The Oil Drum | DrumBeat: July 7, 2009

174 comments on DrumBeat: July 7, 2009

Comments can no longer be added to this story.

Show without comments | PDF version

ericy on July 7, 2009 - 9:17am

We had a short discussion about commercial foreclosures yesterday. To expand on this, I found a fairly thorough analysis of where we are now WRT the credit/debt situation here:

http://www.moremortgagemeltdown.com/download/pdf/T2_Partners_presentatio...

Warning - large PDF file - 152 pages. The short answer is that they agree that there are a lot more writedowns coming. A few interesting quotes:

Because the majority of buyers are in ultra low and low-mid prices ranges, the supply-demand imbalance from foreclosures and organic supply will crush the mid-to-upper priced properties in 2009. We already have early seasonal hard data proving this. As the mid-to-upper end go through their respective implosions this year and the volume of sales in these bands increase as prices tumble, the mix shift will raise median and average house prices creating the ultimate in false bottoms. We also have data proving this phenomenon.

After a year or so the real pain will occur when the mid to upper bands are down 40% from where they are now, and the price compression has made the low to low-mid bands much less attractive – the very same bands that are so hot right now. Rents are tumbling and those that bought these properties for investment will be at risk of default (investors have been buying all the way down). Investors have just started to get taken to the woodshed from all of the supply and this will get much worse. Mid-toupper end rental supply is also flooding on the market making it much better to rent a beautiful million dollar house than putting $300,000 down and buying.

Comments can no longer be added to this story.

Leanan on July 7, 2009 - 9:21am

I predict another federal bailout.

Comments can no longer be added to this story.

ericy on July 7, 2009 - 9:43am

Possible, but I sense a lot of bailout fatigue. Shareholders and bondholders may end up eating a lot more of this.

One thing in the pdf that was interesting was that they were talking about paying back the government to get out from under TARP is premature. And the banks that are out from under it can poach employees of banks that are still under TARP. They also say wrt bailouts:

• This is unfair and unwise
– Fairness: Debt holders were paid higher interest than, for example, buying Treasuries in
exchange for knowingly taking more risk. These investors made bad decisions, lending to highly leveraged companies that made bad decisions, so why should they be protected?
– Moral Hazard: The reckless behavior of debt investors was a major contributor to the bubble. It was low-cost debt with virtually no strings attached that allowed borrowers, especially the world's major financial institutions, to become massively overleveraged, fueling the greatest asset bubble in history. This was not an equity bubble – unlike the internet bubble, for example, stock market valuations never got crazy – it was a debt bubble, so it would be particularly perverse and ironic if government bailouts allowed equity holders to take a beating, yet fully protected debt holders.
• The solution: debt should be converted into equity

Comments can no longer be added to this story.

Leanan on July 7, 2009 - 10:03am

It will not be popular, but I don't think Obama and Congress will have choice. Helicopter money will be the only thing they can do (at least politically).

Comments can no longer be added to this story.

ericy on July 7, 2009 - 10:12am

Another anecdotal data point. Out by the ocean where we are, there are lots of expensive vacation homes - in the 1-2M$ price range. Typically these are bought as investment properties - one can rent them out for weekly rentals, and the income can cover a good chunk of the mortgage. I believe that the calculations for affordability take the rental income into account, but in the past there was a lot of funny business involved in stating how much income is really possible. These days, you have to prove that a certain amount of rental income is possible and not just pull a number out of your backside.

But this summer, the rental market out there is really soft. We know of one house that would probably have sold a year or two ago for 1.6M$. The rental for the week of July 4th would have been 4000$/week. The rental for the remainder of July and all of August is 3500$. Yet the house wasn't rented this week at all, and I am told that the rest of the summer has been really soft. Now this house in particular was bought in the early 1990s, so they aren't being squeezed that much by the loss in income. But many of the houses out there were built and sold much more recently, and for them this rental income would probably be more critical to maintaining cash flow. And to top it off, I suspect that some of the homes out there were bought with ARMs of some sort, and if they start to reset the cash flow gets worse.

People who want to go to the beach can instead stay in a hotel, or there are much cheaper properties for rent that are further away from the ocean. Or of they want to save even more they can go for 3 days instead of a week, or for that matter not go at all..

Fall and winter rentals out there are much cheaper as demand is a lot lower. So far the market out there has been stuck - nobody buying and sellers not budging on the prices. But I am thinking that this fall will be when there are some people looking at their cash flow and finding themselves in deep trouble.

Comments can no longer be added to this story.

Leanan on July 7, 2009 - 10:20am

U.S. debt shrinking at glacial pace

Eighteen months into a deep recession triggered by a credit bubble, consumers have made little progress shrinking a mountain of debt. Until they do, the economy will struggle to grow — likely for years.

Comments can no longer be added to this story.

WNC Observer on July 7, 2009 - 11:08am

Dropped from $13.9 trillion to $13.8 trillion over the course of a year. Whoop-de-do!!

Actually, I wouldn't even call that a "glacial pace" -- with GCC, the glaciers are moving much faster these days!

Comments can no longer be added to this story.

AlanfromBigEasy on July 7, 2009 - 12:13pm

Inflation (2.5% ?) reduced the value of that debt a bit.

