Saturday, October 15, 2016

ITER Is NOT the Only News in Fusion Power Development --- There Are Nine Alternative Projects That Are Equally or More Interesting!

15 October 2016

I fully support the development of the ITER (International Thermonuclear Experimental Reactor) Project, located in Saint-Paul-lès-Durance, France. We have spent almost nothing on fusion power development over the past half-century (the US, which is the largest player, has invested only about a billion dollars a year, and presently spends less than that annually). 

By way of contrast, over the past decade, there has been a $50 billion per year investment in hydrocarbon fracking in the US alone. I maintain that had we put that one trillion dollars into fusion power development, we'd have working prototypes today. 

Watching this recent (well-produced) video reinforces my conviction that almost nobody understands the unique challenges and opportunities posed by the task of figuring out how to contain fusion power and make it work on earth. This video offers the "standard line" on the ITER reactor, which is the world's most expensive and most advanced fusion power project --- but almost certainly not the "best." 

As pointed out here, ITER is presently projected to cost $20 billion (it was originally priced at $5 billion), and let's round that up to $50 billion, just to allow some leeway. As noted, that amount is only one year's investment in hydrocarbon fracking in the United States alone. In other words, this project is not an over-priced albatross (I think it is "too big," but that is a separate problem). 

Rather, the fact that ITER is now 12 years behind schedule is simply another piece of evidence that our species is extraordinarily unfocused in its efforts to develop the only technological strategy that offers hope of powering the electrical grid for, say, 10 billion humans around the world, 10 or 20 years or so down the road from now. 

The Joint European Torus (JET) experiment in the UK is another large-scale, "mainstream" fusion project. It was originally developed by EUROfusion as a prototype for the larger ITER project. In turn, a DEMO project is intended to provide power to the grid --- though far in the future. 

I have so far identified nine much smaller, alternative fusion power development programs now underway in the world (one of them, General Fusion, based in Richmond, British Columbia, in Canada). 

I argue that ITER should be much more richly funded than it is, as should the nine alternative ("small") fusion power projects currently under development (see below):

Alternative designs and associated companies

        Levitated Dipole Experiment (MIT “plasma pinch”)
        Compact Spherical Tokamak - Tokamak Energy Ltd. - spherical tokamaks + high-temperature superconductors
        Colliding beam reactor - Tri Alpha Energy Ion beams - aneutronic fusion power.
        Polywell - EMC2 company
        Magnetized target reactor (acoustic fusion) – General Fusion (Richmond, British Columbia)
        Dense Plasma Focus - LPP Fusion
        Compact Fusion - Lockheed Martin (Skunkworks)
        Sheared Flow Stabilized Z-Pinch – University of Washington & Lawrence Livermore Laboratory (added by L. Hunt)
        Wendelstein 7-X - Max Planck Institute for Plasma Physics (IPP) in Greifswald, Germany (added by L. Hunt: one of 11 operational stellarators, two more planned)

I have provided links to each of the nine projects I have identified (seven are from Fusion Wiki). I encourage the interested reader to explore all nine. 

For the super-motivated reader, check out the World Nuclear Association progress review, or examine this very exhaustive (US-focused) summary of fusion projects and resources from the US Department of Energy: Fusion Energy Sciences Research Summary

In my view, fusion power development is so important that all of these projects should be running ahead of schedule, rather than running behind, and certainly not lying dormant (as some are). Fusion is the future, and for some reason, we're not getting ourselves ready for it......

Recently, I came across a great article by one of the technology leads at ITER, which offers the best overview I've seen so far about what fusion power is and why it is the answer to the power needs of a world soon to support ten billion humans (I think that's too many people, but it's a fact I accept). 

The author --- Sir Christopher Llewellyn Smith - understands the theoretical context of fusion power in a way that no one else does. Here's a little information about him, from Wikipedia.

Perhaps most importantly, Dr. Smith points out that the release of energy from a fusion reaction is ten million times greater than from a typical chemical reaction (both hydrocarbon and solar technologies produce power through chemical reactions). It is also 3-4 times more energetic than fission power, and dramatically safer (down the road, boronic (or aneutronic) fusion produces an electrical current without emitting neutrons or any other dangerous radiation, promising perhaps the ultimate power source for life on earth).

