THE COMING TWO-STAGE RALLY IN SILVER

SILVER TWO STAGE RALLY

As the MSM, Wall Street and various so-called analysts waste time focusing on worthless and insignificant data, the price of silver is positioning itself for the coming TWO-STAGE RALLY.  The majority of the precious metals analysts discuss the revaluation of silver as it pertains to the amount of fiat currency in the system.

While this is a good determination (from past historical guidelines), it only deals with one part of the overall equation.  The second and maybe the more important factor… is the destruction of “PAPER CLAIM CHECKS” on physical assets.

Chris Martenson discusses this in his excellent video “Accelerated Crash Course.”  When the stock and bond markets finally fall into a tailspin, and the investing public realizes that it’s holding onto worthless paper claims on physical assets… there will be a rush in gold and silver to protect wealth.

Over the past several thousand years, countries experienced huge devaluations of their currencies.  However, economic growth and progress continued as civilization was able to tap into new lands and new sources of energy.

Today, we have reached the limitations of energy, resources and the environment. Unfortunately, MSM and Wall Street tend to ignore energy and resource scarcity in their news releases and forecasts.  Why?  Because without unlimited growth forever, Wall Street’s business model implodes.  So why even mention it?

Folks… PEAK RESOURCES destroys the ability for Wall Street to continue.

For some strange reason most people don’t realize that PEAK OIL will hurt the largest entities and corporations the most.  We must remember, companies such as Wal-Mart make tiny profits on huge sales.

Just imagine the amount of energy it takes to cool and heat one Super Wal-Mart store throughout the year?  Think about all the inventory and how its manufactured, packaged, shipped, stocked on shelves and sold to the public.  The amount of energy consumed in this process is staggering to say the least.

The Wal-Mart business model was based on not only cheap energy… but one with a high EROI- Energy Returned On Invested.  Unfortunately, cheap energy is now replaced by very expensive oil and the EROI of U.S. and global oil production continues to decline.

When Sam Walton opened his first Wal-Mart in 1962, the EROI – Energy Returned On Invested of U.S. domestic oil production was 30/1. Thus, the U.S. produced 30 barrels oil for the market for every barrel consumed in the exploration-development-production process.

Today, the EROI is approximately 10/1 and Shale Oil is half of that at 5/1.

Which means, U.S. shale oil production provides 25 barrels less (one sixth) in net barrels of oil than the industry standard in the 1960-1970 period. This decline in NET BARRELS OF OIL forced the Central Banks and large financial institutions to produce more CLAIM CHECKS than physical assets to back them… matter-a-fact, the leverage is tremendous.

STAGE ONE:  Currency Devaluation

The first stage of the two-stage price rally will be the devaluation of the U.S. Dollar and fiat currencies.  It is impossible to know the exact date of the U.S. Dollar devaluation, but it’s coming.  Some analysts do not believe that MONEY NEED TO BE TANGIBLE…. I disagree. One such analyst is Martin Armstrong.  Martin stated this in one of his blog posts last year:

At the risk that the Goldbugs will assassinate me before the Politicians, MONEY is no longer tangible and in fact it has rarely been so throughout history. Consequently, money is simply whatever people accept and that means it is no different than a share in a corporation. This being the case, money is now electronic, with a tiny portion even paper.

This theory that MONEY must be tangible destroys all freedom. It is nonsense. You hedge government with your assets. MONEY is not a store of value for it rises and falls in purchasing power with the booms and busts. Just because precious metals were used as coins at various times, does not support this idea that money must be tangible. That ranks up there with the world is also flat. Everyone who has ever eaten broccoli has eventually died. Therefore, we must also assume that broccoli will kill you.

There have been hundreds of yearly intervals where money was NEVER precious metals and what about Asia where China never issued precious metal coins. They proved money is simply what everyone agrees to have value. St. Patrick wrote how the Irish used slave girls – not precious metals.

While Martin may be correct that gold and silver were not used as money for certain intervals in the past, that was probably due to GRESHAM’S LAW – Bad money drives out good.   However, the notion that China never issued or used precious metals as currency is blatantly false.  Martin gets an “F” on this call.

Chinese Sycee

(picture of Chinese Silver Sycee courtesy of Anythinganywhere.com)

According to history of the Chinese Sycee:

Silver in ancient China was very rare and precious due to the lack of rich domestic mines. Silver deposits usually were found in the same ore bodies as minerals such as quartz, lead, and antimony, and the technology for refining and purifying silver was not mastered until the Tang Dynasty, a much later date than that for copper.

It is also recorded that during the Western Han Dynasty(202 BC-5 AD), Wu T’i had issued a series of 3 kinds of silver currency, and Wang Mang of  the Hsin Dynasty (8-23 AD) had also issued 2 varieties of silver currency, but both efforts completely failed.

Even though the ancient Chinese silver currencies failed… they were indeed ISSUED SILVER CURRENCIES.  Furthermore, the ancient Chinese used iron and copper coins as a medium of exchange because they were able to produce these in much higher numbers as the annual production of silver was quite low.

For example, during the Chinese Tang Dynasty (618-907: Wikipedia), the annual silver production was approximately 25,000 teals.  One teal equals 1.21 oz.  Thus, 25,000 teals of silver production, equaled 30,250 oz per year.  This is an insignificant figure when we compare it to the production of silver in Ancient Greece from 600-300 B.C., which was estimated to be 250 million oz…. 80-100,000 ounces per year (U.S. Bureau of Mines-Summarized Production of Silver).

During the time (600-300 B.C.) when the Ancient Greeks were producing silver from their massive deposits outside the Laurium region in Greece, the population was approximately 8-10 million.  They produced enough silver to supply each Greek citizen with 15-25 silver coins (1 oz each).  This is just an estimation.

Now compare that to the Chinese Tang Dynasty, nearly one thousand years later, that only produced 30,000 ounces of silver annually at a total of about 9 million ounces over the 300 year period (618-907) for a population of 50-80 million (Wikipedia).

