Rural Housing Prices
Posted by Stuart Staniford on April 8, 2006 - 1:40am
The IMF estimates that oil prices explain half of the deterioration of the US current account deficit between 2002 and 2005. In that period, the deficit rose 2 percentage points, to a record 6.5 per cent of gross domestic product. Rodrigo Rato, IMF managing director, this week warned that "good economic performance rests on a shaky foundation, because of large and continuing global imbalances". The US current account deficit is forecast to increase again in 2006, Mr Rato said, partly because of the impact of high energy prices.and
Mr Rato has called for a "multilateral" approach to resolve the global imbalances as he warned that the "risk is that global imbalances will be unwound in an abrupt and disorderly way". "If a disorderly adjustment does take place, it will be very costly and disruptive to the world economy," he said this week.So I guess that gives a little more respectability to those expecting a financial meltdown as a result of peak oil. The IMF is worried too.
But for some people, the abrupt and disorderly unwinding of imbalances has already occurred:
I live in a rural area about an hour and 20 minutes north of a major U.S. city. I moved here in 2000, selling a home in the suburbs for a $55,000 profit after living in it for three years. I trained horses for other people and was looking for a place to hang my own shingle rather than work out of other people's barns and pay to board my own horses there. Having once owned my own successful retail business, I ran the numbers and concluded I could stay home, board and train horses and earn more than I could by working off the farm. My husband could continue to work in his present job and commute.But in 2005, she needed to sell, and started making some needed repairs.I paid $140,000 for a fixer-upper house on 40 acres. The house needed work, but the land was everything I dreamed of. Pastures, meadow, woodland. Plenty of room to build the barn and arena, and long trails through the woods for my boards. I put $45,000 down on the property and spent a year cleaning it up: building fencing lines, a new indoor arena with attached horse barn, and so on. I paid for half that building with my own money and financed the other half with a home equity loan. To save money, I did a lot of the work myself, including installing the water and electric, building the stalls, swinging a hammer to build the barn and arena. Lots of sweat equity.
In no time at all I had horses here for both boarding and training. I was doing well. Better, in fact, than I had projected. Life was good. That was in 2002.
Then Katrina hit in 2005. Gasoline prices skyrocketed. Most of the people in the area commute to the city for work. The cost of gasoline made that commute much more expensive. When I moved here gasoline cost about $1.20 a gallon. Recently I filled up at $2.69. When I moved here, $400 a month was my budget for gasoline. The same amount of fuel would cost me close to $900 a month. Just to commute. Because of the added commuting cost, people are not buying property out this far anymore. Real estate sales slowed to near nothing.That's the nastiest housing slowdown I ever heard of. If you were wondering how we managed to get vehicle miles traveled down a little bit after the hurricane, now you know. Did many Americans voluntarily carpool? Nope. Take the bus or the train or bike? Nope. Use their more efficient vehicle? Nope. Instead, the poorest and weakest parts of the economy took it in the shorts and stopped driving as far because they had no choice: they couldn't afford the gas.Soon after, the house of cards really started to fall. One local builder went bankrupt, unable to sell over 20 homes he built in a development. Those 20 houses in foreclosure fed the buyer's market, driving prices of other homes for sale down farther. Then another builder went bankrupt, then another. In the past three months, six builders have filed in the area. The number of houses in foreclosure is staggering. They can be had for next to nothing. Banks are jumping through hoops trying to find people to buy them. The local newspapers all have classified ads reading "Builder's inventory Reduction Sale." Land prices started to fall. What had sold a few months ago for $10,000 an acre is now sitting dead on the market at $2,500 an acre.
And preparation didn't help a lot:
I thought I was smart. I have no credit card debt. Both vehicles are paid for. The debt I took on in the form of a home equity loan was taken not for toys, vacations or expensive cars, but to add value to my property. The only debt I currently have isfrom medical expenses. I never allowed the debt secured by my property become greater that 50% of what I thought the property might reasonably sell for, based on the information I had at the time. I had enough savings that I was able to carry the family for something like nine months without any income. All in all, I was in better shape than a lot of people are. Being a good country girl, I grew a fair portion of my own food and raised chickens so grocery bills were vastly smaller for me than for many people. I saw heating costs could grow to be a real threat to my family budget down the road so I installed a woodstove large enough to heat my entire home and burn wood from my property. I have not purchased propane in four years. When my friends were experiencing sticker shock on propane, which for many people rose from $300 to $600 for 4-6 weeks of fuel, I could simply toss another free log on the fire.But it brings up a larger point. I know many of our readers either live in or have moved to rural areas because they feel they'll be more survivable post-peak. I've been concerned that rural areas will actually take the biggest hit from peak oil, because of their high gasoline dependence. This story seems to suggest that the combination of peak oil and housing bubble can be really bad for at least this one area.The point of all this is that I had made wise choices at the time, worked hard to insulate my family from problems I saw coming down the road, and I am still getting hammered by the real estate market.
So how's it going out there in the country? Is this lady's story an aberration? Or just part of a gathering trend?
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The American dream is nightmare for some
Once a certain percentage of homes are in foreclosure, the value of all the properties in the neighborhood will drop. You can suddenly find yourself owing more than than the house is worth, even if you were careful.
Once they bought their ranches, they realized that: (1) it took a lot of money to run them and (2) they were in the middle of nowhere a heck of a long way away from Starbucks and the Sunday New York Times. It seems that potential buyers are aware of the same thing, combined with the realization that long commutes are now more expensive--plus the beginning of the implosion of the housing bubble.
BTW, the is a good article in the NYT this morning on gasoline prices. January, 2006 demand in the US is up 2% over January, 2005. Most economists are baffled by the increase in demand.
Energy Economist Andrew McKillop wrote an article in 2003 called "Why we need $60/Barrel Oil." He predicted that the arrival of $60 oil would cause more and not less economic activity. I believe that he suggested that we would need to hit the $75 range before we would actually begin to see some drop off in demand.
The problem is that most Americans are still viewing the price runup as temporary, courtesy of our MSM, that wants to keep selling advertising pushing Urban Assault Vehicles and McMansions. Therefore, last year our already pitiful national savings rate went negative as Americans went into debt trying to hold on to the commuter way of life.
