Oil at $67?

Who knew that oil could possibly go this low? I'm sure that many in the peak oil community are a little shocked by this recent development in oil prices. I think we judge the credibility of informational sources by their predictive ability, and certainly 'peak oil' as concept has taken hit in the last few weeks especially. Looking at oil prices seems to bear that theory out, but looking at the larger context of the economy reveals a new wrinkle in the peak oil story.

I think the latest conceptual thinking of peak oil theory has been enumerated by John Michael Greer, who wrote "The Long Descent". It's a great work on peak oil, and somewhat of a departure from the norm of peak oil discourse.

The most important point that he makes is the idea of 'living through history -- that is, the human conception of time, and the truncated timelines of our history texts. This might sounds tangential to the topic of peak oil until we examine the narrative of the peak oil movement: collapse, disaster, starvation, famine, war, failed economy, etc. Not to say that these events won't happen, but we will probably be hard-pressed to link these disparate events back to the over-arching theme of peak oil.

Ultimately our experience, our lived experience will not be a sudden moment of calamity followed by an 'ah-ha' realization that peak oil is the man behind the curtain...rather we will experience decline, unyielding and progressive, followed by period of 'recovery' once again leading to decline. The slow parabolic unraveling of the 'western' mode of life.

To bring it back to the price of oil, why is oil at $67 a barrel, and still falling? We have perhaps entered one of the first of many 'minor calamities', the small disasters that will bleed western economies by 1,000 cuts. Its no mistake that oil hit $147 a barrel before it began its steady decline, we are likely to see each period of decline start out with rapidly inflating oil prices, as the recovery phase seems like it will restore the lost wealth and prestige of our economy. But this is an illusion, as the era of easy energy, and easy, cheap 'work' that it did for us are over. Now the true cost of oil will become more and more apparent before the economy sinks once again and oil prices are slashed along with falling demand.

Twitter as an Organizing Tool

Crude Awakening is on twitter: @crudeawakening . Twitter is SMS/Web updates about the status of our organization. To receive Crude Awakening's updates to your phone (information about local meetings, field trips, conferences and peak oil news) simply text this message (minus the quotes): "follow crudeawakening" to the phone number 4040-4 . It will ask you for a user name - text one back and you are set getting updates to your phone. Please be aware of your texting package because twitter isn't totally free on that end...

If you aren't familiar with Twitter, you should be. A free SMS/Texting tool, if twitter seems totally pointless its because organizations haven't yet taken advantage of twitter on a large scale...at least they haven't gotten much attention for doing so. Many large news organizations are on Twitter, and Barack Obama recently announced Joe Biden as his vice president via Twitter.

Twitter allows one person from a phone OR from the web to send out announcements to anyone "following" them. The advantage of using Twitter over regular texting is that you don't need to know everyone's phone number, and you can be "followed" by people you've never met. In this way Twitter allows a two-way flow of followers, rather than the 'traditional' method of having to collect numbers or email addresses.

From a designer's standpoint Twitter is great because it allows you to totally customize the background image for the page...something that myspace allows, but not anyone else (not facebook, not meetup...) This might sound like a detail, but when it comes to branding its important especially in the age of such diversified branding spaces (social networks).

The Oil Drum @theoildrum is on Twitter, and I'm sure other peak oil sites aren't far behind. I think one of the biggest barriers to adoption of this technology by peak oil groups is a reluctance to embrace new technology in general -- because of a fear that it might go away soon. While those fears may or may not be justified (I would wager they are) we live in the present moment. And in this moment, Twitter is a great technology and a great way to organize. So let's get over it. Oil's going away but we still drive...so let's use the 'now' to prepare for the 'soon'.

Pivot Point

I like the concept of a pivot. To me it is the pin on which something rotates, but the implication is that the pin itself does not more, but rather is a fixed point, a reference. When we think of history, we tend to think of pivot points, of 'pivotal' junctures in history where the entire structure of human events shifted...

As I'm interested in the history of oil, I tend to view much of history through the lens of energy, as a quest to acquire the best, most secure supply of energy. The United States in the 20th century was remarkably gifted with a vast supply of oil, and ever since its production hit peak in the early 1970s, it has done well not only to control but to assure a steadily increasing supply of oil.

