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DrumBeat: August 3, 2007
Posted by Leanan on August 3, 2007 - 9:08am
Topic: Miscellaneous
Venezuela: No fuel for export in 2008
"Provided that in 2008 the number of cars sold is similar to that expected to be sold this year, Venezuela will not have surplus fuel production for export, and the country will be faced with the risk of resorting to imports."Análisis Venezuela also estimated that if any domestic refinery faced operational problems cutting production by 10 percent, Pdvsa would be forced to import gasoline components or finished fuels.
White House threatens to veto House energy bill
The White House on Friday threatened to veto a massive energy bill slated for debate in the U.S. House of Representatives that sets aside about $16 billion in clean-energy incentives, mostly by repealing tax credits extended to oil companies.
Recent offerings, most out of China, have surged along with the sector in general. Is a correction coming?
Food, water and oil - the hidden link
Since World War II, agricultural research and development has dramatically increased crop productivity, which along with an increase in the areas under irrigation and cultivation, has allowed us to feed an ever increasing global population. Unfortunately, regional conflicts and droughts still cause famine, and poverty is largely responsible for 850 million people still suffering malnourishment. If we could overcome economic inequity, corruption and food distribution issues, we would be able to nourish everybody adequately.However, the situation we see today is changing rapidly. World population is expected to reach about eight billion by 2025, meaning about another two billion mouths to feed. In the same period, we expect climate change to begin to bite in its impact on water supplies in many areas and oil production to potentially peak and start to decline, while growing cities need ever increasing water supplies.
Oil price 'threatens US economy'
Sustained oil prices close to $80 a barrel could hit US economic growth, Energy Secretary Sam Bodman has said.The US economy has never faced such high prices for "an extended period," Mr Bodman warned.
There is concern about whether oil supplies can meet global demand and Mr Bodman urged oil producing nations to increase output to avoid shortages.
The trouble with nuclear waste
It's not easy building a home for spent radioactive material. The proposed site at Yucca Mountain has been underway for over 30 years.
PDVSA Begins Exploring for Light Crude in Cuba
Venezuelan state-owned oil company PDVSA said it planned to begin exploring Wednesday for light crude in Cuba as part of a joint venture with state-owned Cubapetroleo, or Cupet."We expect to confirm the presence of fields of light crude with volumes capable of maintaining high production potential" via exploration in the six blocks covering a 10,000-square-kilometer (3,861-square-mile) maritime area, PDVSA said in a statement.
The Single Largest Oil Deposit in the World
I'd like you to take a moment and think of what the world's largest deposit of oil would look like. Just close your eyes and imagine it....I instantly thought of a wide open mining pit surrounded by a thick forest. Gigantic trucks, larger than any others in the world, rumbling along 24 hours a day, 365 days a year. These multimillion-dollar machines, alongside a myriad of equally large hydraulic shovels and cranes, guzzle over 550,000 gallons of diesel every year!
And when I said gigantic, I meant it. Imagine getting passed on the highway by this...
Shell Sells Norwegian Assets to E.ON for $893M
Royal Dutch Shell (RDSB.LN) Thursday said it has divested its 28% equity interests in the undeveloped Skarv and Idun fields for US$ 893 million. The agreement covers the licenses PL-159, PL-212, PL-212B and PL-262 in the Norwegian Sea.The deal consolidates Shell's position in Norway, and improves E.On's access to equity gas, increasing the diversity of its upstream long-term suppliers.
Gazprom's Challenge to Belarus: Internal Reactions
On August 2, Belarusian president Alyaksandr Lukashenka declared that his country would dip into its reserves to pay its existing debt to Gazprom of $456 million (Itar-Tass, August 2). His decision brought a temporary halt to the current crisis raised by Belarus's failure to meet its July 23 payment and Gazprom's response that it would reduce supplies of gas by 45% starting August 3. Earlier Prime Minister Syarhey Sidorsky had failed in an attempt to obtain up to $2 billion in credit in talks with his Russian counterpart, Mikhail Fradkov (Kommersant, August 2).
