DrumBeat: March 11, 2009


RIYADH: State oil giant Saudi Aramco said yesterday it had completed drilling on the largest new field in its plan to raise crude capacity to 12.5 million barrels per day (bpd) by the end of this year.

The $10 billion (BD3.78bn) Khurais project is one of the largest ever single additions to global oil production capacity and the largest integrated oilfield project taken on by Aramco to date.

Khurais will add 1.2m bpd to Saudi Arabia's capacity, which currently stands at around 11.3m bpd. The field will produce Arab Light crude, valued by refiners as relatively easy to convert to transport fuels.

Oil slumps below $43 with US stocks on the rise

NEW YORK – Oil prices tumbled more than 7 percent Wednesday as U.S. inventories swelled with surplus crude and traders started to doubt whether OPEC would cut production further.

Platts Survey: February OPEC Oil Output Fell to 28.07 Mil. Barrels Per Day

LONDON /PRNewswire/ -- Platts -- The 12 members of the Organization of the Petroleum Exporting Countries (OPEC) pumped an average 28.07 million barrels per day (b/d) in February, as the oil producer club continued its efforts to slash oversupply and prevent oil prices falling further, according to a Platts survey of OPEC, oil industry officials and analysts just released. This is down 900,000 b/d down from January's 28.97 million b/d.

Pdvsa to make payment of debts to big contractors conditional on rates reduction

The Venezuelan oil industry paid 10 percent of its debts and will pay the remaining debt after a revision of tariffs by suppliers.

Mexico's Troubles Are Our Troubles

A new contender now tops my long list of worries: Mexico.

The Crude Oil Deflationary Bear Market

But why did Oil go up to like $150 last year? One word: Speculation . Speculation that under-production of the commodity was somehow a law of nature; speculation that credit expansion was a permanent reality; speculation that this all-purpose-perpetual-war would someday somehow cut off the supply of Oil to the world.

But I am not just talking about the speculation of the Speculator. The dudes like us who buy and sell futures contracts and other securities with the intent to profit from price fluctuations. Included in the ranks of speculators are the producers of the commodity. How adept the Arabians were in their bull operations the last few years! In the first half of this decade a humorous string of pseudoscience started to circulate in environmental and investment cliques. 'Peak Oil'. * So the Arabians thought, why not lead these gullible Westerners to believe there is something valid in their silly science? So they temporarily curtailed production growth, and so grew the Oil bubble. Prices reached a point where they could forward sell production years into the future at ridiculously high prices. And about the same time the Arabians suddenly 'discover' that they can expand production by a good 10 or 20 percent.

Book Review: Robert Hefner's 'The Grand Energy Transition'

Robert Hefner’s new book, The GET: Grand Energy Transition, is beautifully simple. Although the book is full of the complexities involved in the history of energy exploration, statistics, logic, and policy, the picture on the book’s cover sums up everything quite simply: society is transitioning from an unsustainable past based on solid and liquid energy sources (coal and oil) to a future of sustainable life based on energy gases (natural gas, wind, solar, hydrogen). Having seen the cover and read the book, it seems so obvious to me now. Yet the mindset unveiled in this book is unique, ground breaking, and critically relevant today.

10 great eco-jobs

Say goodbye to stereotypes: Today's environmental workforce is kicking the granola-crunching cliche into the recycling bin.

2010 Honda Insight Starts Under $20,000; Becomes Most Affordable New Hybrid Available in the U.S.

"The all-new Honda Insight brings the cost of entry for hybrid technology within closer reach of an entirely new car-shopping audience," said Dick Colliver, executive vice president of American Honda. "In addition to making good environmental sense, hybrid technology is now entering a new era where it can also make financial sense for a broader range of customers."

Kan. oil rigs cut back drilling, lay off workers

WICHITA — Kansas drilling rigs that once could not punch holes fast enough when oil prices hit record highs less than a year ago are now sitting idle, their crews laid off. Tax revenues in oil-rich counties are plummeting. Marginal wells are shutting down.

With the world awash in oil supplies and oil prices down, states like Kansas are among the first to feel the economic aftershocks in its oil industry. Nearly 80 percent of the state's oil production comes from small wells averaging slightly more than two barrels of oil per day — making them more vulnerable to steep fluctuations in oil prices.

Global energy expert Matthew Simmons comes to Lafayette in April

Acadiana Business co-publisher Cherry Fisher May says Simmons’ appearance has been a five-year goal for the series. May was finally able to make a personal connection with the respected expert through his friend, MidSouth Bank board member Paul Hilliard, who has followed Simmons’ career for decades.