Here we can see, that silver was too rare to be used as a form of currency for the typical Chinese.  However, later on, as technological improvements in mining and smelting advanced, China produced a great deal more silver and its importance grew as a currency and medium of exchange.

According to the History of the Chinese Sycee:

During the Sung Dynasty domestic silver production increased significantly. In the Northern Sung, the annual national silver production varied from 210,000 to 880,000 taels (#1). This increased supply of silver is confirmed by records…

Using silver as currency, then, became an alternative. As some goods became priced in silver, many silver shops were opened in the capital. Currency exchange, sycee casting, and assaying became general practice.

Silver’s importance as currency increased significantly in the early Yuan Dynasty (Mongolian Empire: 1206-1271, Yuan Dynasty: 1271-1368). The new Mongolian rulers brought with them the concept that silver should be one of the major currencies of the empire. Silver was treated as legal tender, and a connection between it and other currencies was developed.

Martin Armstrong might get around the truth by stating that the Chinese never issued “Official Silver Coins”, but they did use silver as trade and currency for over a thousand years.  And during the periods when Chinese rulers decided to use paper currencies, it didn’t take long for silver to return as REAL MONEY for the Chinese.

Again, from the History of the Chinese Sycee:

When the empire decided to adopt the paper note policy of its former enemies- the Southern Sung and Jin – the circulation of silver began to be restricted or even banned.

However, this temporary setback did not cause silver to lose its attraction; the unlimited issuance of paper notes by the empire created serious inflation, and as a result, through the remainder of the Mongol Empire, silver was used by people secretly and privately instead of the devalued paper money. People never gave up using silver, since the paper money was debased, and they even resort to barter rather than using paper notes. This situation lasted for several decades until the silver ban was abolished by emperor Yin Zhong (1435-1450, 1457-1464). Silver was once again widely circulated in China, and almost all the surviving Ming silver ingots date from that time.

According to a historical record, officials of late Ming period received their salaries 10% in cash coins and 90% in silver, and all levels of Chinese people conducted transactions using silver.

So, there we have it.  Even though the typical Chinese were forced to use paper currencies for periods of time in the past, they never gave up faith in silver as real tangible money for trade.

This is the same predicament we are in today. The U.S. Dollar is a pure fiat currency and has been for over four decades.  While Americans continue to use it as legal tender, its value has eroded tremendously.  Currently, we are witnessing several high-profile countries such as China and Russia create trade deals around the U.S. Dollar.  In time, this will become a torrent.

We must remember, HYPERINFLATION is a currency event.  When the faith in paper currencies erodes, the value of it implodes.  Thus, money velocity goes into hyper-drive as the public tries to purchase physical goods and services as the value of the currency continues to decline — hyperinflate..

This will be ONE STAGE of the revaluation of silver –  physical silver.  The next will be the time when investors move out of increasingly worthless PAPER CLAIM CHECKS and into real physical assets to protect their wealth.

STAGE TWO:  Out of Paper Claim Checks & Into Physical Silver

As I mentioned in the earlier part of the article, Chris Martenson put together a great video on Accelerated Crash Course where he discusses how there are so many paper claims against physical assets.  I highly recommend watching the video if you haven’t seen it already.

You see, as the global energy supply grows, paper claims can continue to increase as there will be more energy next year to pay the annual interest or payment.  However, when the oil supply peaks… then we run into BIG TROUBLE. Which is the reason I include ENERGY DATA in my articles.

While I realize that most precious metal investors focus only on their GOLD & SILVER investments… energy will play a key role in how things unfold in the future.

Martin Armstrong is a very smart individual and has a huge following due his excellent ability in PUSHING THE RIGHT BUTTONS.  And the right buttons are the Communist-Socialist Bogeymen.  According to Martin, the problems of our society stem mostly from the politicians, communists and socialists.

While I agree that politicians and “Ism’s” don’t really solve the problems of humanity, I find it simply amazing that we never hear Mr. Armstrong speak of PEAK OIL… or the CLIMATE for that matter.  ZIP…. NADA… ZILCH.

This is my biggest disagreement with Martin.  Martin provides some great cycle charts and graphs on all phases of social and economic life, but where is his PEAK OIL CHARTS???  How do we get around that one?

I don’t mean to pick on Martin, however he falls victim to the same kind of ideology that one ‘ISM” (capitalism) is better than another.  Folks… PEAK OIL will destroy all “ISMs.”  Capitalism won’t survive peak oil either.

Let’s take a look at one example of the energy sector that Martin fails to recognize — U.S. Shale Gas Production. U.S. natural gas production peaked in 1973 at 21.7 Tcf (trillion cubic feet) and continued to decline (or stay flat) until the miracle of shale gas supposedly saved us.

Even though U.S. shale gas production increased considerably over the past several years, without the growth from just two fields… overall production would be declining. First, let’s look at the EIA – U.S. Energy Information Agencies chart of U.S. total shale gas production:

Montly Dry Shale Gas Production EIA

Currently, U.S. shale gas production is 35 Bcf/d (billion cubic feet per day).  At this rate, it would equal 12.7 Tcf for the year (35 Bcf/d X 365 days).  The Marcellus, shown in the green portion of the chart, is the one major reason total U.S. natural gas production is still increasing.

If we were to exclude the Marcellus and Eagle Ford shale gas fields from the chart above, this would be the result:

U.S. Shale Gas Production minus Eagle Ford and Marcellus

According to the EIA’s data, shale gas production from all other fields (minus Eagle Ford & Marcellus) peaked in Sept. 2012 at 19.6 Bcf/d and is now down to 17.8 Bcf/d.  Most of the declines are from the Barnett (purple) and Haynesville (orange).