Bahrain to Set Up $2.65B Energy Company for National Assets
Bahrain is to establish a holding company for all oil and gas assets creating a 1 billion Bahraini dinar ($2.65 billion) firm to attract greater foreign investment in the country's energy sector, the Bahrain Tribune reported Thursday.
Interior, Sen. Salazar Remain Far Apart on Roan Plateau Drilling Plan
Interior Secretary Dirk Kempthorne and Sen. Ken Salazar (D-Colo.) continue to spar over plans to allow oil and gas drilling atop Colorado's Roan Plateau.
If one were to do a CAT scan of Mexico's economy, one would find a country with the potential to become a job creator's paradise. Mexico has far more oil than fast-growing Dubai (a net labor importer) and almost as much as Qatar, another labor importer. If Mexicans working in the U.S. are any indication, Mexico has a work force that is trained and disciplined. With thousands of miles of coastline, Mexico is a tourist haven. It shares a border with its largest trading partner. But even with these positive attributes, Mexico's job-creation engine has stalled.
Why Oil Could Be Headed Even Higher
Surging demand coupled with concerns about tight supplies are sending crude prices up, and there's no relief in sight on either side. In addition, speculators are now betting on further price spikes. "It looks like [oil] is getting ready to do a new leg of height," says Peter Beutel, president of the energy risk management firm Cameron Hanover. "There is market momentum, and the magic number now is $81. If we hit that, most people believe it'll head to $91 or higher." Beutel adds that some technical charts predict prices could hit $110 or $118 by the end of the year. He adds however that such a spike would take a "smoking gun" like Iran blockading the Strait of Hormuz, the key strategic gateway to the Middle East's oil supply.
Energy sector at risk from attacks: expert
Energy facilities are the new targets of extremists who are well aware of the enormous economic damage that can arise from disruptions to oil and gas production, a US expert said Thursday.“The industry that I think might get attacked is the energy industry,” said Robert Taylor, professor and chair of the University of North Texas’ department of criminal justice.
Blowing up energy targets are “new kinds” of attacks the world should prepare for, he said in a speech to a regional financial crime conference in Singapore.
Adel al-Ardawi, a spokesman for the Baghdad city government, said that even with sufficient electricity ‘‘it would take 24 hours for the water mains to refill so we can begin pumping to residents. And even then the water won’t be clean for a time. We just don’t have the electricity or fuel for our generators to keep the system flowing.’’
Russia and Belarus narrowly averted another energy crisis on Friday, reaching a last-minute agreement to cancel threatened cuts in Russian gas shipments that had rattled European nerves.Gazprom backed down from a threat to slash gas supplies by almost half to Belarus, a key energy transit state to western Europe, after Belarus began repayment of nearly half a billion dollars in overdue debt for past supplies.
Memory and vision: The Apollo Alliance and eco-apartheid
The Apollo Alliance’s choice of model and metaphor is straightforward. It precisely represents their values. Its professed goal is the abatement of global warming, but its program aims at restructuring the US economy to ensure continued growth and restored leadership in the world economy. This aim stands in contradiction to the need for the US to dramatically reduce its disproportionately high consumption of all resources, most especially energy.Environmental racism on a world scale is exemplified by the relatively greater impact of global warming on the global South, an issue which the Apollo Alliance is constitutionally incapable of addressing. The rest of the world is absent from the Alliance’s program, except for some platitudes about extending the benefits of a green economy to the Africa, India, or China. The commitment of the Apollo Alliance to growth prevents it from recognizing the impending peak of cheap energy.
Fight over oil tax threatens energy bill
A rebellion by oil-state Democrats over $16 billion in new taxes on oil companies is threatening to upend House Democratic leaders' plans to swiftly pass energy legislation.
Ethanol Makers Join Food Vs. Fuel Debate
Ethanol producers are clamoring over food industry claims that prices on everything from popcorn to soda are skyrocketing because of the rising demand for corn to make the renewable fuel.Ethanol backers in Iowa focused their ire on the industry, particularly the popcorn market, during a news conference here Wednesday.
"We're here today to pop the popcorn propaganda bubble," said Monte Shaw, executive director of the Iowa Renewable Fuels Association.