McKillop Article:
http://72.14.203.104/search?q=cache:JUGR9EvUvSgJ:www.oilcrisis.com/mcKillop/WhyWeNeedUSD6O_Oil.pdf+a ndrew+mckillop&hl=en&gl=us&ct=clnk&cd=3&ie=UTF-8
Motor gasoline demand, which exhibited almost no growth in 2005, is set to grow 1.7 percent in both 2006 and 2007.
There was no Demand Destruction last year. None.
Every drop of "extra" gas was therefore imported.
Short-Term Energy Outlook=EIA
And from Resource Investor-
Rumours are starting to circulate that and (an) overstretched refinery complex cannot recover properly from the hurricane damage. The hurricanes came, refiners ran over time to make more money, bits fell off the refineries, they have to close longer and places like Texas City are taking even longer to bring back than anyone thought.
This time the market might pull back from $68.50 for WTI and $68.40 for Brent. But if something odd happens, then traders will see an opportunity and pile straight through. Now $60 is the new floor, $55 is absolutely unbreakable and if we get one more spark then stand back, it's party time. Not for you of course, you have to pay.
$2.99 Texaco Dallas - North Fri Central Expy N & Royal Ln
$2.57 Exxon 201 central expy Allen
In Ft Smith-usually some of the cheapest in the nation, along with Tulsa-$2.55.
James
I don't think that's really true. The problem is that most people's gasoline use is not discretionary. They have to get to work. They have to go to the store, get their kids to school, etc.
Those who really are using discretionary income for gas - teens who cruise the streets for entertainment, say - are cutting back.
I suspect most Americans are still treating it as a temporary price rise. Once it becomes clear that it's permanent, people's behavior will change.
Those who really are using discretionary income for gas - teens who cruise the streets for entertainment, say - are cutting back.
Funny, strange-not ha ha, I passed a high school yesterday(one of Arkansas'largest. The parking lot, similar to a WalMart's,
was full). In addition, there were two Hummers.
Who in a HS, makes enough to afford a Hummer?
James
Roger Clemens' kid:
http://sports.espn.go.com/mlb/news/story?id=2019844
I suspect they didn't buy those Hummers themselves. Mommy and Daddy bought them.
Teens still see driving to school as essential. But cruising has been cut back.
http://www.11alive.com/news/news_article.aspx?storyid=47545
http://seattletimes.nwsource.com/html/living/2002605252_teengas05.html
In my area (Madison, WI), even high schoolers are somehow not expected to be able to use a simple side-street crosswalk. So many of them are driven (or drive themselves) to school. We even have entire streets blockaded by Jersey barriers just to enable soon-to-be adults to yak about absolutely nothing on their cellphones in utter obliviousness to their surroundings. Amazing - but 100% discretionary.
(Look. I grew up in NYC. I had to cross "New Dorp Lane", far busier than Madison's "Coldspring Avenue", from first grade on, and "Hylan Boulevard", far busier still and no cossing guard, from seventh grade on. So I have little sympathy for so-called parents so obsessed with consumer greed that they can't be bothered to take a few hours to teach their kids to cross the street by high school age. Maybe it's time to take a harsh French approach to working hours, in order to enable us, in fairness, to direct harsh social opprobrium towards irresponsible parents, as we did until a few decades ago.)
In a different form of discretion, I know somebody who drives about 20 miles roundtrip each weekday to work a three hour office stint at $8/hour. I'm 100% certain that closely similar stints, i.e. at a very modest skill level, are available for within 50 cents of that wage much closer to home. What we have here is an utter incomprehension of the very simplest arithmetic. On the other hand, it's easily remediable if and when gas gets high enough. Only I can't imagine how high that needs to be, since, counting taxes and eating out for lunch, this person, even now, is barely breaking even.
All in all, these behaviors and countless others like them show how risibly cheap auto fuel is for most people, at least in terms of utility (or "hedonic") value, and even for some quite far down the economic ladder. Matthew Simmons is probably right to underline this by his otherwise silly exercise of citing the price per cup.
We have a long, long, long way to go, if need be, before we even begin to cut into uses that are truly "not discretionary".
Do you move your business out of the inner city? Could help, but your current employees are likely coming from many locals so energy savings means some have to move. At what cost for that? Those in the Exurbs--burning surely a disportionate about of fuel--tend to have the most money so presumably petrol costs are not as much as issue with them and they likely won't be quick to move.
If not fuel savings from driving to work, than where? Stocking up on shopping maybe to a small extent. Not taking one's brother to see a movie over the weekend? Unless you live out an hour or so, gas is not so much an issue as movie tickets and popcorn prices. Same for restaurants. Again, oil cost is seemingly rather inelastic. Only easy call: recreational travel. Meaning long distance (auto and air).
If the kids are within walking distance of a school (2 miles? Maybe the federally mandated minimum for school bus service?), I doubt their driving there or being driven there matters much in terms of total energy burned. Certainly not using public school buses in a pretty darn safe city like Madison is discretionary. Likely, if they are doing so the parents make a good living, which goes back to the fact that they won't easily be squeezed by higher gas prices.
Dave
Goodbye M3- What is the Government hiding?
Excerpt:
It is no coincidence that the M3 went up an annualized 9.4% in the last three months and an annualized 17.2% in December alone and now the FED wants to stop tracking it!
Why bother tackling a problem of this magnitude when you can just bury the evidence? Who wants to leave a "smoking gun" laying around? A 9.4% increase in money supply should translate into a 9.4% inflation rate (if GDP produces exactly enough to counteract obsolescence).
Even if there is a 1% increase in the supply of goods, that still means that we really have 8.4% inflation rather than the 3.6% the BLS is telling us.
In order for the 3.6% number to be true-- we would have to have 5.8% more stuff than last year (9.4% - 3.6% = 5.8%). Do you have 5.8% more stuff than last year? I didn't think so.
