U.S. Economic Recovery: Real, Exaggerated...or Bogus?

[OldSchoolGamer]

Here's another little tidbit of the ongoing collapse:

http://www.nakedcapitalism.com/2009/09/railroad-traffic-decline-accelerates-withering-green-shoot-watch.html

Rail traffic is a bellwether of economic activity because it presents one of the best snapshots of overall industrial and commercial activity available.  Specific sections of the economy (like housing) can be doctored or goosed, but rail traffic is what it is.  If you're going to move large quantities of raw materials, intermediate goods, or finished goods, you're going to use rail, and if those goods are not being moved, that means the economic activity that used to drive such movements no longer exists, regardless of what the situation is on paper.  The statistics show rail traffic has declined to levels last seen in 1993.   This implies that GDP figures are probably being distorted by the stimulus and who knows what other forms of legerdemain. 



Now, I'm not going to claim that rail traffic alone can be used as a proxy for true GDP.  But I do believe there's a rather strong correlation.  And if we look at that chart, we see that, back when rail traffic was at the same level it is today, the GDP was over a third lower than it is today.

Has real GDP declined 35%?  I'm not going to be that bold.  But I do believe that, in real terms, the official numbers almost certainly understate the magnitude of U.S. GDP decline.

[Oniya]

Um - as someone who has had more than a passing contact with the trucking industry, isn't it possible that the goods are being shipped by means other than the rails?  Planes are faster, trucks can get to more places.

[OldSchoolGamer]

Um - as someone who has had more than a passing contact with the trucking industry, isn't it possible that the goods are being shipped by means other than the rails?  Planes are faster, trucks can get to more places.

Good point.  There has likewise been a sharp decline in truck traffic as well, though we have "only" been rolled back to the levels seen in 2000:



As for air freight, that is rather expensive and simply not used to ship raw materials and intermediate goods.

[Vekseid]

Imports have been cut in half while exports have remained comparatively constant.

That would only account for half of the decline, however.

[Oniya]

I'm still trying to understand how a graph with a virtually linear increasing slope of 300 units per year (roughly estimated with a straight-edge) indicates a 'decline'.

[Revolverman]

"Funny money" is usually a term for counterfeit currency, which is beside the point here -- maybe that's not what you meant to say?

Regardless, every monetary system -- even one based on and actually circulating gold and other such metals -- exists only because everyone involved agrees that the medium being used has value.  Even if the medium has evolved to become electronic instead of physical, that fundamental agreement is all that's needed to keep the system going.

Of course, that agreement can waver, currencies can fail, and that's when problems arise, which leads us neatly back to the original topic.  :)  But the problems don't necessarily come from whether or not anyone's actually using/owns gold bars or silver coins.

(I'm just amazed that anything from that one, scary economics class I took in college is still in my head.  Heh.)

*Grumble Grumble* Damn internet making me have to retype my post.


When I say funny money, I mean money that is basically print from no where, and has no backing besides the government saying it will be accepted, same as a counterfeit dollar being only backed by the counterfeiter saying it will be accepted.

My problem isn't with electronics or money being electronically transferred, its the fact that the money doesn't really exist. Central banks can just add zeros to the money supply whenever they choose to. THAT'S what my problem is.

Now, that is true, however Gold, Silver, and other currency metals have retained its value throughout human history, while trust in the government (The "Base" of fiat money) has fallen out many times in history.

[Serephino]

My entire worth being a number in a bank computer bothers me.  Computers are not infallable.  They can be hacked, get a virus, or just go down for no reason what so ever.  Computers are nice, but I think we rely on them way too much. 

[Revolverman]

My entire worth being a number in a bank computer bothers me.  Computers are not infallable.  They can be hacked, get a virus, or just go down for no reason what so ever.  Computers are nice, but I think we rely on them way too much. 

It would be nice if all computer records had a paper backup, just in case.