Just speed up inflation and the debt load will shrink >:-)

Alan

Comments can no longer be added to this story.

xeroid on July 7, 2009 - 12:43pm

Most of the debt is on things like houses and cars - in the real world the value of both of those are deflating, houses at around -20% a year in some places, which makes real interest rates a usurous ~25%. Through most of my lifetime real interest rates have been close to zero or negative.

We are now in a significantly different, unprecedented, situation - new financial strategies are required.

Comments can no longer be added to this story.

ericy on July 7, 2009 - 2:00pm

I think what Alan was driving at is that if the government were to try and print their way out of the mess (which I consider likely), the increase int the money supply would be inflationary, would would eventually cause a reverse in the drop in prices. Not that this would be a panacea - the prices of other things would skyrocket as the dollar would have been devalued..

For something like a car, the term of the note is considerably shorter than for a house - I don't know what is typical these days, but in a few years people could in theory have paid off a lot of the cars out there.

Comments can no longer be added to this story.

AlanfromBigEasy on July 7, 2009 - 2:06pm

Just about right.

Debt is in nominal $, print more and make the load "easier" (for still employed debtors that is).

Alan

Comments can no longer be added to this story.

xeroid on July 7, 2009 - 4:30pm

This is just a viewpoint looking into the USA from the outside, IMO the USA is in a unique position as the US $ is the world's reserve currency, so I think different rules apply.

If you go to hyperinflation, which I agree is the normal policy Governments take, all the holders of dollars around the world would lose all their savings. Nobody will ever lend the US anything ever again and anything like oil that you have to import will become completely unaffordable. Unfortunately the current conditions are far from normal, so don't assume normal policy, the current situation is unique and the PTB appear to have no idea what to do any more other than lie.

I think either massive deflation (which we currently have) or the hyperinflation that may eventually follow will destroy the value of our supposed savings, but I think that the Chinese and Japanese etc will try and make sure it is the Americans that lose all their $ wealth.

Instead of inflation I expect the personal debt in the US (at least) to be defaulted - it seems US laws allow people to just walk away from a lot of housing debt with few ongoing problems, this is not normal elsewhere in the world.

The myth of final salary pensions is unraveling, it really isn't possible to get something for nothing - 2nd law of thermodynamics prevails as always.

Comments can no longer be added to this story.

noutram on July 7, 2009 - 6:34pm

Asset prices falling is not necessarily deflation, the money supply is still increasing. What's more likely is that those assets that are priced less than this time last year where in a bubble that burst... Oil and Housing come to mind...

Nick.

Comments can no longer be added to this story.

xeroid on July 8, 2009 - 7:54am

the money supply is still increasing

I think you don't understand the situation - money supply isn't just from the government and banking system any more - and the Governmenmt alphabet soup of ways for banks to raise cash is deliberately obscure to hide the real situation.

The current oil, stock market and housing prices, unemployment etc are all symptoms of deflation. You only experience the effects of inflation or deflation when you try and buy or sell something. The Government average inflation figures are a special subset of the things you buy and sell, and are almost certainly not the inflation figures experienced by you.

Comments can no longer be added to this story.

noutram on July 9, 2009 - 5:32am

The current oil, stock market and housing prices, unemployment etc are all symptoms of deflation.

IMO current prices are a result the slow-down in debt expansion (debt=money supply increase). We have seen a slow down in debt creation as people do not want or cannot take on more debt -and the banks have tightened their lending requirements even at a time when interest rates are very low to try and induce take up of debt.

Btw. I'm talking Austrian school Inflation definition. Inflation = an increase in the money supply, Deflation = a decrease.

It seems to be a race to see whether the impact of a slow down in money creation via the reduction in debt/lending can be made up for by the creation of money -so far it looks like a close race. The worrying thing is that any return to BAU borrowing (debt creation) with present levels of money creation would induce Price-Inflationary pressures -the FED aims to ease-out of money creation as the economy recovers but that would mean Bond prices falling and thus choke off lending as rates would rise... That's my take on the situation anyway...

Nick.

Comments can no longer be added to this story.

eric blair on July 8, 2009 - 8:46am

Nobody will ever lend the US anything ever again

History says that is wrong.

Go read/research the phrase 'not worth a continental'.

Instead of inflation I expect the personal debt in the US (at least) to be defaulted

No. I expect inflation as the US of A already HAS inflation. Inflation is the increase in the money supply - and if you want to show how the US is shrinking the money supply I'd be happy to examine the proof backing THAT idea.

Comments can no longer be added to this story.

Leanan on July 8, 2009 - 9:26am

The US isn't shrinking the money supply, but I think the argument can be made that the money supply is shrinking. Homes now worth a fraction of what they used to cost, people whose credit cards are cut off or limited, all the "wealth" that vanished when the stock market fell off a cliff, etc.

Comments can no longer be added to this story.

steve from Virginia on July 8, 2009 - 1:04am

Hmmmm ...

The money to 'inflate' would have to be borrowed. Who would lend?

Borrowing is getting to be a real concern for the Treasury. The White House is making noises about 'Son of Stimulus' and it is generating a lot of anxiety.

