Timely Oil Refinery Fires

MSNBC has a feature about multiple small fires impeding production at oil refineries and offshore production platforms:
Refinery fires push oil prices back above $60.
This sure reminds me of all the well timed problems that west coast power generating plants were having during the California electricity crisis.

Trade Deficit Narrows? Really?

WASHINGTON (MarketWatch) -- Stronger demand for U.S. products overseas and lower energy costs at home helped to reduce the trade deficit in May, the Commerce Department said Wednesday. The trade deficit narrowed 2.8% in May to $55.3 billion, and was below the consensus forecast of Wall Street economists of $57.0 billion

This is interesting news, and, if true, is a contradiction of my bearish view of the US economy and the UD dollar. But how do we know if it is true? We do know that the Bush administration has been leaning on all federal agencies to publish whatever figures and news suit their political ends. Global warming is denied, the Consumer Price Index is a farce (read this page by Jim Puplava's for the details). Economic projections, the various rationales for waging war, all of it is simply made up to suit the Republican agenda.
Is there any way to verify the commerce department's trade deficit numbers? Trillions of dollars trade on the FX markets on the basis if this information.

Will Unconventional Oil Make Up The Shortage?

Such sources [from unconventional fields] will account for 30% of all supplies in 2010, up from just 10% in 1990, according to CERA. ExxonMobil figures the world contains some 7 trillion bbl. of heavy oil, oil sands, and shale-oil reserves alone, an amount roughly equal to those of all conventional reserves. If just 20% of those were recovered, ExxonMobil figures that would top the 1 trillion bbl. of conventional oil produced on the planet to date. If numbers like that prove to be accurate, today's worries over oil supplies could seem like a distant memory in just a few short years.
Original here at Businessweek

The above optimistic picture is painted by Daniel Yergin's Cambridge Energy Research Associates. I am very skeptical. Heavy oil, it is true, has a future, but we'll have to invest billions in a whole new refinery infrastructure. Ditto for the new Liquid Natural Gas freighter terminals I keep hearing about. Even if we could build all this stuff, our economy as we know it won't run on unconventional oil, it requires cheap, abundant oil.

As for oil (tar) sands, yes the fuel is there, but it is vastly more expensive to extract than oil conveniently gushing out of the earth. Shale oil is even harder to extract than tar sand. There will be energy available, but only at prices that we have not yet begun to see. This is because much of the cost of producing these fuels (sand and shale) goes to energy. for example, to liquify the tar in Canadian tar sands, they need to heat the sand with steam. The steam is made by boiling water with natural gas. If the cost of gas goes up faster than the price they get for the synthetic oil, then the tar sands will simply be unprofitable, and production will shut down. Roberts, in the End Of Oil, and Heinberg in The Party's Over, make this point repeatedly: a nation's energy infrastructure must be profitable for it to work. Only Nazi Germany has been able to make much synthetic oil in the past, and it was made possible by using slave labor. Note that this oil did not really drive Germany's economy; only its military got the fuel.

But we won't be able to build all that infrastructure stuff anyway. The amounts of capital needed will not be so easy to get when the supply of dollars finally starts to dry up. If we do get some of it built it will be very hard to pay off.

Parallel to oil, dollars will "peak" very soon, sending this country, and much of the globe with it, into inflationary depression. (Or deflationary depression, depending on the reaction of nations' central banks.) A tsunami of bankruptcies and defaults will sweep the globe. The world's economy is dependent on a supply of cheap abundant dollars just as much as cheap abundant oil. Note that the S&P 500 has negative equity: long term corporate debt is 110% of the value all outstanding shares. Personal debt, government, municipal debt, real estate values, these are pretty much the same story; an unsustainable house of cards that keeps growing taller. The Fed will not be able to flood the world with credit forever. When the money runs out and debts have to be paid, not just re-financed, we will not be able to raise the vast amounts of capital necessary to build the new LNG freighter temminals, heavy oil refineries, nukes, methane hydrate rigs, etc. The idea that we can, at this last minute, re-build our energy infrastructure from scratch is a fantasy. It is too late!

That’s why I think we'll have mules and oxen, and wood-burning tractors, powering our farms in 20 or even 10 years: they don't require a centralized infrastructure.

As for transportaion, the best we'll be able to afford, and run, will be a railroad system. For overseas travel, we'll be going by ship. Freighters will improve their finances by carrying passengers as well as cargo, and some cruise ships may be able to convert to ocean liners.

