Note that it appears that global crude oil consumption only fell one year in the Thirties, in 1930, with rising consumption thereafter, and as Downsouth observed there were three million more cars on the road in the US in 1937, versus 1929. Today, hundreds of millions of people worldwide want to drive a car for the first time. Also, after hitting a low in 1931, oil prices rose from 1931 to 1937.

Monthly constant dollar prices in the Thirties:

http://mjperry.blogspot.com/2008/11/oil-shock-of-1930s.html

In regard to net oil exports, note that the US went from finding its largest Lower 48 field, the East Texas Field, in 1930 and from being a leading net oil exporter, especially during the Second World War, to net oil importer status in only 18 years (in 1948).

Hi Rune

Like you I've spent a bit of time looking at oil consumption in terms of gdp and the link between the two. I think I had it at about 0.4% change in oil consumption = 1% change in gdp for a period 1985-2003 when oil prices were relatively stable. I would be interested in looking at any data summaries or graphs you have compiled - any chance you can link or post these please?

One thing you will have to take into account, especially if comparing the US to Europe, is the continuing higher population growth of the former. If you look at real growth in gdp/capita for the US it's even more anaemic than just adjusting for energy costs!

TW

Opps :)

You mean there is something outside the US ?

Seriously though on that note as far as I know Chinese consumption is still increasing.

The main point is the interplay between the debt bubble and oil prices is complex a simple argument that high oil prices
decrease the ability of people to service other debt is sufficient as a base argument. But outside of this my opinion
is that the debt bubble overwhelms oil prices.

Your not following all the loans the seller himself has a loan thus he makes the difference between his outstanding loan value and the sale price of the house. The cash if you will entering the economy is the various commissions and fees.

I'll give you a common example. Buyer A is a first time buyer and buys B's house for 200k USD. Seller B paid 100k for house 10 years ago.

Buyer A takes out a low down no down payement loand on house Seller B then goes on to buy a house for 400k that was 200k ten years ago.

We have tax laws in the US the defer tax for profits if your both buying and selling a houe.

So B has say a profit of 120k and he rolls 100k into his 400k house with a loan of 300k and blows 20k as payments for say and SUV and furniture for the big house.

Now lets say housing prices fall 50%.

Buyer A is underwater by 100k house value now 100k
Buyer B is underwater by 100k house value now 200k

The "profit" your talking about is completely gone.

The only way to retain this profit would have been to sell and rent or move to a much cheaper area and probably even then buy
the same house. This is why so many people from California where moving to surrounding states and on to Texas.
Even then they will take a certain hit. So there are other scenarios that work out.
But for every case that someone did the math and retained the profit you have probably 100 cases where everyone just moved up
taking on ever larger debt loads. In a lot of cases these move up buyers did not even put 20% down but kept the cash and took
out a dubious loan.

In cali in many cases it was B i.e the buyer seller selling his 100k house for 200k then buying a 800k house with basically nothing down.

In any case all the transactions that worked to cause a net increase in the debt level i.e most of them since the 1960's where increasing leverage in the system the loan to equity ration was slowly declining until it went to zero now at that its at zero the leverage blows up the moment house prices decline.

Also in many cases even people that put 20% down turned right around and HELOC'd out the down payment to make the payments buy more houses etc etc so often this equity and later appreciation did not stay in the house for long. Many long time mortgage payers took out substantially all of their value increase over the last several years.

Thus you have to look at the overall flows and the overall flows have lead to ever dwindling equity and housing prices increased until finally of course it all blew up.

Now you have to look at who really made money playing this game. Of course its the bankers if you look at an amortization table for a standard 30 mtg you will see that the interest payments are front loaded on the loan. Thus the real interest rate you pay is much higher in the first ten years of the loan if you pay the loan amount off. In fact its practically the same is paying rent these mortgages are really just a sort of rent to own contract that results in little equity gains in the first 10 years.

Given that the losses are socialized i.e if a bank goes under the loan losses are written off you have and enormous sum of money flowing into the banking industry. For most people it represents a 50% tax for all intents and purposes levied by the banking industry.

The rate that wealth is concentrated in this ponzi scheme is enormous and the length of time it ran astounding. Now where did this money go ? Eventually most of it after getting concentrated in the hands of bankers flowed back out into equities buying up companies via new loans and eventually via leveraged buyouts as the amount of concentrated money grew large enough to start buying up large companies outright.