I can't say with certainty what events will be important to historians in 200 years, or even in 5 years. Personally I believe the decade of the 1970's was the critical pivot point in the history of oil, which more than centuries and more than political or philosophical movements will bracket modernity. Modernity has always been about speed, and speed, in the modern world, was delivered by fossil fuels.

In the 1970's it became evident that the US was no longer the swing producer for the world...in other words the US no longer controlled the world price of oil, as it no longer controlled the excess supply. The 1970's showed the world the price of relying on fossil fuel and the oil shocks in the early 70's led the drive towards conservation and prudence.

The 1970's also gave us the Carter Doctrine, which stated that the US would use military force to defend its 'interests' in the Persian Gulf. I'm sure such policy has always been in effect, but to state it with such rawness and boldness signaled a new era in elite and public consciousness about oil.

Much of the ramifications of the 1970's were obscured by the Saudis, who stepped in to fulfill the role of swing producer, and by the deregulation of the financial markets in the 1980's.

Before the 1970's, oil had mostly been a regional issue, and where the world had been concerned there was always plenty of oil. Instead of dealing with the obvious problems of an oil addicted world, the US choose to pursue more oil resources, to drill more, to find other sources of this valuable energy.

And yet the problems of basing an economy and a society on oil -- those never went away. They were simply deferred by 30 or so years. And now, once again, we are waking up to the grim reality that the reality has NOT changed, that oil dependence has gotten worse instead of better AND the fundamental problem of an addiction to a depleting resource was still in play.

The world pivoted in the 1970s. The momentum of the Saudis, of the North Sea oil, of Prudhoe Bay in Alaska -- those discoveries carried further into the age of oil. But the truth is that we're dealing with a shift that took place almost 40 years ago and once again the world is on the cusp of a great pivot. I can't say what that is, but I doubt very much that it will be easy, and I doubt very much that the world has ever seen anything like what is coming in the next 30 or so years.

We live in a fascinating time.

Great Quote

"I suggest that this is a good time to think soberly about our responsibilities to our descendants – those who will ring out the Fossil Fuel Age," said Adm. Hyman G. Rickover, father of the nuclear Navy.

I found this in an article by Rod Dreher, who wrote a great piece in the
Dallas Morning News about why America is psychologically unprepared for the ramifications of peak oil - mainly the belief that we can do whatever want without incurring unintended or negative side effects. I still believe in the future of this country, its just hard to see so many people living so foolishly, and so selfishly, and to believe that they will make moral and ethical choices in a time of scarcity, when all we've been raised on is the philosophy of unending abundance.

I believe in the fundamental goodness of people. I also believe in their capacity to do evil. The wildcard is usually the choice between the two.

Overbuilt market...

"Overbuilt Market creating modern ghost towns"
-View the MSNBC Article here.

Peak oil is a strange phenomenon. One year ago oil at $100 a barrel would have been inconceivable for all but a few commentators. And yet here we are, oil is hovering around $115 a barrel and people are actually celebrating! And so the cycle has begun, with a run up of prices (it was only a month ago that oil hit a high of $147 a barrel), demand destruction, followed by a drop in price...then the inevitable run up of demand as people adjust to the new price regime and the following run up of price. And so on and so forth. IT DOESN'T HAVE TO BE THIS WAY. If we let the market dictate price then it will be this way, and probably much worse. If government were to put a floor on gas prices, then people could actually begin to act like rational consumers instead of following the completely irrational marketplace for global crude.

Back to the headline: The 'Overbuilt' Market of homes. Home builders are going out of business because of increasing costs and decreasing demand for houses built on the periphery of cities.
There's even a website devoted to this: The Home Builder Implode-O-Meter, monitoring the decline and fall of the home building industry.

It makes me wonder what kind of cycles we will start seeing with the fluctuation in the price of oil and gasoline. As gas gets cheaper, will ex-urban houses enjoy a brief renaissance before being crushed once again by the run-up in price? Or will buyers wise up after the second or third boom and bust cycle?

I think what we're probably witnessing is the extreme boom and bust cycle returning to America. Where during the 1980s and 1990s the US enjoyed a relatively stable economy untroubled by massive oil shocks, the economy of the new millennium will not be so lucky. We don't have the global surplus of crude oil to stabilize the world (or local) economies, not like we did in the 1970s.

Get out of Debt -- NOW!