I suggest a simple strategy going forward.

Fusion power is too important NOT to develop. Every scientifically-defensible fusion power project currently under development should be richly and fully funded, which will enable us to learn rapidly what works and what doesn't work. 

I'm a liberal libertarian in political philosophy, which, in brief, means that I see a role for government primarily in infrastructure development (with corresponding limited interference in markets). There is no infrastructure more important for humans at this time than fusion power. Thus, I am wide open to whatever public-private partnerships can be struck (and I'm totally fine if some bold investor or group of investors is richly rewarded for making an early investment in fusion technology --- this is why capitalism works and nothing else does). 

I've written before that perhaps only a half century down the road, we will have advanced sufficiently in bringing forward fusion power, artificial intelligence and robotics that we will be forced into a post-capitalist society (and I write this as an avid proponent of capitalism as the only viable economic system for the management of scarcity). But with the moving forward of these three technologies, we will see the end of scarcity, and thus the need for the development of a new post-scarcity economics

We'd be wise to begin thinking about it now, but also to magnify greatly our efforts to get ourselves there! 

Ten Septillion Planets, Moons and Smaller Bodies in the Universe Could Support Life

15 October 2016

I've been counting galaxies for quite a few years now, as the scientific consensus on how many of them there are keeps expanding. Only two to three years ago, the official estimate was that there are about 100 billion galaxies in the universe. Then a new Hubble image revealed more galaxies than we expected, bumping the estimate up to somewhere between 100 billion and a trillion. Remember, that's galaxies we're talking about, not stars. Now the estimate has been bumped up again --- to two trillion galaxies.

As we know, our galaxy has 300 billion stars in it or so, and our neighbour, Andromeda, with which a merger is planned in about 5 billion years, has 600 billion stars. One of the new factors in this estimate is that there are going to be relatively more galaxies with only, say, a billion stars in them. On the other side, some are also far larger than Andromeda... an elliptical galaxy can hold 100 trillion stars (making it 300 times larger than our galaxy).

So, if you multiply the number of galaxies times the average number of stars in a galaxy, you certainly get a really big number. One generally accepted rule is that the average galaxy may hold 100 billion stars (only 1/3 the size of our galaxy). Then, if you multiply 2 trillion times 100 billion, you get roughly 200 sextillion, which is 2 followed by 23 zeroes.

Now the most interesting question in my view is whether there is life in the universe. We now believe that almost all stars have planets, and let's be conservative, and give them 5 planets each. That yields 1 septillion planets, or 1 followed by 24 zeroes. Our planet happens to have life on it... and we haven't ruled out that some planetary moons, asteroids and comets --- of which there are many --- may also support life. So let's multiply the number of planets times 10, to get 10 septillion bodies that could possibly support life (that is 1 followed by 25 zeroes).

In summary, all we really know is that there are a lot of places where life could possibly exist. We do rule out galactic centres. Not only are they crowded, but they are filled with dense radiation that almost certainly will make life impossible. Also, supernovas emit massive amounts of radiation, sufficient to eliminate life on nearby planets or moons, so you have to factor that in (our planet is at risk from Betelgeuse, which is familiar to us as Orion's right shoulder).

So you mostly have to consider the galactic suburbs to identify areas that could support life, and areas of lower stellar density are probably going to be friendlier... which tells us that moons or planets supporting life may not be that close to each other. Still, bottom line, everything we're learning about the universe tells us that we're very unlikely to be alone... It's just that we're also very unlikely to be near to other stars that also support life! I personally favour keeping our very imperfect species alive, and that does increase the chances that we may find other life forms.

Now there is also the question of whether the advanced life forms are friendly or not. On that question, I have no answer. We're not necessarily that friendly ourselves! However, regardless of their threat level, it's probably still to our advantage to find them first. Once that has happened, we'll most likely have at least several millennia, and very likely a few million years, to figure out what to do about it!

As an aside, the classic text, Intelligent Life in the Universeby Carl Sagan and I. S. Shklovskii, remains the authoritative reference on the topic of life in the universe, despite its seeing its 50th anniversary of publication (1966) this year! (Thanks to Dr. Jon Culbertson for providing a tutorial in this text at New College of Florida in 1969). 

