He is one of the better-known thinkers The New Yorker has dubbed ‘The Dystopians’ in an excellent 2009 profile, along with the brilliant Dmitry Orlov, another regular contributor to RI (archive). These theorists believe that modern society is headed for a jarring and painful crack-up.
You can find his popular fiction and novels on this subject, here. To get a sense of how entertaining he is, watch this 2004 TED talk about the cruel misery of American urban design – it is one of the most-viewed on TED.
If you like his work, please consider supporting him on Patreon.
Editor’s note: Kunstler is an expert on the shale question, which is central to his theory that the gradual drying up of hydrocarbon energy around the world is going to lead to inexorable economic and social upheaval.
It is great to have someone writing about this in a way that not only doesn’t make ones eyes glaze over, but is actually fun and entertaining.
Shale is also central to Russia’s fortunes. The Russians invented fracking in the 70s and never implemented the technology because it is not profitable. They have been very dismissive of it in recent years, arguing that it is a short term phenomenon made possible with ultra-low interest rates and is ultimately economically unsustainable, which coincides with Kunstler’s view.
Should the US shale industry get ship-wrecked on the rocks of rising interest rates, global oil prices will rocket to economy-busting highs again, albeit giving a temporary windfall to low-cost producers like Russia, Iran, and Saudi Arabia.
As of this week, the shale oil miracle launched US oil production above the 1970 previous-all-time record at just over ten million barrels a day. Techno-rapturists are celebrating what seems to be a blindingly bright new golden age of energy greatness. Independent oil analyst Art Berman, who made the podcast rounds the last two weeks, put it in more reality-accessible terms: “Shale is a retirement party for the oil industry.”
It was an impressive stunt and it had everything to do with the reality-optional world of bizarro finance that emerged from the wreckage of the 2008 Great Financial Crisis. In fact, a look the chart below shows how exactly the rise of shale oil production took off after that milestone year of the long emergency. Around that time, US oil production had sunk below five million barrels a day, and since we were burning through around twenty million barrels a day, the rest had to be imported.
In June of 2008, US crude hit $144-a-barrel, a figure so harsh that it crippled economic activity — since just about everything we do depends on oil for making, enabling, and transporting stuff. The price and supply of oil became so problematic after the year 2000 that the US had to desperately engineer a work-around to keep this hyper-complex society operating. The “solution” was debt. If you can’t afford to run your society, then try borrowing from the future to keep your mojo working.
The shale oil industry was a prime beneficiary of this new hyper-debt regime. The orgy of borrowing was primed by Federal Reserve “creation” of trillions of dollars of “capital” out of thin air (QE: Quantitative Easing), along with supernaturally low interest rates on the borrowed money (ZIRP: Zero Interest Rate Policy). The oil companies were desperate in 2008. They were, after all, in the business of producing… oil! (Duh….) — even if a giant company like BP pretended for a while that its initials stood for “Beyond Petroleum.”
The discovery of new oil had been heading down remorselessly for decades, to the point that the world was fatally short of replacing the oil it used every year with new supply. The last significant big fields — Alaska, the North Sea, and Siberia — had been discovered in the 1960s and we knew for sure that the first two were well past their peaks in the early 2000s.
By 2005, most of the theoretically producible new oil was in places that were difficult and ultra-expensive to drill in: deep water, for instance, where you need a giant platform costing hundreds of millions of dollars, not to mention armies of highly skilled (highly paid) technicians, plus helicopters to service the rigs. The financial risk (for instance, of drilling a “dry hole”) was matched by the environmental risk of a blowout, which is exactly what happened to BP’s 2010 Deepwater Horizon platform in the Gulf of Mexico, with costs estimated at $61 billion.
Technology — that El Dorado of the Mind — rode to the rescue with horizontal drilling and fracturing of ”tight” oil-bearing shale rock. It was tight because of low permeability, meaning the oil didn’t flow through it the way it flowed through normal oil-bearing rocks like sandstone. You had to sink a pipe down, angle it horizontally into a strata of shale only a few meters thick, and then blast it apart with water under pressure and particles of sand or ceramic called propants, the job of which was to hold open those fractures so the oil could be sucked out. Well, it worked. The only problem was you couldn’t make any money doing it.
The shale oil companies could get plenty of cash-flow going, but it all went to servicing their bonds or other “innovative” financing schemes, and for many of the companies the cash flow wasn’t even covering those costs. It cost at least six million dollars for each shale well, and it was in the nature of shale oil that the wells depleted so quickly that after Year Three they were pretty much done. But it was something to do, at least, if you were an oil company — an alternative to 1) doing no business at all, or 2) getting into some other line-of-work, like making yoga pants or gluten-free cupcakes.