Petrol: global scenario until 2030
Many experts claim the world's most essential commodity is likely to suffer an accentuated rise in price followed by strong geopolitical instability. Have we reached the peak of Hubbert's curve, where oil production is destined to undergo an inexorable decline?As oil production failed to grow since 2000, experts classified 2005 as the year of an oil production peak (and 2010 for every other liquid substance). The cost of extraction and research in the oil industry has been constantly on the rise, seeing as new oil-fields have been increasingly difficult to find and are now mostly located in deep seabeds. Oil refining (still a sector producing high investment yields) is, in turn, threatened by new environmental policies, excessive costs with human resources and new technologies, not to mention, and most importantly, an unstable demand, where necessary investments are high, re-imbursements take long to compensate initial investments, and yet where securing demand remains a top priority. At any event, we ask the question: how much will OPEC countries' supply grow? Or rather, how much crude will they be able to supply the world with in response to projected increases in consumption and a decline in production? Whilst in 2010, OPEC countries will need to disburse 50 billion dollars in investments, the amount predicted in the year 2015 is estimated at 140.
Carolyn Baker: Escape From Suburbia, a documentary review
The 2004 documentary, "End Of Suburbia", produced and edited by Barry Silverthorn and written and directed by Greg Greene, was a stunning and chilling cinematic landmark which placed the issue of Peak Oil and its consequences squarely on the world stage and connected the dots between the unsustainable suburban lifestyle and perilous issues of the twenty-first century such as food production, population die-off, and economic meltdown. Recently, Greene and producer, Dara Rowland, have released the sequel, "Escape From Suburbia" which examines the journeys of several individuals who have fled or are in the process of fleeing from civilization. It highlights how they are building new lives and new subcultures which offer the possibilities of deepened humanity and sustainability. Unlike "End Of Suburbia", "Escape" spends less time interviewing the usual Peak Oil experts and follows the escape routes of ordinary people who are passionate about removing themselves from a culture of over-consumption and extinction.
The terrifying prospect of a post-oil future: no more ready meals, traffic jams or lonely nights in front of television.
Beyond petroleum: It's time to rebrand Alberta
It's time for Alberta to rebrand itself, to become the "BP" of Canada by moving "beyond petroleum" and on to bio-products, and aiming to be known as a total energy producer with a significant stake in both renewable and non-renewable resources.
Africa: Questioning Africom - 2
The growing insecurity of U.S. oil supplies reflects what Michael Klare has called the "economization of security," an important strand of U.S. foreign policy since the 1930s, which has focused on global oil acquisition policy.51 After 9/11, American energy security was overtaken by and slowly merged with the amorphous, borderless GWOT. Active counter terrorism displaced earlier emphasis on training for peacekeeping and human rights. Fears that China is gaining control over African energy resources, e.g.
The Geopolitics Of Global Warming: Russia, The North Pole And Peak Oil
Global warming changes environmental conditions on the ground. In the Arctic, Russia will compete with the United States, Canada, Denmark and Norway for control over fisheries, shipping lanes and whatever fossil fuels can be extracted from the icy north. Meanwhile, environmental changes wrought by global warming in oil-rich parts of the world like Nigeria and the Middle East could make those areas even more volatile.That oil and gas, by the way, could become even more coveted if worrying signs that the world has hit a “peak oil” production prove true.
Simmons & Co. celebrates $100 billion landmark
Founded in 1974, Simmons & Co. International just passed the $100 billion mark in transactions that the energy investment bank has either advised or managed."It is amazing to me that what started as a mere idea in early 1974 should, over good times and bad, working for hundreds of clients -- large and small -- result in a $100 billion track record of energy-focused deals," said Matt Simmons, founder and non-executive chairman of the firm.
Appalachian Power Uses Battery to Complement Service
American Electric Power’s groundbreaking use of a utility-scale battery in West Virginia has gone so well that the company plans to install another.When the 1.2-megawatt battery made by Japan-based NGK Insulator began operating in Charleston in July 2006, it was the first megawatt-class sodium-sulfur, or NaS, battery to be used in North America.