Tuesday, September 20, 2016

Russia's "Can't Lose" Financial Strategy

17 February 2014 - updated 22 August & 22 December 2014; 30 January 2015; 21 April 2015; 2 January & 20 September 2016

This is a legacy article, dating back to February 2014. I have been adding updates as they come available:

Here's a strategy I've thought about for a while now. This is only possible because we have abandoned the gold standard (and with it, sound money - you can talk to Ben Bernanke and Janet Yellen about that). 

Let's just say a government decided to print money out of thin air and use it to buy gold. You start with something that is an entirely artificial construct (any national currency in today's world meets this criterion) and use it to buy something that is real, scarce and irreplaceable (gold still meets THOSE criteria!). Voila, you have a "can't-lose" strategy for getting leaps and bounds ahead of everyone else. 

And... I think one country may actually be doing this (I originally commented on this a couple of years ago). Check out these two Russian charts.... 

(1) They are buying-up gold hand over fist; and 

(2) They are printing funny money like crazy (it's virtually without cost for any nation to increase their "money supply" like this today, for as long as the current insanity lasts). 

Vladimir Putin is NOT a nice guy. We all know that. But is he a smart guy? Yeah. And a wise guy, too. Perhaps a few of the rest of us should clue in... and catch up. 

Russia's gold reserves are up 150% in 7 years:

Russia's money supply is up 33% in 2 years:

I have said earlier that the Federal Reserve should have just put $10,000 in the mailbox of every US citizen (yes, they HAVE spent that much "new" money to "rescue" the still-staggering economy). This would have done MUCH more for the economy than bailing out BOTH political parties, GM, Countrywide Financial and Bank of America. 

But a better scheme even that that would have been to take the $3 trillion printed dollars (yes, they did print $3 trillion to bail out the government and the banks) and to quietly, discreetly, buy gold with it. 

Well, have no fear. Ben Bernanke gave all his money to Citibank, Fannie Mae, General Motors, and the US Congress. It's gone. 

But Vlad Putin bought gold with his "printed money." In my world, Mr. Putin is BY FAR the wiser man.


22 August 2014: While some reports show slow periods and even temporary reversals in Russia's accumulation of gold, the most recent figures from the World Gold Council show that Russia has (again) reported an increase in its official reserves since February 2014, moving its place in global national gold rankings up two additional slots. What can I say? Print money, buy gold. It's legal. Just what I don't really get is why only the Russians are doing it.... (Believe me, some day, this will no longer be allowed!)

Russia (#5 globally):
Official gold holdings:
1,094.7 tonnes

Percent of foreign reserves in gold:

Russia has increased its gold holding since February 2014 and has eclipsed both Switzerland and China. In August 2014, Russia's central bank decided to buy up even more gold and diversify away from the dollar and the euro as a result of economic sanctions imposed by the West.

Russia's central bank gold holdings crossed the 1,000-tonne mark for the first time in Q3 2013.

Source: World Gold Council

22 December 2014: While I disagree with Mr. Putin on many points, in particular, the suppression of diversity at home and my belief that Ukraine should shape its own future, the Russians continue to be cleverer than we in many respects. Despite rumours that they have been selling gold, in fact, it is US dollars that they are unloading, while (wisely) buying ever more gold.

For more information, click here.

30 January 2015: Russia's gold purchases were up 123% during the first 11 months of 2014, including the period during which the Ruble began to collapse. The Financial Times reports:

"Russia’s central bank purchased 152 tonnes of gold worth $6.1bn at today’s prices, according to GFMS estimates. Analysts also said Russia’s purchases might have been due to the buying of domestically produced gold that could not be easily sold overseas due to sanctions.

“'This is a clear positive for the gold price,' said Matthew Turner, analyst at Macquarie. 'If central banks had not purchased that gold it would have been bought by private investors or jewellery consumers, and this would likely have required a lower gold price.'

"While Russia was a strong buyer this year, analysts say purchases could slow and the country could become a seller if it continues to liquidate its reserves to support the domestic currency."