The writing is on the wall. When the Government starts hiding data the problem is big! If this trend continues, inflation is going to come roaring back big time. We will see the late 70's all over again. The war is Iraq and the Billions in Hurricane damage have to be paid for somehow and the "hidden tax" is the easy way out.
Now is the time to begin stocking up on inflation hedges.
http://www.dailykos.com/story/2006/4/3/934/94792
For various reasons, M2 has much more useful information in it than M3, and if you are seriously interested in money and finance you track a whole bunch of series of data, not just M1 or M2 or M3.
In regard to the BLS inflation numbers, I agree that they are wrong, but the BLS is trapped by years of tradition and more-or-less locked into particular ways of estimating the rate of change in the general price level. To maintain validity, you cannot just change the way you define indices or the way you construct them whenever you feel like it.
Believe it or not, the big constraint on the BLS is not integrity (They are a remarkably honest and competent and hard-working bunch. Praise to them!) but budget. They do not have nearly enough funds to get better data and to revise and improve the way indices are constructed and changed to reflect changes in the real world.
BTW, this budget constraint applies not only to the BLS but also to the Fed, which used to have abundant funds to finance research and improve techniques of collecting and publishing data, but which is now so strapped for funds that they can no longer do much to subsidize the food service at district Fed banks.
Follow the money. The reason M3 is being put to bed is to save funds; that is the official explanation, and for once, also the truthful one.
As for "no data is being hidden," and "what is what is still published you can rather easily reconstruct M3" -- that's completely false. M3 contains M2 PLUS larger holdings in dollar reserves by foreign banks (all CDs above $100k, eurodollars, repurchase agreements). You can ONLY reconstruct M3 from M2 IF you ASSUME that M3 growth is pacing M2 growth. This is often, but NOT ALWAYS the case. Here's what The Economist had to say about it recently:
"The Fed claims that M3 does not convey any extra information about the economy that is not already embodied in the narrower M2 measure, so it is not worth the cost of collecting it. It is true that the two Ms move in step for much of the time, but there have been big divergences. During the late 1990s equity bubble, for example, M3 grew faster; over the past year, M3 has grown nearly twice as fast as M2. So it looks odd to claim that M3 does not tell us anything different. The Fed is really saying that it doesn't believe money matters."
Article Link Here (subcription only)
I'm not saying that we need to all jump directly from this M3 issue to hysteria over the Iranian Oil Bourse or something. But the dropping of M3 IS SIGNIFICANT, and is definitely not "twaddle and nonsense." If you are to have us believe that, then you need to provide us with more than words, specifically, you need to establish either 1) HOW you can derive M3 from M2 without the afforementioned and eroneous assumption that M3 will always grow in line with M2, or 2) that money really doesn't matter after all. Good luck.
Sometimes the facts are so simple that conspiracy theorists simply cannot grasp them.
Don,
One theory I've seen suggests that M3 is being dropped because of the way money now comes into existence - less under the control of the Fed and more under the control of individual banks making loans. As such the Fed doesn't feel the statistic is useful because it's not one they can control. However, it still leads to distortion in the total money supply which is why shadowstats.com reports inflation is much higher than reported, unemployment is far higher than reported, and the economy is actually shrinking.
John Williams (the fellow behind shadowstats.com) has been assessing each annual report on various numbers. He notes the government never hides what it is doing and is very straightforward about it, but you have to read the appendices and footnotes to get all the changes they apply each year. What Mr. Williams does is unwind those changes so that he has data going back to the late 1970s that is all measured against a (theoretically) consistent standard. By that standard, unemployment is over 12%, rather than the stated 4.7% we saw reported this week. Inflation is more near 7.5% than the 4% or so that has been claimed. He charges for his full set of stats and services but does write occasional papers for the public. He makes this data available to companies so they can do more accurate business planning. In his own words:
Anyway, I had read an article that quoted him (and unfortunately I can't find the article now) where he mentioned that the above theory might be why the Fed doesn't want to deal with M3 any longer since it doesn't look good for there to be swings in M3 which lend the appearance that the Fed has lost control of the money creation process, even if that is not true (since appearances impact investor mood and sentiments).
The whole story would take about 3,000 words and have a bunch of links, and I do not think it is appropriate to put all this financial stuff and the history of economic statistics on TOD.
Briefly, M3 never has been very important and in recent years has become less so.
There is a continuum between M1 and various substitutes for perfect liquidity (which is what M1 is). There is NO ONE SINGLE SERIES OF NUMBERS theat tells you what you really need to know if you are tracking money and finance and debt in the U.S. As a doctor needs about four dozen numbers (blood, urine, EKG, pusle, temp, etc. numbers) to know if you are healthy, an economist looks at more than thirty (and sometimes more than fifty or one hundred) series of numbers.
To focus unduly on a single measurement, such as M3, is simply to reveal ignorance of economic data and statistics and finance.
In regard to "The Economist," most of their reporters are from liberal arts backgrounds, selected for good writing rather than knowledge of economics and business. They learn on the job, and they tend to be very bright and highly opinionated people--some of the best journalists to drink with;-)
And let us never forget the infamous "Economist" cover story of some years back that proclaimed a glut of oil and prices of $10/barrel and possibly falling for years to come. Though I think it is one of the best publications around, no source is infallible.
And so here comes the shorter version:
- Collection and compilation of data is expensive. Although the work could be done by an intelligent and responsible sixteen-year old, in fact you probably have to hire somebody with a masters degree (or higher) in economics, just to get somebody to do the work right. This sad fact reflects the credentialism escalation, whereby what a sixteen-year old could do a hundred years ago we now have to shell out $65,000+ per annum + benefits to find somebody to do the work right and on time.
- You have to collect data point by point, and there are THOUSANDS of financial institutions involved, and you have to get data from every single one (or pretty damn close).
- Data is collected region by region by each of the 12 district Federal Reserve Bank. Each region compiles data on, without exaggeration, hundreds or thousands of banks and other financial organizations that may be issuing near-money type of instruments (savings and loans, credit unions, etc.).
- 97% of the people who are supposed to send you data at the Fed do so completely, correctly, and on time.