To understand the rapid almost exponential growth of the Eagle Ford and Marcellus shale gas, we need to look at the next chart:

Bakken DEC 2013 to JUL 2014 change

The Eagle Ford is shown in brown and the Marcellus, in green.  In May of 2010, production of both fields totaled 1.2 Bcf/d.  However, in just four years, production from the Eagle Ford and Marcellus increased 14 times to a staggering 17.3 Bcf/d.

While this is impressive… IS IT SUSTAINABLE??  We must remember, any chart or graph that increases in this fashion, normally declines in the same way.  If you look at the chart above showing the Haynesville (in orange), its production increased rapidly, and so did its decline.

Here’s an interesting comparison.  Let’s look at total U.S. natural gas production going back to 1930.  In 1940, the United States produced 2.6 Tcf (trillion cubic feet) of natural gas and by 1973, production peaked at 21.7 Tcf.  Thus, it took thirty-three years for domestic gas production to increase 8 times its rate of 2.6 Tcf in 1940.

 U.S. Dry Natural Gas Production

Now, the Eagle Ford and Marcellus totally blew away that historical record by increasing production 14 times the rate in just four years.  I don’t want to get into too many numbers, but here are the results:

Eagle Ford & Marcellus Field Total Production

May 2010 = 1.2 Bcf/d  X  365 days = 0.5 Tcf (for entire year)

May 2014 = 17.3 Bcf/d  X  365 days = 6.3 Tcf (for entire year)

For the Eagle Ford and Marcellus to continue this same rate for 33 years, total production would reach approximately 50 Tcf by 2047.  Again… that’s from just these two fields increasing at current rates of production.  I doubt production will increase past 2020.

Energy analyst, Bill Powers believes the Marcellus shale gas field may peak by next year, or the year after.  We will see.  The important take-away here is that the growth of U.S. natural gas production comes at the mercy of just two fields.

As U.S. Shale Oil & Gas production peaks and declines, it will put severe pressure on those Trillions of Dollars of Paper Claims.  Below is one of my favorite charts showing just how insane these PAPER CLAIMS have become.

Global Conventional Investment Assets Updated 2013 Estimate

According to the recent CityUK Fund Dept 2013 Management Report, there were $94 trillion in Global Conventional Assets under management.  As I stated several times, valuations of these paper assets are based on a growing global energy supply.

Unfortunately, PEAK OIL is here…. it’s just a matter of time before the declines take place and we enter into a world in which we have no experience.  Thus, as the energy supply declines, the valuations of STOCKS, BONDS and most PAPER ASSETS go down with it…. probably not a orderly decline.

When the investing public realizes that GROWTH IS NOT POSSIBLE… I can see a panic out of PAPER CLAIMS and into physical assets such as GOLD & SILVER coming in the future. 

Lastly…. as Chris Martenson wisely states, “Its better to be a year early, than a day late.” 

Please check back for updates at the SRSrocco Report and you can also follow us at Twitter:

SRSroccoReport Twitter Button

Enter your email address to receive updates each time we publish new content.

I hope that you find SRSroccoReport.com useful. Please, consider contributing to help the site remain public. All donations are processed 100% securely by PayPal. Thank you, Steve

49 Comments on "THE COMING TWO-STAGE RALLY IN SILVER"

  1. Uppa Lumpa | July 2, 2014 at 4:21 pm |

    Yup…I’m too lazy to quote….your article parts, but your absolutely right.

    Look at wampum….they were fucking sea shells. But in colonial America they were accepted right along with the rest of the shit.

    I have all but about given up on this education of the public shit. Hell, I wrote posts a year ago about the Germany/Russian alliance….no one listened…I don’t give a shit anymore.

    Let the tail go with the fucking hide.

  2. Thanks for the article. I don’t see how you can know the world is at peak energy. Aren’t there vast lands in china,russia,and canada that have yet to be raped for their resources? The powers won’t listen to any talk of Green this or that or curbs on pollution when we are close to topping out. I mean,nothing will be sacred,not antarctica or any ocean. Can you tell me if the fracking and shale oil is cost effective? Seems I read somewhere it cost more to get than it sells for and it’s a sham we will be independent regarding oil. And last are you the guy that bet a billion against the S&P? I heard tell about a dude that did that and then no another word. Do you know about dat? And I aint being a smart ass,it’s an honest question. I got hit in the head and now I’m like forrest gump. Hope you decide to answer. Cheerio

    • Hym, Our whole way of life was built on oil being about $1 to $10 per barrel. The current triple-digit price is a catastrophe for the economy that we know. Its about price, not about how much there is still stuck in the earth.

      • Rojelio,

        CORRECT. And the one factor that most analysts leave out of the energy situation is the falling EROI. Charles Hall, who just retired… was one of the leading minds on the study of the EROI – Energy Returned On Invested. He believes a modern economic society of ours needs something north of an 10/1 EROI to be sustainable.

        With Shale Oil and Tar Sands at 4-5/1, Oil Shale at 2/1 and Ethanol at 1.5/1…. THEY JUST DON’T CONTAIN THE OIL BARREL PROFITS we need to keep Business As Usual going. Sure, these sources may be filling the GAP, but there is a reason the Shale Gas Players are spending 2 times their Operating Cash Flow on CAPEX to continue the drilling treadmill.

        steve

        • Steve,

          The end of paper assets have been forecastes a long time ago and it will surely happen but like the USSR it can take many more years or even decades.

          The current fall of the west is a demolished destruction which acts very slowly because of the huge capital built in the past centuries.

          Bad ERIO may be an important factor but money and interest rates are certainly even more important.

          By the way, Steve, when do you intent to publish your work on the EROI as I will most certainly buy it ?

          Happy 4th for americans.

          • RD,

            Of course this is up to debate, but I believe the death of paper assets is not decades away, but years. We must remember, we don’t really have an economy here in the United States. We have what I call as a LEECH & SPEND ECONOMY. Without exporting U.S. Dollars and inflation, our economy will collapse. How on earth can we have a 70+% consumption based economy? It’s not sustainable.