For the full story, click here.

21 April 2015: Kitco News reports that Russia has resumed gold buying following a 2-month hiatus (click here):

"After a two-month hiatus the Central Bank of the Russian Federation jump back into the gold market, demonstrating that official demand remains strong, say analysts.

"According to media reports, the Russian central bank bought 28 tonnes of gold in March, the biggest one-month purchase since September. In January the central bank sold 0.5 tonnes of gold and didn’t purchase anything in February.

"The report noted, as of April 1, Russia’s official gold reserves stood at 1,128.3 tonnes, compared to the previous level of 1,207.7 tonnes. According to data from the World Gold Council, Russia has the fifth largest gold reserves in the world (not including reserves held by the International Monetary Fund).

2 January 2016, The world's smartest gold buyers have done it again. As of November 2015, we have these figures:

- Russia adds another 700,000 ounces (22 tonnes) to gold reserves in November
- Russian ally Kazakhstan increased gold reserves for 38th month – 7 Mil ounces
- Russia has added 197.1 tonnes in 2015 – Compared with 172 tonnes in all 2014
- November gold buying is Russia’s ninth straight month of increase
- Russia now has sixth largest gold reserves in the world
- Central bank buys all Russian gold production
- Other Russian gold demand imported
- Russia views gold bullion as “100% guarantee from legal and political risks”


Russia continues to add to its gold reserves and added another 700,000 ounces in November or another 22 metric tonnes, and analysts believe this buying will continue and may intensify in the coming months.
Russian ally Kazakhstan increased its gold reserves for a 38th month to 7.03 million ounces in November from 6.96 million ounces a month earlier.
The latest large increase in Russia’s gold reserves – a “buying spree” as reported on Reuters Africa has again gone largely unnoticed by most analysts. Indeed, the important monetary and geopolitical ramifications continue to be largely ignored in western media.
Russia’s total gold reserves have now increased to 44.8 million ounces or around 1,392.8 metric tonnes (up 40% from February 2014, when this article was originally published), with a current value of just $48.3 billion. Russia’s total FX reserves are $371.2 billion and their gold allocation remains just 13% of their total reserves.
The share of gold in Russian foreign exchange reserves is much lower than in many other countries such as the U.S., Italy and France. Russian diversification into gold is likely to continue and could intensify if relations with the U.S. and NATO powers further deteriorate.
Russia still has less than a fifth of the gold reserves of the U.S. which are believed to be over 8,400 metric tonnes of gold. However, the U.S. has no foreign exchange reserves and is the largest debtor in the world – indeed it is one of the largest debtors the world has ever seen.
Russia now has the sixth highest gold reserves in the world – behind the U.S., Germany, Italy, France and China.
In 2014, Russia bought more gold in than in any year since the break-up of the Soviet Union. The country acquired over 173 metric tonnes according to World Gold Council figures. Reserve diversification intensified after April — averaging about 20 tonnes per month....
Click here for the full story from GoldCore....

Meanwhile, Russian money supply has grown another 7% since the end of 2014, an increase of about 2.2 trillion roubles. 

As I've been commenting, why not print money and buy gold with it? The Russians have got it figured out....

20 September 2016. The Russians have outdone themselves again. Russia, which has defaulted 5 times and has been in that state for 10 of the last 26 years, just sold a stack of bonds to a collection of hedge funds, pensions and "smart" buyers. Some if not all the proceeds at the government level apparently went to buy yet another 700,000 ounces (21.77 metric tons) of gold in a single month! The Russians are truly unequaled at the level of long-term financial strategy. Click here for more information. 

There is more information here, regarding Russia's fast-rising store of gold. 

Clearly the Russians know something we don't! 

Monday, March 07, 2016


7 March 2016

A couple of months ago, I took an online political quiz that classed me as a “liberal libertarian,” a phrase I had not previously heard, possibly because I'm pretty sure there are very, very few of us (most prominent libertarians are socially conservative, and I'm not). As a consequence of my way of understanding the world, on political issues, I both agree and disagree with almost all, if not all, of my friends, on one major point or another. Fortunately, and very much like me, my friends are for the most part a tolerant and independent-thinking lot. Nobody has unfriended me for my outlying political views – to my knowledge, at least.