- The other 3% do not, and that is where you spend maybe 80% of your time reminding, begging, cajoling, wheedling, weeping, screaming, and maybe evening threatening, trying to get them to send you the data you need to get your report in--because until your particular report goes in, data cannot be compiled.
- Data is compiled and checked at each of the 12 District banks.
- Each of the 12 District Banks sends in its report--on time--and then the data is compiled, checked, and finally published.
Thus you have a labor-intensive rather expensive set of procedures in collecting and compiling and publishing data. Some data just is not worth the cost. By way of comparison, many doctors no longer do a PSA test, even though prostate cancer kills more men than breast cancer kills women. It is not that the PSA number is worthless, it is just that (in the judgment of some doctors) it is not worth the extra expense and often leads to expensive and unnecessary surgery because of its unreliability.If I were going to look at 100 numbers to figure out how the economy doing, M3 would not be on the list of the 100 most important ones. If I were to look at 300 different series of time series data, it would be on the list, because M3 does have some useful information.
But not much.
For people so interested in M3, let me ask this question: Why? What is the special significance of the stuff in M3 that is not in M2? Granted that it is volatile, but so what?
Note that over time definitions of money change; this has been going on for at least fifty years, and probably longer; the Fed has many, a great many times changed what it compiles and what it publishes.
Except that the fed is continuing to collect all of this data. They are just no longer making it public.
In my opinion is because the Fed does not want the spook the markets because of the growth in trade imbalances created by bretton wood 2. M3 is usually associated with credit expansion, but because China, Japan and other are holding huge reserves it not significantly affecting inflation. Personally I don't believe this game will end anytime soon because all the players are vulnerable. They will keep on holding export surpluses until after the Post Peak oil of some other major crisis begins. When PO arrives globalization and export driven economies become irrevelant.
My theory: Bush Cheney were aware of Peak Oil from day one. Therefore, they knew that the federal debt will never be repaid and they knew that the remaining oil reserves in the Middle East were the biggest remaining prize on earth. Ideally, in a Peak Oil world, one would want to "own" Iraq, Iran and Saudi Arabia.
So, if you know that the federal debt will never be repaid, why not max out the federal credit card by increasing federal spending beyond belief?
And, if you want to "own" Iraq, Iran and Saudi Arabia, one would want to move a large permanent military force into the Middle East.
The third part of my theory was that Buch/Cheney would, in effect, renege on the US debt (perhaps by inflating our way out). This would have the added benefit of hurting world trade, which will contract anyway, and of hurting competitors for the remaining oil supplies, especially China.
We know that oil and precious metals are going up and we know that the Fed has somewhat mysteriously decided to quit publishing the M3 data--just as it started hitting sky high levels. There are also some rumors floating around about massive increases in the money supply. You will recall that our current Fed chief talked about dropping "hundred dollar bills from helicopters."
In the past few years the US current account defict has rapidly expanded to about a $1 trillion rate per year. So not only have foreigners covered the increased energy expenses of the US, but they have provided us with extra money. Unfortunately most of the extra money went to buy SUVs and McMansions, so this gift has been essentially wasted.
The bill on this spending will come due in multiple ways - so as it will not appear that the US dollar is - in effect - worthless. Higher inflation, higher interest rates, etc. will appear to be seperate problems.
Eventually the rest of the world will wake up and say - Why are we sending all our money to the US so that they can get all the oil, goodies, etc.? The rapid rise in gold, silver, etc., indicates that a diversification away from the rapidly receding dollar has alreday begun.
From the 4/1 FSN weekly broadcast transcript:
(http://www.financialsense.com/fsn/BP/2006/0401.html#seg1)
"Well, let's take a look at the simplest measure of money M1. And that's basically the dollar bills that you have in your wallet, and the money that you have in your checking account, that's the most narrow supply of money. M2 includes in addition to the dollars in your pocket and your checking account household savings deposits, time deposits such as CDs, and retail money market mutual funds. And then M3, this is what we call high powered money, this is what the Fed just got rid of. When the Fed really wants to inject money into the system they use M3 - it includes institutional money market funds and liability depositories, large time deposits, repurchase agreements (that's how the Fed puts money into the banking system) and man! Have they been using that, and also euro dollars.
And so when the Fed really wants to get money and credit into the financial system they do it through repurchase agreements, coupon passes as they're called. And then they really expand that supply in the banking system, because every dollar that goes into a bank, they can go out and make a loan - because we're on a fractional reserve system they can expand the supply of money by $10. So if the Fed let's say injects a million dollars into the banking system, they can turn that into 10 million dollars worth of loans due to the fractional reserve system."
Yes - M3 does matter and reviewing the reports of M1 and M2 is worthless, because it obfuscates what the Fed is really doing.
The repurchase figures are not only available weekly from the Fed, but the Fed also announces its repos with domestic banks daily.
So we are missing part of the puzzle, but not a big part. The Fed wasn't targeting M3 lately anyway, so M3 is not a extrenely important to monetary policy.
Why does the Fed create money? To help finance the deficit and also to meet demand for money.
Nobody has seriously suggested repaying the national debt of the U.S. There is no good reason to do so. The problem is the rising deficit, which rapidly increases the debt to unreasonable size.
N.B. The debt is a large number because it is an accumulation of many decades of deficits (minus a few rather small surpluses). The ratio to keep your eye on is the real GDP compared to the size of the national debt.
We get into serious trouble when the debt is rising much faster than real GDP over a number of years. There is no reason to worry about a moderate (say equal to GDP) debt that increases at the same rate as real GDP. Of course, it would be nice to get the national debt down to, say, half of nominal GDP, but this is not a high priority, considering all our other financial and economic problems.
BTW, I do belive that large and increasing deficits are a serious matter, but not nearly as serious as our negative saving rate combined with insanely excessive amounts of mortgage and credit-card debt. Accelerating inflation is something to worry about very much--but not because M3 numbers are no longer being published.
As the number of US$ abroad grow, the number of holders that can cause a "run" increases (and a threshold for a run decreases). This includes the S L O W run such as the British experienced when the UK £ when it lost reserve currency status as well as a faster run (see George Soros).