By the way, you really can run your car, or tractor, on wood chips! And reasonably cleanly, too. During WWII, in Scandinavia and Australia, and other places that had no fuel at all, that’s how vehicles ran. Look up producer gas on google.

In the future, because fuel will be so much more expensive and capital hard to come by, our economy will contract. This is the hardest thing, as Americans, that we need to face. Growth is over.

US vs China business war

MSNBC published, from the Washington Post, an story about just how pissed China is about the US congress not wanting to Unocal to be sold to a Chinese oil company.
http://www.msnbc.msn.com/id/8465660/
This sounds like pretty strong language for diplomacy. If the US government persists in trying to block the sale of Unocal's energy assets, especially the 70% of Unocal's properties located in Asia, expect China to retaliate in spectacular fashion. China holds a winning hand in this business war. All they need to do is start dumping some of their vast treasury bill holdings. Then watch the credit markets panic and interest rates leap.
Probably, this will not happen. A little backroom diplomacy - and congress will realize that 'free trade' is more important than energy independance. One way or another, China will aquire Unocal, or at least the Asian oil and gas holdings.

James Howard Kunstler

I just heard Kunstler speak for his book tour for The Long Emergency. He is a very intense guy with a funny and sarcastic wit. He has an energy that tends to fly pretty wildly. I have not read his books, so I am just giving my impressions. The Long Emergency is on my reading list, however. He gave an amusing characterization of the USA of the near future, when rapid inflations floods our economy. He said the America will be like NASCAR Nation meets the Weimar Republic. But then he said we should not be too worried about what the federal goverment might do, because they will hardly be able to answer the phone.

I find this odd. I would not underestimate the capacity for a bankrupt nations to become authoritarian. Look at North Korea, although they always were authoritarian. But famine and energy shortages didn't change that. And the Weimar Republic, which led to Nazism. We may find the Republican party installing John Bolton as president some day. He would be our own Saddam.

"America is Over" - Michael Ventura

Michael Ventura makes an interesting point about the US transitioning down from militaristic superpower status. After explaining that the US will need to rebuild its transportation and energy infrastructure at a time when it has nearly gone broke, he writes:

There's only one section of our economy that has that kind of money: the military budget. The U.S. now spends more on its military than all other nations combined. A sane transit to a post-automobile America will require a massive shift from military to infrastructure spending. That shift would be supported by our bankers in China and Europe (that is, they would continue to finance our debt) because it's in their interests that we regain economic viability. What's not in their interests is that we remain a military superpower.

This is in a column for the Austin Chronicle: $4 a Gallon. This article is the best single, concise explanation of America's position in the world today.

history's biggest economic bust: China

I read every single day about China becoming the great economic and probably military power of the the 21st Century. This will no doubt happen, I do not dispute it. But I do not think they will have a smooth ride to superpower status. No country can sustain large scale, rapid economic growth without periodic recessions and/or depressions. America had plenty during its acendency. It is a fundamental aspect of the business cycle. Right now China is enjoying history's most massive economic boom. It follows that they will endure history's largest recession. China is intricately tied to US debt and economic growth. Peak oil is probably going to force a disruption in world trade, either this year of in 2006, then China's growth will come to a halt.

I believe China will regain momentum, but it will be as the center of a world-dominant Asia, and it will take a long time to build such an economy.

will there be US currency controls?

Jim Rogers, the commodities investment guru, predicts that at some point in the near future, the US goverment will impose currency controls. No doubt this would occur after a US dollar collapse. He doesn't say this in his books, but he mentioned it in an interview with Fortune magazine, January '05. With currency controls, investments in foreign securities, bonds, commodities and currencies may be resticted or banned. The point will be that the United States will try to keep US dollars from fleeing to safer shores. Like Italy had in the 70s.

If this happens, Americans' best inflation defense will be a stash of gold in the basement. We can only hope they don't make gold ownership illegal. In any case, goodbye to the high tech banking system. If the big international banks collapse, they will have brought it on themselves, with their preposterous derivatives and hedge funds.

I've put some of my kids' custodial funds into 1 ounce gold coins. I chose Canadian maple leafs, because they are pure gold, not an alloy. I expect that the USA will impose currency contols. Export of dollars and gold will be banned. Gold will be legally bought and sold only by the US government.

o canada!

