No subject

reproduction
of the exchange of capital and wage-labor, its reappearance as profit."=20

If this reproduction sentence means anything, it is simply a =
high-falootin'
way of repeating the old clich=E9 that GM isn't primarily into producing =
cars,
they're into producing profits. Like every other capitalist. And the =
same is
true of Coca Cola. But much as it might want to, Coke can't make any =
money
producing cars and GM can't make any money putting sugar into water (and
sometimes not even that in Coke's case) because Coke doesn't have any =
car
plants and GM doesn't have any bottling plants. And neither can make any
money producing grumph, as neither has grumph plants (I'll come back to =
the
crisis of profitability in the grumph sector in a moment).

By going stratospheric into the realms of completely ABSTRACT capital =
and
ABSTRACT labor, Sartesian leaves behind all specific, concrete sources =
of
raw materials, production facilities, distribution networks and end
products. They're all way below us on the ground. But for that very =
reason,
his "contention that price inflation has to be analyzed according to how =
it
functions in the appearance and apportionment of profit" is absurd if =
one is
talking about prices for specific commodities. At the level of =
abstraction
we have risen to, there are NO concrete products, just the abstract
"commodity" produced by abstract labor hired by abstract capital, and =
which
therefore CANNOT HAVE a concrete, down to earth, quantifiable price.

In other words, Sartesian, you've taken things to such a level of
abstraction that you forget the obvious. The REASON for the problems =
with
the reproduction of capital in the grumph sector is that GRUMPH DOESN'T
EXIST.

And neither, it appears, does the capacity RIGHT NOW to pump more oil of =
the
specific types and characteristics that can be most easily accommodated =
by
the really-existing crude oil market, which is an industry that, for
example, has a lot of refineries that can't handle the higher-sulfur =
"sour"
crude Saudi Arabia says it is willing to pump more of.=20

To handle it, those refineries would need an extensive retrofit that =
would
take years and cost millions of dollars.

Stripped of his penchant to muddle the waters that they may seem deep =
with
abstract word salads, what Sartesian seems to de taking about is the
business cycle, a crisis of overproduction. Sure, if there is an =
oversupply
of widgets, the price falls, the least efficient producers will go =
broke,
the excess supply will eventually be absorbed or destroyed, prices will
firm, profitability will return, leading the remaining widget =
capitalists to
expand production, which they all do, leading to an oversupply.... The
business cycle. I know.

But sometimes extra-economic factors enter into the equation. There is a
drought. The wheat crop fails or falls short. No matter how high the =
price
goes, wheat production will not increase, because it is November, you're =
in
the U.S. Midwest and mother nature says you have to wait until spring =
for
another crop. Supply, demand, prices, production, it is all social, but
social or economic factors are not the only ones that enter into it.=20

It's a material world.

My "contention" is that since the oil capitalists were happy as pie to =
sell
as much in petroleum products as anyone wanted at $30/barrel price =
levels,
they're even MORE overjoyed, positively orgasmic, to sell the same stuff =
for
four times as much four years later. And the fact that the oil giants =
are
currently enjoying the highest profits ever for any corporations in the
entire history of the human race suggests that at the level of the oil
industry, there's no extreme shortage of profits, no lack of the
reproduction of capital.

And here is WHY it is necessary to descend from the stratosphere of =
abstract
labor and abstract capital and get physical. The question is, why aren't =
the
oil giants investing in additional extraction facilities like the ones =
they
already have that are proving so monstrously, incredibly profitable? And
this is why I objected to your saying we live in a world of capital and
labor, and insisted that no, at the most basic level the world is made =
of
matter. Because it just so happens that the actual, concrete,
really-existing material world is so configured that there are fewer and
fewer medium and big oil fields that can be exploited with conventional
technology being discovered. And no new huge or monster oil fields are
currently known or suspected that are accessible with that technology. =
This
is the result of so much relatively easily accessible and processed oil
having been discovered and of the world being finite and the biosphere =
being
finite, both in space and time, so that sooner or later, you were bound =
to
run out of easily discovered and easily accessed oil fields.=20

Consider the apple tree. ONE apple tree. Some fruit is lower on the =
tree,
some is higher. Is it really reasonable to assert that there will be an
infinite supply of low-hanging fruit?