There is a hazard because the government has to borrow in order to run itself on a day-to-day basis. If it borrows too much, too soon, interest costs would rise. At some point the lenders (in the bond markets) would decide that the rise in interest rates does not reflect inflation risk but reflects default risk, instead.

Those who lent money to the government with the concept that Uncle Sam could deliver some real value in return would all want to sell at the same time - to collect what return they could. The act of selling itself without any obvious cause ... could trigger a follow- on run ... that would accelerate in a vicious cycle.

Also, the economy is still too large for the government to create much money supply all by itself. Generally, the banking system and foreign exchange creates money - lending and whatnot @ high levels of leverage. Now ... there is not much borrowing. Consequently, there is little 'checkbook credit'. The increase in base money isn't really inflationary because it only replaces a percentage of private loans written off and doesn't replicate itself by fractional lending.

People who need loans desperately cannot get them because the individuals are too risky to lend to and those who are not needing credit aren't borrowing. Why should they? There aren't 'investment opportunities' with deflation and yields at zero ...

Right now the government is creating money out of thin air and it stays with the banks. This is called a 'liquidity trap'. What liquidity escapes the trap inflates prices higher ... but doesn't increase the purchasing power of (unemployed) customers. A lot of the liquidity that escapes from the bad loan black hole goes right into the oil market!

Talk about self- defeating!

It also reaches those levels of industry closest to the liquidity source; banks and finance firms. These have first claim on money. From there the liquidity flows to commercial firms who have the next claim on money. Here, the liquidity results in unaffordable goods - more dollars chasing a fixed amount of production. With goods prices increasing and wages dropping like a stone eventually the producers themselves go out of business.

This is what happened during the Great Depression. The Hoover government and the Federal Reserve tried all these numbskull tactics from 1930 onward and they simply made things worse. There was no throttling oil price input back then either.

Comments can no longer be added to this story.

tonyw on July 7, 2009 - 4:30pm

Yep, we have deflation of many assets and overall wages, some small inflation in necessities, with banks increasing debit interest rates and decreasing credit rates wherever they can in order to increase their spread and shore up their positions.

Very little of the bailout monies has made it into the real world, again much being retained by the banksters and other vested interests and lobbyists.

The banks which have survived are making more money in traditional trading since there are fewer competitors.

What we needed at all levels is the same financial strategy as always, don't spend more than you can afford.

Comments can no longer be added to this story.

porge on July 7, 2009 - 4:49pm

What we need is a non fiat currency.
We need to link what we do all day to something that represents the real world.
I like energy as the score card. However, I am not sure on how to go about accounting for it.
I can't help but wishing that we are finally on the cusp of awareness that leads to a more rational way of life.......I can dream.

Comments can no longer be added to this story.

artaxt on July 7, 2009 - 2:33pm

Price inflation without commensurate inflation of income will not help in reducing debt. If anything, it makes it worse. The large number of lost jobs will also be detrimental to getting the debt paid down.

Comments can no longer be added to this story.

porge on July 7, 2009 - 4:04pm

spot on.
Debt is useless if it has no way of being serviced.
We are screwed.

I have to say this...........everything is related to the income of the masses.

We are grossly over-populated and therefore labor(as a commodity) is extremely cheap.
Hence, no one makes any where near enough money as wages to service the level of debt that is required to keep the ponzi scheme running at full tilt.
cheap oil, cheap oil, cheap oil..........etc.

Comments can no longer be added to this story.

TenThousandMileMargin on July 7, 2009 - 11:14pm

It is possible that after a few years of debt-deflation the USA will enter a highly inflationary environment, as the US pursues a policy of deliberate currency devaluation and money printing. I don't think inflation has any hope of gaining traction while real estate crashes and job losses are mounting.

But even when inflation takes hold, wages will probably stagnate due to a lack of bargaining power. So, as you say, it will be very difficult for many people to make enough money to service, let alone pay off debt, in an environment where mass unemployment holds down wages.

As you say, there is a global surplus of cheap labour. I can't see any country with good growth prospects over the next decade - I'm sceptical about China, a lot of what they did over the last decade was "built it and they will come".

So we are looking at a global low wage environment for the next decade, and inflation won't change that if demand for labour is low. You'd need really high inflation - over 30% per annum - so that wages would rise significantly in nominal terms even as they fell in real terms.

I suppose the Fed could engineer that if they want, but not for a few years yet. I don't think they could create this kind of inflation until after the economy found a bottom of its own accord. That's my reading of the 1933 - they managed to engineer inflation after the market fell 90% and bounced.

So a lot of debt may be eliminated by jingle mail, as people walk away from houses that are now worth a fraction of the mortgage, and banks are forced to write the loans off.

Comments can no longer be added to this story.

oldfarmermac on July 8, 2009 - 1:03am

Yes-speed up the inflation a bit and shrink the payoff,at the expense of the note holders.Classic historical strategy.

But the chinese at least are onto us,and are spending dollars AS FAST AS THEY CAN UNLOAD OIL AND SCRAP IRON.

Now not being blinded by knowing too much about economics, I interpret this by means of plain old common sense as meaning either one ,that they expect energy and energy intensive commodities such as steel to appreciate sharply in value and given that,are thereby better investments than bonds,even though piles of iron and tanks of oil earn no interest;two that thier money managers expect the dollar to decline, or three; both one and two.