That's all. This isn't an admonishment for spending too much on a credit card, or for possessing large levels of debt. It doesn't matter where you are, but rather to recognize your current level of debt -- and prepare for peak oil by GETTING OUT OF DEBT.
As much as possible do this, especially on credit cards and smaller loans that are easier to pay back. Many people who come to meetings have a bit of a panicked look about them, and are wondering how they can best prepare for peak oil. Decreasing the amount you owe is a great way to start, and smaller interest payments will leave more money in the pocket to save, or to continue paying down debt.
As individuals and as a nation we've taken on an incredible amount of debt. One thing that is for certain is that the standard "business as usual" model of infinite growth will not continue. And that means rates for borrowers (and lenders) will increase rather than decrease. All this means is that individuals will make less money each year and face increasing credit rates.
Reduce your vulnerability to this trend by paying down debt now, when you have the spare assets to allow you to do that.

Call for bloggers

Crude Awakening has undergone quite a few changes in the past few months. We've totally revamped the website, going from a static site to blogs, calendars and updating content. We changed the look, and hopefully made information easier to access. We have also give the site a new look, and we're currently working on a complete re-branding package, complete with business cards, letterhead and of course a matching website.

The next step in the evolution of crudeawakening.org is to get a variety of voices from different walks of life to comment on peak oil, on an energy-aware life, on psychology and whatever else comes up.

Please contact us at info@crudeawakening.org if you are interested

Thanks!

CrudeAwakening.org Staff

They Finally get it?

The Mainstream Media (or MSM for those in the know) have been reporting more and more about oil, gas prices and the state of oil production in the world. And yet even as recently as a week ago, MSNBC.com could run a story about the 'end' of the energy 'bubble.' Stories about gas prices, from sources, seemed to miss the crucial detail about supply and demand. China has taken the blame for increased gas prices, even though per capita the average Chinese citizen uses 1/5 of the energy that the average US citizen uses.

Those days are over, on MSNBC.com and at the Washington Post, a new editorial era seems to be upon us: "Global Pressures Forge a New Energy Reality" trumpets the Washington Post. Citing supply and demand factors, as well as the growth of China, the Post makes the bold assertion that gas prices, particularly for those in the US, will not ever retreat back to prices seen in the late 60's or during the decade of the 1990's.

This is not exactly acknowledging peak oil, the author hems and haws in typical DC fashion, but make no mistake the article lays out the current world situation, however, without taking the next step -- that is to try and imagine a world suddenly being deprived of cheap, abundant oil.

I imagine that step has to wait for the markets, that is the short term energy traders, to catch up, and really look a year or two down the line and realize whats coming. I doubt any news organization wants to be blamed for mass panic, but given the government's total inability to do ANYTHING (see Katrina response) a small, tight feeling of panic in everyone's stomach might motivate them to go out and DO SOMETHING.

I think the real lesson here is that we in the Peak Oil community need to continue our focus on research and out reach but realize its no good waiting for others to come around. WE ARE RIGHT, and the debate is officially over. Of course, life intervenes, and theres no way to absolutely know the future -- but if you want to get a good idea of what the next 50 years will look like, then the peaking of resources available to humanity is a good place to start.

When historians look back on this age, they will probably date this century as starting in 2008 -- the first time the world is staring into the abyss. Unlike the 1970s, there is little spare capacity in the world...theres no way out of this one. The age of scarcity is upon the mainstream.

Energy reality

It seems that everyone is talking about $4 gasoline. There’s a lot of opinion about what is driving that, what effect it will have on our economy, will it continue to increase, what can we do to increase production, develop alternatives, etc; powerful political and industrial figures are proposing solutions to “drive down the price at the pump”. But, before we all get bent out of shape over what we pay for gasoline, we should try to get a better understanding of what the energy contained in that gallon of gasoline is worth to humans.

A fit, healthy person can generate 200 watts of power to do work; and given the right circumstances, can do that for 8 hours a day. They don’t do it leaning on their shovels, either; we’re talking about hard, grueling work.

A gallon of gasoline contains 33.530 KiloWatt-Hours of energy ( = 33530 Watt-hours), so 33,500 Watt-hours/gallon ¸ 200 Watts/person @ 168 person-hours / gallon.

So we see that there are about 168 hours of a person’s equivalent energy contained in a gallon of gasoline. That’s about equal to a month’s worth of 40 hour weeks, so the human-energy content of a gallon of gasoline is approximately equal to one month of human work.

