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Thoughts from the Frontline

The Center Cannot Hold

December 17, 2011

Choose your language

Turning and turning in the widening gyre
The falcon cannot hear the falconer;

Things fall apart; the centre cannot hold;
Mere anarchy is loosed upon the world,
The blood-dimmed tide is loosed, and everywhere
The ceremony of innocence is drowned;
The best lack all conviction, while the worst
Are full of passionate intensity.

- The Second Coming, by William Butler Yeats (1865-1939)

This coming week we shall likely see Congress pass an extension of the "temporary" payroll tax cut, first enacted as a stimulus to the economy in January of 2011. As I write, the extension is just for two months. We'll leave aside the politics and look at the economic implications of the extension, and then go on to examine the deficit in the US. That will give rise to some thoughts about Europe and what would have to happen for a country to leave the euro. We'll finally close with some thoughts and graphs about the more controversial part of the tax cut extension, the Keystone XL Pipeline. Just how radical is it to build such a pipeline in the US? And what are the implications for the deficit? I think looking at a few maps might surprise some readers. It should all make for a rather controversial letter, but then controversy is my middle name. (Note, this letter will print longer as there are lots of charts.)

But first, I want to thank one reader for helping to increase my reader base in a rather unusual way. I was sent this bit from a blog by Edward Ream today:

"I came across John Mauldin, http://www.johnmauldin.com, when someone left a printout of his blog in a railway carriage. His ‘Outside the Box' column is free to all.

"I enjoy his column, and I think some of you may enjoy it too. I especially admire his thirst for knowledge and his tolerance of diverse viewpoints. He actively seeks disconfirming evidence and the views of those who disagree with him. Imo, this stance is a model for what politics should be, and isn't :-) – Edward"

Thanks, Edward, and to whomever left the letter on the train. We take expansion of the number of our friends wherever we can find it. And let's see how he feels after this letter.

The Center Cannot Hold

The payroll tax, as a way to pay for Social Security, has been 12.4% since 1990, with half paid by workers and half paid by business. Late last year a temporary payroll tax cut of 2% was enacted. This saved an average family of four about $1,000 per year and affected 160 million taxpayers. It is not peanuts. It also "cost" about $120 billion in revenue (best estimates). This…

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Ronald Nimmo

Dec. 22, 2011, 4:40 p.m.

(Note: in my book, I actually call for a slowly rising energy tax on gasoline usage, to be solely used for rebuilding our decaying infrastructure, so I am not against higher prices per se. I just want the reason for higher energy costs not to be shortages. But that’s another story for another day.)
Source: JohnMauldin.com (http://s.tt/14UBF)
  I believe that we already pay enough gasoline tax to support transport infrastructure. I think these taxes are being diverted into general fund use. We need a law to make sure taxes levied for specific purposes are segregated into separate funds and that the spending of those funds should be transparently tracked and posted on the web. This obviously should apply to Social Security funds as well as energy funds. I realize that too much precisely allocated budgeting could hamper legitimately needed government flexibility, but I think the system is far out of balace in the other direction now.

Spiro Vassilopoulos

Dec. 20, 2011, 4:32 a.m.

John:

The United States treatment of energy is approaching the saying of “Stupid is as Stupid does”.  Politicians at every level of government, at the slightest hint of environmental opposition, make for the hills yelping like frightened dogs.  The XL Keystone pipeline rejection is just one more variable in the energy equation that is forever tilting to the benefit of the Middle East.  I have direct, and very costly, experience(s) with energy development on Vancouver Island, BC and Port Westward, Oregon .  After years of work and money to lawyers and PR hacks, my company walked away with nothing to show for six (6) years of endless work.  The US energy business is infected by the disease of “environmentalism” and nothing will happen until we impose a significant BTU tax on crude and refined products (with NAFTA countries excluded) at our borders.
Spiro G. Vassilopoulos
Petroleum Geologist
Albuquerque, NM

Susan Middleton

Dec. 18, 2011, 8:56 p.m.

“When was the last time you heard of a serious pipeline disaster, or even a small one? “

Hi John,

There was an oil spill from a pipeline into the Yellowstone River on July 1.  In late September, our family visited the area and my husband & kids went on a guided fishing trip.  When they got close to the site of the spill, there were uniformed officers on both sides of the river and a wire across the river to be sure they did not get to that area.  THREE MONTHS LATER.  Was that for their safety, really???

Maybe we don’t hear about oil spills in the US because coverage is minimized by the oil companies and government.  Sorry to sound like a conspiracy theorist, but, wow, it sure looked that way.

Mike Stasse

Dec. 18, 2011, 7:14 p.m.

First, fracking is NOT used to mine tar sands.  It is mined.  But the trouble with tar sands is that it has a very low ERoEI (Energy Return on Energy Invested), and when the ERoEI of your favourite energy source goes down the toilet, you get caught in the ENERGY TRAP. http://physics.ucsd.edu/do-the-math/energy-trap

To mine tar sands, you have to heat them up with natural gas, and the energy profit is negligible.

The US has NOT been able to produce enough oil since before 1970, and it never will.  Get used to it.  Fact is we have been at Peak Oil since 2005, and this is as good as it gets, it’s downhill from here, especially if Saudi Arabia has finally scraped the bottom of the barrel and is heading down the Hubbert curve too.

Larry Brown

Dec. 18, 2011, 6:15 p.m.

John,

As an electrical engineer (Caltech, 1954 B.S. and M.S, in EE) one thing I know of a certainty is that electric power is a commodity like no other.  Apples, corn, and wheat can be produced, stored and transported to the point of use when needed.  Electric power, however, must be created and transported to the point of use immediately,  Electric power cannot be economically stored and not stored at all in the quantities used in the United States minute by minute.