The above said, there are real-world politicians with whom I am considerably more than 50% in accord, and at the top of my list would be such names as, in Canada, Tommy Douglas (by chance a fiscally conservative socialist; probably my ultimate political hero) and Paul Martin (a fiscally conservative political liberal who advocated and ran balanced budgets), and, in the US, Ron Paul and David Stockman (both somewhat socially conservative libertarians). Internationally, I am very much in accord with the thinking of Muhammad Yunus and Hernando DeSoto, though neither is a politician, per se.

Those I almost never agree with include such diverse persons as Donald Trump on the right (no wonder he keeps failing at business, except during episodes of “bubble” economics), Paul Krugman on the left (who invariably favours more intervention in markets when less is almost always what is needed), and most all extremists of the right and left, from the National Front and the Ku Klux Klan on the right to the Communist Party and the kleptocracies of Venezuela, Zimbabwe and Greece on the left. Oh yeah, I probably have many points of difference with other liberal libertarians.... That's how it goes, isn't it!
In brief, what do I believe?
1. Building and maintaining social and physical infrastructure is the first priority of government (and thus, government is legitimate, in that it acts as an arbiter of competing social interests). This is a focus that is distinct from regulation (governments use regulation to create jobs for bureaucrats, so it always gets overdone everywhere, as bureaucrats seem to exist to create more jobs for other bureaucrats). I also look askance on efforts of government to intervene in most aspects of public affairs, particularly in markets and in establishing or maintaining social norms. I do consider the rule of law to be a legitimate component of infrastructure, based on the principle that all human lives are equally valuable, and also that private property and free trade are the ultimate foundations of social security and financial health.

2. Governments should spend less than they take in – always. The balance should be set aside as a fiscal hedge for unanticipated future events. This also means that government spending is not useful as so-called “fiscal stimulus” (it fails in that respect every single time). However, of the funds that governments spend, the priority should continue to be #1 above – social and physical infrastructure, which means that no one is without food, shelter, the protection of the law, and access to equitable health and educational services.

3. Science is the ultimate arbiter of material truth. Even if science were to come at odds with religion, I would choose science 100% of the time, though this has not stopped me from being religious. There is a very large domain on which science by necessity must reserve judgement, from the randomness of the quantum realm, to the unknowableness of first causes (or, if you prefer, the mysteries of acausaility). Science leaves ample room for the practice of religious faith, in my view. I am a universalist in the sense that whatever creator we all respect or worship in our diverse ways, that must be the very same creator. Thus I strive to be respectful of religious views different than my own, and I shun religious teachings that divide versus unite (which is not to say that I accept religion as a justification for any kind of political oppression).

4. Following from #4 (based on the principle that science yields the best approximation of the truth that is achievable), global warming is real, and the current spike in global mean temperature is caused by human activity. Both climate change and human population growth threaten ecological diversity and the carrying capacity of our planet. However, secondary to this, solutions to ecological problems have to happen in the real world. I'm impatient with my friends who want to tax carbon emissions (that just employs more bureaucrats), shut down pipelines, or otherwise constrain the carbon infrastructure, when we presently require carbon energy to keep our power grid running. Additionally, I'm not “against” renewable power, I just don't regard it as a replacement for carbon. As I'm sure all of my friends know, the fusion scientists are telling us that they're ready to build prototype fusion power generators now. We have spent enough on fracking in North America in the past decade alone to have gotten many competing fusion prototypes up and running by now (honestly, we could have done this – albeit more primitively – 2 or 3 decades ago if we’d been properly focused). I favour continuing to use carbon energy until we get fusion going – it’s just that we need to light a fire under our fusion power development program. As an aside, what an opportunity it would be for Canada to choose to be the global leader in fusion power development. (My interest in space exploration is entirely apart from the issue of our threatened global habitat, except that having non-Earth settlements is a safeguard against catastrophes in a universe that is catastrophic in its very nature.)