For several years now I have had some foreign stocks that are easy to buy on the NYSE, in the form of ADRs. I would rather buy Canadian stocks or bonds directly, on the Toronto Stock Exchange, but they don't make this easy. Few US brokerages will trade in Toronto. And to get an account with a Canadian brokerage you need to be a Canadian resident. The three Canadian companies I ended up choosing are Petro-Canada, Imperial Oil, and Potash Corp (a fertilizer company).

Why Canadian stocks? United States debt levels and the US housing bubble makes me think that US equities are not a good thing to own right now. Assuming that the US dollar will continue to erode, and is at risk of a large, sudden devaluation, I tried to figure out which currencies are most likely to hold value. Four of the world's major, floating currencies are said to be closely linked with their nation's natural resource assets: New Zealand dollar, Australian dollar, South African rand, and the Canadian dollar. In an era of commodity inflation, in which we are now in the middle of, these currencies should appreciate. These currencies might be able to withstand the global flood of inflation. But New Zealand just seems to small and isolated. And Australia seems to have severe environmental problems. South Africa doesn't have much oil. I might buy some of their gold krugerrands, though. and it would be hard to keep up with the news in South Africa.
But Canada - that is a different story. They have huge natural resouce reserves, and good access to the 2 biggest markets for their resources: The USA and China. They have a resonably stable government (I am glad I have not heard about Quebecois secession lately). The have a well run banking system, a free press, and they are close by. I can hear the "News From Canada" on NPR.

So, if you buy a Canadian oil company, the stock can go up two ways:
a) if the price of oil goes up
b) if the Canadian dollar appreciates against the US dollar

I think both these things are likely. They are also very much linked: US dollars are petro-dollars. They are linked to the price of oil, because oil is always traded in US dollars.

BTW, Henry Groppe is an oil analyst who is very bullish on Canadian oil. Read this: Oil Forecasting Legend Paints Dire Energy Picture
At the bottom of this page he says:

...Groppe’s favourite group is the Canadian oil patch. “We would classify Canada as perhaps possessing the most attractive combination of circumstances for energy investment of any place in the world. It is only a quarter as intensely drilled and exploited as the United States” and “I suspect that in the next several years the oil sands reserves will be raised to be higher than Saudi Arabia’s.” In that same vein, Groppe predicts “within 10 years we have Canada as being the largest non-OPEC producer in the world outside of Russia.”

The man puts his money where his mouth is, and says that “90% of all of my equity investment assets are in energy, and 65% of that is Canadian.” He also says, “We think there is still a good long run ahead with the kinds of prices that we see”, which should be a positive, and somewhat comforting for investors in the area, considering Groppe’s enviable and unmatched oil forecasting record, both in longevity and accuracy.

commodities trading

I have liquidated my Goldman Sachs postion. I switched to crude oil and gold contracts for my commodity portfolio. The trouble with the Goldman Sachs Index is:

a) You can't buy long term contracts. They are available for only a few months forward. That is, in June, the farthest out contract you can buy is for August. If you believe there will be long term inflation in virtually all commodities, it does not make sense to place such a short term position.

b) The only decent liquidity is in the front month.

The upshot of this is that you have to roll over your position every month, which is stressful and can be hazarous to your balance. The oil and gold contracts are better for a small investor, who doesn't want to be day trading. They are very liquid. You can buy them years out if you prefer. And the contract size is smaller than the Goldman Sachs, so you are not putting as much of your capital in one contract.

But I liked the idea of the Goldman Sachs Index, it seemed to represent a reasonable cross section of the global economy.

shipping security

It has often been noted that internatioanal trade will become more costly as the price of shipping fuel increases. I believe another factor will also increase shipping costs: security. A loaded oil tanker is worth a huge amount of money these days. The largest tankers hold around 2 million barrels of oil, with an ultimate worth of a hundred million dollars. No doubt a supertanker full of oil is very closely watched by satellite based security systems. Exxon is not going to let a few thugs in speedboats steal their tankers. But terrorists might well hope to blow one up. And security does not come cheap.

And what about bulk carriers? A loaded bulk carrier with a cargo of 20,000 tons of soybeans is worth 5 million dollars for the cargo alone, with far lower security than a huge tanker. Bulk carriers are often registered under a flag of convenience, like Liberia, to a small company based in the Virgin Islands, with a crew from a different country, say Korea, and leased to an international shipping company, and insured somewhere else. Cargo manifests and ships registration papers can be forged. We might see another resurgence in high seas piracy, like we did around 2000-2001.

