Somehow, the BS abbreviation for Bear Stearns seems appropriate.

The rising tide of inflation does not lift all boats equally.

So well said. The rising tide of inflation is actually a tsunami, and will inundate all equally. I lived in Brazil for a couple of years during their chronic hyperinflation -- but was shielded because I was paid in American Dollars which were actually worth something then. Interestingly, Brazil also once had a valuable currency -- but that was a long time ago.

It seems that under chronic hyperinflation, money ceases to have much meaning, and as much as possible things revert to barter. It certainly did not stop the growth of the population, and there wasn't mass starvation, although the bottom tiers of the economy were (and are) pretty desperate.

I think the point is that we see that the govt's going to use the printing press a la Weimar. Yes, of course, there will be repricings within that.

Underlying all this is the massive devaluation of suburbia and all that depends on it (i.e. everything!) because of the increasing price of energy.

There are strong parallels with Germany in the 20s and 30s, although the order in which things are unfolding here is different. And Germany's resource problems were not because of geology, but because she lost WW1. Ditto her debt problems. But the debt and resource issues were in very broad brush the same. War and fascism were the "solution". We're already at war. The "problem" has been that the economy's been more or less ok -- til now. Will opposition to war (and wider war), timid as it has been, hold up in a depression? Or will depression supply the lacking cannon fodder?

Whom ever buys Bear Stearns must assume their expected loss for this year

Yea, sure. Just like the losses of LTCM or Silverado were covered and none of the creditors took it in the shorts.

Ron, what you wrote may be correct, but it depends on how the deal was structured. A stock deal that leaves Bear Sterns as a subsidiary would not necessarily obligate JP Morgan to do anything else. An appearance would be created. However, unless the deal requires a huge capital injection, assumption of debts or an actual merger, only the assets of Bear Sterns are available to its creditors.

Hard to say what is happening, but to the extent that Bear Sterns is a counter party to derivatives held by JP Morgan, Morgan may have done little more than buy itself an inside seat at the liquidation as some deals get unwound and other get get settled for pennies. Preferential treatment IIRC is an "act of bankruptcy" but a rational trustee would probably view keeping the big players alive as a priority.

Right - BS did not declare bankruptcy, so their liabilities remain.
It's different from when Refco went bankrupt - then the creditors had to sue for money owed.

How can 97% of the value of the a company simply go up in smoke? Isn't this what the SEC is for? How messed up must their accounting be in order to let something like this happen? If they're having trouble, shouldn't it be a gradual decline as more and more information comes out?----This is why I don't like stocks, way too unpredictable. People give me a hard time for being in commodities, but I think stocks are even more chaotic. As an example, remember when Shell had to revise their reserves several years ago? There is no way for a shareholder to know what's going on behind closed doors.
Philip

I think you are likely to be correct. Pain is going to affect usage.

But I also think we may be approaching "Revenue Pricing". We are as addicted to oil as exporting nations are addicted to their current revenue from oil. As demand drops, if I were Mexico and Venezuela I would cut production, sell half the oil at twice the price. This will maintain their current revenues and extend the life of their oil fields.

In such a case, demand drop will actually increase price. Economist and politicians are going to have to adjust to the fact that the laws of scarcity now apply to oil.

This may not happen. But, if I were Mexico, Russia etc... I would declare such a policy and implement it over a one year period.

jokuhl – Actually it was two separate presentations.

On bio-fuels they come to all the same conclusions discussed here holding out hope for cellulosic as greater potential net energy.

Some interesting charting of inputs on corn ethanol and soy bio-diesel.

Done from the eco-econo perspective (soy bean counting?).

The electric vehicle part was done by the prez and vp of evadc and they do a quick history of evs from 1800s to now with focus on storage.

I learned that Ford and Edison were working on nickel/ iron battery that beat lead way back then but then came the electric starter and ICEs took off.

Well, to be fair, the average viewer probably doesn't have a clue what's going on, and doesn't care. They don't know what a hedge fund is, what Bear Stearns is, or what an emergency rate cut means.

The financial storm so many of us see is invisible to Joe Public. They might have noticed it's harder to get a mortgage. A few have had their credit card limits lowered. But for most people, it's BAU. They only thing they're worrying about is whether to go Florida or Mexico for spring break.