            The only way that it works is by forcing the rest of the world to take Dollars for real goods. So, when the Dollar gets devalued, that is the first NAIL IN THE COFFIN. Things just get worse from there on out.

            Unless we keep building homes, selling cars and Wal-Mart garbage…. we have no economy.

            I believe the world will be a much different place by 2020. We will see.

            REPORTS… I have plenty of reports in the works, but I will be putting out one shortly on the U.S. GOLD IMPORT-EXPORT-SCRAP-SUPPLY MARKET. Some very interesting things going on.

            steve

    • HYMN,

      God told that peak oil is here. LOL, only kidding. I’ve come across people in the past that shared with me that GOD TOLD THEM DO SOMETHING. Of course, I could never say “They’re crazy… because some might actually have.”

      Anyhow, there are several signs peak oil is here. Conventional oil production has actually declined since 2005, if we EXCLUDE SHALE OIL. Shale oil is really not conventional. Again it’s EROI – Energy Returned On Invested is 5/1 compared to the oil that came out of Saudi Arabia some years ago that was north of 50/1.

      Basically, the GOOD QUALITY CHEAP STUFF IS GONE. You can talk to most oil engineers and geologists, and they will tell you the same story. Some may not believe peak oil is here because we can continue to top in LOW QUALITY EXPENSIVE CRAP OIL for a long time.

      Unfortunately, Steve Kopits did a presentation earlier this year on what he calls the “SUPPLY CONSTRAINED MODEL.” In a nutshell, the world can’t afford expensive oil. So we can’t continue to extract lower and more expensive oil to keep the LIGHTS ON.

      The MAJOR OIL COMPANIES have finally responded to this notion as they have cut back on exploration, development while selling assets to have POSITIVE FREE CASH FLOW.

      The JIG IS UP. Currently, most of the SHALE GAS PRODUCERS are spending nearly 2 times the amount of the FREE CASH FLOW on CAPEX just to keep the drilling hamsters going to keep production from declining.

      This will end badly. Peak Oil is here… we just have to wait a few years before the REAL DECLINES show up.

      steve

  3. Steve,
    I rarely comment anywhere, but I consider your site to be one of the best and most detailed FREE analysis there is!
    I have a website and LLC myself (a nicely followed one I might add…one that you have visited…) and reading in different places I noticed that other sites where you commented and/or replied did not give you the well deserved credit and/or respect.
    -Puzzled I asked myself: “why is that?” and I found the answer at peakoilbarrel.com.
    Yes, there is a point I am trying to make, so please patience…I will ask you a question at the end of my comment, but first let me share with you my only comment on the above site in response to a person named JILL OZ. (The topic was energy and climate for the next 40-50 years):

    Jill_Oz says:
    JULY 2, 2014 AT 1:10 PM
    I know this comment is going to get binned, but I need to write it anyway. How can you possibly use our 200 years of climate data (and that is being quite generous with the number of years of data we have) and show that the earth is warming due to humans? The world has been around for 5 million years and has always been going through warming and cooling periods, and always will regardless of what we do. All of this is simply nothing new. At this point I feel only the ‘true believers’ with a radical economic agenda to push are the ones failing to realise that the sample size on climate is just too inadequate to come to any conclusions with real confidence.

    -Of course, almost everybody mocked him on that site, but here is my reply to his comment:

    Petro says:
    JULY 2, 2014 AT 1:58 PM

    -Other than writing 5 million instead of 5 Billion (roughly) years old, you are absolutely correct. The climate has cooled and warmed throughout Earths history and, at some kind of regularity we might add depending on the Sun cycles (mostly) and other factors, i.e.: volcano activity, asteroid activity/crush, etc.
    -Whoever believes differently is an ignorant moron at best!
    BUT (…and read attentively now, because the following part often misses even from analysis of the most knowledgeable climate change supporters! ) the change ALWAYS happened during the course of MANY MILLENNIA (if not longer!) and was ALWAYS accompanied by an almost TOTAL extinction of life on Earth (at least the majority of species that did not adapt during the change).
    NEVER BEFORE the change has occurred at this accelerated pace:give or take 2 Centuries! – AND NEVER BEFORE such an environmental devastation and species extinction occurred PRIOR to the climate change itself – always resulted as a CONSEQUENCE of it.
    -The detailed explanation of what I wrote will FAR exceed the space, time of this site and most importantly the understanding of the commentators (most of them) here, so I will not go there.
    -The conscientious and intentional effort/activity of the only species capable of abstract thinking on this planet (i.e. humans) is THE ONLY scientific and logical explanation of this accelerated change which ultimately will not allow Any species to be able to adapt enough in order to survive the “brave new climate” we are creating.
    What comes after, I don’t know, but I can guess: NOT GOOD for us humans (and life in general).

    -One of the best and most accurate/detailed FREE analysis of peak oil and peak energy out there is Steve at SrsRoccoReport, BUT just like you (and most other people, sadly) he does not believe in human made climate change. Inexplicable for a very smart guy like that and the reason he is not taken seriously (enough). But I digress.
    Be well,
    Petro
    P.S.: your comment did not “…get binned…”, did it?
    ************************************************************************************************************
    My question to you Steve is:
    -Why an well informed, detailed, thorough and clearly forward thinking intellectual like you does not believe (or put much credence, if you will!) in the man made climate/environmental disaster unfolding in front of us (indeed, upon us!), considering the OVERWHELMING ARGUMENTS that support such case/scenario?

    I will truly and wholeheartedly appreciate a detailed answer, time permitting of course!

    Thank you for the time, patience and consideration!
    I will continue to read your thoughts and look forward to your future analysis.
    Keep up the good and true work.
    Be well,
    Petro

    • Petro,

      LOL… actually I do. Sometimes on the Peakoilbarrel.com blog I get a bit sarcastic and other times I try at an attempt of humor. I think we are in serious trouble when it comes to RAPID, NONLINEAR CLIMATE CHANGE. I plan on adding this information to a PAID REPORT in the future. That is why I have not discussed it much yet.