The two original big shale plays, the Bakken in North Dakota and the Eagle Ford in south Texas, have now apparently peaked and the baton has passed to the Permian Basin in west Texas. If the first two bonanzas were characteristic of shale, we can look forward not very far into the future when the Permian also craps out. There are only so many “sweet spots” in these plays.
The unfortunate part of the story is that the shale oil miracle only made this country more delusional at a moment in history when we really can’t afford to believe in fairy tales. The financial world is just now entering a long overdue crack-up due to the accumulating unreality induced by Federal Reserve interventions and machinations in markets.
As it continues to get unglued — with rising interest rates especially — we will begin to see the collapse of the bonding and financing arrangements that the fundamentally unprofitable shale “miracle” has been based on. And then you will see the end of the shale “miracle.” It is likely to happen very quickly. It was fun while it lasted. Now comes the hard part: getting through this without the nation completely losing its marbles and doing something stupid and desperate — like starting another merry little war.
Paschal Donohoe plans bank levy extension but lower haul
Minister for Finance Paschal Donohoe will continue the Irish banking levy beyond its scheduled conclusion date at the end of this year, but plans to lower the targeted annual haul from the current €150 million as overseas lenders Ulster Bank and KBC Bank Ireland retreat from the market, according to sources.
Reducing the industry overall levy target will avoid the remaining three banks facing higher levy bills at a time when the Government is seeking to lower its stakes in the bailed-out lenders.
AIB, Bank of Ireland and Permanent TSB paid a combined €93 million levy in each of the last two years, according to their latest annual reports. A decision on the new targeted yield, currently linked to deposit interest retention tax (DIRT) collected by banks on customers’ savings, will be announced at the unveiling of Budget 2022 on October 12th.
Originally introduced in 2014 by then minister for finance Michael Noonan for three years to ensure banks made a “contribution” to a recovering economy after the sector’s multibillion-euro taxpayer bailout, the annual banking levy has since been extended to the end of 2021.
A further extension of the levy has largely been expected by the banks and industry analysts, as the sector has been able to use multibillion euro losses racked up during the financial crisis to reduce their tax bills. A spokesman for the Department of Finance declined to comment on the future status of the banking levy as planning for Budget 2022 continues.
AIB, Bank of Ireland and Permanent TSB (PTSB) alone have utilised almost €500 million of tax losses against their corporation tax bills between 2017 and 2019, according to Department of Finance figures.
Sources said that the Government will be keen not to land a levy increase on the three lenders at a time when it is currently selling down its stake in Bank of Ireland and plotting a course for the reduction of its positions in AIB and PTSB in time.
The Ireland Strategic Investment Fund (ISIF), which holds the Bank of Ireland stake on behalf of the Minister for Finance, sold 2 percentage points of holding in the market between July and August, reducing its interest to just below 12 per cent.
Meanwhile, it has been reported in recent days that the UK government is planning to lower an 8 per cent surcharge that it has applied to bank profits since the start of 2016. It comes as the general UK corporation tax is set to rise from 19 per cent to 25 per cent in 2023.
“The optics of reducing the surcharge might still be bad politically, but it would signal the partial rehabilitation for the nation’s banking sector,” said Eamonn Hughes, an analyst with Goodbody Stockbrokers, in a note to clients on Tuesday, adding that he continues to factor in a retention of the Irish banking levy in his financial estimates for banks over the medium term.
The macro pig farm threatening a historical gem in northern Spain | Culture
Christians and Muslims fought over the castle of Gormaz in Soria in the Spanish region of Castilla y León for two centuries. Now, after a lapse of hundreds of years, it is once again under threat – this time, from a macro pig farm for 4,200 animals. The proposed farm is within two kilometers of the fortress, and will be visible from its impressive caliphal gate, which is one of the biggest tourist attractions of the medieval site.
Environmental and neighborhood associations, architecture and restoration professionals, as well as the town councils of Recuerda, a village of 70 inhabitants, and Gormaz, a village of 20, call the plans an “attack” on one of the most impressive Islamic fortresses on the peninsula. With a perimeter measuring more than one kilometer, the castle of Gormaz was once the largest in Europe. It was this fortress that the Caliph of Córdoba, Al-Hakam II, ordered to be reinforced and expanded at the end of the 10th century to stop the Christian advance from the north.
Meanwhile, the company behind the project, Agro Peñaranda Esteban, insists it will comply “strictly with the law” and that if the permits are not issued, it will go elsewhere. “It’s great to eat torreznos [a kind of fried bacon snack] from Soria in a good restaurant in a big capital city,” says one of the shareholders, who is from the area. “People must think that they fall from the sky.”