US dollars are melting away

In this Financial Sense audio file Credit Collapse and Will The Dollar Hold? Douglas C. Noland makes a very interesting point. The US economy, after transitioning from a manufacturing economy, and then to a service economy, has now become a financial products economy. Most of our GDP, he says, is from profits from real estate loans, and from 'hybrid financial instraments' such as derivitives and structured trades.

The derivatives thing reminds me of Enron, but on a vastly larger scale. Enron was a well run, if aggressive, oil and gas company. Then they sold off all their oil and gas properties to raise the capital to create a Virtual Energy Marketplace. and they set up their business to be so complex that no one could figure out what they were really doing. And of course the executives turned out to be crooks. Well this sounds similare to 'hybrid financial instraments' to me. If it is so complicated that no one really knows where the money is coming from or going to, and all you can see is that there sure is a lot of it sloshing around, then beware.

BTW, I own shares in one of Enron's old discarded oil and gas businesses: EOG resources. It is the only US stock I own at this point. I think it is still a well run energy company. They have significant oil reserves, and, even better, significant gas reserves.

unregulated capitalism

I believe that American style anything-goes capitalism is a disaster, every bit as damaging to society as centrally controlled communist economies. The best economic system is a well-regulated capitalism. I know this is hard to achieve and hard to even contemplate for those who think that goverment regulation is a road to tyranny. I remember reading in the Old Testament somewhere that one of the ancient nations, possibly Sumer, prospered with the benefit of an efficient bureaucracy. Those who believe that private industry is inherently more efficient that bureaucracy need only to look at the USA health care system: a self-perpetuating gordian knot of insurance firms, HMOs, and drug companies. Very little of the money we spend on health care seems to go to health care.

Government regulations are especially important regarding production and use of scarce resouces. Ancient Japan saved itself from economic collapse from deforestation, by strict regulation concerning logging, according to Jared Diamond, in his book Collapse. A Norwegian friend informed me that centuries ago the Norwegian king imposed strict fishing controls, and preserved Norway's fisheries for centuries. No doubt these regulations were extremely unpopular. They are the sort of painful choices America must make soon to stave off economic collapse.

amusingly hypocritical

I find American laisez faire capitalism to be amusingly hypocritical. Enterpreneurial enthusiasts love 'disruptive innovation', at least as long as they are not the ones whose business is disrupted, they think predatory mergers and acquisitions are just part of the game. The think 'crony capitalism' is something found in other countries. But then when energy or other commodity prices go up they start complaining about obscene profits. But the simple fact is that every commodity producer, of any commodity anywhere, dreams of controlling the market, high prices and pricing power for that commodity. Fisherman dream of high prices for fish, oil producers dream of high prices for oil.

US fuel efficiency

Improving the fuel efficiency of american vehicles is the single most important first step the US could take to turn away from the ruinous dual path of peak oil and global warming. When I heard that President Bush advocated improving CAFE standards, in his April address to the nation, I thought this was a change, possibly a piece of sanity from a government that seems to live on another planet. Unfortunately, this was, as usual, pure and dangerously misleading bullshit from the Bush administration.
Bush proposed increasing fuel efficiency to save 340,000 barrels of oil a day. This would be a modest improvement. But what the policy really proposes is to increase CAFE standards for SUVs from 20.7 mpg to 21 mpg. That doesn't sound so impressive. And, according to the National Highway Traffic Safety Administration, this change would save at most 9,400 barrels per day. Reporters asked people at the NHTSA about the white house's 340,000 barrel figure and they had no explanation.
the story, on MSNBC, is here: White House policy does little to save fuel
It seems that there is no lie, no matter how large or small, petty or how audatious, that Bush and company are not willing to use if it furthers their narrow minded, pro-business agenda.

F. William Engdahl and other reading

Last year, I started on the train of thought that led me to publish this blog. I stumbled on some articles by F. William Engdahl. Reading these three essays stunned me into an eventual realization that the human society is at a crucial turning point and it looks very much like a drastic, and probably irreversable turn for the worse.

www.mindfully.org/Energy/2004/Iraq-Peak-Oil6aug04.htm
About how soon we are approaching a world energy crisis

www.proliberty.com/observer/20040808.htm
Abut the US real estate bubble and US debt, and how that will cause the collapse of the dollar

www.proliberty.com/observer/20031001.htm
A long article about how maintaining America's dominant position requires ever more imperialist force. Interesting points about the IMF, and the occupation of Iraq.