Hilliard, a local oil and gas veteran, came to know of Simmons when they were both young up-and-comers in the industry. “Matt is a veteran banker, author, lecturer, financial adviser and petroleum analyst. His most recent notoriety results from his best-selling book Twilight in the Desert and the ‘peak oil’ theory it explores,” Hilliard says. “The book reveals many interesting and heretofore unrecognized details about Middle East oil and its alleged reserves of this crucial commodity,” Hilliard adds. “To the Saudis, the book was much more irritating than interesting, but you should read the book to understand the reasons for their displeasure. Matt has the habit of annoying many of the world’s self-proclaimed petroleum ‘experts’ by puncturing their opinions with those inconvenient things called ‘facts.’ Those facts are prepared and presented with such vivid clarity that his audiences never leave without a heavy load of food for thought.

“I have never read a Simmons’ prediction that didn’t come true,” Hilliard continues. “I paid close attention to what he had to say and began to realize that he can read the mind of the industry — assuming there is a mind of the industry.”

Crude Oil: Changing Expectations

A lot has changed over the last several months, here in Washington with the new Administration, and across the U.S. and the rest of the world as economic conditions continue to deteriorate. It has been the latter change that has impacted EIA’s short-term global oil market forecast. In the latest Short-Term Energy Outlook (STEO), just released yesterday, EIA is projecting 2009 global oil demand to be 3 million barrels per day lower than we projected as recently as six months ago, in our September 2008 STEO. Why have we changed our view of 2009 so dramatically in such a short time?

Iran says Total will have no 'active role' in gas project

TEHRAN (AFP) – A top Iranian official said on Wednesday that French energy giant Total will have no "active role" in developing a huge gas field in Iran and that a new partner had been found for the project.

Total and Iran's National Iranian Oil Company (NIOC) were to develop phase 11 of the offshore South Pars gas field in the Gulf.

Suncor, contractors face 90 charges over waste water dumping

Oilsands giant Suncor and two of its contractors have been charged with 90 counts of dumping undertreated waste water into the Athabasca River and providing false or misleading information to the province about it, CBC News has learned.

The charges, which were laid more than a year ago in February 2008 under Alberta's Environmental Protection and Enhancement Act, relate to the monitoring of waste water from a Suncor-owned work camp that houses up to 3,500 people at the company's operations north of Fort McMurray, Alta.

AT&T to put 8,000 natural-gas vehicles on road

NEW YORK—AT&T Inc. said Wednesday it will spend up to $350 million over five years to buy more than 8,000 Ford Motor Co. vans and trucks, then convert them to run on compressed natural gas.

It is the largest commitment by a U.S. corporation to vehicles using alternative fuels, the phone company said.

Will the Economy Be Ahmadinejad's Downfall?

President Mahmoud Ahmadinejad appears to believe that only desperate measures on the economy can save his presidency when Iranians go to the polls in June, but he suffered a shocking setback on Monday when the legislature dominated by like-minded conservatives blocked his key initiative. Ahmadinejad had proposed legislation in the Majles, Iran's parliament, that would have summarily withdrawn government subsidies on oil, gasoline and electricity, freeing up about $20 billion in government funds, of which he planned to transfer more than half in direct cash handouts to middle- and lower-income households. But the move would have sent energy prices skyrocketing in Iran, and the Majles was having none of it — despite the vote being widely viewed as a test of conservative loyalty ahead of the June poll.

To feel lucky as collapse progresses / Tom Friedman's awakening

Slow collapse is what we need, if possible. As bad as this seems, "So far so good." The kind of fast collapse from a massive interruption in oil supplies is much harder to handle.

The system is teetering on many levels, and there are uncertainties, but fall it will.

Conoco still mulling Yanbu, German refinery spending

NEW YORK (Reuters) - ConocoPhillips expects to decide early next year whether to proceed with the Yanbu joint venture refinery in Saudi Arabia, Willie Chiang, the company's head of refining, said Wednesday.

Conoco and Saudi Aramco halted bidding on the construction of the planned 400,000 barrel per day Yanbu refinery in November, citing uncertainties in the financial markets.

Iran says OPEC could accept Russia as member

TEHRAN - Iran's oil minister suggested OPEC would accept Russia as a member if Moscow wanted to join the 12-member oil producers' group, the semi-official Fars News Agency reported.

Ford, UAW deal saves $500M annually

DETROIT (Reuters) -- Ford Motor Co said Wednesday that it expected operating savings of $500 million per year from an agreement with the United Auto Workers that will push hourly wage rates into the "ballpark" of foreign-based rivals.