Therefore, it is impossible to replace all coal fired electric power plants with solar or wind turbine.   To be viable it would be necessary to find a location where the sun shines bright 24/7 and/or the wind blows strong 24/7 or some combination.  In Medford, Oregon (about 100 miles SOUTH of where I live) there is only two hours of full sunlight equivalent per day during December and January; this means that during those months my house would have to “live” on battery power about 92% of the time.

Now, let me say that I’m in favor of electric power generation, at the site needed, that does not depend upon burning anything or splitting atoms.  Incidentally, we as taxpayers have spent billions trying to develop fusion power.  The score after more than fifty years:   zero fusion watts put on the electric grid.

We need a source of energy that is available anywhere in the universe 24/7.  There are some hints that this exists.  For example, in the year of my birth, Nikola Tesla was driving an electric powered car around the test track at the Pierce Arrow Automobile company.  The car had no batteries, required no fuel and didn’t have to be “plugged in.”  Now, of course, that was in the early years of vacuum tubes and electro-mechanical relays.  If Tesla could do it in 1931, why cannot we do it today?  IMHO, the reason is that J. P. Morgan, who was supporting Tesla, had invested huge amounts of his funds in electrical transmission lines.  When Tesla announced that he planned to provide electric power to everyone on earth for free (no transmission lines required), J. P. Morgan reduced his support of Tesla to one-half what Tesla needed.

Also, in the 1930’s Paul Dirac ( http://en.wikipedia.org/wiki/Paul_Dirac ) invented his wave equation which was a relativistic extension of the Schrodinger equation ( http://en.wikipedia.org/wiki/Schrödinger_equation ).  Dirac stirred up a large controversy since he noted that his equation had four roots.  Two of the roots defined the electron and the other two defined the positron (which Dirac predicted would be discovered; Carl Anderson demonstrated the existence of the position in 1932).  There were two different electrons (and positrons)—one positive energy (mass) the other negative energy (mass).  The controversy was finally decided by vote among theoretical physicists of the time, rejecting negative energy.  It is largely because of this unique way of solving scientific controversy that we have energy problems today.  BTW, Tesla had experimentally demonstrated the existence of negative energy although he didn’t know what to call it.

Rather than fooling around with solar panels and wind turbines, I recommend you investigate Tesla and Negative Energy.  We are surrounded by a sea of energy which can neither be created nor destroyed—it could and should, however, be used.

Sincerely,

Larry Brown
Larry@yourfreeinfo.biz
Your eyes and ears in SW Oregon
Now using a Mac Mini (Apple)
In God We Trust

P.S.  The Soviet scientists discovered negative energy and used it to cast the titanium hulls of their nuclear submarines in one pour per submarine.

P.P.S.  A map showing the electric power transmission lines in the United States would also be very crowded looking even if limited to lines in excess of 100,000 volts.

Fred Pollack

Dec. 18, 2011, 4:13 p.m.

As John pointed out about 1 or 2 months ago, after Greece got its debt reduction, Ireland would be requesting their own debt reduction. 

Well, here it is:
http://www.irishtimes.com/newspaper/breaking/2011/1218/breaking11.html
“Ireland would need to get a significant reduction in its debt burden in order to get any referendum on new European budgetary rules passed, Minister of State for Finance Brian Hayes has said.”

Fred Pollack

Dec. 18, 2011, 4:07 p.m.

As readers have already mentioned, the Keystone pipeline is about the Canadian tar sands.  From a greenhouse gas perspective, the deriving energy from the tar sands is worse than coal.  If there was a way of stopping the development of the canadian tar sands, I would be in favor of it.  But this is a choice for the Canadian gov’t.  Without the Keystone pipeline, a pipeline to the Canadian ports will be constructed, where the oil (derived from the tar sands) will be shipped to either ports in the US or the far east (e.g. China).  Of course, this shipping takes even more energy and creates even more greenhouse gases.  So the pragmatic choice is to build the keystone pipeline.  Or, perhaps we organize several thousand dedicated American environmentalists to “Occupy the Tar Sands” in January.  I suspect that several wall street firms would be willing to pay for their transportation from New York. :-)

Alex Sinclair

Dec. 18, 2011, 2:48 p.m.

There is a critical difference between government revenue increases and spending cuts.  I agree that both are a form of austerity but for the United States, the social security tax holiday had little to no multiplier.  In fact much of it leaks off to China, etc. as we import so much of our consumer goods.  Cutting government spending basically impacts GDP for the next few quarters but the benefit continues.  Where “Stimulus Spending” did not produce a $ of GDP per $ of borrowing—no multiplier.  We have borrowed an extra $3 Trillion to get less than a cumulative $2 Trillion in GDP in the entire recovery (July 09—Sep 11).  It is the private sector that must support both the economy and the government.  In fact, I believe that we should not include Government Spending in GDP.  We should be measuring the health of the private sector engine by measuring Private Sector GDP.  Is the engine healthy or not?  Government is a burden not a source of growth or vitality.

ps—did you catch Kyle Bass’s comment about Japan—-“A Giant Ponzi Scheme that is running short on time”.

david thomas

Dec. 18, 2011, 2:34 p.m.

Well, here’s one ‘foreigner’ who doesn’t buy for one minute the environmental objections to Keystone. The oil will be produced anyway, either for use by Americans or to sell into the world market. The added value from refining in Texas will go somewhere else absent the pipeline. Besides, relying on friendly Canada seems a whole lot more sensible than relying on some malignant regime somewhere overseas.

Nelson Swanberg

Dec. 18, 2011, 12:57 p.m.

It is clear to me now the poor countries of the Euro zone adopted the euro to steal from the rich countries while the rich countries adopted the euro to steal from the poor countries.

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