Seeking more information, I have also read two books on peak oil:

The Party's Over, by Richard Heinberg

The End of Oil, by Paul Roberts.
Heinberg is by far the most pessimistic author I've read, he is a Cassandra bearing dreadful prophesy. He sees the energy crisis that will come with the end of plentiful oil as inevitable, and the consequenses devastaing. In several decades time, most nations will not be able to maintain universal public electricty grids. What electric resources will be available, will only be for military and government elites. Over the next hundred years or so, the population of the earth will fall drastically, to the level it was at before industrial, petrochemical-based, fertilizer became available: it will fall to 1/4 of what it is now. And it will fall by the means that population usually falls, by disease, famine, and warfare.

Roberts sees a glimmer of hope for the energy supply of the globe. by smart government management of resources, nations may be able to transition to natural gas as a bridge fuel, and finally to renewables. Coal will probably always be available for some uses.

The way I see it, per capita available energy will have to fall drastically, no matter what sort of society we have in the future. (Per capita available energy seems to be the crucial metric that charts the rise and fall of civilization. for a numerical explanation of this, called the Olduvai Gorge theory, see this page: The Peak of World Oil Production.) We may devolve to a coal burning, early industrial society, or a "green" society with wind, biomass, and solar energy to supplementing our remaining fossil fuel. But these systems will not be able to support anywhere near the current earth population. No alternative energy source (with the possible exception of nuclear fusion) has the energy concentration, portability, and huge volumes that oil has givien us. We may also devolve to a feudal, pre-industrial society. It is not out of the question that the human race might be extinct in 100 years.

I don't believe that there will be a single computer functioning on Earth in 100 years time. Even in the most optimistic senario, this level of technology will be unsupportable. The problem that makes me most pessimistic, is that all the economic analysis doesn't take into account the many disruptive effects of global warming, which now looks every bit as inevitable as a peak oil energy crisis.

(A strange footnote: assuming human society survives, future historians will look back on history, and they will have a pretty good record of what happened until about the mid 1990s, when most information becomes electronic. All computer data will be lost when the electical grids go dark, and the factories no longer manufacture hi tech parts to keep old computers running. Historians of the 22nd Century may well wonder "What The Fuck Happened"?)

I have also read a fascinating book on how societies disintergrate, or, alternately, how they survive societal crisis and prosper anew. If societies made intelligent choices that enabled them to survive, the choices were always about careful conservation and government management of resources, and population controls. The book is Collapse, by Jared Diamond

oil refining

Saudi Crown Prince Abdullah said that high gas prices in the US are the result of of lack of refining capability in the US.

This may or may not be true right now. I am wondering if something similar to the California electicity crisis of a few years back is going on in oil refining, with oil companies deliberatly letting refineries suffer breakdowns in order to profit from a shortage.

But long term will be different. There will be refining over-capacity, which is why even huge multinational oil companies (which make huge profits refining oil) are reluctant to build new plants. My point is that there are going to be oil shortages as many oil exporting countries' output peaks. Indonesia, Mexico, and the North sea nations may choose to use their remaining oil domestically, instead of sending it abroad (according to Richard Heinberg, author of The Party's Over, this may be in violation of WTA rules and may spark intense trade disputes). China may gain control, economically or militarily, over some Indonesian oil, much as the USA has been doing for decades.
So, some refineries will be sitting idle becuase they can't get the oil they they were built to process. More capacity may be needed to process heavy oils, but this will require huge investments. It is a lot harder to refine heavy oil, and a lot more polluting.

America's oil supply

The Bush and Cheney show have gone into damage contol mode trying to bring down the price of oil in the past week. Bush had a high profile meeting with Saudi Crown Prince Abdullah.

Abdulla pledged to produce enough oil to keep the US gas guzzlers filled to the brim at all times. He did not make any promises about the price. The Saudis now sell some of thier highest quality oil (light sweet crude) to China. This is the oil that is easiest to refine, and produces the most gasoline and jet fuel, and yields the highest profit. Few countries are priviliged to receive these shipments, so this is an indication of how highly the Saudis value the Chinese market. The Saudis now have two major markets for their oil, the US and China, and they are happy to see who is willing to pay more on any given day. It is called a seller's market.