Now this buying spree should be enough to convince the inflation doubters that the Chinese at least believe commodities are headed up and the dollar down.

I would remind them that the Chinese are noted as being oriented to the long run probably more than any other society.

Comments can no longer be added to this story.

blondieBC on July 7, 2009 - 12:26pm

Most of the various bail out monies went to companies not people.

Also, when a high-debt person loses his job, this debt will explode.

Comments can no longer be added to this story.

Geckolizard on July 7, 2009 - 4:45pm

Also, when a high-debt person loses his job, this debt will explode.

Just call up one of those debt settlement companies...

Er, wait...

Debt Relief USA in Addison files for bankruptcy

Debt Relief USA Inc., an Addison debt settlement company, has filed for Chapter 11 bankruptcy protection and has ceased operations.

In its court filing, the company listed $4.65 million in assets and $5 million in liabilities.

"Debt Relief USA anticipates sending written instructions to its customers, most former customers, creditors and known potential creditors with instructions on any steps you need to take to protect your interests," the company said...

You know it's bad then a debt settlement comany goes bankrupt...

Comments can no longer be added to this story.

Leanan on July 7, 2009 - 11:33am

Cash-strapped states strain to repair budgets

CHICAGO - Illinois has stopped paying $1,655 a funeral to bury the indigent dead. California is issuing IOUs in place of tax refunds. Ohio's rainy-day fund has dwindled from nearly $1 billion to exactly 89 cents.

...Mississippi used a last-minute sleight of hand to make the numbers work, passing a budget that left the state's utility regulatory agency and public service commission unfunded. Connecticut's 50,000 employees will take seven unpaid furlough days in the next two years.

Consumers fall behind on loans at record pace

Soaring U.S. unemployment and a shrinking economy drove delinquencies on credit card debt to an all-time high in the first quarter as a record number of cash-strapped consumers fell behind on their bills.

Comments can no longer be added to this story.

Geckolizard on July 7, 2009 - 11:48am

California exports: Computer Code (from Silicon Valley), Wine (from Napa Valley) and Junk Bonds (from Sacramento Valley)...

California: Teetering closer to junk
Fitch Ratings downgrades the state's bond rating to BBB, just above junk status. Budget impasse continues to rile the state's financial standing.

California's bond rating is far from golden.

Citing the Golden State's ongoing budget upheaval, Fitch Ratings on Monday downgraded California's long-term debt to BBB, one category above junk bond status. The next step is BBB- before the state's bonds would be considered speculative debt.

Fitch also maintained its so-called negative outlook on California. "[I]nstitutional gridlock could persist, further aggravating the state's already severe economic, revenue and liquidity challenges," Fitch wrote.

Comments can no longer be added to this story.

jjhman on July 7, 2009 - 3:52pm

Better wine from Sonoma County................

Comments can no longer be added to this story.

Burgundy on July 8, 2009 - 6:04am

And in a month or so the wine vats are going to have to be emptied for this years harvest. Producers here in France are worried, there's little market for what they've got stored already. Producer inventory is building.

At some point reality has to be realised and prices slashed. The producers won't want to destroy their existing market if they can help it and so they will try dumping it into someone else's. Probably sparking a trade war.

Comments can no longer be added to this story.

elwoodelmore on July 8, 2009 - 6:57am

i'm recommending they turn it into vsop brandy.

Comments can no longer be added to this story.

totoneila on July 7, 2009 - 3:58pm

Hello Leanan,

Thx[S] for link containing the info: "CHICAGO - Illinois has stopped paying $1,655 a funeral to bury the indigent dead."

Unfortunately, the article doesn't say what the morgues are doing with the dead that must be piling up fast. It is very energy-intensive to keep these dead souls continually refrigerated versus a quick burial or even cremation--this only further increases overall Illinois FF-depletion rate. No cost-savings can be achieved by further embedding more energy into a dead person.

We should expect this Dieoff trend to exponentially increase as we go postPeak. Recall Zimbabwe: where the poor families would give a fake name as they wheelbarrowed, then checked in a dying family member at a decrepit hospital, so they would not be billed for burial costs.

Thus, I think a market now exists for rapid O-NPK recycling so that the dead can help leverage relocalized permaculture. I dead-reckon we can do it much better than the Brits did earlier by their practice of dead-heading home massive dead-weight tons of approx. 3.5 million long distance 'immigrants' per year [Recall my prior posts on this topic].

I am not an expert at high-speed, very high-volume, minimal-energy human recycling techniques, therefore, the experts [FEMA & Pentagon?] need to research whether we want to run the dead through powerful wood-chippers, then on to a compost pile to help feed worms, or if it would be better to setup up giant solar ovens in every city for cremation, or just use [S]ulphuric acid to quickly slurry the dead, then send this dissolved juice through pipelines as additional inputs to I-NPK factories.

We could incentivize this trend by encouraging family members to upfront donate a favorite photo and/or poem with the body, which would then be attached to the finished product bag. Then retail purchasers could admire this info as they stirred the NPKS into their veggie plots.