The castle of Gormaz was built in the 9th century to strategically support Medinaceli, the capital of the so-called Muslim Middle Frontier. Divided into two large areas separated by a moat, there is the fortress with the tower of Almanzor and the caliphal quarters, and then the area for the troops, where the main entrance is located. Altogether, it has 28 towers with battlements and arrowslits.
The Soria fortress defended the routes to the north of the peninsula that followed the banks of the Duero river and was coveted by a number of figures, including Count García Fernández, Sancho II of Pamplona, Ramiro III of León, Rodrigo Díaz de Vivar and the de facto ruler of Islamic Iberia, Almanzor. And so it passed from one side to the other until, in 1060, Fernando I of León seized it once and for all. During the reign of Spain’s Catholic Monarchs, it was turned into a prison as it no longer had any strategic value.
But now it is administrative forces that are advancing on the castle. On June 29, the Castilla y León regional government published “the announcement of a pig farm of 4,200 pigs in plot 20114 of industrial estate 1 of the municipality of Recuerda,” which backs onto Gormaz. August 10 was the deadline for anyone wishing to take issue with the environmental impact assessment, which states that the farm would not alter the surrounding landscape. “It is a landscape altered by human activity, due to its agricultural use, with no dominant variations or striking contrasts,” claims the report.
This contradicts the regional plan for the Duero Valley, approved by the Castilla y León regional authorities in 2010, which mentions a series of Landscape Management Areas (AOP) needing a specific regime of protection, management and planning. One such area includes the castle of Gormaz and the surrounding area where the farm would be located.
Luis Morales, architect and member of the Soria Association for the Defense of Nature (Aseden), points out that the castle’s environment is “totally agricultural – fields and forests – and very similar to what it might have been in the Middle Ages, when Gormaz was built. To put an industrial complex of enormous dimensions to house more than 4,000 pigs, which is what they intend, is barbaric,” he adds. “It breaks up the landscape from the same caliphal gate, the one that is so often photographed for tourism purposes.”
Morales also believes that the municipalities have the means to stop the project, “because the land is rustic and can therefore be classified as protected, which would prevent the livestock complex from being built.” Meanwhile, the Aseden association points out that the regional authorities were responsible for the White Paper of the Territorial Enclaves of Cultural Interest (ETIC), which selected 111 locations of cultural or heritage interest, one of which was Gormaz.
According to the NGO Ecologists in Action, in this type of facility whose surface area would be 4,000 square meters plus another 2,000 for slurry, “the problem of odor emissions is very important because of its proximity and orientation with respect to inhabited areas and other places of interest.” It explains: “In this case, the farm would be to the west, 1.3 kilometers from Recuerda and two kilometers from the castle of Gormaz. According to data from [Spain’s national weather agency] Aemet, the prevailing winds are from the west. In other words, it would bring unhealthy smells for most of the year to Recuerda. Surprisingly, the project says that the prevailing winds are from the northeast.”
Consuelo Barrio, mayor of Recuerda, agrees. “It is not only the visual impact, which is very important, but also the environmental impact due to the possible contamination of the water from the slurry as we are in an area of aquifers; this is in addition to the smell that would come our way as we are barely a kilometer from it.”
Meanwhile, the company behind the project considers it is under “unjustified attack.” According to one 38-year-old businessman involved in the project, “in this part of Soria there are at least three farms: Quintanar, Gormaz…. And if ours smells, it means they all smell. It’s not like years ago, when pigs were thrown into the Duero – some of which I have seen floating – or the slurry was dumped down drains. No. There are strict environmental laws and we will comply with them. It is easy to talk about ‘deserted’ Spain and all the things the politicians are saying, but when you try to create wealth, obstacles are thrown up because you can be seen from the castle two kilometers away. If they don’t let us set up here, we’ll go somewhere else,” he adds angrily.
Marisa Revilla, president of Amigos del Museo Numantino, is particularly upset by the visual effect of the pig farm. “The impact report does not take into account the horizontal impact. It only states that they are going to put up some hedges to hide the farm. But the installation will not only affect the castle, it will also affect the nearby Romanesque San Miguel hermitage.” This hermitage was inspected in the 1990s by architect José Francisco Yusta, who specializes in historical monuments and also opposes the construction of the farm. “There is no justification for breaking up the landscape,” says Yusta, who has worked on such architectural gems as the cathedral of Burgo de Osma, the cathedral of Santiago de Compostela and castle of Gormaz itself.
“I believe it is not worth destroying our landscape for the two jobs that the macro-farm will provide, which are those proposed by the promoters,” says architect Luis Morales. “If there were only 200 for deserted Spain….”
English version by Heather Galloway.
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