IMHO, one of the contributing factors to the decline of Great Britain after WW II was the loss of reserve currency status for their £.
If people do not want to hold US $, and we want, say $600 billion in oil, $100 billion in LNG/Canadian NG and $600 billion in other products for the year above and beyond what we get for our exports, we will be in a crisis par excellence !
Any thoughts Sailorman ?
The single biggest reason for our trade deficit is the huge and rapidly rising cost of our oil imports.
At some point, I expect the dollar to go the way of the Mexican peso.
BTW, fascinating historical footnote, both the Mexican peso and the U.S. dollar were originally defined to be the same amount of silver. Spain had most of the silver in the world from 1500 to about 1815 and minted an enormous amount, and because of the Hapsburg connection, the Maria Theresa Thaler (pronounced almost "dollar") became a widely circulated foundation for both Mexican and U.S. currancy. Because of a lack of small-denomination coins, Spanish dollars (or "thalers" or "pieces of eight") were often cut up into eight pieces. Thus, "two-bits" equals one quarter.
To illustrate inflation, I am old enough to recall the lines from a popular song, "Shave and a haircut, two bits!"
For a long time 25 cents would get you both a shave and a haircut in a barber shop, and many men went daily to the barber shop to be shaved by an expert and to catch up on gossip.
Now for your research as to the declining value of the dollar: Suppose you go to your favorite New Orleans barber shop and order a shave and a haircut. How much does it cost? Divide that amount by .25 and you'll come up with an interesting number.
I remember penny post cards and bottomless cups of coffee for five cents; five-cent Coca Colas and five cents for twelve ounces of Pepsi-cola, nickle newspapers, movies for a dime--and then the damn War tax raised it to 12 cents! Naive as we were, we expected the price of a movie (complete with cartoon, newsreel, travelogue and feature) to go down back down to a dime after World War Two.
Have you priced a movie lately? Or the popcorn?
IMO the future of money is for it to lose value.
Actually, the NY Times article says that January 2006 demand is up 2% over 2004 demand:
The article is here:
http://www.nytimes.com/2006/04/08/business/08gasoline.html
Arguments of the form "Jan 200X Y is up/down Z% over last year and therefore P" are invalid. Not quite as invalid as "Jan 200X Y is up/down Z% over last month and therefore P". Almost all the things we care about are somewhat noisy and somewhat seasonal. So the fact that a given month is up, down, or sideways from before, by itself, could be noise. Therefore, it cannot be used as support for an argument. Only if we see a whole trend of things clearly changing outside of the normal fluctuations can we draw a conclusion.
http://www.rochester-citynews.com/gyrobase/Content?oid=oid%3A4314
NewYorker
Understatement. Hersh is connected. People in the know talk to him. How stupid is Bush? We may soon find out.
Excellent article. Seymour Hersh gets a lot of it right.
One minor point, the US Navy is in the process of reducing its minesweeping force by a factor of 50%! They, the USN, normally relies on Allied navies to do the minesweeping. Initially there would be no one to supply those sweepers as bombing the heck out of Iran would not be a popular move around the globe.
That's not how it was done 100 years ago.
And, I'm curious to find out where she is, looks like a prime example of fertile, livable land that's undervalued out where she is.
Good points. People need to remember the olden days when most people NEVER travelled very far because local survival kept them busy, and there was no excess energy or reason to travel more than the nearest village to do a little trading every now and then. We all recall how young Abe Lincoln walked ten miles just to borrow a book to read while resting between the exertions of splitting logs. How many Americans do you see walking even one mile to the public library, especially with the convenience of the Internet?
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Some more info: A properly designed RIVER DRAINAGE BASIN biosolar habitat where the natural abundance is maximized should provide all the water, food, and clothing you need with remarkably insignificant amounts on detritus derived goods, mostly bullets and metal traps to harvest game.
A super-insulated, SMALL eco-tech home PV powered with solar water-heater, should mostly free you from the ancient task of gathering, then chopping firewood to cook food and heat the house. Consider how common this task was for millions when Abe Lincoln was young. A bicycle on a narrow concrete or asphalt path can easily haul loads equivalent to the oxen carts of yore struggling along a muddy trail:
http://tinyurl.com/zzhym
But are people willing to build a modern day Shire, or will they go down like most African countries? Time will tell.
Bob Shaw in Phx,AZ Are Humans Smarter than Yeast?
Moderately paved roads or pathways and bicycle carts would make a wonderful, low energy alternative for short distance hauling. Add a basic electric motor and battery pack and hauling a 500 lb load up a hill becomes possible. Is it is as convenient as current options. Hardly. But it's better than oxcart or pedicab hauling.
If remaining resources could be marshalled into maintaining hi-tech supply networks, (like ensuring chip mfrs have their needs met before other firms) there is no reason why a low energy future would necessarily be a low tech one. Again adaptations would be ideal. Perhaps it would mean an end to rapid innovations and most likely would require a more distributed approach to manufacturing with most products being in a particular region. That may force simplicity in design and perhaps more open source approaches (where innovation in one area is shared electronically with others) to manufacture and distribution of systems. Would that mean a new computer for everyone every few years? Probably not. But perhaps each household could have a basic device to communicate with the outside world (and reduce the need for travel) that may be designed to last longer and be more effectively recycled at the end of its lifespan.
I guess the key is to maintaining a stable decline in standards and avoid periods of intense bloodletting and dramatic energy supply decreases. Maybe that might let us march off into tommorow with the advances of today on the energy inputs of yesterday.
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Have you ever heard of the "war in Iraq" or the "war on terror"?
Best,
Matt
http://www.times-up.org/cm.php
1. That other road users understand what's happening and tolerate it.
2. The terrain must be flat. When you see photos of third world bicycles hauling incredible loads you can be darn certain the location was a flood plain somewhere.
Getting a heavily laden bicycle up a slope, even a tiny one, does not just require health, fitness, and determination (or judging from some of what you see in 3rd world really incomprehensible determination) it requires low low gears. And with even 2% or 3% slopes you quickly reach a point where you can't gear low enough to keep the bike in motion. And the torque loads imposed grind down the bike almost as fast as they chew up the rider. And the low gear also means you are limited to walking speed or less on the flat. Or have a fancy bike. And I for one do not wish to attempt to control any currently existing bike on a downhill with hundreds of pounds of load.