Now it just so happens that Brazil has discovered what looks like could =
be
HUGE oil deposits but to get to them you need to go down through =
thousands
of feet of ocean and then drill thousands of feet below the ocean floor. =
How
expensive is that? Nobody is really sure, but a frequently cited =
guesstimate
is $100-$120/barrel. A lot of the technology to be used needs to be
developed  -- for example, how to keep an untethered oil platform over =
the
same spot of ocean floor, or alternatively, how to anchor a rig so far =
from
the ocean floor.

Now, if someone could GUARANTEE the oil industry that some huge new more
easily accessible deposit won't be discovered tomorrow, probably =
investments
like that wouldn't be such a crap shoot from big oil's point of view. =
But no
one can guarantee that. Nor can they guarantee that there won't be some =
big
economic slowdown that will send demand and the price plummeting, or =
some
technology breakthrough or change in social behavior that will lead to =
the
same thing.=20

So the problem isn't so much current profits as ROI for non conventional
sources of oil, because conventional and quasi-conventional sources are =
not
replenishing production capacity fast enough to both make up for =
declining
production in older fields and increase the overall supply, and in fact =
it
looks like conventional oil production may already be starting to =
decline.

This is consistent with peak oil theories or rather, and more =
specifically
the understanding of the issues involved in oil production behind the =
peak
oil theses. The peak oil theses as such incorporates a condition that =
the
peak occurs *given a certain level of technology that remains constant.* =


Since the theses was first propounded with U.S. in mind, and later other
individual countries, that condition makes sense, since reaching a given
country's peak with production then going into decline means simply it
exports less or imports more, but at roughly prevailing price levels, =
with
other countries that still have the capacity to expand production given =
this
level of technology taking up the slack.

What we've seen these past few years is that this condition *will not* =
hold
when you're talking about peak oil --and perhaps we should be more =
specific,
and say peak conventional oil-- *for the planet as a whole.* Instead, =
what
current events suggests will happen (if this is not already the peak) is
that you will get very sharp increases in prices, that could THEN make
available supplies that previously were unavailable (unavailable in a
commercial or economic sense).=20

Obviously with oil prices now so much higher, the condition of a given
constant level of technology will not hold. The Orinoco Belt deposits, =
for
example, which could not be developed with technology accessible at
$20-$30/barrel price levels, can now be developed. Whether the Orinoco =
or
other "non conventional" (very high cost) oil sources lead to a net =
increase
in production remains to be seen, but I think it is possible, even =
likely,
so at this point I think when talking about an "absolute" peak oil =
crisis on
a world scale one needs to be more precise in explaining just what sort =
of
"peak" is involved.=20

But I remain convinced, *understanding* "peak oil" is absolutely =
essential
to anyone who wants to have something intelligent to say about economics =
and
the environment going forward.=20


-> Sartesian says:=20

"3. When there are sudden price breaks, and traders, investors all head =
for
the exits, is that a function of suddenly increased supply and suddenly
reduced demand?  Look at the housing debacle.  What triggered that,
initially sudden decreases in supply and increases in demand, followed =
by a
reversal?  Of course not.  It was a socially generated increase in =
supply
and a socially generated increase in 'demand,' leading to  =
overproduction,
reduced profitability, and diminished returns for more than a year =
before
the Bear Stearns hedge fund collapses of June/July 2007. Now I know some
will claim oil isn't housing, but yes it is, they are both commodities-- =
so
unless there is an absolute real time physical depletion of the stock, =
which
has NOT been demonstrated by anyone anywhere-- even those who claim
depletion refer to a future peak, the market pricing in a future =
shortage--,
then what is happening in the oil markets, and with oil prices, =
indicates
one thing, and one thing only-- the conditions an circumstances of
profitability."

Sartesian counterposes supply and demand to SOCIALLY GENERATED supply =
and
demand. This idiocy is like saying cars don't run gasoline, they run on
socially produced gasoline -- as if there were some other!

The REASON he introduces this distinction is because he wants to say =
phooey
to any talk about the limits of the earth's natural resources, so he can
insist that this is not an oil crisis but a crisis of capitalism, and
specifically of profitability, and it is that, and that ONLY, which =
limits
the rate of petroleum production.=20

I call this the "reproduction" fetish, which is the fetish that attaches
itself to Marxists as soon as they've read a few chapters of volume =
three of
Capital and leads them to want to liquidate every concrete question into =
a
crisis in "the reproduction of the exchange of capital and wage-labor" =
due
to falling profits. The implicit reasoning involved is, that Marx stuff =
is
hard enough, who wants to ALSO have to read and study and think about =
and
figure out CONCRETELY how it applies, when we know the entire effing =
system
is going to come a cropper anyways?