CNN's money page (presumably aimed at the more financially aware) has a lot of coverage:

Lehman Brothers faces a storm

How bad is the mortgage crisis going to get?

Avoid financials - analysts

Main stream media is not going to focus on problems in the economy beyond showing camera shots of gas station signs, comment on increases in grocery prices, occasionally tell people that now is a great time to buy a vehicle, etc.

There is a certain amount of panic on Wall St but the media will try to keep it from filtering into Main St. For one thing it's a complex issue that cannot be explained in a sound bite. For another there is a lot of pressure on media to refrain from saying anything that would cause the panic to spread to citizens. If citizens think that the money in their wallets will continue to decline in purchasing power forever they will panic and rush to trade that money for anything of value.

'Inflation can be pursued only so long as the public still does not believe it will continue. Once the people generally realize that the inflation will be continued on and on and that the value of the monetary unit will decline more and more, then the fate of the money is sealed. Only the belief, that the inflation will come to a stop, maintains the value of the notes.' Ludwig von Mises

Hi, Bill. Efficiency without curtailment (i.e. a drop in overall consumption) just delays whatever consequence you happen to like least.

I am not sure that recession will cause a drop in price.

Exporters like Mexico are as addicted to their current revenues as we are to oil. It may be they will slash production to keep oil revenues constant. It is better for Mexico to sell 700,000 barrels a day at $200. Their fields are depleting so volume cuts extend export potential.

Commodities are being sold to cover margin calls elsewhere in the system. People are having to raise money quickly and selling commodities is an easy solution.

I understand (from one of the TOD staff) there are rumors that there will be new rules limiting the amount of leverage organizations can use. These rules may be announced as early as this week. The prospect of leverage limits may further encourage selling, and commodity futures are easy to sell.

No, what I was saying is that the effects are not isolated and linear, they are systemic and nonlinear.

The money paid at the pump goes somewhere. The station owner, the attendant, the oil companies, the governments. The money paid at the pump comes from somewhere, the person with the lorry or the car. The person at the pump gets the money from working, and his/her total budget is spent on healthcare, entertainment, food, shelter, transportation, and lifestyle.

The gas tax in the UK which ends up in general revenue goes to pay for various social and governmental services including but not limited to healthcare. I imagine even the BBC might receive some of it. As do foreign wars.

With a lower tax on gas in the UK, there would be more money available individually to pay for healthcare, entertainment, transportation, etc., and there would be less money in the government coffers to pay for transportation maintenance, healthcare, the BBC, foreign wars, and whatever else on which the UK government spends its money.

My motorcycle demands 91 minimum, 93 is preferred. One of my cars does as well, but not because it was designed that way, but due to there being too much carbon deposits in the cylinder. ;)

A guest on Squeek Blab just mentioned that lots of shorts came in this morning early because of the BS buy out. Now the shorts are getting whip sawed. Putting the fear of the Fed into short sellers on the market and longs in commodities will get immediate results.

Bernanke should make a surprise move occasionally to 'keep em honest'.

Look at all the other Stock indexes, ignore the Dow:

NYSE..: 146.54 -1.70%
S&P500:. 11.54 -0.90%
NASDAQ:. 35.48 -1.60%

Of Course, investors tend to do very silly things. Consider the 417 pt rally about a week ago.

No
Sorry for not interpreting the story. Yesterday I was accused of being 'overnumerate', now underliterate...;-)

Less leverage is a good thing. My point is that in stretching for returns, and competing by how much dollars one can make, with non-symmetrical risk profiles, the carrot lead to excess. Using the stick forces people to play within the rules that reduce systemic risk of the system

And I think whether the SEC actually institutes a rule like this or not, the prime brokers are defacto already doing so - after Carlyle at 32x leverage blew up, I should think primes will require larger haircuts on borrowings going forward. Say 10-1 or so.

The carrot was hung at the end of a stick

That interpretation is highly controversial, and as there is no good original evidence for it, "carrot on a stick" appears to be a recent aberration. Some people have got the wrong end of the stick ;)

The whole point of the "carrot or stick" metaphor IS that is a metaphor for reward and punishment. This makes a lot more sense, it's the dictionary definition, is the way it was originally used, and is the way most people understand it.