Adding battery power mostly just makes things heavier. To handle battery weight you are quickly building something so heavy it's not recognizable as a bike. Which is why 2-stroke mopeds exist.
In flat areas with careful planning bikes can do amazing things. I used a variety of cycletrucks for work for years here in Chicago and the main limitation was intolerance from motorists. And being sideswiped by larger vehicles with no sense of how really long or wide they were. And on the small number of small hills in this city learned it was better to walk.
in response to the gearing of the chinese bicycles, that's what the youngster was for. I'm guessing 13 to 16 years old, they would see (or create) an oportunity to move into a NY style intersection and the youngster would push and push and push until I could almost feel my insides bursting. but as you said, every motorist understood what was going on. the motor vehicle is new to china not the bike, water buffalo, or old woman walking. a sharp contrast to US style road rage. if you every get the chance and are up to a challege go see china for your self, it will open your eyes to what humans can do.
lorne
I used a bike trailer rated for 120lbs, my two large panniers, and my regular touring bike. The gearing, for those interested, is 22-32-42 chainring and 32-14 cogs. I was climbing the steep section at about 4mph.
Geez, if I had to move something that weighed 500 lbs I'd have someone deliver it. I doubt I could get that in our car either. More likely, I'd move it 100 lbs at a time, over the course of 5 trips. There isn't much in my house that I would want to bring home that I couldn't move by bike if I needed to, though it might take multiple trips.
And for the majority of trips, it probably makes a good substitute. There is no reason to hop in the car to take lil' Johnny to soccer practice, or to run to the store and pick up eggs when you run out.
This assumes, however, that you live in a community where things are close enough together. People that live an hour by car from the nearest grocery store will not find a bicycle a good substitute. For them, perhaps a carpool is the answer (or, like we used to do, take turns buying for everyone. Your turn comes up one week out of four, you'll burn about the same amount of gas bringing home groceries for four families as you will for one)
Sorry to ramble off on a tangent.
This would jibe with a slow collapse theory where rising prices destroy the value of rural areas and far-flung suburbia while improving the circumstances of the cities.
Further out in time, this interest would once again turn outward as one urban area after another cease to be functional.
I was guessing Washington, DC myself. People drive insane distances for real estate in the DC area, and there are still horse farms and such in Virginia.
The prices she names are a bit on the low side for the DC area, but if she's far enough out, it could be.
I googled the phrase "Builder's inventory Reduction Sale." from the article and up popped McKinney. They've been building mcmansions in McKinney since about 1996 or so, I looked at a couple. It's about a 30 minute commute to Dallas from McKinney down 75. So if the writer lives on one of the "farm-to market" roads out of McKinney, she could be an 80 minute commute from Dallas. It would be right along the Red River somewhere, and there are some silly overpriced exurbs in north Texas.
I am going to take a position here, and I know it will not be popular on this forum:
The housing bubble collapse, when and where it comes, will have ALMOST NOTHING to do with the so called "Peak Oil" phenemonon.
In my area, the people who had known housing and land prices in the area simply shook their head in disbelief over the last 5 plus years...."These prices JUST DON'T make sense" they said...and these folks had NEVER HEARD OF PEAK OIL.
This points up a grave error that is becoming very common....EVERYTHING from age spots to crab grass is being blamed on the oil price....I actually saw a post recently by a "peak aware" type that said he could now filter almost "every event" through the lense of "peak oil."
That is NOT something to brag on but instead is the very definition of a "cult"...the two common elements are becoming more present....(a) single sourcing, in which all information comes only through the priests of the cult and (b) a logic system, often very simple, to explain away all complexities of life. With these two tools and a bit of companionship, a cult can function as the arbitrage point for all information and set the framework in which all existance functions.
So, back to the housing collapse....people got stupid on price. They have done it before, they'll do it again.
Note that I did not say that oil price and in particular gas prices had no effect, but argument is that we should be careful in tying the housing bubble to JUST the oil price...
Medical expenses are insanely high, I work with an attorney who says it is the biggest single cause of bankruptcy among his clients...
Tuition costs are going through the roof
And let us not forget vehicle costs WITHOUT the fuel....a luxury SUV now costs as much as a small home did only a few years ago
Vacation costs, fine furniture, boats....well, we get the picture...anyone of these large ticket items would pay for the cost of fuel for half a decade at 6 bucks a gallon...
Note we left aside the cost of the house itself....
I think it's a good call to break it out from oil and question the close (cultish) linking.
That said, oil price increases put pressure on a high existing debt burden which in turn put pressure on the bubble. That becomes exacerbated if oil price increases are judged to be "inflation", leading to higher interest rates, putting more pressure on the bubble.
Regardless of what happens to the bubble, before or after peak oil, I think there will be winners and losers. As always.
... I understand "rural" property in Alberta is doing pretty well ;-)
Bubble: meet big giant pin. With barbs on it.
It only makes sense to interpret events through a lense of energy-availablity.
Although it would be a stretch for the San Francisco Giants to blame rhp Tyler Walker's meltdown last night on Peak Oil.
Best,
Matt
Tony
To an extent, I guess, but in rural areas good medical care is harder to find. Exactly the reason this woman is selling her place out in the country.
I have heard all the arguments for and against living in a rural area in a post-petroleum world, but as long as property prices in the country were driven up by the housing bubble, I am not inclined to be looking at property.