Early jumpstarting of Recycling practices mentioned above are psychologically much better than waiting until machete' moshpits are common. This will only result in lots of dying and dead in our neighborhoods, creating massive health problems and even greater recycling in-efficiencies, plus increased recycling latency effects--further depressing permaculture harvest yields.

If a dead body is roughly equal to a 10 lb bag of I-NPK: At a 20:1 Liebscher's Optima, this person can generate 200 lbs of food. Thus IMO, Optimal Overshoot Decline would indicate that fast recycling is much better than expending much energy for deep burial. Why make the starving have to hand-dig them up from 8-feet down at a later time [negative ERoEI]? I don't think even the dead soldiers in the battlefields of Leipzig and the Crimea were even buried that deep.

Illinois is currently deep burying vital food input nutrients at a very high cost:

$$$$$$$$$$$$$$$$$$$$$$$$$$

At $1,655/person and 10 lbs I-NPK equivalency: 200 people/ton X $1655/person = $331,000.00 per I-NPK ton.

$$$$$$$$$$$$$$$$$$$$$
State Govts should be rapidly moving now to reduce these costs by moving to Full-on Peak Outreach and O-NPK Recycling of the Dead.

Consider the massive, wasted-energy being embedded in Michael Jackson's funeral and celebration today. Probably equivalent to a $Trillion/ton.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

Comments can no longer be added to this story.

darwinsdog on July 7, 2009 - 4:13pm

..setup up giant solar ovens in every city for cremation..

No. There's no point in pyrodenitrifying all that O-N.

..fast recycling is much better than expending much energy for deep burial.

Agreed. It's stupid to deposit nutrients below the rooting zone.

Comments can no longer be added to this story.

Lynford on July 7, 2009 - 4:24pm

Toto: Get out of the sun.

Comments can no longer be added to this story.

totoneila on July 7, 2009 - 5:33pm

Hello Lynford,

Thxs for your reply and the replies from other TODers on this minithread. The Circle of Life means that it is a Ruthless Jungle out there--IMO, the sooner we get back to full-on, fast O-NPK recycling, the better off the living will be overall.

In regard to your comment that I need to get out of the sun: recall from my earlier postings that when I die, assuming that society is still somewhat functioning: my corpse will be pitched into my scorching desert to receive Maximum Sunlight and Maximum Attack by Nature [fast & free O-NPK recycling]. Then, rookie Forensic Detectives and Pathologists will periodically examine my remains as part of their training process.

I encourage all TODers to become organ donors and research participants. :)

I hope a coyote immediately eats my lips so I will sport a giant grin, but generally predators first prefer to gut out the high ERoEI internal organs, eating the tough muscles and bones last. Lots of Youtube videos show the freeding frenzy to be the first pack predators to consume the soft and tender belly and ribcage contents [high ERoEI].

We are no different: Most humans just love bacon & eggs which originate from the gut area of pigs and chickens, and caviar from fish is expensive, too. We don't buy cow's teeth, chicken beaks, and fish fins at the grocery store because the digestive-ERoEI is too low.

Comments can no longer be added to this story.

Lynford on July 7, 2009 - 7:38pm

My mother-in-law who passed away a few years ago at age 100 lived in a small town in East Texas during the flu of 1917-18. Half the people there died in a few weeks. A wagon came by and collected the dead every morning. A crew of men were digging graves (often for themselves) in the cemetery. They put a rough note on a shingle of who was buried there. During that time no one knew if it would end.

It is hard to believe the horror of a contagious fatal disease with no cure ravaging your community and no help from the outside. She said that not knowing if you are next was a big stain as well as caring for the sick and dying. As we know, it was taking the young adults and in this town of a couple thousand only a few dozen young adults made it through and hundreds of orphan children were left to feed and take care of. Those were tough people. I don't think there are many like that left.

Around here a body in the desert will not last the summer and typically the bones are scattered. Steve Fossett’s body was never entirely found after his crash.

Comments can no longer be added to this story.

totoneila on July 7, 2009 - 8:43pm

Hello Lynford,

Thxs for your thoughtful comments. My father, who died at age 96 in 2005, was cremated. In accordance with his wishes: I dumped half of his O-NPK ashes on a mountainside near his house, and the other half in the Sea of Cortez at Rocky Point [Puerto Penasco, MX]. I still have his metal toe-tag: it is on my house keyring. That way, it constantly reminds me to be careful, whenever I am motoring along with my pickup or scooter, or pedaling my bicycle. The serial # on the toe-tag is just one digit off from:

http://dieoff.org/page226.htm
---------------------------------
THIS WAY FOR THE GAS, LADIES AND GENTLEMEN
by Tadeusz Borowski, #119198
----------------------------------

Comments can no longer be added to this story.

darwinsdog on July 8, 2009 - 1:14pm

Ashes aren't organic & there's no N in them.

Comments can no longer be added to this story.

SolarDude on July 7, 2009 - 4:27pm

This is a huge issue. Dead, decomposing bodies are going to be a huge problem in a collapse. In rural areas they can be safely composted by covering them with mounds of organic material. Cities are a different matter.

Comments can no longer be added to this story.