As oil prices increase, the cost to find it is up as well
As oil prices have spiked, the costs of finding oil and natural gas grew right along with them, an industry cost expert told oil executives and engineers at a conference Thursday.But Cambridge Energy Research Associates expects such costs to soften in the next two years, said Candida Scott, director of cost research for CERA.
Turkey rations water as cities hit by drought
Turkey's two major cities are grappling with water shortages after record low levels of snow and rain in the winter and searing summer temperatures.Reservoirs are less than 5% full in the capital, Ankara, home to 4 million people, according to the country's water authority. On Wednesday the municipality began a water restriction policy of two days on, two days off.
War-torn Iraq happy with high oil prices
War-torn Iraq is pleased that high oil prices will help fund emergency reconstruction work, but does not want a price bubble to cause instability, Oil Minister Hussein al-Shahristani said on Thursday.
U.S. checking possibility of pumping oil from northern Iraq to Haifa, via Jordan
The United States has asked Israel to check the possibility of pumping oil from Iraq to the oil refineries in Haifa. The request came in a telegram last week from a senior Pentagon official to a top Foreign Ministry official in Jerusalem.The Prime Minister's Office, which views the pipeline to Haifa as a "bonus" the U.S. could give to Israel in return for its unequivocal support for the American-led campaign in Iraq, had asked the Americans for the official telegram.
Good news from Baghdad at last: the oil law has stalled
The panic and distraction of the security crisis should not be used as cover for handing Iraq's wealth to foreigners.
Venezuela boosts oil subsidies to Cuba
Venezuela has increased oil subsidies to Cuba from approximately $3 billion in 2006 to possibly more than $4 billion this year, according to a University of Miami report to be released today.Venezuela is shipping 94,103 barrels of oil a day to Cuba, the Miami Herald cited experts at the University of Miami's Institute for Cuban and Cuban American Studies calculated, based on official Havana figures issued last week.
Russia's gas pipeline network faces reality check
In recent weeks Russia has announced a number of high-profile export-oriented gas pipeline projects, notably the Europe-bound Nord Stream and South Stream, the China-bound Altai route, and the Caspian pipeline in Central Asia. However, all these pipelines will be connected with the existing Gazprom pipeline network. Therefore, the successes of these ambitious projects will depend on the state of Gazprom's aging pipelines.
Since the death of Saparmurat Niyazov, the US has been maneuvering to take patronage of Turkmenistan away from Russia. The new ruler, President Gurbanguly Berdimuhammedow, is trying to play both sides against the middle. Half-loyalty will buy him time, but soon he will have to make decisions.Turkmenistan is an important pawn because it has the second largest Caspian oil reserves: they are the only serious competitor to Russian oil and gas in Europe.
A new version of the internal combustion engine, which could significantly cut gas consumption, might be surprisingly practical and easy to deploy, according to recent findings by researchers at MIT. Tests on a prototype based on the technology, which allows engines to switch between conventional technology and the new gas-saving type of combustion, show that it does not require a special fuel, and engines using the technology can be cheaply made out of conventional auto parts.
Farms in main Philippines island go dry amid fears of drought
Tens of thousands of hectares of farmland are being laid to waste by a lengthening dry spell in the main Philippine island of Luzon, officials said Thursday....Manila was hit by three-hour power outages last month as hydro-electric plants ground to a halt due to low water levels.
Senators map new plan for climate bill
Senators are lining up behind a carbon trading plan to slow global warming, with the aim of cutting 70 percent of U.S. emissions of carbon dioxide and other greenhouse gases by 2050.
Bush sets global climate meeting
U.S. President George W. Bush has set a multinational conference on climate change for September 27-28 in Washington, a senior administration official said on Friday.Bush issued invitations to 11 other countries plus the European Union and the United Nations to attend the meeting intended to pave the way for agreement by the end of 2008 on a long-term goal to cut greenhouse emissions, the official said.
A new Round-Up has been posted at TOD:Canada.
The situation in the credit markets continues to worsen as a sudden attack of risk aversion rapidly dries up liquidity. And this is before the resetting of adjustable rate mortgages (ARMs) begins in earnest - to the tune of $50 billion - in October. Watch this space.