World 'cannot meet oil demand'
Oilman with a Total solution
Tony
That one always stood out for me, how fragile the highway system was, and how if not given constant care could crumble quickly. I keep hearing blurbs (yearly?) about the poor conditions of our bridges and highways in the US, many getting a 'D' or 'F' ratings. But, I have yet to see a massive reconstruction effort.
http://www.interstate-guide.com/i-003.html
Total cost estimated to be around $50 B not to mention the damage done to critical watersheds, wildlife corridors, etc. Project is being pushed by trucking lobby who see it as a way to avoid the congestion of the Atlanta beltway even though it is only 15 miles shorter and will be subject to hazards like fog and snow. Locals have banded together to try to fight this project. A rail line to haul freight would be cheaper, more efficient and abandoned rail corridor already exists for the most part.
http://www.chattoogariver.org/index.php?req=interstate&quart=Su2005
True. The interstate system was built in the '50s and '60s, with a 30-40 year life. It was an economic golden age. We never imagined we wouldn't have the money to replace everything in 30 years. We also didn't anticipate the growth in traffic, especially the two-car family, which doubled the number of vehicles on the road, and the huge increase in truck traffic (and truck size - tandem rigs, etc.) that causes a lot more wear and tear on our roads and bridges. Perhaps worst of all, we didn't anticipate how dependent we would become on the new highways. It makes it very hard to maintain or rehab them, since we can't close the road without causing a traffic nightmare. If we'd known, we'd probably have built in extra capacity at the beginning, which would have been a lot cheaper in the long run.
And you won't, because we can't afford it. It's probably just as well. Better to spend on public transportation, railroads, waterways, etc., than highways.
If it's bridge capacity that's failing, that's really an attempt to widen the road now or in the future, but the bridge is too narrow to allow widening. They have to put the bridge widening in the plans early since bridge reconstruction is so expensive.
What strikes me is that even this cautious, responsible woman seems to be shocked that real estate prices can go down. I suspect most Americans are in the same boat. Like the Enron employees who never saw the danger of investing everything in their own company's stock.
We don't have that yet but I suspect we're getting closer.
I would like nothing better than to move to the country, near a small town..
The nice thing about all these cities is that you can still get decent rural land close enough in so that, depending on what part of the city you live in, your drive time to work might still be only 20 to 40 minutes each way. That's less than 1.5 gallons per day in a Prius.
Some of this land may level off and even go down a bit, but I don't expect to see any fire sales, at least not near the cities. Maybe out in the boondocks. If/when the big collapse comes, maybe this will change. But, as Leanan said in a different post, the city may be a much more comfortable place to be then anyway.
Interesting note, though-- I do have an associate who is looking to sell his home on 12 acres in the hills about 40 minutes out of the city, because gas is killing him. My comments to him were 1) you ain't seen nothin' yet, and 2) trade off your damn F250.
This bit also got me:
She should try living in the UK. Her fuel costs would be over $25,000 p.a. here.Recently Floridians have been buying up here like crazy and sent prices soaring. Price per acre gone from $2,ooo to $12,000 in two years. These damn fools are building "retirement communities" out here in the middle of nowhere. Nearest little grocery store 20 miles.
Looks like retirees think they are fleeing hurricane country. They don't remember that NC had hurricane related flooding in the 90s.
One of my co-workers shared with me his current plight. He had a 4000 sq ft home built in 2002 and has an ARM that was originally something like 3%. Now it's more like 6.5% and he's on the phone all day at work trying to get it re-fied. He lives 30 miles from work and drives a good ole red blooded American car. He told me that he picked up a Jeep Cherokee because it got better mileage than his van.
Her expectations were unusual. Bought 40 acres + house in 2000 for $140K. Decided to sell house on 20 acres and subdivide remaining twenty into 5 acre parcels. Total expectations were:
Quote from story...
"Right now, I will be fortunate to find a buyer for my property, even if I drop the price to $250,000 for the entire farm on 40 acres, an incredible contrast to the total $890,000 my agent thought we could get a year ago. At least I didn't borrow against it."
She won't lose a dime...
Stuart what about a series of blogs on "solutions".
http://www.dailykos.com/story/2006/4/8/74319/71877
The U.S. government has massively subsidized and protected real estate acquisition, while harshly penalizing most other forms of investment, ever since the end of the second world war. Which is why tom deplume might make a fortune if he acquired that property. And...oh, what a shock!...the government got precisely what it - that is, all of us - intended and paid for.
Let's see, if you invest in productive assets, you get socked with capital gains taxes, income taxes, gross receipts taxes, specific business taxes, taxes on taxes, etc. etc. Worse yet, when the kids go to college, the tuition will be raised as high as need be to consume all those assets. (Ditto, perhaps, for the new individual health-care mandate in Massachussetts.) And you lose them all if you are unlucky enough to go through bankruptcy.
On the other hand, if you invest in an all-consuming exurban vinyl box, you get State and Federal mortgage deductions, maybe FHA subsidies, "free" (i.e. at no particular marginal cost to you) highways, and endless other goodies, to say nothing of intangibles such as the oohing and aahing of friends and neighbors. And you have a shot at decent schools for your kids, which is a near impossibility closer in, where political correctness and corruption tend to direct nearly all the resources to a shiftless and thereby virtually ineducable few, leaving your kids with nothing.
Better yet, despite the "itulip" story at the fold of the original post, you are (or have been, anyway) almost guaranteed that ever more bloated government regulation will cause your asset to go up and up and up forever, despite a blip now and then. Best of all, when it comes time to send your kids to college, you can hide as much money as you like in the vinyl box, and it will be totally invisible to the social levellers assessing the tuition. And in most states you can keep the whole megillah even in bankruptcy.
There's really no point in becoming annoyed about people's behavior in these matters (which seems to be a theme in this thread) when it is perfectly rational under current law and social custom.
April 8, 2006
By Carl Mortished, International Business Editor
THE world lacks the means to produce enough oil to meet rising projections of demand for fuel over the next decade, according to Christophe de Margerie, head of exploration for Total and heir presumptive to the leadership of the French energy multinational.
The world is mistakenly focusing on oil reserves when the problem is capacity to produce oil, M de Margerie said in an interview with The Times. Forecasters, such as the International Energy Agency (IEA), have failed to consider the speed at which new resources can be brought into production, he believes.
"Numbers like 120 million barrels per day will never be reached, never," he said.
Snip ......
http://business.timesonline.co.uk/article/0,,13130-2124287,00.html
but everyone was dependent on their cars ! they were super surprised when i walked about 4 miles to a party.
i think part of the question is - where do you want to "be stuck" when gas is $10 a gallon ?