Now, the USA consumes over 388 million gallons of gasoline per day, so 388,600,000 gallons/day * 30 days/month @ 11.658 Billion gallons/month and, 11.658 Billion gallons/month * 1 person-month/gallon @11,658,000,000 persons.

In plain language, we in the USA are utilizing a workforce of more than 11.6 billion (that’s with a B) human-energy-equivalent slaves working 40 hours per week, 52 weeks per year to fuel our trips to the mall, idle at teller machines, take business junkets, blow leaves around our neighborhoods and take cross-country vacations every year – among other things.

Gasoline is currently selling for ~ $4/gallon, so the cost of our energy slaves today is 388.6 million gallons/day * $4/gallon ¸ 11.6B persons @ 13¢/day/person. Thirteen cents per day per person. It’s no wonder that we squander an irreplaceable (therefore, priceless) resource on trivial activities, it’s too damn cheap!

Oil Bubble? Lets not be hasty...

From MSNBC.com:

"Given the market’s inability to spark a larger rally Friday following the week’s big sell-off, is it time to declare the energy bubble over?"

[Full article]

This just shows the shallowness of mainstream reporting -- and that despite the meteoric rise in oil prices over the last 6 months, that "peak oil" still has not truly transformed into a framework or paradigm for the vast majority of people.

It is also a strange thought -- that oil at $130 US a barrel would be thought of as the new bottom for oil. Whereas only a year ago oil at even $100 a barrel would have been counted as a calamity of the highest order.

I can't say where oil is going from here...focusing on the price sometimes diverts from the true issue at hand anyways. But I do know that oil at $130 a barrel is still far too cheap, and to accurately account for the massive amount of work that oil does for us -- and to ensure that our society keeps the transition momentum moving -- oil NEEDS to keep rising in price.

Despite the gloom and doom of a faltering economy, oil's rise has been slow enough to allow people to transition their habits, their mindsets and their spending. Problems will arise if oil skyrockets in price -- a sustained, even rise in price is the best case scenario for anyone who 'believes' in peak oil.

Demand Destruction

Watching gas prices rise in the last few months from under 3 dollars a gallon to a nation average of around 4.10 a gallon, I keep expecting a drop in price as a result of demand destruction here in the United States. Reading articles lately has left me with the idea that even though demand destruction will occur here in the US and throughout the world, that oil prices will not dip much, and certainly not to the extent that they did during the 1980s oil glut.

The reason can be summed up by the export land model, which states that a nation's oil exports will drop faster than their production rates because the nation will use more of its own oil and therefore have less available for sale on the world market.

Thus Mexico (for example), who is experiencing fast declines of oil production, is also experiencing economic growth which is using an increasing amount of its oil domestically. I read an article here that hypothesized that Mexico will have NO oil left for export, given current trends, by the year 2010.

Mexico, the sixth largest producer of oil in the world (as of 2007) at 3.71 million barrels per day, currently accounts for imports of 1.116 million barrels per day to the United States, currently third behind Canada and Saudi Arabia. ^[citation]

Between 2006-2007, while Mexico's production was essentially flat, its exports decreased by 15%.^[citation]

Thus, we will have to make other arrangements. And fast. Every single energy producer/exporter is going through this process and chances are that we may hit peak exports before we hit peak oil. Either way the energy available on the world market will be less and less, and perhaps much more quickly than peak oil production.

Break Point

I've been reading "A Thousand Barrels A Second" by Peter Tertzakian, a book about the peaking of oil production. Tertzakian introduces an interesting concept called the "Break Point", a society's re-evaluation point of an energy source.

In the past break points happened, for the most part, to coincide with the discovery of a more energy-rich, aka 'better' fuel, think of the transition of industrializing England from burning wood to burning coal, or the world-wide transition in the 19th century from whale oil to petroleum.

Of course history provides examples of break points where societies were simply unable to move to a higher source of energy / raw materials. Jerod Diamond has a couple of examples of such societies in his book "Collapse" but rather than refer to a scarcity of resources, Diamond typically seems to reference an over-abundance of people. In my mind these are one in the same problem, in our day and age we can look at the balance of population to available resources.