Twilight on July 7, 2009 - 5:09pm

Soylent Green. I wonder if they will be allowed to label it "organic"? Probably not - given what passes for food in Big Agra USA, most would need to be labeled "toxic".

Comments can no longer be added to this story.

jokuhl on July 7, 2009 - 10:05pm

Human Bodies? Forget it. We're a mess.

My wife just told me about the Toxics report just for Johnson's Baby Shampoo.

http://www.thedailygreen.com/environmental-news/latest/formaldehyde-4703...

Yeesh!

Comments can no longer be added to this story.

totoneila on July 7, 2009 - 4:37pm

Additional thoughts:

Recall that Nature does this O-NPK recycling very fast and totally free [See my prior Youtube link on Hyenas eating a Wildebeest alive].

Predators don't deep bury a fresh-kill, then dig it up years later to jumpstart the O-NPK/food supply train as we do. We need to roughly emulate this process quickly for postPeak optimality, IMO.

It might also quickly reduce the extinction rate of keystone predators if lots of fresh human dead are fed to these animals at zoos, and also in the wild. I think it would make lots of the Overshoot people to be much more hesitant to venture into the postPeak Wild if you know big predators a just drooling heavily for the taste of human meat. Thus, it helps increase the numbers of the other prey animals in the wild forests and Serengentis. Beach tourism could significantly decline if sharks were human-food trained to attack those wading and swimming. How much energy would that save if it helps force even more airlines, car-rentals, and hotels into bankruptcy?

Imagine going to the zoo at Lion and Tiger feeding time when they pitch a few dead humans into their compounds. It would be a perfect opportunity for the zoo tourguide to then talk about Overshoot and Collapse, fast O-NPK recycling, Peak Everything, and Optimal Overshoot Decline.

http://www.prosefights.org/pnmelectric/rateincreases/shoppingcarts.jpg
-------------
Image of PostPeak Grocery Shopping
-------------

Comments can no longer be added to this story.

steve from Virginia on July 7, 2009 - 5:37pm

Hahaha .. Bob Shaw, I have to say I appreciate your approach to nutrient recycling. Maybe we can take it one step further.

We can feed some live Congressmen, Treasury Department officials, coal- and- oil company executives and Goldman- Sachs alumni to the sharks/lions/hyenas/piranhas/crocodiles and put that on Youtube.

Cremation is also good, burn them at the stake.

Comments can no longer be added to this story.

Geckolizard on July 7, 2009 - 4:38pm

Alkaline hydrolysis - the latest green fashion to depart this planet

...A 300°F solution lye (sodium hydroxide) is sprayed on a body at 60 pounds of pressure per square inch in stainless steel cylinders. This actually turns the dead body in to brown syrup with some bone residue...

Comments can no longer be added to this story.

Subkommander Dred on July 7, 2009 - 9:10pm

"Bring out your dead!"
(bangs a small gong)
"Bring out your dead!"

Toto; Looks like you finally get to put that strategic wheelbarrow reserve you've been talking about for all these years to good use after all...

Dred

Comments can no longer be added to this story.

Cold Camel on July 7, 2009 - 3:07pm

I stayed in one of those houses on the NC outer banks two years ago come T-day. What you say is absolutely true, and has been for a while. T-day the beach was empty. Rental income is a fiction. Maintenance is huge. The sand and salt eat everything. The house we were in was two years old, but it looked twenty on the outside.
This is just a microcosm of what's happening around the world as people act happy that they can rent the house for less than the cost of maintenance. Everybody is hanging on, expecting a return to BAU. Meanwhile the buildings rot away.

Of course what the Outer Banks really needs is a bazillion windmills. The same real estate agents and contractors that pushed beach houses on us probably are selling windmills. The same banks will finance the projects. We'll all be bazillionaires again.

The good news of deflation is that everyone that refuses to play ends up looking smart.

Cold Camel

Comments can no longer be added to this story.

WNC Observer on July 8, 2009 - 9:17am

Someday, maybe soon, a Cat 4 or 5 will reduce all of those houses on the Outer Banks to toothpicks. Rising ocean levels, courtesy of GCC, will submerge whatever is left.

Maybe that's why people there don't worry so much about maintenance costs. They know that your typical Airstream trailer has a much, much longer useful life than these houses are going to have. Come to think of it, it really would be much wiser if Airstream trailers were the only human habitations allowed on the Outer Banks. Then people could evacuate their homes when the hurricane warnings are issued.

Every time I've been out there, I just shake my head the whole time.

Enjoy it while it is still there, I guess. But not during hurricane season, I'd advise.

Comments can no longer be added to this story.

tstreet on July 7, 2009 - 8:00pm

Would you mind stating where you are?

Comments can no longer be added to this story.

ericy on July 7, 2009 - 8:12pm

The ocean community I am speaking of is on the Delaware shore.

Comments can no longer be added to this story.

WNC Observer on July 7, 2009 - 10:45am

Unfortunately, Uncle Sam has gotten himself so deeply in debt that HE needs a bailout.

Unfortunately, there's nobody around that can finance it.

Comments can no longer be added to this story.

Leanan on July 7, 2009 - 11:16am

The timeline they are predicting is soon - before the end of the year. Despite Leap2020's predictions, I don't think the dollar will collapse by then. Bernanke can just fire up the printing presses. With the economy so bad, there won't be inflation.

