another one of your “truth be told” articles.
    Speaking of the ‘truth being told’, the ‘main stream media’ (MSM), or more accurately described as the “Department of Propaganda”, is little interested in telling the truth.

    It’s main job and objective, is to misinform the misinformed! And to make sure that the vast majority remain misinformed, at the behest of the politico, corp[orate, financial elite.

    The media has never been more consolidated. Six media giants control a staggering 90% of what we read, watch, or listen to. These six mega corporations are;

    1/ General Electric
    2/ News – Corp
    3/ Disney
    4/ Viacom
    5/ Time Warner
    6/ CBS

    Thats 232 media executives, who control the information diet of 277 million Americans, on a 24/7 basis! Adolph Hitlers chief of propaganda, Goebels, would be proud!

  10. To state the total amount of free energy to equal GDP is to oversimplify it.

    It’s also about how efficiently that energy is used, how productive it is.

    Example 1: Microchips. Transistors in the Pentium 1 had a gate length of 800nm. Right now Intel manufactures its CPUs using a 22nm process. This means you get dozens to hundreds times performance per amount of energy out of them compared to back then.

    Example 2: Combustion engines. An engine with 100 hp probably used around 30l of fuel per 100km back in the 60ies and 70ies, now it can do it with 5l. This of course also has to do with other improvement in vehicle designs like transmissions, tires, aerodynamics.

    Basically I do agree with you that the amount of energy available on this planet is the #1 determinant of the development of this world, but, it’s not the only one.

    It’s clear however that mining is still mainly energy dependant and will not get meaningfully more efficient, so yes, mining costs will continue to rise.

  11. Finally, a website with an informative article followed by thoughtful & spirited debate without flaming one another. Well done. Marking this website for further reading. Thx.

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