Our re-evaluation of petroleum hasn't nearly been hit, although we are noticing a minor change in driving habits. For the first time in 5 years, the number of miles driven in the US declined. Still our way of life is intact. I believe that in order for our society to truly re-evaluate petroleum, the price of gasoline will have to double or triple in price, as it did in 1973 and again 1979. That world was able to re-adjust its energy sources, and continue growing.

Our break point will be different. As we are approaching peak production in numerous areas (including, I believe, peak food, peak minerals, peak 'work' and peak wealth) we will also reach a break point in the American dream, the concept that anyone can be rich, the idea of perpetual growth and an ever increasing level of wealth and prosperity.

Our energy break point will quickly become a mental break point. Jimmy Carter's 'malaise' speech is mocked for its dour tone, but mark my words we will in the next 5-10 years hear a US president address exactly the same crisis of confidence, and within ourselves we will each have to reformulate (as we do many many times in our lives) exactly what it is we expect out of life and how we will exist within the limits imposed on us by our environment.

Recovery is 6 months away...

I'm getting sick of reading quotes like these:

'Despite the negative [economic] numbers, "the worst of the hemorrhaging is behind us" and a modest recovery is likely to take shape next year, said Bernard Baumohl, managing director of the Economic Outlook Group.'


Full Article

This is the fiction we are sold, that recovery is looming on the horizon even as more and more signs point to unsustainable exploitation of natural resources, to declining energy supplies and ultimately to a period of sustained economic decline.

The problem of course is that stories like these lull us into a trance of thinking that recovery, like so many times in the past, is just over the horizon.

Its time to face the music. Its time to stop kidding ourselves and accept that economic decline rather than growth will indelibly mark the 21rst century, but that 'growth' and 'decline' are relative terms. If we keep our head about us, we can redefine growth. Growth means having more time in our lives instead of less. Growth means physical strength rather than obesity. Growth means re-discovering a spiritual connection. Growth means accepting natural limits of ecology, of nature and of human ingenuity instead of denying those things.

But growth requires humility in the face of limits, and articles like the one that appeared at www.msnbc.com do not guide us towards humility rather they lead us down the dangerous path of illusion and delusion.

Let's accept whats coming and stop accepting without comment those viewpoints who would try and pacify our will to change.

Preparation for Peak Oil?

I've talked to many people about preparation for the manifestations of Peak Oil in the U.S., in Texas, in Austin. I've known about peak oil for around 4 years, but haven't given much thought to serious preparation. Now that it seems like an accelerating reality, I've been talking to people more and more about how to prepare, and I've come up with a basic plan that takes into account my 'meager' income and savings, and the fact that I live in a rented apartment.

Being a single guy and in relatively good health and physical shape, I think that the most important things for me to think about are my psychological health, and short term, 1-3 month needs in case of an emergency. That means thinking about storing food and water to sustain me, having cooking materials and water filtration systems, thinking about my personal safety and security, as well as the security of my belongings.

After having taken care of the physical aspect (food water etc) which I think is #1 no question, I need to tackle the element that I think is less appreciated, but that will, in the long run, be most important: my psychological well being.

The response to a crisis (which I believe will be a short-lived but serious break down in services, food delivery etc) will either be panic leading to poor decisions, or apathy leading to inaction. I believe mental rehearsals for such an emergency to be important, as well as concrete plans to deal with situations that may arise.

In reading other blogs + articles about peak oil, I keep seeing the idea of "flexibility". Our plans need to be flexible, our power sources need to be flexible, our psychological make up needs to be flexible.

That doesn't mean a lack of commitment, it simply means fostering an ability to adapt. And this of course is different for everyone, but I think if people take an honest look at their lives, they will realize how brittle most of the systems they depend on. Much of this can't be helped, hence preparation in terms of food storage etc. But certainly our concept of ourselves as committed to one and only one way of life, to one mode of living needs to change, and change fast.

Goodbye Airlines

I've been thinking about this for a while, and I've been talking to my friends about it. Most of them think in terms of straight supply/demand equation: if the demand for air travel keeps rising, then so will supply, thereby determining price. That is assuming of course a fixed cost for jet fuel. Which is simply not the case. Jet fuel has risen quite dramatically in price.

Indeed the demise of the airline industry has been written about quite a bit, so I don't feel the need to address it too much in depth, other than to briefly point out some of the smaller airlines have been failing, and the larger ones have been trying to merge to cut costs.