On the Canadian energy scene, Shell pumps $27 billion into the oil sands, even as oil patch profitability falls. Abu Dhabi wants to invest in Canadian power plants, and there are plans for BC to host an LNG terminal. Wind power grows rapidly in Ontario and Quebec, making a few enemies along the way. In BC they ask: should public transit be free?
On the climate front, water is the issue - too little and too much. Finally, in the tug-of-war between efficiency and resilience, efficiency has the upper hand, but what price will we pay for allowing our life support system to become brittle?
For all of you folks that don't read these round-ups, you're missing out. Like Leanan's drumbeats, these are excellent "one-stop shopping" for a variety of information put together by Stoneleigh.
Thanks Substrate :)
The Round-Up aims to integrate energy, climate and finance, and not just from a Canadian perspective.
I've been focusing quite a lot of attention on the developing credit crunch recently, because fear is spreading the contagion is so rapidly, even though the actual losses so far are only the tip of the iceberg. Things should really get interesting once the bulk of the ARMs begin to reset in October. Credit expansions proceed until the debt that creates them can no longer be supported, whereupon credit deflation follows. The consequences of this will inevitably be very serious, and global in their reach.
You do a great job Stoneleigh. I visit them each time you post. I forward your link to my friends also.
John
Thanks for spreading the word John - much appreciated.
Thanks, Stoneleigh
Your chart on Household Cash Less Liabilities made me think more about the household.
The chart below shows the precarious state of the US consumer from Paul Kasriel, Northern Trust,
http://web-xp2a-pws.ntrs.com/popups/popup.html?http://web-xp2a-pws.ntrs....
Households: Net Financial Investment and Sum of Liabilities Increase and Corp. Equity Sales as percent of disposable personal income
Kasriel says, in reference to chart above
"I have combined households’ net increases in liabilities and their net sales of corporate equities, scaling this sum against disposable personal income. As households began running deficits in 1999, their borrowing and sales of assets – corporate equities – increased in order to fund their deficits. In 2006, households’ combined borrowing and corporate equities sales reached a record high 17.0% of disposable personal income."
He says on his last page
"To repeat, if households are spending more than they are earning, they must fund their deficit either through borrowing and/or asset sales, neither of which is a wealth effect. To deny that MEW (mortgage equity withdrawal) has played a role in funding household spending when households have been running deficits flies in the face of logic and data. Chairman Bernanke is whistling past the graveyard if he thinks that the housing recession is not going to negatively affect consumer spending via declining MEW."
This chart above shows US real GDP in the blue line, (corrected for CPI+lies) from http://www.nowandfutures.com/forecast.html
The recent drop in the US GDP (blue line) shows strong coincidence with Kasriel's increased liabilities/equity sales and decreased net financial investment in the first chart.
In the US, consumer spending accounts for about 70% of the GDP.
http://wiadomosci.onet.pl/1579466,10,1,1,,item.html
If this true measure of GDP (blue line) has been negative (ie recession) since 2006 and households have been running deficits for seven years, since 1999, does this mean that the US consumer spending will show, at best, no growth for the next seven years?
As consumer spending is (was?) about 70% of the US GDP, does this mean that the US could be in a recession for another seven years?
One effect of an extended recession would be that US demand for oil should drop.
Ace,
Can I first suggest that you post replies such as this either at Stoneleigh's site, or maybe preferably at both? There are more reactions to her work here than at TOD:Canada, and that is simply strange, no matter how you look at it.
I see a lot of appreciative comments for the Round-Up here, in the Drumbeat, but I think it's real obvious that that kind of effort deserves reactions right where it's posted. There is of course a sitemeter that provides info on traffic, but if that remains anonymous, it's not really a booster, I would guess.
Just thought I'd point that out again, for everyone who reads all those articles over there. There is a critical mass somehow that is required to start a true conversation, and Stoneleigh deserves for that to happen, and more. I think.
As for your post: I didn't know you are following financial news, just seen your excellent oil posts so far.
Your question:
.... doesn't go far enough yet, I think. All reported growth in the US economy since 1998 is most probably virtual. The first graph you post confirms exactly that. It shows an ever deeper level of debt. And whether it's federal, or personal, or something else, the US has accumulated a huge amount of debt since '98. Hence, any GDP number is bogus. None of us get richer by borrowing.