5. I could go on from here. For example, I think problems in public morality (for example, the “right to life” issue, which is an example of a social problem that lacks any kind of “ideal” solution) should be settled by a “marketplace” of private donations, outside the government sphere. Thus, the best ideas could compete for the most charitable donations. In my ideal world, government would be small enough that the private charitable sphere could be much larger and healthier than it is today. Regarding taxation, I favour a simple flat tax. Everybody would pay 17% (or so) on all income, from the poorest to the richest, and there would be no deductions or complicated tax codes (though there would be social infrastructure to safeguard the poorest). Government revenue collection departments could thus be all but shut down. I regard foreign military intervention as the most likely to fail of all international actions we can take, and thus reserve military deployment primarily for cooperative and multimodal international responses to the systemic victimization of vulnerable peoples, particularly in situations of lawlessness. I favour keeping other countries liveable over bringing people here (though that is a last resort for humanitarian reasons), and observe that most of the world’s current hotspots are unstable precisely because of excessive past military interventions (including weapons trading). Specifically, we had no business attempting to undermine the Russians in Afghanistan, Saddam in Iraq, Qaddafi in Libya, Assad in Syria, and so on. I would terminate the war on drugs immediately and fund addiction treatment as a component of social infrastructure. Nor would I populate the prisons with persons involved in the drug trade (which would cease to be profitable with decriminalization). 

I also believe that good infrastructure has many secondary economic advantages. For example, in Canada, if the TransCanada Highway were divided (dual) coast to coast, we’d be dealing with lower accident and injury rates. I would also prioritize the completion of a real coast-to-coast TransCanada Trail, suitable for walking, skiing and biking every foot of the way across the country. Not only would that boost tourism, it would strengthen Canada’s relations with the people of other nations. With that, I’ll leave it here, for now….

Saturday, January 02, 2016

LPP Fusion Is Making Rapid Advances in Fusion Power Technology

Based on a technological concept originating in 1964, LPP Fusion is developing a dense plasma focus (DPF) device. No external magnetic field is required, since the method generates its own magnetic field --- making it potentially much more compact than mainstream fusion technologies.
For a few millionths of a second, an intense current flows from an outer to an inner electrode through a low pressure gas. This current starts to heat the gas, creating an intense magnetic field. This in turn generates a super-dense plasma, condensed into a tiny ball only a few thousandths of an inch across called a plasmoid. Again, all of this happens without being guided by external magnets.
The magnetic fields very quickly collapse, and these changing magnetic fields induce an electric field which causes a beam of electrons to flow in one direction and a beam of ions – atoms that have lost electrons – in the other. The electron beam heats the plasmoid to extremely high temperatures, the equivalent of billions of degrees C (particles energies of 100 keV or more). (This temperature level is orders of magnitude hotter than the core of the sun, and many times hotter than alternative fusion power technologies.)
This technology can in principle be used to produce X-rays or to generate fusion power.
To create fusion power, energy can be transferred from the electrons to the ions using the magnetic field effect. Collisions of the ions with each other cause fusion reactions, which add more energy to the plasmoid. Thus, in the end, the ion beam contains more energy than was input by the original electric current. (The energy of the electron beam is dissipated inside the plasmoid to heat it.) This happens even though the plasmoid only lasts 10 ns (billionths of a second) or so, because of the very high density in the plasmoid, which is close to solid density. This level of density makes nuclear collisions (and thus fusion reactions) very likely, and they occur extremely rapidly.
The ion beam of charged particles is then directed into a decelerator which acts like a particle accelerator in reverse. Instead of using electricity to accelerate charged particles, they decelerate charged particles and generate electricity. Some of this electricity is recycled to power the next fusion pulse while the excess (net) energy is the electricity produced by the fusion power plant. Some of the X-ray energy produced by the plasmoid can also be directly converted to electricity through the photoelectric effect (as occurs in solar panels).
An interesting aspect of the DPF design is that it generates sufficient temperature levels to power fusion reactions in elements with higher molecular weights, which in turn holds out the promise of a shortcut to boronic fusion, the "holy grail" of fusion power research, as this particular fusion reaction generates electricity rather than neutron radiation... and electricity is what we actually want!
Another interesting feature here is that LPP Fusion is an incorporated company (in this sense, similar to General Fusion), and thus they accept investments from private contributors. Again, this is all "micro" scale when compared, say, to Exxon Mobil or Conoco Phillips, but at least a base has been established to which further investments can be added.....