Of course if jet fuel is rising, then there is nothing that can be done...despite mergers, cost cutting measures, layoffs and the like at some point someone has to fly the damn plane, and jet fuel has to be burned to propel the thing through space. Maybe passengers should be charged by weight (bad joke)

But the truth of the matter is that airlines won't be around forever in their current form because most people won't be able to afford to fly. Thats just the reality, hard as it may be for people to accept.

Of course at this point, a certain amount of denial is to be expected, but I hope no one is surprised when the government attempts to bail out, then takeover the ailing airlines industry...and I would assume after a few years of failing to make any money, will give up the enterprise all together.

From CNNmoney.com:

"High fuel prices have caused airfares to skyrocket. And the economy has caused some Americans to postpone or downsize their travel plans. Fewer tourists are coming to Hawaii, and some think the problems are only beginning.

ATA and Aloha Airlines have already gone bust. And starting next week, two Japanese airlines will increase fuel surcharges on flights to Hawaii by 43%. American Airlines just announced plans to eliminate its Chicago-Honolulu route at the end of the year."

the article is here

The Future of Design (ers)

I was combing through the Energy Bulletin's newly redesigned Drupal site and I came across a link to a really interesting New York Times blog about fashion and design post peak-oil (the new york times mentioned peak oil! Imagine that!)

Anyways the blog is Called the moment, and its not specifically about design post-peak but this blog entry was done by a European correspondent.

The post itself is kind of short and talks about 3 designs from the past that seem interesting or useful...but the concept caught my attention, its always amazing how many facets there are to the peaking of energy supplies, but also to the myriad ways that humanity has responded to low-energy conditions in the past and what hints and clues that will give us to any future response.

If perhaps art and design seem to have lost their primacy due to the multitudes of diversions in the modern world, I expect the hand-made to take a much larger role in our lives even in the next 3-5 years. Already the DIY (Do-it Yourself) culture is in the middle of a bloom and gasoline is only 4 dollars a gallon.

Imagine the beautiful things 10-dollar-a-gallon gasoline will necessitate. But not just beautiful, because at the moment I feel we are surrounded by so much visual clutter that beauty has a difficult time breaking through. Of course much of that has to do with the spaces that we cultivate in our own lives, giving ourselves time and space to appreciate whats truly amazing...

The peak oil movement needs to continue to incorporate artists, designers, writers...these people will realize a primacy in our culture that has been missing for at 50 years.

Statesman: Mexican Oil...

Just finished reading an article in the Austin American Statesman on the state of the Mexican oil industry. The article examined the state of Petroleos Mexicanos (Pemex), the nationalized Mexican oil company in relation to American companies that are drilling in the Gulf of Mexico. Apparently Pemex doesn't have the money or the know-how to develop deep sea oil fields and American companies do. There is a potential dispute in the works since it appears that Shell oil is developing oil fields that may or may not cross the international border, something the Statesman dubbed the "drinking straw effect" whereby oil platforms tap into a well that spans two countries or regions.

The subtext of course is that Mexico's oil production is collapsing, down 9 percent to 2.87 million barrels a day in the first 4 months of 2008, according to an article in the International Herald Tribune. And so Mexico is searching for ways to improve its oil output. The platform in discussion in the article would only be good for 100,000 barrels of oil per day, less than 1/10th of 1 percent of world demand, and about 4/10ths of 1 percent of current US demand.

Of course the article ends thusly: " 'The easy oil is gone' said Russ Ford, Shell's technical vice president for the Americas." Unfortunately the phrase 'peak oil' wasn't mentioned at all in the article, but the undercurrent of the article is clear: oil is becoming more scarce, and so more developed industries are looking to whatever fields they can, especially to those in countries where the oil industry has been nationalized -- such countries being typically less technologically savvy and geared more towards providing inexpensive oil for its citizens.

Allowing foreign companies to develop Mexico's oil fields would be a change of course for Mexico, who has traditionally protected its oil reserves from outside according to the article in the Statesman.

Look for such trends to continue in the coming years, with the requisite concern in the host country about allowing foreign intervention. Wars have started this way, but the article pointed to interest in changing Mexican law to allow foreign companies to develop Mexican-owned oil fields.