US GDP growth has been negative for years, and inflation has been way higher than official numbers. Housing prices have more than doubled, while the roofs have started leaking, and the paint is peeling. Getting paid just to live in a home. Yeah, feels good, right?
It's what Joe Bageant aptly calls: living in the hologram.
There has been no growth in the US economy for a long time. But it's like you when you lose your income, and have a neighbor you can go to every day for another$100. You can spend every night. but does anything grow, except for your debt? So does your neighbor give you the $100 every day beacuse he's stupid, or did you sign a paper that says he owns more and more of your property?
Stoneleigh thinks there is an unequaled economic disaster coming our way, of the kind that will make 1929 look like a 5-year-old girl's birthday party in full sunshine, and I think she's right. Housing prices have doubled in the US in 10 years, but that's nothing: Forget subprime.
The amount of leveraged credit, hedge funds, CDO's, has gone up 10-fold. And none of it is real. We are fast on our way to find out what IS real. Misery is. Debt is.
PS: the graphs Stoneleigh uses come from the ContraryInvestor, unfortunately a pay site, with some things posted elsewhere. Their strength is twofold: first, they are graphically better than just about anything I've seen, and second, they are unique in that they go back 50-60 years, which makes for great and very convincing trendlines. Just look at the first one, Household Mortgage Debt since 1947, and then tell me you think this time it's all different.
Meanwhile, nothing but appreciation for you from me. BTB, I had to look twice at your second graph, but it's true: it states "GDP, adjusted for CPI+lies". Priceless.
Thanks Ace - really interesting.
Personally I would be very surprised if consumer spending showed any growth for a very long time because I think we're in for a rerun of the Great Depression (at the very least). We've just lived through the largest credit expansion in history and should now IMO see the largest credit deflation (ie Enron on a very large scale).
I'm not saying that a recession isn't coming or that the housing market won't do some economic damage -- but GDP is partly a measure of what you cannot do for yourself. GDP is also partly a measure of waste and high profit margins. The internet and cell phones have probably saved me several percent of income per year of wasted money (and time). This effect multiplied over millions of consumers may mean that GDP could be "flat" while "consumption" rises.
People are providing more service for themselves, finding the correct products more often, and finding lower margins products due to the internet and cell phones. Economic efficiency could increase and neither GDP nor productivity measures would capture it.
Stoneleigh, great job, thanks. I especially like your focus on energy, climate and finance; areas which I pay particular attention to.
I came across this article today, which gives some idea of just how big the "iceberg" might be :)
Credit Brothel Raided, Even Piano Player Not Safe:
http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_gilbert&...
The rest of the article provides a quick summary of what's happening around the world, much of which you've already included in your excellent round-up. Contagion obviously hasn't been contained and has become global.
Triumvirate of collapse - Economy, Ecosystem, Energy
Not strictly true. The consumer is going to get blamed in this but the real bad guys are the bankers who created a debt based monetary system and then ran it into the ground. They are the ones that from 1913 to 2007 destroyed 95% of the dollar's purchasing power (according to the Federal Reserve itself, no less). These bankers are the ones that found ways to leverage even the already leveraged debt into a derivatives mess that is, each year, worth more than 11 times the total global GDP.
And if you want to spread the blame, there are those nations who willingly signed on to the US imperial inflation tax scheme and have aided and abetted that scheme (as opposed to those nations forced into the scheme essentially at gunpoint).
"The greatest shortcoming of the human race is our inability to understand the exponential function." -- Dr. Albert Bartlett
Into the Grey Zone
Greyzone, on that line of thought, take a look at some of the roots. As you said, the Creature from Jekyll Island (aka Da Fed) is in lead dog position.
This article shows where the CDO's came from.
HEADWATERS OF DISASTER
http://www.financialsense.com/fsu/editorials/schoon/2007/0801.html
SNIP
SNIP
Their kids won't see it that way, as the world crumbles around thier well-defended and well-supplied homes.