      Once the CATS out of the BAG… well, you know.

      steve

      • Steve,
        Thank you for the time and consideration!
        -Reading your analysis (for free of all things!), I really was hoping to be proven wrong with regard to your opinion on man made climate change!
        But judging from the responses given to you in peakoilbarrel.com (and the respect shown toward you, as well) I mistakenly created a different idea…and I am fairly certain I read and understood them well!
        So thank you again for clarifying that!
        -I am looking forward to reading your free, as well as paid analysis and reports, so please don’t despair and discourage from the intellectual riffraff you encounter here or elsewhere you comment and/or show your opinion!
        Be well and Happy Independence Day to you and yours!
        Drink that good Barolo or Brunelo (you are italian: “StAngelo”, arent you?) you are saving tomorrow, for the temperatures are rising and wine (along with us all) will not react well to rising T…salute a te et a i tuoi!

        Petro

        P.S.: I saw your comment below mine in response to Ron Patterson of peakoilbarrel.com today and I wanted to let you know that I had quite the exchange with him today…time and desire to read it permitting, of course!

    • Man made global warming is another BIG LIE ! another scam to rob and control us ! The ONLY thing government cares about is looting and controlling us ! If they cared about the Earth or us then why did they ship ALL the jobs to china with NO environmental standards ? why are they regulating us OUT OF WORK ? If MAN MADE global warming was real and a threat then they would demand china adopt environmental standards or they will bring the work back to America ! And what is the governments solution to Global warming ? A CARBON TAX ! Pollute all you like just pay us a TAX ! DONT GET FOOLED AGAIN !

      • Collin,

        You posted that comment once… no need to repeat yourself unless you add something different.

        steve

  4. Steve – in concert with your info…maybe this is a site you read but please push this out there…it is a true must read.

    http://ourfiniteworld.com/2014/05/21/the-connection-between-oil-prices-debt-levels-and-interest-rates/

    http://ourfiniteworld.com/2013/10/02/our-oil-problems-are-not-over/

    Connecting the dots oh so clearly to the flip side you are expressing in PM’s…

    • Chris,

      Thanks for the link. YES… Gail does a great job and that article certainly does CONNECT THE DOTS. I have been reading her material for years. I love her charts. Yes, I need to start linking some of her work on my site.

      Thanks.

      steve

  5. Gary Gough | July 2, 2014 at 11:42 pm |

    I wonder how much of that fracking growth is coupled with cheap loans. More wells to make payments on the existing wells, and more loans to drill those new wells. If that holds true then the rapid growth would be a symptom of an industry trapped into basically kiting credit except with one leg having a physical reality, as opposed to directly borrowing to pay the loans. At some point you run out of drill rigs, drill sites, truck drivers, water, depending on individual cases. If it were just central banks lending to each other, that could go on almost indefinitely, but, since it has a real element, real physical limits will apply in this case.

    With burning anything for energy, constant growth cannot extend past a limit. For an extreme example. At present rates it will take 220,000 years to use 30% of the world oxygen, and place most land out of breathable air. If you assume 7% growth , that limit is reached in 120 years. Constant growth always hits limits in real physical systems, and to quote common wisdom ” that which can not continue, ends”.

    • Gary,

      You hit the NAIL ON THE HEAD. There have been several articles on how the Shale Industry is using the JUNK BOND MARKET to get financing. You will never hear of the Major Oil Companies doing this. The only reason the Shale Energy companies resorted to the Junk Bond Market is due to the HIGH DEGREE of debt on their balance sheet. From what I understand, very few financial companies are willing to lend to Shale Players because they know they are very risky.

      Gary… I believe we have just a few more years before the actual oil declines set in. On top of that, Shale Energy Industry in the U.S. need tremendous amounts of water to FRACK these thousands and thousands of new wells each year. With this ongoing drought… that will be another NAIL IN THE COFFIN.

      Again… we have just a few years, and the whole thing starts to unravel… IF NOT SOONER.

      steve

      • Gary Gough | July 4, 2014 at 5:36 pm |

        I hadn’t been aware of just where the money was being raised. I have been hearing the wells production drop off in the range of 60% / year though, so if they aren’t paid off in the first year they probably will never be. Some combination of wishful thinking, numeric illiteracy or laziness behind this, or outright fraud. I’m leaning toward wishful thinking, and greed as the drivers.

  6. Man made global warming is another BIG LIE ! another scam to rob and control us ! The ONLY thing government cares about is looting and controlling us ! If they cared about the Earth or us then why did they ship ALL the jobs to china with NO environmental standards ? why are they regulating us OUT OF WORK ? If MAN MADE global warming was real and a threat then they would demand china adopt environmental standards or they will bring the work back to America ! And what is the governments solution to Global warming ? A CARBON TAX ! Pollute all you like just pay us a TAX ! DONT GET FOOLED AGAIN !

  7. After my current project I am going to have a look at cold fusion as I am begining to suspect there is something in it.

    On the subject of precious metals versus fiat I do have good words to say about the latter and would be even keener on fiat if politicians and bankers could be trusted. Fiat is really useful these days as it can be electronic and you can print as much of it as you like so economic growth is not stymied by mining rates.

    As I do not want to get into a discussion on this I will give you the solution as I see it:

    We need an international TRADING curreny backed by gold and silver. It is not used for the issuing of loans which is done in national currencies.

    National currencies can be just fiat. The currency is issued by the sovereign treasury and not created as debt via bank loans. The role of the banks is to loan out this “peoples” currency in interest free loans – usuary is abolished. The banks profit by retaining a fraction of loan repayments as their income. Their job is to weigh moral hazard during loaning and serve the people rather than be their masters.