--Jon

Subprime

Hopefully, everyone who’s reading this has heard of “sub-prime”...whether it be followed with “crisis”, “loans”, or whatever. it’s long been used to describe a loan to someone who has less-than-stellar credit. for the rest of us, it means a loan that looks more like a blackjack bet than an extension of credit.

a good friend who knows i was a financial planner a while back put to me an excellent question: if a client were to come to you and lay out their finances and those finances showed the client to be $100,000 in credit card debt, $250,000 in mortgage debt, $0 in savings, a monthly budget that exceeded the client’s monthly after-tax income of $4,000, two car notes that take up $1,200 per month, the client’s kids are scheduled to go to college (and have the client foot the bill) within a few years, the client’s parents were counting on the client to help support them in their old age, and the client had no retirement savings...what would you say to that client?

when he put it that way it was easy to answer. i’d actually spoken with several would-be clients who were in similar circumstances. as a financial planner, you can’t advise a person to declare bankruptcy. you can sure-as-heck tell them to seek the counsel of a good bankruptcy lawyer, though. these would be classic “sub-prime” clients.

what’s the u.s.’ credit score?

if the u.s. were to come to me seeking financial planning advice -- back when i was a planner -- i would have told it the same thing: go seek a good bankruptcy attorney. why? well, we have credit debt that can’t be paid back in one lifetime. we have social obligations through medicare and social security that compound the inability to re-pay any debt. we continue to spend billions of dollars per day in interest yet take out more loans from other countries to fund our overspending. our ability to take care of our kids through smart fiscal management and resource allocation is absolutely nil. the u.s.’ gasoline bill is devouring any personal, state, or federal incomes we eagerly hope we can maintain. and our plans for getting out of this mile-deep hole we’ve dug ourselves into involve griping about our situation without looking at what brought us here in the first place.

who’s the scapegoat?

in the sub-prime crisis -- quickly turning into the prime crisis, as well -- there are all sorts of culprits. greedy banks took advantage of duped customers. greedy credit card companies took advantage of unknowledgeable over-consumers. greedy mortgage-holders took advantage of easy credit. greedy things got greedy.

in the oil market, the list of culprits is getting longer by the day. greedy speculators are trying to turn illicit profits. greedy oil companies are making too much off of our poor, hapless citizenry. greedy convenience stores are trying to get more money out of our pockets. greedy OPEC members won’t turn on the spigots for us greedy drivers. greedy SUV owners are getting what’s coming to them. greedy things got greedy.

in the food markets, the list of culprits is about tapped out. greedy speculators, again. greedy hoarders keeping in warehouses what’s rightfully the “people’s” grain. greedy ethanol producers using all of the corn for fuel rather than food. greedy americans eat too much, get fat, and the rest of the world is paying for it.

this is classic avoidance. no one wants to look at what’s behind all of this -- the behaviors that brought us here in the first place. it’s so much easier to blame one person or organization than to look into the mirror and fess up that the person looking back is the culprit. we, ourselves, are to blame for this. we’ve elected ineptitude (if we voted), counted on it to run things so that we wouldn’t need to learn how to manage our civic responsibilities, and we’re getting what we deserve. as the saying goes, “people get the government they deserve”. i’m not pointing fingers at you. i’m pointing fingers at me AND you. i’m just as much to blame as anyone reading this.

where’s a good lawyer when you need one

here’s the kicker, folks: there is no way to get out of this mess except to admit our ridiculous nature, take our lumps, and climb out of the hole. we have to start saying to future social security beneficiaries, “sorry, if i help you with your bills i will never, ever see the light of day.” we have to own up to our kids that we’re horrible at managing money, that we can’t help them pay for college, but we’ll try our best from now on to make sure we’re not leaving them a burden to carry. we have to get our expenses down enough to where we’re saving money...not spending credit. we need to take a hit on our house and move into something we can afford. we need to cut up our credit cards. we need to go into the credit hibernation-period, pay back to the extent we took out on future expectations, and begin the long, hard road to a better country.

there’s no “lawyer” in this, folks.

or, we can lament our bad luck, find more scapegoats, and prolong the agony until our house is foreclosed on, our cars repossessed, our parents are left to the salvation army, our kids fall into the same hole, our jobs are lost, we’re fighting with our fellow citizens over food and water, and on and on.

we have to stop looking to others for some negotiated solution. we have to begin negotiating with ourselves.

-Bob Hall for Crudeawakening.org

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.