--
Jaymax (cornucomer-doomopian)
I second that
Canada's growing problem with illegal US immigrants - Is it time to Build the Fence?
http://www.rawstory.com/showoutarticle.php?src=http%3A%2F%2Fwww.cbc.ca%2...
LOL
That story ran in the Round-Up today :)
Our collective spree started with the internet bubble and when it burst our expectations didn't. We got into the home equity piggy bank next, fraudsters of various stripes loved it, and now we have the subprime meltdown.
We, as a society, are on a truly silly consumption binge, much like crack heads who just can't put down the pipe. I wish for a soft landing but I fear the worst ...
The downturn in housing is really getting a foothold, the era of really low interest mortgages allowed the cost of housing to skyrocket. When interest rates are low, building materials and everything related to new homes fills the void left by low rates, in the last few years home prices went up by historic proportions. Home equity loans helped power the U.S. economy for the first years of the new century, now the bill comes due.
Next up:
Corporate bankruptcies
Landry's Restaurants looks like its fixing to declare chapter 11. Their restaurants have pretty good business, but over the last 5 years they bought way too many local restaurants and small chains. Now their year-end financial statements are late, because of a stock backdating scandal, and their bondholders have filed to call in their bonds. Landry's is "looking for financing" and just filed an injunction to prevent the bond call-in, which a judge granted.
There's another sign too. Landry's bought an old motel on the Seawall in Galveston, shut down the motel and tore it down. Now the same property is back on the market as unimproved property.
All this looks to me like bad management and financing that's caving in. The credit crunch is only partly responsible, but the cheap easy credit let them expand too fast without any controls, and now the chickens are walking home to the roost.
Bob Ebersole
And what will 'they' do. How to inject more paper money? Historically this is the response. But how do you get it into the hands of the people who will spend it? Rapidly becoming poor(er) Americans are the ones who spend it, how do you give money to them? I don't see personal debt increasing to keep the party going. So what? Tax rebates for home loans? Energy tax credits? They will do something, just what will it be?
My guess is mortgage bailouts. Won't do any good, but they'll try.
Don't forget the unsold inventory of new homes. Let's say the 580 thousand or so unsold new homes have lost an average value of 50k, that is 290 billion dollars off the balance sheets of the building companies, the numbers are huge. Plus the interest alligator that keeps knawing away at this unsold inventory must factored in.
By my way of thinking we have a huge housing surplus in the US, way above and beyond that present unsold inventory.
As gasoline prices go up, people are going to have to abandon the suburbs and relocate closer to jobs or mass transit, shopping, schools, etc. As the incomes of the Formerly Well Off continue to lose pace with inflation in general and exploding energy and food prices in particular, people are going to have to make more drastic lifestyle changes. The elderly are going to have to move in with their children (or vise versa), kids are going to have to delay leaving the nest longer, and many households will expand to include assorted other relatives, friends, or paying lodgers. You'll see a lot more subdividing of houses to create rental units; that rental income will make the difference for a lot of people between keeping and losing their homes.
The bottom line is that America is heading to a much lower level of square feet per person as far as housing is concerned. Lower s.f/person will be less expensive to heat, and thus will be necessary for that reason alone. We are going to have to decline and become a poorer country even under the best possible scenario, there just isn't any other way around it.
What this means is that, with just a little remodeling, we already have about all of the housing that we need, where we need it, with a substantial surplus left over in the low-density suburbubs (where we do not need it). Thus, we hardly need to be building any new houses at all, for a long time to come. We might just as well be taking all that money being spent on new housing, dig a hole, throw it in, and set it on fire, for as much good as it will do us in transitioning to where we need to go.
WNC,
I take it you do not recommend housing stocks? The depth of the mortgage crisis is yet to unfold, it is not just the drop in actual housing value but the leverage that goes along with it. You have to wonder about the loss to pension funds and the like that are tied to the mortgage market.
I am a bit of this trend in action - I was doing fine with my $50/mo gas + electric bill in my roundly insulated apartment, but my mother was not enjoying life in her big, old farm house.
She thinks the farm is worth $150k where it sits, but I'm finding many like it for half that within a few miles of town, and that is before any sort of correction really hits. My conundrum at the moment is how to slip some solar and a water furnace into the place without her noticing ...
