Peak Lending?

"Until mortgage lending picks up again, the housing market will have a hard time getting back on its feet. But until home prices stop falling, lenders are going to remain leery about writing a mortgage on an asset that is still losing value."

And thats the entire problem with our economy

From this article on MSNBC.com:

Can anyone see the problem here? Our entire economy depends on GROWTH. Not stagnation, not contraction, but growth. Can our economy grow in a sustainable manner, especially without growth in energy usage? I seriously doubt it.

Why US housing is losing value is a tough question to answer. I would imagine (and I'm no expert) that falling wages and a depressed economy have something to do with it, in addition to the increasing price of EVERYTHING else (via inflation or just plain supply and demand as with gasoline).

I think the question on everyone's mind is, what is the US housing stock worth without transportation to get to it? The answer is undoubtedly 'mostly worthless' except for a small core of communities with walking and biking access to essentials.

Thomas Friedman was wrong

"The World is Flat", by Thomas Friedman, was released in 2005, and it only took geologic reality 3 years to prove him wrong.

"Globalization is reversible. Higher energy prices are impacting transport costs at an unprecedented rate. So much so, that the cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today."


View the entire CIBC World Markets Report here

In his book, Friedman identified 10 'flatteners', or trends that demolished the barriers to international trade and the movement of cash + services. Of course most of his 'flatteners' were either technological in nature, or involved the easy movement of goods and services. Friendman, in all of his infinite wisdom, did not realize that underpinning his entire theory of a new Globalized economy was an ocean of cheap, accessible oil.

See the wikipedia page about "The World is Flat"


I wonder what Mr. Friedman is thinking about his recent book now that oil is beginning its long, bumpy descent down the production curve? Or the nature of Globalization in general? What Friedman viewed as the inevitable path of history was of course only a temporary aberration riding the crest of a massive energy abundance.

The truth is that Globalization was a fantasy based on what I'm sure at the time seemed like an endless energy supply, so much so that Friedman didn't even feel like including it in his list of 10 'flatteners'. No amount of technology can compensate for the loss of oil. Globalization, to the extent that it exists today = a cheap, ever growing supply of oil. When this dries up, the world as we know it will be drastically altered.

from Reportonbusiness.com:

"The soaring cost of fuel is whittling away at the cheap-labor advantage enjoyed by Asian exporters, giving Canadian firms a welcome edge in their fight to win back business from Asian competitors.

Two bank economists argue in a report released Tuesday that because of higher fuel costs, shipping a standard 40-foot container from Shanghai to the east coast of North America now costs $8,000 (U.S.), up from $3,000 in 2000 when oil was just $20 a barrel."


Full Story Here

I realize that no one expects Wal-Mart to close up shop and go home, but it may happen sooner than most people realize, ditto for every other chain that relies on a far-flung distribution system. Target, Fred Myers, Costco, Home Depot, just to name a few...

These businesses will lose their competitive advantage as oil becomes more expensive, allowing opportunities for their stores to be purchased by local entrepreneurs or simply shut down. Main street might witness a come back as the massive, wealth-draining businesses shutter their stores. There will still be a need for tools, wood, supplies etc and local businesses will again have to fill this need.

The thing to remember is that technically we haven't hit peak oil, but demand is outstripping supply and causing oil prices to rise. Classic economics, and yet no one seems to be listening or wants to admit what's actually going on, and that we have a really unpleasant reality waiting for us as oil production does peak, and goes into terminal decline....

Reconnecting

This From CNN.com

[ Tracy and Adam Crews posted on iReport that their annual Memorial Day weekend has traditionally involved camping and fishing.

"Well, due to the continual rise in gas, we felt our only recourse was to nix the idea this year and stay home" in Jacksonville, Florida, they wrote.

Instead, the couple said they "decided to camp out in the backyard. We set the tent up, just finished installing our above ground pool, and cleaned up the grill. ... We have ourselves a campsite! It's been a blast!"]

--full article : here at cnn.com

Who says peak oil means only chaos and unhappiness? Certainly those things will play a role, but what about reconnecting with our communities, our families, our freetime, our children?

I've always maintained that peak oil is an opportunity to live richer, fuller lives, at least here in the US.

I'm past the point of worrying so much about the economic ramifications of peak oil, or about the state of a post-peak world. I have new confidence in myself, and I know that whatever happens we will deal with it. Its time to start hoping for the best, something the peak oil movement seems to have quite a bit of trouble with....

Memorial Weekend

Austin feels pretty empty this weekend and I never know what to believe: MSNBC claims that gas prices are "testing motorists" but that 31.7 million motorists are traveling for memorial, only slightly lower than last year(32 million in 2007)...but what if we take into account the number of new cars on the road since last year. According to wikipedia, an one year alone, America adds

"...3.69 million [vehicles] each year since 1960 with the largest annual growth between 1998 and 1999 as well as between 2000 and 2001 when the number of motor vehicles in the United States increased by eight million."
-Click here to see the whole article

So if we take into account the number of new vehicles on the road (lets say around 3 million given the sordid state of the economy) then suddenly the statistics quoted by MSNBC don't seem so rosy. I don't really have a solid statistic to back up this idea, but it seems like if we have so many new cars on the road, then those cars should be driving during memorial day. The fact that instead of increasing cars trips that we have declined, speaks to the mass of people who aren't driving for memorial. Good for them!

Indeed anecdotal evidence supports this. People I've talked to this weekend won't even consider a 30 minute drive without taking into consideration high gas prices (and the fact that many Texans drive massive SUVs and Pick up trucks) and want to carpool or simply find arrangements that don't require a long drive.