[Valerian]

I'm sure there are major backups to all such computer systems, though others are much more knowledgeable about that than I am.

People think about it more these days, now that everyone's fairly computer-savvy and we're all very aware that one's bank account is more pixels than cold hard cash.  But really, a bank account was always only as good as the records being kept.  Was it more reassuring when all such records were handwritten in ledger books instead of being entered into a computer system that's backed up (hopefully) at least every night?

Anyway, as far as precious metals, there's no country left in the world that still uses the gold standard.  Every existing currency is fiat currency, which means it's worth something because the governments and people involved say it's worth something.  It used to be (at least in the U.S.) that you could trot down to your nearest bank and convert all your dollars into the appropriate amount of gold.  That was stopped in 1971, which is before many of the people here on E were born.  For 38 years there's been only the word of the federal government to make the cash in your wallet valuable -- which does sound a little scary, but I still prefer that to the word of a counterfeiter, since I don't think they actually guarantee their work.

Plenty of people don't like fiat currency and think we should go back to the gold standard, but I don't know enough about economics to debate things like that.  Like Oniya, I'm still having trouble with that graph.  *scratches head*

[Vekseid]

I'm sure there are major backups to all such computer systems, though others are much more knowledgeable about that than I am.

People think about it more these days, now that everyone's fairly computer-savvy and we're all very aware that one's bank account is more pixels than cold hard cash.  But really, a bank account was always only as good as the records being kept.  Was it more reassuring when all such records were handwritten in ledger books instead of being entered into a computer system that's backed up (hopefully) at least every night?

Financial transactions are required to be ACID-compliant - either the transaction is executed accurately and successfully, or no change in the database occurs. The backup system they use reflects what I want to do with Elliquiy writ large - multiple servers sporting concurrent information. Any loss of data means transactions are reversed, which as a general rule will benefit consumers.

Ultimately, though, the wealth assigned to you as some score in your various bank accounts does not represent everything you are - or if it does, you have some seriously misguided priorities. Friends have value, knowledge has value, your health has value, stuff you make yourself has value.

[Serephino]

Sadly, money makes the world go round.  It's something you have to have in order to survive.  I'm sure financial systems take every precaution they can, but it still makes me nervous.  That's why there was so much panic over Y2K.  If the computers that run the world fail we are all seriously screwed.  It's total chaos when a traffic light goes out. 

[OldSchoolGamer]

Sadly, money makes the world go round.  It's something you have to have in order to survive.  I'm sure financial systems take every precaution they can, but it still makes me nervous.  That's why there was so much panic over Y2K.  If the computers that run the world fail we are all seriously screwed.  It's total chaos when a traffic light goes out. 

One major and often overlooked vulnerability of our Information Age infrastructure is the potential for major, even catastrophic damage from a Carrington-class solar flare:

http://www.space.com/scienceastronomy/mystery_monday_031027.html

Generally, even during solar maximum, solar flares are a mere nuisance to most Earthlings, a boon to ham radio operators, and a threat only to astronauts.  However, in rare cases they can be energetic enough to damage infrastructure on Earth.  The Carrington flare (so named after a scientist who observed it) was actually powerful enough to increase solar irradiance briefly, and spike voltages on telegraph lines enough to actually set some telegraphy equipment ablaze. 

Whether such an event would be merely a disaster or a civilization-ending catastrophe in today's far more wired and sensitive world is debatable, but there's no doubt it would play merry hell with power grids and communications, as well as damaging satellites and giving unshielded astronauts a lethal dose of radiation.  Given that northern lights were observed as far south as Havana and Hawaii during the Carrington Event, even grids at temperate and subtropical latitudes would be greatly affected. 

It should also be noted that the flare was not geoeffective at the time of occurrence.   This means the main burst of X-rays and other radiation was not even aimed at the Earth.  We caught the indirect shock wave.  Had the Carrington flare been geoeffective, the impact would likely have been greater still.