Yes, in this case. Reducing leverage means the market will go in the opposite direction of how the speculators are positioned, which is right now long commodities (including oil). If everyone was short, then reducing leverage would cause a rally however. This will be a volatile week in any case.

Hello Jokuhl,

The sellers of replacement headlights, windshield glass, shock absorbers, and front end alignment parts must be cheering this trend towards gravel roads, monster potholes, and miles and miles of shudder-bumps shaking car-parts loose.

I would expect vehicle designers to go back to cheaper headlights and front turn signals vs the highly involved, very expensive, bejewelled, multiple light designs we see on current models. Move them atop the roof to reduce damage rates?

Dual-sport motorcycles, basically off-road designs street-legalized, should sell very well for fast gravel transport. Their long travel suspensions are optimal for speedy traverse over the future whoop-de-dos. Consider the long history of the off-road Baja Races--these bikes cover the brutal path the fastest.

EDIT: Think of all the young men with dirtbikes & ATVs in the US: they must be salivating as they look forward to 'roosting' to work on their daily commute. 'Backing' a bike into a dirt corner, with the resultant spray of huge amounts of dirt and gravel, will be the name of the game!

I wonder if PHEV designers can sufficiently ruggedize their vehicles' batteries to withstand all the shake, rattle, and roll?

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

All that asphalt is eventually going to have to be mined and replaced with gravel anyway. Asphalt roads and parking lots are America's oil sands. There really is not all that much difference between asphalt and the stuff they are mining in Canada.

The attributes of gravel vs asphalt roads hinge on season, location, rock source, and underlying soil. I'd much prefer a gravel road in the winter, when black ice and snow make macadam a nightmare. Then again, a gravel road of limestone or shale in an arid climate is Jack the Ripper to tires. I've often gone thru 2 spares a trip. Northern New England is famous for it's five seasons in rural parts-mud season in April. Don't forget the way gumbo can swallow gravel during rains. Or washboards-some will keep you under 5 mph, not to mention vehicle wear and tear. Or house location- constant dust from the road forces folks to spend small fortunes oiling "their" stretch of road. There's a multitude of reasons for asphalt, and new electrics will have all that much harder a time without it.

PARIS (AP) -- The collapse of a Wall Street institution over the weekend shows the global financial crisis is broader than policy makers realized and it is growing worse, the head of the International Monetary Fund said Monday.

What an asinine statement by the IMF. TOD and the Automatic Earth and even Kunstler's blog have been talking about this for months. Is this to say policy makers, ones who suppose to have their fingers on the pulse, have been clueless to the flutters of the economic heartbeat?

Are we that smart???

Or is this for mainstream consumption: meltdown?? Whoops! Sorry folks, nobody saw this coming. Go back to sleep.

The link behind the title goes to a India Times story on a blackout.

Here's a link from CNN Money for the crisis story.

Global Crisis Deepening: IMF Chief

Make good friends - fast

Join something -

It's as you have been pointing out. The tectonic movement in all of this is net exports. (from Stuart's chart)In 2002 a US citizen's workweek potentially netted him/her 25 to 30 barrels of oil and all the attendant goodies.

Looking forward that amount will slide to maybe 2 1/2 real soon. (the current personal annual use in China) Economic growth as it is currently understood is over and relative 'success' will be measured pretty much in a person's ability to fully ultilize this allotment and/or improvise something else.

It's Springtime in Suburbia! Dig up the lawns and plant vegetables. Abandoned houses can become central storehouses with efficient restocking rather than piecework UPS type delivery. The bigger places can be turned into dairy farms; the McMansions into barns.

Finally, pedestrians and bicyclists can be safe on the currently insane roadways. I see nothing but good in the future -- after people adjust to a new reality.

Which is largely the solution practiced by the doctors and nurses on the front lines against infection, address the patient's infection through meds and isolation, and hope for no further spread in the general populace.

The fever, and the accompanying feeling of sickness, allows the body to deal with the infection. Raising the temperature helps kill the infection, while malaise causes you to conserve energy. Then the body recovers.

Treating the fever can benefit the infection, and pain killers may help you feel better and expend energy elsewhere.