    In a gold based (local) monetary system bad loans are a serious problem. This is why interest had to be charged to cover the bad loans (at least). With fiat there is no need for interest and in such a system there is no need for government interest bearing bonds (who would buy them at zero interest?). Debt cannot be passed on to future generations. Instead people invest in company stock. They own the stock and on average make far more than through interest payments from banks.

    At a stroke we have solved the fundamental paradigm dichotomy that lies bewtween the orthodox political left and political right. The people own the wealth of the nation and we have a fully functioning capitalist system. It is not equal but the inequality will change over time and between generations. It is however fair and just.

    The judgement that lies over the heads of the politicians in such a system is the international trading currency – in effect gold. Inefficient printing of money results in devaluation of the currency and inflation. The judgement is passed through the ballot box.

    The solutions to all the political “isms” in the world are at root mathematical.

    • carefix,

      At face value, your solutions sound plausible. Unfortunately, CREDIT, FINANCE and LOANS only work in a growing energy environment. PEAK OIL is here, so most of that heads south. CASH WILL BE KING… or physical assets. Fiat money had its time, like all others in the past. It will go the same way as the Dodo Bird.

      Cold Fusion is a nice thought, however it doesn’t work for us. Ugo Bardi, discusses this in great detail at his blog: http://cassandralegacy.blogspot.com/

      Furthermore, even if Cold Fusion worked, we would have to transition a whole OIL-NATGAS based economy to it. We don’t have that sort of CAPITAL anymore. We should have made changes decades ago. Unfortunately, we waited until PEAK OIL is at our doorstep.

      The CLOCK’S RUN OUT. It will get interesting going forward as things unwind and collapse.

      steve

  8. “When the investing public realizes that GROWTH IS NOT POSSIBLE… I can see a panic out of PAPER CLAIMS and into physical assets such as GOLD & SILVER coming in the future. ”
    When growth is not possible surely this would lead to a deflationary spiral there will be a massive rush to cash….there will not be enough of it. Same as in 2007 EVERYTHING will get sold in margin calls from hell, it’ll be no different next time. AFTER that, if they can ever try to reflate, you may see gold and silver do what you want but to suggest next time is different the latest history is not on your side.

    • Next time might only be different if the dollar won’t be the world’s central banks’ reserve asset at that time. Otherwise, it will be same old, same old. But the risk of the dollar losing out to bilateral and multilateral trade agreements is very much real.

      • Yes. To put a finer point on it, if the US continues to issue dollars in huge amounts, and tries to lord it over the whole world through the US dollar, eventually holders, particularly outside the US, will dump them. This would trigger high(er)- to hyper-inflation.

  9. carefix … You are a genius! I have read volumes on this subject and have never seen the solution so simply articulated as you have expressed it. You are spot on. The problem; no one knows what you are talking about, they just think they do. Thank you, I am going to print your blog, frame it and hang it on the wall of my office.

  10. Get your silver coin and paid up real estate while you can. Stocks and bonds be damned. It won’t be long before few pieces of silver will buy you millions of dollars in stocks and bonds to use as ass wipe. The greenbacks probably will be at a premium because for the most part they are a little softer.

  11. Good stuff, Steve. Thanks.

    So in summary: in the first stage people will flee currencies, into precious metals and other tangibles, but also quite possibly into stocks and bonds. But as the energy squeeze becomes more obvious, wealth will flow out of non-producing stocks and bonds into tangible wealth, perhaps particularly into precious metals.

    I used to try to read Armstrong as he came well-recommended. But his style is noxious, and given his assertion about silver coinage in China, apparently disingenuous as well (he is a scholar of the topic, after all).

    • GJH,

      I am not sure how things unfold going forward. I wrote the article to give some COVERAGE on the fact that most precious metals analysts such as Jim Sinclair only focus on the OUTSTANDING CURRENCY in the world as a measure to increase the value of Gold or Silver. Basically, they believe if we back Dollars and other fiat currencies with Gold-Silver or other physical commodities, then EVERYTHING IS FINE. And of course we would have a huge revaluation of the precious metals.

      Sinclair actually stated that if the world did back the Global Fiat Currency system with Gold, then we would witness the biggest economic expansion in history. I totally disagree. Matter-a-fact, backing fiat currency with gold would actually destroy the LEVERAGED DEBT system we have today that is propping up the Shale Energy Industry. Thus, peak oil would occur MUCH SOONER on a gold-backed system.

      If the currency event comes first… I believe we will see a huge move up in the values and prices of gold and silver. Then we have the next disaster… the ramifications of PEAK OIL on Stocks, Bonds, Mutual Funds, Insurance Funds, Treasuries, Real Estate and so on and so forth.

      steve

  12. Martenson’s peak oil charts are in his book…
    And so do folks realize what is going to occur in the US now that a “war on coal” has been declared? Let’s see, oil gone, no coal to produce electricity. And this is of course when we have enough coal to produce electricity for 1000 years.
    Remember the goal of the globalists and Agenda 21 as written on the Georgia Stones is to reduce the
    population of the planet to one half billion. To accomplish this, the US must be destroyed.

  13. Hey Steve,
    Awesome analysis and very informative information. I plan on traveling abroad starting next month and was wondering what I should pay attention to in order to get myself back stateside before everything goes south. I know you probably won’t be able to give a date but do you figure I’d be safe for 6 months, 1 year? Any insight is appreciated.

    • steve,

      You ask the TRILLION DOLLAR QUESTON. However, I don’t think anyone really has an answer. Sure, maybe a few of the ELITE know when the HOUSE OF CARDS comes down… but we’ll find out the day it happens.

      Best thing to do is make sure you have BULK FOOD for at least 3-6 months. It doesn’t have to be the high-end stuff, but bulk grains and canned food that can get you through a pinch. Also, keep at least 2-3 months of CASH on hand somewhere in your house.. in a small safe (the kind that has a handle that you can carry – Fireproof). Hide it where no one would expect to find it. AND TELL NO ONE.