With drilling in the Arctic, making deals and threats around the globe, and new "unconventional oil" technology, America may be able to keep the supply coming in for a few more years, maybe a decade. The question is: at what price? Wars to protect oil supplies are incredibly expensive (and immoral). Deepwater drilling, and unconventional oil is available but it too is very expensive, and yields a much smaller "energy profit". For example, it takes about 3 barrels of oil equivalent to produce 4 from the tar sands of Alberta. This is a far cry from the days when oil gushed out of the Texas earth at high pressure. The mammoth oil gushers of the past may have been history's greatest ever energy profit. Those days are now gone and they are not coming back.

America is a already far over-extended financially, and if we keep paying ever increasing costs per barrel for increasing numbers of barrels, this will drive our currency further down. This is because most of these barrels of oil are imported. And even domestic oil is costing us more to produce, now. We can drill for our own oil and gas in the arctic, bring the gas down in a huge pipeline through Canada, and yes, we will have achieved a little bit of energy independence. But this will still be expensive fuel for a deeply indebted nation. If we use it wastefully it won't do us any good at all.

Note also that there is positive feedback in this process: since oil is priced internationally in US dollars, as the dollar weakens due to our poor balance of trade, this also will increase the price of oil, independant of any supply and demand issue. Even our out-of-balance trade with China, which has been weakening the US dollar, is, in effect, driving up the price of oil. The US clearly has a choice here: it can turn to conservation to ease its mounting energy crisis, or it can go broke trying to maintain its supply-only energy policy.

the 'core' rate of inflation?

When I read in the paper that there has been .7 percent inflation in March, but only .1 percent in the ‘core’ rate, it makes me laugh. And when the business writer then declares that inflation is not a problem I am stunned.

They seem to think that the core of the economy is the price of cars, shampoo, cruise ship tours, etc. Not electricity, transportation fuels, and food. As if these were things we purchase if we have a little cash left over at the end of the month. This is completely backwards! The core of ANY economy is it’s energy base. The energy we consume makes everything else possible. For example: suppose we heated and cooked with wood, and used horses to get around? Then the economic activity we could generate would be limited to the amount of wood and hay we had. Oil has been so plentiful for so long, and it is such a concentrated and easily storable and transportable energy source, that we have forgotten that energy is the single and all-important limit to growth. Energy price inflation will be relentless and unstoppable soon, no matter how high governments push up interest rates.

the goldman sachs commodities index

I am still long one goldman sachs commodities index contract. I have lost a bunch of money, but I like this investment, and it turned around today, which shrunk my loss a lot. It had been going down last week, but today it went back up substantially. The index consists of 24 commodities, weighted by annual volume traded. This index is 70% energy, with the remaining sectors being grains, livestock, and industrial metals, and precious metals. The way that futures accounts are set up, they make it easy to get into a contract on very low margin requirements, but the account is highly levereaged, and very volitile. I made an error, in buying into this when energy was near a peak. But in the long term, say the next two decades, I think all of these commodities will rise in price, some of them a lot. I like the fact that the index is 70% energy, because energy is the most fundamental commodity class, and will be subject to increasing shortages going forward. So that is why I want to be long on Goldman Sachs contract all the time.

While I’m on the subject of commodity inflation, I’ll just point out the very high energy input of industrial agriculture. The high yields which give us cheap corn and soy are the result of intensive fertilization. Our grain comes from intensive fertilization with nitrogen, which comes from ammonia based fertilizer, which is made from natural gas. If natural gas increases in price, this will result in increases in the cost of food production.

At some point, I predict, grains will rise in price, and then livestock will rise faster, because of the large amount of grain it takes to produce meat. Grains periodically have surpluses due to good crop yields, which has caused the price to fall, but now these surpluses can be converted to fuel (gasahol and bio-diesel) profitably. Thus grains now have a natural floor price, and won’t be able to drop. Because everyone needs grains, grains will become a larger percentage of the index, and food will become more expensive. But because meat is (at least in historical terms) a luxury item, people will consume less, and then producers will raise less livestock, and this sector will shrink. This is as it should be: meat is far too cheap in the USA.