I think that as gas prices increase that we will notice a refinement of the term "long drive". I know that to some a long drive is anything over 2-3 hours, but if gas is 6 dollars a gallon, suddenly a long drive may become much shorter.

At any rate memorial day in Austin definitely feels like the calm before the storm...the markets are closed in the US, gasoline is steady here at 3.89-3.79 a gallon, and people seem to be adjusting so far to driving less for special occasions.

This is not a big deal though. The real question is whether people will be able to adjust to driving less for work, school, shopping and other essential trips. We'll see on Tuesday...

Addiction

Even though the national average for gasoline is topping $4 a gallon, Austinites haven't quite gotten there...yet. Around town gas fluctuates from 3.79 to 3.89. As gasoline prices are hitting the American consumer, politicians are quick with lame solutions, excuses and are generally adept at doing what amounts to nothing.

Since the problem has just burst in view for most of the population, I would like to posit that we can frame this response in a grief/addiction mentality. I realize I'm not the first to suggest this concept of a civilization withdrawing its reliance on a natural resource but I think its important to be aware of what's going on. I don't subscribe to a rigid sequence of emotions in a grief state, but I do believe there are enough similarities to warrant further examination.

Politicians are essentially in a bargaining state, suggesting solutions that don't fundamentally accept the reality of what is going on. We could drill in environmentally sensitive areas, and we could return to older wells (here in the US). I doubt very much that any of this will stop the decline of American Oil production. Remember that we use close to 20 million barrels of oil per day. The wells that have been proposed are all on the magnitude of 1-5 billion barrels of oil total, most being under or around 1 billion. This amounts to 100 days of consumption, hardly worth destroying the last vestiges of American wilderness.

A better solution would be to cut consumption, to dump money into renewable resources, and to commit to using an increasing amount of renewables per year. This is problematic for the addict, however, because it acknowledges the fundamental reality; that oil production is not keeping up with demand, and that will probably be the toughest part about acknowledging peak oil for US politicians.

One of the hallmarks of any successful organism/organization is its ability to adapt. Right now America is losing BIG TIME in its ability to adapt to the changing geologic reality. We will see if America can psychologically cope with peak oil, recover and regain our status as a world leader.

Our past investment in freeways, in cars, in suburbia and far-fling working/living arrangements make this change extremely difficult to make. The front lines of peak oil in America will definitely be played out in the suburbs and around 'interstate culture' and even with high gas prices people are still driving, BBQing and life is going on as before....we'll see how long our nation can sustain that.

The Crude Awakening

I've got a secret: I love MSNBC.com, not because I think its got factual information per se, but I think its actually a good gauge of conventional wisdom, and a good way to understand what kind of information the population at large is consuming.

From an article today:
"But the impact of the [gas/oil] price surge already is being widely felt. And if prices go
much higher, the damage to the U.S. economy will be deeper and wider than the fallout from the run-up so far."

We hear it again and again, the mantra about gas prices, gas prices and its something that directly impacts people. From the same article:
"Economists estimate that every additional penny at the pump takes roughly $1 billion out of overall spending. "

Now i don't know if thats true, but think about the scale of gas stations across the US, about how much we drive and fill our tanks...and you can see that it very well could be true. Down the street on Riverside and S. Congress, gas went up 10 cents today. Does that mean, given a price hike across the US, that 10 billion was just taken out of overall US spending? Maybe that over simplistic, but to me the 1 cent = 1 billion less consumer spending is a great way to talk to people about peak oil. Gas prices is a great way to talk to people about peak oil.

We have to realize how peak oil is gathering on the horizon: as a massive economic slowdown. This is how people will experience the first waves of peak oil. And the crazy thing is: we may not have peaked.

So perhaps the peak oil movement needs to start examining how peak oil is affecting people, and tailor our message to address people's concerns. If we are a movement, then we need supporters to actually bring about change. And though talk of statistics and flow rates might be factual, they will never win over large numbers of people.

We need to STOP talking to people's brains, and start talking to their guts. We don't need to lie or engage in hyperbole, since the problem is already here. We simply need to engage people on a level where they will listen, and then allow their interest to propel them to investigate our claims further.

On thing is for sure: the peak oil movement needs to mark May 2008 as a turning point in the long history of humanity's relationship to oil. This marks the beginning of a new era, and probably people will look back and date the start of the 21rst century to this year, since the 21rst century will be characterized by scarcity of resources, and May 2008 was when the industrialized world started to wake from the energy binge that has characterized the last 50 years.....

A barrel of oil just hit $133

At least at the time of this writing, oil has just risen 4 dollars to 133 a barrel. Here in Austin, I-35 is still packed with cars, and everyone is making their plans for memorial day. With the price of oil, I can't imagine a memorial day more weighed down by economic concerns. I've lived through recessions before, but this has a different feeling, like the winnowing of the light before an extended period of decline. But for the most part no one seems terribly concerned, even though gas prices are at record highs. I guess past experience has shown us that the price of gas always goes down, even though I doubt that will be the case in this scenario....

I read MSNBC everyday, and basically the entire top part of the site seems to be dedicated to Peak Oil issues:
-Fed Sees Slower Growth, Higher Unemployment
-American Airlines to start charging 15 dollars for the first checked bag (offset high fuel costs)
-Oil Execs. defend massive profits
-Gas prices kill your budget? Try a bicycle

And yet peak oil is STILL rarely mentioned. Wow. I'm not sure what it will take, but the authors of MSNBC.com are going to have to get out of denial and stop cheerleading and face the harsh reality of an energy-constrained world. Its about time.

Welcome to Crude Awakening Austin!

The inaugural blog of crude awakening austin! Stay tuned for more local blogging about peak oil's effect here in Austin....