      Also, I highly recommend the BIG BERKEY water filter. It is gravity fed and you can throw just about any lousy, muddy fowl water imaginable and it will purify it. Actually it has Silver in the activated filters to kill bacteria.

      That should be at least the BEST ADVICE I can give anyone. After that… we just have to be creative.

      steve

  14. We should make every effort (w/o gov’t force) to leave everything as we found it. That is just smart practice; no matter you are one or a whole country.

    We are producing greenhouse gases at a faster rate than would be a normal rate, so we should be talking precautions to limit them as much as possible.

    Everything we do on this planet has a cause and effect. We should be measuring value against risk in everything we do, but that does not mean that we do nothing.

    Energy has taken every human to a level that was unthought-of of just a few years ago, and anyone that wants to go back to the time before energy, (right now) still has time and places on this earth to find his or her cave.

    • maui1,

      There is ample evidence and data suggesting that we probably PAST THE POINT OF NO RETURN in a RAPID, NONLINERAR CLIMATE CHANGE EVENT. I have looked at much of the data, and I can tell you… it scares the living HADES out of me. I will be discussing this more in the future.

      steve

  15. Paul Revere II | July 3, 2014 at 11:01 am |

    The communist-socialist boogiemen are real. While I agree that high priced oil is a major cause of this crisis and has a strangle hold on our economy, I disagree that we are limited by supply. The US is sitting on a huge oil reserve ( one of the biggest,if not the biggest in the world.) The debasing of our dollar stems from irresponsible government spending. Obama has been spending billions here, trillions there….What do we have to show for that money? A broken manufacturing sector, a broken banking system ( that manipulates precious metal prices), a supressed energy sector (bogged down by regulations), a broken real estate system, a bloated welfare and unemployment state, fixed elections, a President that ignores the Constitution, and levels of corruption never seen before in the US (IRS Scandle, Benghazi, BLM Power Abuse, Monsanto Power Abuse, Fast and Furious Gun Running, Immigration Issues, Election Fraud, Navy Seal Murders, and the list goes on.)

    I do agree with you that we are very close to a time when precious metals will be valuable. But that value will be only what someone is willing to trade for it. Barter will soon be the new currency. Food, shelter, protection, guns/ammo, water, etc will be the things in demand. If the bartering system becomes unstable, meaning there isnt a supply of these things, then would someone trade food for a piece of metal? That’s the million dollar question. However if the supply is available and the dollar is debased then the precious metals will flourish to a point that we have yet to see. It all depends on supply and demand. And if the government owns the supply, then we will be in a pure communist state.

    • Paul Revere II,

      I am not going to change your mind on the OIL RESOURCE ISSUE with a few paragraphs. I stopped trying to change minds years ago. I just put out the data and information and then…. LET THE CHIPS FALL AS THEY MAY. I believe the issue on PEAK OIL will be known soon enough.

      The DEVIL is in the DETAILS. Much of that supposed TRILLION BARRELS OF OIL RESOURCES in the United States has an EROI of less than 2/1. We can’t afford it. It’s really that simple.

      I will leave it at that.

      steve

  16. Slvrizgold | July 3, 2014 at 1:25 pm |

    It makes me feel good Armstrong is aware gold bugs want to lynch his no good ass. He had to uphold his end of the bargain when they released him from indefinite detention. Does this guy ever rail about how evil the Feds have become? Nah, just poos on gold whenever he gets a chance. Traitor.

    • That is simply not true. M.A. Rails against the permabulls in the precious metals industry for good reason, notice they all have a product to sell you? Sinclair, Morgan et. al. all have a reason to talk their book. Sinclair was all for M.A. when he was predicting $5000 gold but when he called for a deep correction, correctly! , Sinclair said he didn’t know the gold market! It appears Sinclair doesn’t know the gold market as of course we all know it corrected badly to the down side. Also notice Dan Norcini isn’t posting on Mineset for the same reason?
      M.A. Is ALWAYS going on about how brain dead the central bank people are, what are you talking about! Do you even read his stuff?
      M.A. is about timing, there is a time to buy and a time to sell , if your objective is to obtain as much G & S as possible then you would have been a lot better off listening to MA than Sinclair, Morgan etc.
      He may have possibly been wrong about the Chinese not using gold and silver as currency, personally I doubt it as he is a very astute historian and we would have to see the whole context of what he was saying, but it matters very little that he made a mistake on something that happened almost a thousand years ago when he has got so many things right recently. It seems SRSROCCO is having a “gotcha” moment of insignificant proportions and is trying to infer that everything else MA says is some how flawed.
      IMO MA has the most indepth and comprehensive understanding on the way markets work as a whole than anyone else, and it shows.

      • Tall Kiwi,

        Actually, I think Martin is a extremely bright fellow, and he is a very good historian. I don’t know if you read his document on the Roman Emperors. His company purchased something like a Million Dollars worth of ancient Roman Coins to put together a historic chronology of the Roman Empire. You see each Emperor had his MUG on the front of the coin and on the back was a scene depicting a historical event of the time. Great way to catalogue history on an official coin.

        However, Martin fails to take into account ENERGY and CLIMATE is his forecasts. I believe these two factors will make Socialism-Marxism-Communism or Politics seem quite insignificant in the next 5-10 years. Cycles go out the window when there isn’t enough energy to RUN all this STUFF WE GOT.

        This is Martin’s biggest failure. Just to let you know… I read almost everything he wrote while he was in jail. So, I am not ANTI-ARMSTRONG, I don’t believe he sees the whole picture…. just enough of a picture to keep his pi-cycle charts working and the income coming in.

        steve

  17. Steve- I know this is off topic and I totally agree with what you wrote. When (not if) we have a currency collapse, SHTF etc., what do you envision happening to insurance policies? I have one and, have been considering taking out another one but, I really have to wonder if the funds will be there for my kids in the future or will be worth anything near the expected value. I’m even considering just saying forget it and cancelling the one I have.