[OldSchoolGamer]

I have no idea wtf that picture is getting its numbers.

http://www.eia.doe.gov/ipm/supply.html

Not that the oil situation is pretty but it's not collapsing overnight.

In researching Peak Oil, I came across this rather disturbing chart, taken from the Financial Times (hardly a doomsaying/fringe theory source):
http://blogs.ft.com/energy-source/2009/09/23/finding-new-oil-gets-ever-more-expensive/



If this chart is correct (and it seems to come from reputable sources), over the past ten years, the cost to drill an oil well has more than doubled, and the yield from a completed well has declined by nearly a factor of 4.

Extrapolate that into the future, and by around the middle of the next decade, the Oil Age is, essentially, over.  The cost to drill an oil well will exceed the value of the oil obtained from it.  Of course, existing wells in established fields will continue to produce commercially significant quantities of oil for a couple more decades.  As the chart is an average, there will be wells that are moneymakers out on the right slope of the bell-shaped curve. 

But clearly the handwriting is on the wall.  The era of cheap oil is over.  We are going to have to learn, as a civilization, to get by with a lot less energy than we became accustomed to during the 20th century, and we will have to accomplish this sooner rather than later.

[Revolverman]

I just hope we learn to stop burning oil.

I mean, look around your room, and imagine everything made of plastic, gone.

Thats more disturbing then losing gas if you ask me.

[OldSchoolGamer]

I just hope we learn to stop burning oil.

I mean, look around your room, and imagine everything made of plastic, gone.

Thats more disturbing then losing gas if you ask me.

And it's a point a lot of folks miss when talking about the oil situation.  Not only oil for transportation, but oil for plastics.  Oil for fertilizer and agriculture.  Oil for asphalt to make roads...electric cars don't do much good if the highway system can't be maintained.  Oil for pharmaceuticals.  And so on. 

Of course, this is usually when someone trots out shale oil, making oil from coal, and these days, oil from algae.  Shale oil is a net energy loser: you have to input more energy to obtain oil from shale than you get from burning the oil.  Making oil from coal is possible, yes, at a high cost in energy and the environment, but the finished product is rather expensive.  Plus, that would accelerate the depletion curve for coal. 

Oil from algae is showing some preliminary promise, but it's still an unproven technology.  And even if it does turn out to be viable, it would take many years, decades even, to scale it up to anything near what we would need to obtain enough algae from oil to even come close to replacing crude oil.  And one question I have yet to see answered for algae-derived oil is the EROEI (how much energy is yielded from burning the finished product for every unit of energy input into obtaining and refining it).  The crude oil we are accustomed to merrily burning has an EROEI of anywhere from 5 to 20:1.  Ethanol is turning out to be a big fat fail in part because its EROEI is more like 1.5 to 2:1.  In other words, if we input 5 units of energy, we get about 50 units of energy from crude oil (a net gain of 45), versus 7 to 10 from ethanol (a net gain of 3 to 5).

[Revolverman]

Oil from algae is showing some preliminary promise, but it's still an unproven technology.  And even if it does turn out to be viable, it would take many years, decades even, to scale it up to anything near what we would need to obtain enough algae from oil to even come close to replacing crude oil.  And one question I have yet to see answered for algae-derived oil is the EROEI (how much energy is yielded from burning the finished product for every unit of energy input into obtaining and refining it).  The crude oil we are accustomed to merrily burning has an EROEI of anywhere from 5 to 20:1.  Ethanol is turning out to be a big fat fail in part because its EROEI is more like 1.5 to 2:1.  In other words, if we input 5 units of energy, we get about 50 units of energy from crude oil (a net gain of 45), versus 7 to 10 from ethanol (a net gain of 3 to 5).

Ethanol from corn. Ethanol from sugar cane is alot higher (not crude oil levels, but not bad). The problem is, Corn has one of the most powerful lobbies in the US, so we get stuck holding the bag.