This is where the analogy to our problems falls apart, literally, because allowing things to take their own unmanaged course in our financial crisis would not heal the system, but instead initiate a collapse.

And declining net oil exports is another symptom of yet a deeper underlying problem, unrestrained growth.

Dear, dear. You need to pay much better attention. The ideal "solution" and "course of action" are none of the above. Even plain old More Of The Same cannot possibly suffice. No, the only proper course is Much More Of Much More: "We should be paid for the time it takes to travel to work, say unions."

On the surface that seems fair, but the tacit underlying concept seems to be to expand commutes until, in the brave new future, everyone sets out before dawn, gets to the office or whatever around noon, walks past the gadget that scans their ID, then immediately sets out for home again, arriving after sunset. They claim four hours (round-trip) is already fairly normal.

Oh, and contrary to what sometimes seems to be received opinion around here, it's not just "us" in the USA; this is from coastal Australia.

The BBC gets the story pretty seriously wrong in their report. The city of Ontario (not to be confused with the one in Canada), California decided to open a homeless service center on some vacant land where the homeless who previously occupied underpasses and the like could stay out of sight and get free food, bathrooms, etc. It started attracting more homeless than just the ones from the city. I don't think that this is an indication of a vast wave of housing refugees, rather its an illustration of the U.S.'s persistent housing problems.

And perhaps the East Texas Field, now producing about 1% oil and 99% water, will soon start producing 99% oil.

Which begs the question: Why is KSA still accepting dollars for oil?

Why? Because it makes no difference whatsoever. If KSA does not like the dollars they are getting for their oil, they can change them in a fraction of a second to Euros, Yen or whatever. The FOREX is the most liquid market in the world. No one need hold a currency they do not like. They can change those currencies for any other major currency in the world for about three basis points or the difference between the bid and asked price. That is three cents per hundred dollars. The currency actually fluctuates more than that every few minutes.

What matters is what currency a nation holds its liquid assets in, not what currency it pays or accepts for its imports or exports.

Ron Patterson

U.A.E. to Keep Dollar Peg After U.S. Pressure, Official Says
2008-03-17 13:47 (New York)
By Matthew Brown

March 17 (Bloomberg) -- The United Arab Emirates, conceding
to U.S. pressure and a desire to act in concert with Gulf allies,
will keep the dirham pegged to the dollar, a U.A.E. central bank
official said.

U.S. Embassy officials last week told central bank Governor
Sultan Bin Nasser al-Suwaidi of their concern about reports that
the sheikhdom may drop the peg, the official said yesterday,
speaking on condition of anonymity. Political leaders have
stopped the bank from developing any plans to move toward another
currency regime, the official said. U.S. Embassy spokesman Atalah
Hoshan in Abu Dhabi wasn't immediately available for comment.

Abandoning the link would risk further weakening the dollar
as the U.S. economy falters and the Federal Reserve battles a
crisis of confidence in financial markets. The oil-rich Gulf
states, including Saudi Arabia and the U.A.E., depend on the U.S.
for political and military backing and are unlikely to abandon
their closest ally at a time of financial turmoil, said Anoushka
Marashlian, senior Middle East analyst at Global Insight in
London.

``The U.S. has always been the guarantor of U.A.E. military
security,'' Marashlian said. ``The U.A.E. wouldn't do anything to
compromise that relationship.''

Matt Drudge is a joke -- the links to stories are more sensational than CNN and not one them have been fact checked. I think the gossip rags are better than Drudge.

Hello River,

LOL! Thxs for responding. The simple solution, especially if one includes the fast rising price of plastic diapers, is to let the toddlers run nude more often in the backyard to air-dry.

The bigger problem is all the outside workers heavily sweating in the hot climates: 'crotch-rot', and high chafing rates from talcum shortages will make these people have very short fuses! Recall that the numero uno request from the GIs in Iraq was for wet-wipes and baby powder.

The trike style hybrids I've seen are all in the $30k range. People are not going to be spending the price of a house (post crash) on a vehicle when they can get a free SUV with every full tank. They'll pool up and limp along with whatever can stand rough roads.

That is no joke - I felt like I was riding a pogo stick coming back from Spencer the other night ... every third joint was pushed up two to four inches due to the freeze/thaw cycle.