The End of Price

In the 1980s, fishermen caught the last wild Beluga sturgeon from the Sea of Azov, source of prized caviar, and wild sturgeon in the Caspian Sea failed to reproduce. The sturgeon catch plunged by 95 percent, and the cost of caviar soared. Such extraordinary price growth is known as "hyperinflation," or as economist Eric Sprott says, "the caviar syndrome."

This may sound trivial regarding caviar, but hyperinflation turns critical with commodities such as oil, gas, copper, zinc, water, or fine hardwood, all now growing rare on a global scale. Industrial civilization has already depleted the best and most accessible of these resources. Sturgeons might recover if we leave them alone, but copper and oil do not reproduce themselves.

As humanity scours every last region of the planet for resources, we enter a new historic period in which certain vital commodities no longer have a traditional market price linked to demand and supply, but rather to the cost of access.

Hitting the wall

In April, 500 migrating ducks landed on a Syncrude Canada oilsands tailing pond and perished. Syncrude CEO Tom Katinas reported being "very saddened" by this, quickly banned media from the site, and issued an internal memo: "It is our responsibility to ensure that the best interests of Syncrude are maintained." To clarify, the oil company's best interest is cash flow, not ducks.

The Canadian oilsands, once promoted as a saviour of the world petroleum crisis, now appears anaemic. Shell Canada recently adjusted its oilsands production estimates from CAN$ 7.3 to CAN$ 11 billion, an abrupt 50-percent cost increase. Then, last month, Imperial Oil geologist Clement Bowman insisted that the Canadian government commit billions of dollars to solve "the huge environmental problems associated with the resource," namely, carbon-dioxide emissions, water divergence, a nuclear power plant to boil the sludge, dead ducks, and an obliterated prairie ecosystem. Bowman emphasized that unless these environmental issues are solved, "the oilsands have almost hit the wall."

There you have it. The "wall" is profitability. The "free-market" strategy to dodging this wall is public welfare: socialize the costs; privatize the profits.

The full environmental and social costs of doing business are never reported on the operating budgets of these billionaire companies. Public money and toxic lakes do not appear on the balance sheets. Why? Because it wouldn't be profitable. Investments from the public and from nature don't earn stock options, although the free market wizards need these investments to avoid hitting the wall.

Great powers

Since 2003, the US has spent over a trillion dollars, and killed over a million people, to secure Iraq's oil supply. The long-term public cost of the war is now projected to reach US$ 2-3 trillion, which roughly amounts to a US$ 30/barrel subsidy for every drop of oil in the Iraqi proven oil reserves.

Nations have waged oil wars for a century, since 1912, when the British Navy abandoned coal for oil and Winston Churchill declared, "You have got to find the oil-purchased regularly and cheaply in peace, and with absolute certainty in war." Such tactics are not lost on China. "A great power must be one that controls more resources," wrote Zhang Wenmu, a research fellow at the China Institute of Contemporary International Relations, "and there has never been a case in history where such a pursuit is realized in peace."

To gain access to forests and oil fields, China finances thugs in Burma and Sudan, just as the US has backed deadly juntas in El Salvador and Chile, or Russia in its provinces. China has caught up with the US and Europe in consumption, now using over a quarter of the world's copper and steel, and half the cement. Note that we now discuss resource use in large fractions of the Earth's entire supply. Construction projects in poorer countries simply stall because there isn't enough cement or steel at any price.

The rising costs of retrieving oil - war, subsidies, energy input, and ecological disaster relief - will increase the price of everything. Economists call this "cost-push" inflation, a more virulent strain than commonly reported inflation. Central banks are helpless to manipulate cost-based inflation with bank rates or money supply. This state of affairs is the logical conclusion of growth economics on a fixed planet warmed by a modest star.

Bidding wars

In 1979, Soviet geologists discovered the world's largest undeveloped copper deposits in Afghanistan. The CIA-armed Taliban booted out the Russians, and in 2005, companies from the UK, US, and Canada bid for the rights to the Afghani Anyak copper field. The bids came in at about US$ 1.2 billion, including infrastructure, roads, a power plant, and a profit margin acceptable to shareholders.

But then, in the fall of 2007, China offered Afghanistan US$ 2.8 billion for the copper, more than doubling the effective value in a single stroke. By financing US trade debt, China holds fist-fulls of rapidly sinking US dollars that they would rather trade for resources, Sudanese oil, Afghani copper, or swaths of northern Alberta. The estimated 12 million tons of copper in the Anyak field - the largest known untapped reserve in the world - will supply China for four years.

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