Comments can no longer be added to this story.

sendoilplease on July 7, 2009 - 1:35pm

What if all paper money collapses?

From Currency Switching to Currency Twitching to >*shudder*< paper currency Death.

The we can trade canned goods, walnuts and bees wax candles.

Comments can no longer be added to this story.

AI_CompSci on July 7, 2009 - 4:12pm

Out of fear of the death of paper currency I've been trading all my savings into commodities; mostly silver.

Not perfect, but I feel better having it since historically it was the mainstream currency.

Comments can no longer be added to this story.

majorian on July 7, 2009 - 5:58pm

Absolutely not!

Commercial real estate is pure speculation.
At least people live in their houses.
At least car companies make vehicles.

What we need is a stimulus that doesn't get gobbled up by somebody's debt.

Comments can no longer be added to this story.

Geckolizard on July 7, 2009 - 10:15am

Speaking of commercial foreclosures- it's hard to pay the mortgage when no one is paying the rent...

US office market continues to spiral down--report

The U.S. office market vacancy rate reached 15.9 percent in the second quarter, its highest in four years and rent fell by the largest amount in more than seven as demand from companies and other office renters remained weak, real estate research firm Reis said Inc.

"It's bad," Reis director of research Victor Calanog said. "It's decaying and getting worse. Given the depth and magnitude of the recession, you can argue that we are facing a storm of epic proportions and we're only at the beginning."

...

Although the sector has experienced downturns before, the current one may be lethal for lenders and investors who bought property during the boom years of 2005 from 2007. Many of them based the price and the loan on the belief that rents would continue to post strong growth and occupancy increases.

"It's like taking on a lot of debt as an individual and now suddenly earning 10 percent 20 percent 30 percent less," he said.

The dwindling cash flow resulting from higher vacancy and lower rent weakens the ability to repay financing and pushes a borrower closer to defaulting on a loan.

Comments can no longer be added to this story.

Ignorant on July 7, 2009 - 10:37am

Yet I'm seeing more commercial properties being built. It's crazy; this newly constructed extra vacancy will ensure a big crash, I think.

The town planning boards have not done their jobs.

Comments can no longer be added to this story.

wisco on July 7, 2009 - 11:55am

I work with town planning committees. It is inaccurate to portray them as having much to do with managing the supply-demand equation for CRE. Indeed, a hallmark of US land policy is to let the market make much of the decisions about how much RE to make available in different classes (especially if you view things from a regional or state perspective, as some towns may NIMBY some things away but other towns accept them).

No town planning board member is skilled or prescient enough to ascertain the "correct" number of condos, malls, whatever. It really is the bank and other financiers of these projects whose job it is to determine what the market will bear. Are they doing their job if they continue to underwrite these projects?

Comments can no longer be added to this story.

artaxt on July 7, 2009 - 2:44pm

Anybody who is on a planning board should be able to look at the townwide vacancy rate and come to a conclusion regarding whether the town needs more of a type of real estate, commercial, residential, or otherwise. They may not be prescient, but when you have a 20% office vacancy rate and somebody comes to the board asking for permission to build a new office complex, the answer should be, "No." There are two big reasons for planning boards not to answer that way. First, when a property is developed the tax assessment goes up, and that's what property taxes are made of. Second, if they do answer in the negative, the developer is probably going to sue them, and unfortunately, win.

Anway, you're right that no planning board is able to give an absolute number as the "correct" amount of a particular type of real estate. They still should be able to look at what's currently available as compared to the total and make a judgement call on whether it makes sense to allow more to be built at any particular time. If they can't do that, what in the world are they doing in a position where they're supposed to be able to do so?

Comments can no longer be added to this story.

ericy on July 7, 2009 - 2:57pm

There is always a big difference between a large city which has a lot of staff, and a rural town where the jobs are small enough and the budgets are small enough that they can't really afford much of a planning staff.

I remember reading stories about counties that had previously been pretty much nothing but rural. As the exurban growth started to reach them they initially were enthusiastic - it meant more revenue. But they didn't see the flip side of it - the need for more services for all of the new people. Usually it isn't until too late that they realize the nature of the Faustian bargain that they have agreed to.

Comments can no longer be added to this story.

wisco on July 7, 2009 - 4:04pm

In addition to ericy's response, I would offer that the plan committee/commission/whatever serves an administrative function to ensure that people are treated fairly in the land use change process (i.e. the staff is not discriminating). They should also help create and help attain an overall "vision" for the community; this is quite general and is rarely stated as specifically as the % occupancy or the number of housing units. The zoning ordinance and the community plan are tied in to the police power of local governments, which pertains to protecting the health, safety, and welfare of the public. This largely entails separating incompatible uses.

If and when the planning board becomes interested in % occupancy, or return-on-investment, it enters a slippery slope. Say I own the only gas station in town: should I get on then planning board and influence the zoning to prevent more gasoline stations from being built? Also, while there may be high vacancy rates in CRE, perhaps it is because the current stock is antiquated and undesirable- if no new units are added, where does that leave us?

Comments can no longer be added to this story.