And to show how little he cares about anything concrete at all, he talks
about the role of supply and demand in the collapse of ... Bear Stearns
hedge funds! He is forgetting the difference between financial markets =
and
the functioning of the real economy, in other words, saying there's no
difference between a casino and a manufacturing plant because the =
ultimate
goal of each is making a profit. But there is a difference. In the
manufacturing plant, the aim is to produce commodities with surplus =
value,
to create value, in a Casino, like in financial markets, the aim is to =
make
profits by swindling people out of already created value.

Even Sartesian realizes instinctively there's something wrong there, so =
he
tries to justify the analogy: "Now I know some will claim oil isn't =
housing,
but yes it is, they are both commodities-- so unless there is an =
absolute
real time physical depletion of the stock, which has NOT been =
demonstrated
by anyone anywhere-- even those who claim depletion refer to a future =
peak,
the market pricing in a future shortage--, then what is happening in the =
oil
markets, and with oil prices, indicates one thing, and one thing only-- =
the
conditions and circumstances of profitability."

Here again, Sartesian's penchant for going stratospheric plays him =
false.
"Some will claim oil isn't housing," he says, anticipating my response. =
It
is true, oil is not housing, the markets are extremely different, but =
...
Bear Stearns wasn't building houses, wasn't buying houses, wasn't =
selling
houses, wasn't renting houses, wasn't in the housing industry AT ALL. =
The
hedge funds and all their operations were strictly and exclusively in =
the
financial markets. So he conflates the real economy with this world
operating way high in the economic superstructure. And he says, where =
was
supply and demand there? It played no role. And thus we get the =
syllogism,
an outrage against even formal logic, as well as a violent assault on =
the
facts:=20

Housing and Crude Oil are both commodities.

Supply and demand played no role in the Bear Stearns crisis.

THEREFORE:

Supply and demand play no role in the crude oil crisis.=20

Q.E.D.

Sartesian adds to this with misinformed comments about the oil market =
like
"unless there is an absolute real time physical depletion of the stock,
which has NOT been demonstrated by anyone anywhere" and "even those who
claim depletion refer to a future peak, the market pricing in a future
shortage" to conclude "what is happening in the oil markets, and with =
oil
prices, indicates one thing, and one thing only-- the conditions and
circumstances of profitability."=20

First, "an absolute real time physical depletion of the stock" would not =
be
an occasion for an oil crisis but a description of the state of affairs
after commerce, industry and civilization had collapsed so completely =
beyond
even the slightest whimper of a hope of recovery that the survivors =
would be
a few bands of hunter-gatherers.

Second, the fact that those of us who talk about peak oil have no way of
being certain until AFTER the fact that THIS is the peak oil moment does =
not
mean that the physical constraints are irrelevant.=20

Third, you have to be a complete IDIOT to talk about a crisis of
profitability in the oil industry in general today, so much so that EVEN
Sartesian hides the thought behind one of his word salads: "the =
conditions
and circumstances of profitability."

"Conditions and circumstances." Nice garnish. But if Sartesian were not
blinded by the reproduction fetish, he would see that it is PRECISELY =
the
"conditions and circumstances" that have long been under discussion =
here,
but not as abstract marxoid ciphers, but concretely. Conditions like, =
oil
companies cannot profitably invest in new, large scale conventional
production of crude oil, NOT because they lack the capital, and NOT =
because
such investments would be unprofitable, but because there is a lack of
opportunity for such investments, i.e., the SAME reason agribusinesses =
do
not invest in the Sahara Desert, the underlying, physical, material,
concrete, rally-existing "conditions and circumstances" for such =
investments
DO NOT EXIST.=20

The other way to look at Sartesian's argument about Bear Stearns being =
in
the "housing" industry suggests he might think current oil prices are a
financial bubble. If so, someone would have to explain the mechanism for =
it.
For example, are there "crude oil shipment"-backed derivative securities
afloat in the financial markets that abstract from the fact that some of =
the
underlying tankers are full and others empty?=20

In the case of housing, the mechanism was this: concessionary initial
interest rates so low (and even 0%!) that the person could afford a =
mortgage
payment on a principal amount entirely beyond their reach if normal =
market
interest rates were charged. This meant that NOW there were billions of
additional dollars chasing after existing and new housing stock, and =
thus
driving up prices. People were able to get loans for 300k, 400k, a half
million or more and demanded houses that cost that much. The market
accommodated then by raising the price of houses to that level.=20

Why would people accept such loans? Essentially, because they were
speculating that in 2-3 years, their house would have appreciated by =
25-50%
in value. They would then cash out of that house and use the windfall to =
buy
somewhere else.