Her story is really as much about living in a world without a saftey net, where everyone is on their own, as it is about housing prices. Just like in the old days, we're all just one step away from catastophy - and if it happens, tough luck for you.
Her plans were not to sell it but to stay there, and if she had not been forced to sell, it would have been ok. So I'm not sure it's a good model for testing whether rural or urban path is best.
That is it exactly. The solution is obvious. You need the safety net people used to have before we industrialized. The one still used in Third World nations. Family. She is doing the right thing, moving to be nearer her family.
There, the housing market has cooled somewhat, but prices have not really fallen, and nothing like what the iTulip lady described.
However, my experience of medical care there was that it is vastly better than what I've been treated to in the city. The doctors I dealt with where smart, compassionate, I could always get an appointment within a week, the doctors would spend as long as I needed with me, and I could routinely see the same doctor whenever I went. Only the first of those is true here in San Francisco. The doctors are extremely smart, but that's it.
There is some issue with really major operations, but other than that, my experience was that very small town medicine was vastly better than supposedly world class institutions in the city. Only one data point of course.
Is Humboldt County in the "State of Jefferson" that was just profiled in National Geographic Adventure? Sounds like a good place to survive the dieoff and to enjoy life if we manage to avoid the dieoff.
As energy becomes more scare and expensive...the city life will become increasingly intolerable. You are correct right now, that those who have HOBBY FARMS or live out in the country but still live the RAT RACE STYLE will have trouble. It is only when people change their lifestyle to actually become almost completely self-sustaining will small towns and rural areas become the hot real estate market.
At first, there will be a collapse of real estate prices in both city and rural areas. But, those who get out first in the Suburbs with a great deal of equity, will be able to purchase for cash places in the country that are either foreclosed or greatly reduced in price. I think your right that somewhere in the middle of 2006 the housing bubble will begin to pop. But as large systems go...it takes time for entropy to make its way.
I agree with you, services like medical are better in smaller towns and rural areas. The advantage of the small towns with old or new rail lines will not be felt until our society goes through this transistion from keeping the current system at all costs to a more local and self-sustaining in the country.
Stuart, what do you think will happen with social services and police when the things start getting very expensive? Just like what happened to those people in North Korea and in Moscow when energy becomes rare or expensive, those in the country will do much better. I don't know what to say about those in rural areas with mortgages they won't be able to afford in the future....it is quite scary. I plan on moving to the country...but I have been somewhat more fortunate in that I will have no mortgage or any debts what so ever.
Stuart, what are your feelings about just how long it will take for things to get really bad in our society?
A burst California bubble will take the pressure off those places as well. And to the extent that people left, to establish "unsustainable models" (start a "bed and breakfast" anyone?), there's further downward pressure.
I met a guy up at the condo complex jacuzzi, as I was booking a little dot-com income. His story was that he'd made money in a previous computer boom, gone to Oregon, established an organic beef ranch, bled away his money, and come back to make more. He said it was fun while it lasted ... but it struck me as a model not to repeat.
Boomer migration will reduce average income, and therefore state income tax receipts, just as (for CA) the growing number of young people demand more services such as schooling. Other places, such as the northeast and the upper midwest, will lose population, jobs, income and political clout, all to the gain of sun-belt regions. Lower cost sun-belt regions will be immune to the popping of any bubble.
Washington: 155,400
Arizona: 133,000
Texas: 133,000
Oregon: 129,000
http://www.dof.ca.gov/HTML/DEMOGRAP/Dommig.pdf
http://www.census.gov/prod/2003pubs/censr-8.pdf#search='state%20migration'
Later I was in Colorado and a guy behind the counter said "beautiful day ..." (smile fades) "you aren't from California are you? It isn't always this nice." (we all laugh).
Obviously not. Few can afford that, and it will be even fewer when TSHTF.
Perhaps it is. If so, it is incorrect. Insurance will not cover everything. Even for things it does cover, there are caps. Yearly, lifetime, etc. One sick kid can wipe out a whole family's coverage.
Basically, you can't afford to get sick unless you're Bill Gates. Most people who declare bankruptcy do so due to medical bills...and something like 75% of them actually had health insurance.
Not true. The truth is, most plans do not cover everything. But people want everything.
http://www.energybulletin.net/11534.html
While this woman's story is interesting, Hemenway's is much more so, and he is well qualified to make the general observations he does (which, to me, are as encouraging as they are eye-opening).
This is a reply to kjmclark.
Congratulations, it sounds like you're having fun on your bike. When younger, I used to do things like that myself.
I am amazed by the number of people I see in my city getting utility out of bikes and am now sure I will see a lot more of it.
In my original post I was replying to someone who enthused about pedal power replacing all sorts of motorized functions it won't. We can expand the niche a lot. If TSHTF in a big big way that niche may be bigger than is easy to foresee. But there are just limits. In my experience somewhere around 100lbs on or behind a normal bicycle was about it. 150 lbs could be done but it was a stunt, not business as usual. I also several times carried a 24 foot ladder on a bike --traffic stayed far far away on those days.
I just don't see a 22x32 low gear and a sweetsmooth operating bike that includes that feature as a normal thing. It's a doable exception. It's something an enthusiast has, not something that ordinary people will have, aspire to, or even think about. Or have the good health to enjoy.
Now here's one I just don't know but I'll Speculate: when seeing those 3rd world bikes hauling really monstrous loads it often strikes me that the bike and the load are so completely and perfectly matched that what you are seeing is a bike that has been custom--built to haul that specific load over a regular delivery route. Not surprising there's a photo - it is a special thing. I know people used to photo me all the time and yes I had some pretty special bikes.
Two technical things: For carrying long or large objects forget trailers or tricyles. Get a sidecar. You will have to fight traffic for a space on the road but darn will they carry a load. And, one of the few really new things under the sun, the xtracycle. Forgive me I'm enough of a Luddite I've never learned hyperlink but just Google xtracycle. Moves the rear wheel back 18 inches, you can carry 4 or 6 panniers, it has stability on fast downhills with a load. Eliminates the problem of the trailer trying to come around you. Easier to park. Take a look.