Lynford on July 7, 2009 - 4:39pm

Might I suggest that the planning people "know" this is just a slip from BAU and only when the members themselves are hurting will they change their minds.

YARTBAD (Yet Another Reason To Be A Doomer) "Nothing will happen till it has happened."

Glad I wasn't long crude oil for the last 10 days.

Comments can no longer be added to this story.

Jon Kutz on July 7, 2009 - 11:36am

My Prediction.

Christmas sales which account for a large part of the yearly income of many merchants (and their suppliers) are very likely to be a disaster this coming Christmas shopping season (only 5 months away).
As the already stressed merchants start going under shortly after the new year from lack of Christmas sales, the commercial real estate business will get quite a bit worse.

Comments can no longer be added to this story.

ptoemmes on July 7, 2009 - 11:57am

Read somewhere - can't find it now - that the CMBS time bomb(s) start going off in 120-150 days which coincides nicely with many predictions of the next leg down in equities this fall. Any post-holiday effect may be bayonetting the wounded.

But the US gummit is working on it. ;-)

Link courtesy of TAE. Look halfway down the page for the link-name article:

'Time bomb' in commercial mortgages poses big test for the Fed

he US Federal Reserve is trying to defuse a "ticking time bomb" of hundreds of billion of dollars of maturing loans made to finance shopping malls, office blocks and other commercial property.

The ability to refinance commercial mortgages at low interest rates has been hit hard by the credit crunch.

Commercial mortgage loans to the value of $400bn are due to be repaid this year. If the debtors default, the properties backing the debt could be put up for sale, which is likely to push declining prices lower still.

Comments can no longer be added to this story.

Darwinian on July 7, 2009 - 12:28pm

Read somewhere - can't find it now - that the CMBS time bomb(s) start going off in 120-150 days which coincides nicely with many predictions of the next leg down in equities this fall. Any post-holiday effect may be bayonetting the wounded.

You saw it here: Speech By Dr. David Bronner CEO Alabama Retirement Systems

2) Within 120 to 150 days from now the commercial real estate market nationally begins to collapse as stores, malls, and shopping strips, and industrial plant have enough closures (store and plant) and loss of rental revenue to make them unable to pay their mortgages. They will start going into foreclosure unable to pay their mortgages in a significant way at that time creating a second wave of economic disaster starting three to four months from now.

Ron P.

Comments can no longer be added to this story.

WNC Observer on July 7, 2009 - 12:38pm

I suspect that a great many retailers and CRE operators are just holding out in hopes that this holiday season will be just good enough. If sales are down in Nov/Dec, then vacancies and foreclosures in the CRE world will snowball in January.

Comments can no longer be added to this story.

AlanfromBigEasy on July 7, 2009 - 12:57pm

This lower & low-middle vs. upper is evident in New Orleans.

In 2008, New Orleans may have been the only market showing appreciation (+4%) and suburbs did relatively well (-1% to -7% from memory). But even then, anything over $400,000 to $500,000 "did not move" whilst anything under $150,000 was "hot". $150 K to $400 K was a "decent market".

IMO, the days of the suburban McMansion are over. Supply > demand for multiple reasons, including demographics, fashion (Americans are herd animals when it comes to housing fashions), energy costs and commuting costs.

Perhaps it is not the ideal time, but I found an ideal location and nearly ideal house. Historic District (with associated zoning), corner of the best small urban park in New Orleans, walk score 77 (it feels higher), 3 blocks from streetcar, and can be made fairly energy efficient. 1,500 sq ft (I am renting out 2 rooms), street +1 foot above sea level, house +4 feet. VERY well built in 1930. Almost every major employer within 3 miles (many within 1 mile, 1.1 miles to 51 story One Shell Square). Small yard, large enough for urban orchard.

Long term I plan to demolish garage and build garage apartment (hyper efficient), move in and rent out house.

Best Hopes,

Alan

Comments can no longer be added to this story.

P. Coyle on July 7, 2009 - 1:13pm

street +1 foot above sea level, house +4 feet.

Doesn't the altitude get to you?

Comments can no longer be added to this story.

robert2734 on July 7, 2009 - 2:17pm

He has to pump in oxygen.

Comments can no longer be added to this story.

Geckolizard on July 7, 2009 - 2:30pm

Well, on the bright side his house doesn't need to have pontoons for the foundation...

Comments can no longer be added to this story.

tonyw on July 7, 2009 - 4:37pm

A triumph of hope of the levees holding over experience of them failing.

Comments can no longer be added to this story.

darwinsdog on July 7, 2009 - 5:52pm

"Best Hopes" that the levees will hold, the hurricanes will be diverted, rail transport (electrified of course) will be revived, and the economy will recover.

Comments can no longer be added to this story.

totoneila on July 7, 2009 - 6:05pm

In my Asphaltistan, plus most other cities: A Triumph of Hope that water will continue to defy the Law of Gravity by flowing Uphill to Money.

Comments can no longer be added to this story.

174 comments on DrumBeat: July 7, 2009

Comments can no longer be added to this story.

Show without comments | PDF version

“So one may almost say that the theory of universal suffrage assumes that the Average Citizen is an active, instructed, intelligent ruler of his country. The facts contradict this assumption.”

—James Bryce (1909, 35)