Towards the end there was also a significant number of exclusively
speculative purchases where the houses were kept empty with the idea of
"flipping" them in a few months, also financed by these sorts of =
"innovative
loan products".

Up in the financial stratosphere, another mistake was made. They took
bundles of these poor quality loans, which had, say a projected 25% rate =
of
not being paid on time, and created a derivative for, say, 50% of the =
value
of the total bundle. This derivative instrument, a mortgage-backed =
security,
had first call on payments, and they were presented and sold as =
super-high
quality bonds. They couldn't say WHICH 25% of the payments wouldn't =
arrive,
so they just said, whichever ones DO come in, those are the ones the =
holders
of these securities get.=20

The problem with this  --even granting that the 25% figure is =
God-guaranteed
to be accurate-- is that a 25% default rate can mean 25% of all the =
loans
are in default at any given time, or it can mean ALL the loans are in
default 25% of the time, or anything in between. To know which you'd =
have to
know the degree of correlation between individual defaults. And of =
course
there is a HIGH correlation between individual defaults, determined by =
the
conditions of the overall economy, interest rates, wage levels and so =
on.
But the securities were structured as if there was NO correlation =
between
defaults. It was treated as a purely a random circumstance that on =
average
affected one fourth of the people at any given time.=20

That was the basis for the promise backing the top quality mortgage =
backed
security that it was a 99%+ secure investment, almost like a treasury =
bond,
a claim that the financial firms first sold to the bond insuring =
companies,
who put their own top-rated full faith and credit behind these =
securities,
and, then to the retirement funds, banks and the general public, =
explaining
that, of course, as is typical for the highest-grade investments, these =
were
carrying a VERY low interest rate. And the financial industry figured =
they'd
just pocket the difference between the junk-mortgage rates the =
homeowners
would be paying --8%, 10%, 12% or more-- and the 3-5% interest the =
financial
firm paid to the holders of these mortgage-backed securities.

THIS is the "toxic paper" that has brought the credit system to its =
knees.
No one knows how to value it, what risks it contains, so there is no =
market
for it, which means if it were marked to market, it would be worth =
nothing
or at most a few cents on the dollar and any institution that has =
reserve
requirements that had it in its portfolio -- and banks do -- might be =
forced
to close.

So what is the similar or comparable mechanism operating in the crude =
oil
market? It is NOT simply futures trading, a big increase in its volume, =
for
as best as I understand it, and I've done quite a bit of reading on this
point, this kind of futures trading is a zero-sum game. Each and every
contract has both a long and a short position. Speculators can make =
money
because both sellers and buyers (at least some of them some of the time)
have to or want to hedge against adverse price movements. By "locking =
in" a
price, in the case of the seller, they agree to sacrifice any increase =
in
price above that level, and in the case of a buyer, not to reap the =
benefit
of a lower price.

Sartesian also talk about investors storming our of crude oil in a =
panic.
Fine, and that might really be disruptive of the futures market. But =
there's
something like 80 million gallons plus of this stuff being pulled out of =
the
ground every day, transported by pipeline or tankers, refined, the end
products sold and taken to gas stations and diesel power plants and =
furnaces
and so on. How would a panic by the computer jockeys in the hedge fund
offices in Connecticut affect any of this? Have the traditional wire
transfer payments and letters of credit been replaced with "oil
shipment-backed securities" up there in the financial stratosphere that =
have
been torn into "strips" on some goofy basis and sold as if they were
certificates for gold deposited in Fort Knox?=20

True, a generalized financial panic would impact the normal operations =
of
any and every industry, but such a panic would have to be very advanced
along the path of a complete collapse of the financial and banking =
system
before oil shipments were hit -- unless, of course, Sartesian knows
something the rest of us do not.

The oil market is not a financial market. It is not like the stock =
market.
Exxon or CITGO are not going to "panic" and stop buying and refining =
crude
because they think they made a bad bet on the direction of prices. The
Venezuelans, Russians, Saudis, Kuwaitis aren't going to "panic" and cap
their wells.=20

That said, there IS something that is becoming clear to me about the oil
industry, which is not a problem with the futures market, except =
indirectly.
Each month at expiration the price of the futures converges with the =
spot
market price, that pretty much guarantees the integrity of the futures
market. But ... what guarantees the integrity of the spot market?