The bankers owned your home and they owned the company you worked for they owned the stores you shopped in and you had no savings so every penny you spent you paid interest to the bankers on.

And everything works until the debt load gets so high that defaults become rampant then it all falls apart and the banks are left with trillions in bad loans. But of course the bonus's have all been paid and the mansions and yachts purchased etc. So yes wealth was generated in a sense but most of it went into luxury items for the very rich that also suffered inflation as the wealthy competed for the best houses. They also played the same game over paying for assets and they also leveraged up ( Hedge funds).
Almost everyone was leveraged to the hilt.

My argument is that energy flows played a secondary role to this ponzi scheme and that the job of the central bank was to ensure that this massive ponzi scheme did not bleed over into the real economy resulting in a price/wage spiral as basic commodities increased in price and workers had no choice but to seek higher wages. You have no choice if food prices are spiraling but to seek a wage that you can at least eat on. By having the money flows directed into paper equity profits the effects of inflation are masked.

Thus my guess now that the mortgage bubble is blown up is that attempts to reinflate won't do anything but force commodity prices higher and put pressure on wages and of course interest rates. But rising interest rates would simply force the housing bubble down faster.
And of course you can see how peak oil can interact badly.

Now unlike a lot of people I'm actually not all that worried about the trillions in losses associated with the blown housing bubble this debt is going to be socialized and put on the Government books. It means the government is going to run out of credit but the sooner their hands are tied the better. They will of course eventually raise taxes to punishing levels but so what it just send the economy deeper into a tailspin. What do they get in the end ? Some more houses that we don't need and some SUV's ?

Basically they can socialize the losses as long as they wish it does not change the situation it just turns a fast banking collapse into a multi-decade depression ala Japan.

But Japan has to export its ass off and devalue the hell out of its currency and effectively impoverish its people for decades to prevent collapse. I'd suggest that the US can't export its debt the rest of the world simply cannot afford to buy it.

It can't internalize the debt via high taxes since the people can't pay. It can't really print money since this will eventually lead to commodity inflation.

I really don't know for sure how things will play out we are at the end of a old monetary system and every attempt will be made to ensure that we can sneak into a new one without paying our debts. I suspect the game will fail its always failed regardless the Kings and Empires of past ages always debased the currency before they fell and they fell non the less.

Historically you end in rampant inflation with the currency completely worthless but I actually wonder if this will be the route we go down at least for a while. We just have to wait and see if commodities start on a price spiral. Historically before mortgages attempts and inflation always hit the basic needs the hardest. I think we are going to have to have that happen first before we see what happens next. The reason food and now energy gets hit first during a round of currency devaluation is that these are generally consumable item with the cost basis rising quickly following a devaluation of a currency i.e the farmers costs closely track real inflation they increase prices to ensure they can afford to plant next years crops.

So right now my bet is on good old traditional commodity inflation esp given peak oil. We will continue to see debt deflation for decades to come or at least as long as our current monetary system exists so a return of the debt ponzi scheme is impossible.

How long ? I doubt we make it through the year before the new system starts to take hold. My best guess right now is a currency crisis involving the GBP and we will save it leading to shaking up other currencies and this will probably lead to the Bond markets reacting badly as government bonds are no longer viewed as a safe haven. This sets off commodity prices and forces interest rates higher and then we are off to the final race. Basically once we see commodity prices increasing and interest rates increasing its game over.

The final wealth extraction scheme I see is for rising commodity prices to become the key source for flow of wealth then rising intrest rates attract this wealth to fund government debt thats monetizing our old housing debt. We cycle it through food and energy which people have to buy. Ever increasing government interest rates attract this money and funds the debt.

I think thats how the old debasement schemes worked the commodity prices skyrocketed the farmers made a profit then bought government debt at attractive interest rates to keep from having their profits inflated away. This game was played often in the past.

http://en.wikipedia.org/wiki/Roman_currency

Whats left out is the flow of funds into the government itself i.e loans the governments take out from the wealth citizens who own most of the farmland and a lot of the trade. Eventually debasement in my opinion forces people who are trying to concentrate wealth to loan money to the government with interest to cover inflation. Monetary systems seem to almost always work in such a manner that the government is given almost unlimited borrowing capacity. Wonder why :)

You don't know much about construction loans ?