    I ask you and any of your readers…put on your best Kreskin face, get out the gazing globe and tell me…is life insurance even worth the risk under the presumed circumstances?

    • Brian,

      Of the $94.1 trillion in estimated Global Conventional Assets under management, Insurance Funds are nearly a third of that amount. That’s a lot of dough. I don’t know how long it will take before the collapse of paper assets occurs. Again, the market needs a growing energy supply to keep that system alive.

      When the global oil supply starts to decline, it will put severe pressure on paper assets. Furthermore, I believe the world will suffer from a higher and more extreme number of weather events resulting from climate change. This will impact the Insurance Industry quite negatively. They just won’t be able to insure property like they used to.

      Those who don’t believe Climate Change is getting worse… THE INSURANCE COMPANIES ARE CHANGING THEIR GUIDELINES… because they know its coming.

      I realize I will get a lot of FLACK on my Climate Change stance… so be it. I’ve seen the new data, and its horrible.

      steve

      • Steve- Thanks for the reply. I’ve been really struggling with getting my head around what the future holds and, the future of life insurance and, the odds of default by even the best A+ rated companies out there. It just seems to me that with their currency, bond, derivative and other paper exposures, buying a high dollar insurance policy is now akin to a trip to “Vegas. AIG keeps popping up in my thoughts also.

        Even the guarantee of State insurance fund backing would be assumed to be worthless if enough insurance companies in volume or $$$ overwhelm the “system” just like if there was a major bank collapse, no way would FDIC have enough $$$ to make saver whole anytime soon or possibly ever.

        Perhaps the best “guarantee” is to continue stacking- which seems at this time to be more of a “guarantee” than insurance which again, is another paper investment with multiple direct and third party liabilities abundant.

        Life really has become a “crap shoot” and fear and uncertainty is a major player at the table.

  18. Hi Steve,

    the energy situation worldwide may not be as dire as you think. The Russians got a new fast breeder reactor going, Thorium-based nuclear could go a long way too.
    http://www.ex-skf.blogspot.de/2014/06/russias-fast-breeder-reactor-bn-800-at.html
    Making the known processes more energy efficient helps as well.
    In a moderately optimistic scenario that could mean a re-play of the late seventies and early eighties. Trouble and difficulties will appear but needed change happens.

    Extreme events in weather have happened before, few days ago was a
    reportin German news magazine “Spiegel” that 1540 was an extreme heat wave and draught in Europe.

    link in German:
    http://www.spiegel.de/wissenschaft/natur/hitze-und-duerre-1540-katastrophe-in-europa-im-mittelalter-a-978654.html
    A similarbut shorter report in english:http://www.dailykos.com/story/2014/07/02/1311260/-The-Great-European-Heat-Wave-and-Drought-of-1540

    Take away from both sources “They also determined that even the best current climate models can’t simulate so severe an event.”

    Put bluntly, the current climate models are bullcrap.
    Math states the same; It is possible to calculate all the factors that make weather and climate, BUT any difference between real and measured starting point will grow exponentially. Stated in plain english, after a while the forecast and the real weather have nothing in common any more. An empirical proof of that is the accuracy of long-term forecasts for the weather. It is just not there.

    Gunther

    • Gunther,

      Yes, I know a little about the new Thorium Nuke plants. Thorium was always a much better way to go, unfortunately, it doesn’t produce WEAPONS GRADE MATERIAL to make NUKES…. so governments went with Uranium instead. Furthermore, the EROI of Nuclear Energy still sucks, even so with Thorium over the lifespan of the facility.

      Also, the world’s infrastructure is based upon a FOSSIL FUEL system, to upgrade it to COLD FUSION (if it worked) or Thorium based Power is not feasible. The world’s governments are already swimming in debt… as well as the private sector. I don’t want to seem pessimistic, but we have just run out the clock.

      As for the Climate Issue, we are just going to have to agree to disagree on this one for now. In the future, I will be publishing data on Climate change. This site focuses on energy and the Climate is a major source of energy for the planet, second behind the sun.

      steve

  19. And the bottom line is whoever owns the gold makes the rules.
    And buys the bread!

    • Or as history suggests: He who owns guns, ammo and is aggressive enough, kills those who own the gold, pays his soldiers and conquers and enslaves those who make the bread. 🙂

  20. BornSkeptic | July 4, 2014 at 9:25 am |

    Martin Armstrong frequently makes over-reaching and false arguments that sound plausible. Why does anybody give this convicted felon any attention?

  21. Paul Revere II | July 5, 2014 at 1:41 am |

    Hydrogen is a source of fuel that could be easily exploited if the US Government allowed it. The argument that our economy is oil based will go out the window if the US Dollar is debased. The problem however with hydrogen is not that we dont have the technology to make it work, its that the government wont let it prosper. You can split molecules of water using a catalyst and electricity. The products are hydrogen and water. When the hydrogen burns it creates water and clean, efficient energy. They used to sell hydrogen rocketry kits at either the Discovery store or Sharper Image. I’ve seen the technology work and it could easily be applied to a combustion motor. I also know that a lot of car manufacturers have hydrogen models available. BMW has had one for many years. Why arent they being mass produced here in the US? I know Detroit could use the work. Reason: Big oil + big government = control.

    • Paul Revere II,

      The problem with Hydrogen is that you need ELECTRICITY to split the H20 molecule into hydrogen and oxygen. Hydrogen is not an energy source, it’s a energy carrier. Oil, Natgas and Coal are energy sources. We don’t need any new ENERGY CARRIERS-TECHNOLOGY, we need new ENERGY SOURCES. Big difference.

      steve

  22. Usually Correct | July 7, 2014 at 2:15 am |

    A few advances in battery technology and oil goes back to just being a novelty. We’ll be burning the stuff to generate electricity, because there won’t be much other use for it. See the total collapse of the middle east.

Comments are closed.