Monday, January 12, 2015

Fed Bubble #3 Will Hit Canada Harder Than Bubbles #1 and #2

22 & 23 December 2014, 12 & 13 January 2015

This post refers to a well-researched article published yesterday by Sober LookIf energy prices remain near current levels, Canada's economy is in trouble.

Collapsing energy prices will be the story of the year for Canada, due to our high costs of production in the oil sands sector. In the US, the primary impact of low oil prices will be on the over-leveraged, capital-intensive and high-turnover shale fracking sector. In Canada, the oil sands operations are much better-funded, but they're not economic at these prices, and we have fracking going on here, too. 

But the real Canadian story is that we have so far entirely missed the US real estate correction (due to riding the commodity boom), but the turndown in oil prices is going to hit Canada's real estate market very hard. 

While our energy sector is much less leveraged than in the US, our housing sector is clearly vulnerable. Our household debt load has doubled as a percentage of income since 1990. 

Canadians are now also borrowing more than Americans, which would not be a good sign at the best of times:

The collapsing oil price is thus emerging as Canada's biggest economic setback in decades (and the natural gas business is no better).

By the way, one statistic really caught my eye. I have been commenting for as long as I can remember that we keep our local construction workers busy full-time without building any new houses. In fact, I have been on the mark. Canada has been involved in a renovation boom for years (see story and chart). Falling energy prices will impact that, too, and it's likely that real estate prices have already peaked, given how fast the rig count is dropping in the oil patch. 

Now... will this be the crisis that triggers a resurgence in gold? Well, Mr. al-Naimi just announced that the Saudis don't care if oil falls to $20/barrel. They are obviously wishing to preserve market share, and they are fighting a battle they can win. 

Note that the Asians have been playing years ahead of us in stockpiling gold, as a hedge against bad debt and economic volatility. This trend has not reversed since 2011, when the chart below was created. 

Despite being embroiled in their own crisis situation, the Russians haven't stopped buying gold either. 

In fact, they are selling US dollars to enable their gold purchases (I would, too). 

The gold price will be leveraged if there is a credit crunch, and that appears to be what is shaping up. Once again, the crazy Americans have started another boom/bubble with the only real economic and employment growth of the past 7 years having occurred in only 5 shale fracking states. (A map of US shale-energy sites is presented below.)

And of course, everybody will pay for the Federal Reserve's latest experiment in bubble-blowing. 

What is the moral of this story? You can't print $4 trillion of funny money and not have consequences. The Fed brought on the so-called Great Recession in 2008 --- arguably a depression, which has so far been masked by moneyprinting and borrowing, but it has not gone away. 

The chart below shows that the Federal Reserve has recently accumulated $4 trillion in assets, purchased with printed money, that it cannot sell without creating irreparable market dislocations.

Booms are not the same thing as economic growth. Rather, they are temporary and unsustainable events caused by economic central planners who believe that moneyprinting stimulates the economy. However, moneyprinting always results in malinvestment, which results in transient booms that ALWAYS go bust with real capital loss. 

Only saving, combined with capital investment for the long-term, produces growth, whereas stimulating borrowing and debt (the strategy used by economic central planners since 1987) always fails. 

As evidence of the current "boom" dynamics, Peter Schiff points out that the number of energy workers in the US has doubled in the past decade.... Let's call this the "stealth bubble," because most of us don't see its direct evidence. Mr. Schiff believes that other bubbles will be unmasked by the collapse of the US energy bubble: Could An Energy Bust Trigger QE4?

In the chart below, we see how decades of Federal Reserve bubble-blowing has decimated US breadwinner jobs.

If you want to know more about how Fed bubble #3 is unfolding (with the usual dire consequences), David Stockman has summarized it here: The Fracturing Energy Bubble Is the New Housing Crash

Here, we see that Federal reserve intervention has added to jobs only in the least stable and lowest wage sectors.