You don't have to increase the supply of paper money; what you have to do is to boost people's incomes, which in turn can boost bank accounts.
There are two ways to stimulate the macroeconomy: fiscal policy and monetary policy, and these two policies work together. Here is what happens: the U.S. Federal government runs humongous deficits--i.e. the government pays out much more than it takes in through taxation. The government writes an I.O.U. (government bond or treasury bill or note) to pay the difference. The Federal Reserve System, through expansionary monetary policy makes it possible for the government to finance its deficits and also assures that liquidity is present throughout the financial system so that banks and other financial organizations can make loans.
The Fed will not permit a debt deflation, such as happened after 1929. The Fed will use Open Market Operations to pump up the supply of credit in the economy, and if all else fails the Fed can lend unlimited amounts of funds to whoever it decides to lend to. (Normally the Fed lends only to banks and to the U.S. government, but it has broad authority to do whatever is needed to avoid a financial crisis.)
In tough times the Fed is faced with a tough choice: Expand the money supply rapidly and thereby accept increasing inflation--or clamp down on inflation with restrictive monetary policy. In my opinion, the bias against deflation is so strong at the Fed that increased inflation is almost certain in the years immediately to come.
As oil goes up past eighty dollars a barrel and eventually over one hundred dollars, there will be mighty strong inflationary pressures in the economy. The Fed will have a choice:
1. Choke off the inflation and accept a severe recession (for which the Fed would be blamed) or
2. Ratify the inflation and accept abrupt and severe increases in inflation to mitigate deflationary pressures and prevent inflation.
Probable result: Something like the stagflation of the seventies and early eighties--but much worse.
Don, it sounds as though you are saying that the most likely course will be for the Fed to lower interest rates (and thereby create conditions for the next bubble). Given that the US economy doesn't exist in a vacuum -- where would the money come from? How much more money will Asia lend us?
My gut tells me that you are exactly right about rampaging inflation and wage stagnation (I've already topped out as I suspect have a lot of other Boomers). But as we stop spending on discretionary items, a whole raft of jobs are going to evaporate... a downward spiral for the US economy.
The Fed (in cooperation with the banking system and the borrowing public) can create new bank reserves (and hence new loans and new money) WITHOUT LIMIT. Much attention is given to short-term interest rates, but these are only the tail of the dog of monetary policy, which is primarily carried out through daily Open Market Operations (OMO) by the Fed. See any economics textbook for how this works, how the Fed creates money out of thin air.
What about the falling dollar against foreign currencies? This is probably a Very Good Thing (VGT) because we run big trade deficits. A cheaper dollar means that our exports become cheaper and imports become more expensive. Thus a falling dollar will eventually tend to cure our trade deficit. Against some currencies, the dollar should fall a great deal, against others not so much. Unfortunately, the Chinese won't let the dollar fall much against the yuan; the Chinese don't want their dollars to depreciate because they hold so many of them.
The U.S. is a huge debtor country. Debtors win when inflation unexpectedly increases. Double digit inflation is even more effective than mild inflation, and if you want to get rid of all those old burdensome debts that are holding down consumers and corporations, why then the way is clear: Just let the hyperinflation roar.
I have stated earlier on TOD that I expect the dollar to one day again be worth exactly the same as a Mexican peso. The Fed will not give in to inflation without a struggle, but I think Peak Oil must necessarily bring much greater inflation to the U.S.--combined with slow or negative economic growth. In other words, we may have the worst of both worlds--a depression with double-digit unemployment combined with escalating double-digit inflation.
Fasten your seat belts, economic blind curves ahead.
Don:
I get the strong idea the Chinese won't hold those dollars. My best guess is that they'll find some country that will take them in exchange for their oil rights.
I don't think they are any different from me. When the music stops and TSHTF, I wanna be the one sitting on the oil.
With oil, I can make anything.
With dollars, maybe burn them to heat the house, or possibly use them for insulation... not much else I can really think to do with a lot of scraps of paper. Or worse yet, I may get stuck with just a number.
Steve
Sailorman,
What the heck do we export except jobs?