And for a little more digging into risky energy finance, have a look at John Mauldin's recent review, here (though I disagree with his speculation that we've outgrown our need for jobs --- rather, Fed-induced malinvestment keeps killing them): Oil, Employment, and Growth

Combined with the above charts, it is evident that the latest boom has led to the creation of only low wage jobs (above) and speculatively-financed carbon energy sector jobs in only 5 states (below).

It's also worth noting that there is presently $173 billion in US energy junk ("high yield") debt presently outstanding, and that it is dragging other debt markets down with it. This is the part of retrenchment with the greatest implications for the economy as a whole. Read more here: U.S. shale junk debt tumbles amid oil crunch.

As would be expected, the Canadian energy sector is under severe pressure as well, as summarized here: Canadian energy firms hit the alarm bells.

The article linked at the start of this post is brief, full of charts, easy to read, and sobering. If I'm right, the energy sector will remain weak until the vulnerable players get taken out of the game. It is bad debt that will eventually force interest rates higher, whether our central planners wish for rates to go that way or not. 

On the upside for Canada, which has more mining companies than all other countries in the world combined, the fallout in bad debt from the collapse in the carbon energy sector could be counterbalanced to some degree by a resurgence in the gold mining sector, which will certainly benefit the region where I live (Northwest Ontario). 

Keep watching, and look out! The oil price collapse seems quickly to be unmasking Fed bubble #3, as far as I can tell from here. 

When do the bubbles and booms stop? When the central planners stop intervening by printing money and "stimulating" borrowing and debt in the absence of viable targets for investment. 

Where should the investment be coming from? 

Savings, not borrowing. 

What should we be investing in, instead of booms and bubbles?

Let the market decide --- without intervention by central planners.


23 December 2014: Here are some US oil statistics from Wikipedia. 

Oil products constitute 7.6% of exports and 14% of imports. The U.S. is the world's largest producer of oil and natural gas. It is the second-largest trading nation in the world as well as the world's second largest manufacturer, representing a fifth of the global manufacturing output. 

The United States is the second largest energy consumer in total use. The U.S. ranks seventh in energy consumption per-capita after Canada and a number of other countries. The majority of this energy is derived from fossil fuels: in 2005, it was estimated that 40% of the nation's energy came from petroleum, 23% from coal, and 23% from natural gas. Nuclear power supplied 8.4% and renewable energy supplied 6.8%, which was mainly from hydroelectric dams although other renewables are included.

American dependence on oil imports grew from 24% in 1970 to 65% by the end of 2005. Transportation has the highest consumption rates, accounting for approximately 68.9% of the oil used in the United States in 2006, and 55% of oil use worldwide as documented in the Hirsch report.

In 2013, the United States imported 2,808 million barrels of crude oil, compared to 3,377 million barrels in 2010. While the U.S. is the largest importer of fuel, the Wall Street Journal reported in 2011 that the country was about to become a net fuel exporter for the first time in 62 years. The paper reported expectations that this would continue until 2020. In fact, petroleum was the major export from the country by 2011.

For some Canadian petroleum statistics, please click here

12-13 January 2015: Arthur Berman offers an insider's view on the economics of shale oil. He clarifies that the real breakeven cost in shale oil is $85, and that a $90 crude oil price is needed to make shale investable. A very strong argument can be made that shale investment "happened too soon" due to central bank intervention and bubble creation. Mr. Berman's article is here

Mohamed El-Erian explains why "this time is different" here. To be honest, central bank intervention always makes everything different... and worse. Remember: a boom is not growth. It's that simple. Booms are driven by debt and speculation, whereas growth is driven by redeployment of savings and long-term consideration of investment returns under all circumstances.

Jeff Gundlach reiterates the warning hereGundlach, who correctly predicted government bond yields would plunge in 2014, said on his annual outlook webcast that 35 percent of Standard & Poor's capital expenditures comes from the energy sector and if oil remains around the $45-plus level or drops further, growth in capital expenditures could likely "fall to zero." Gundlach, the co-founder of Los Angeles-based DoubleLine, which oversees $64 billion in assets, noted that "all of the job growth in the (economic) recovery can be attributed to the shale renaissance." He added that if low oil prices remain, the U.S. could see a wave of bankruptcies from some leveraged energy companies.