Ethanol: Not dead yet

NEW YORK (CNNMoney.com) -- The old kings of ethanol are struggling for survival but a new crop of companies are poised to ascend to the throne and hope to offer a superior product.

Canals and rivers to lead micro-hydropower revolution

Britain's canals and rivers have already been heralded as a low-carbon way to tranport Tesco groceries, a test-bed for hydrogen boats and a opportunity to build more wind turbines. Now they're being billed as a chance for micro hydropower to flourish under new plans unveiled today by British Waterways, which maintains 2,200 miles of the country's canals and rivers.

EIA lowers oil demand forecast in latest short-term outlook

HOUSTON -- In its latest Short-Term Energy Outlook (STEO), the Energy Information Administration has lowered its projections for oil demand in 2009-10 as the global economic contraction continues to depress energy demand.

EIA now expects US real gross domestic product (GDP) to decline 2.8% in 2009, leading to a reduction in energy consumption for all major fuels. EIA forecasts that an economic rebound will begin in 2010, with 1.9% year-over-year growth in US real GDP.

Average annual world oil consumption is projected to decline almost 1.4 million b/d in 2009, with consumption in Organization for Economic Cooperation and Development countries falling 1.6 million b/d. This expected decline is 200,000 b/d larger than in last month's STEO, reflecting lower expectations of global economic activity this year.

Oil falls on lower demand forecast

COLUMBUS, Ohio – Crude, gasoline and other fuel prices tumbled Tuesday after the government again lowered its forecast for global energy demand and said average oil prices for this year will likely be below current levels.

China's Grab for Resources

The United States consumes 25 barrels of oil per capita, Japan consumes 16, and Korea 15. Interestingly, they all followed a very similar pattern of development. As their economies grew, oil consumption per capita expanded until it found a plateau. Developed economies ultimately become more service-oriented, so it's natural for oil consumption per capita to stop growing with GDP.

How far are China and India from stopping to grow oil consumption per capita? China consumes roughly two barrels of oil per capita. India consumes 0.9.

This would be fine and dandy if China and India did not each contain more than a billion people. But their oil consumption will grow many times in the next 20 years, assuming the global economy does not sink into a black hole. (Let's hope not!) Given this future demand, I don't think we've yet seen oil prices hit their peak. While $150 a barrel may remain the record for a while, one day it, too, could topple. The Chinese know this -- and they're taking action now.

Pemex Awards $492 Million in Contracts for 4 Rigs

(Bloomberg) -- Petroleos Mexicanos, the state-owned oil company, awarded $492 million in contracts to lease four oil rigs in the Gulf of Mexico as it seeks to boost slowing output.

Oilsands dreams in jeopardy in northern Sask. town

A Saskatchewan town that hoped to cash in on the oilsands boom is getting hit hard by the economic downturn.

Total to cut jobs in France

PARIS - TOTAL SA announced plans on Tuesday to cut 555 jobs in France over the next three years, prompting sharp criticism from the political left and right because the French oil giant recently reported record profits.

Europe's third-largest oil company by revenue said the job cuts at its domestic refining and petrochemical operations were designed to help it adapt production to falling oil consumption.

Rosneft Considers Laying Off Several Thousand Employees

Rosneft said Tuesday that it may cut several thousand posts to reduce costs after reporting a 64 percent drop in fourth-quarter profit.

Rosneft has already started to lower its head count as a result of a hiring freeze in place since October, company vice president Peter O'Brien said.

Chevron Cuts Output Forecast As It Waits For Lower Costs

In a sign of how lower oil prices are re-shaping the business strategy of major oil companies, Chevron Corp. (CVX) is cutting its forecast for long-term oil and gas production growth as it slows investment in some areas.

While still spending heavily in the new, complex projects that underpin its long-term growth strategy, Chevron will slash investments in existing fields and certain new projects such as unconventional natural gas fields in Colorado's Piceance basin.

The company will wait until the overheated operating costs of recent years drop substantially before resuming these investments, executives said at the company's annual meeting with analysts in New York on Tuesday.

Sinopec to Order Units to Cut Diesel Output by 20%

(Bloomberg) -- China Petroleum & Chemical Corp., Asia’s largest refiner, plans to order its refineries to reduce diesel output by 20 percent because of slumping demand for the fuel, said the head of one of the oil-processing plants.

Refineries of Sinopec, as China Petroleum is known, will be told to cut diesel yield from crude oil from year-earlier levels after domestic demand for the product, used to fuel trucks and machines, plunged about 20 percent in the first two months, Zhang Dafu, chairman of the company’s Jinling plant, said today.

Conoco caught out by lower oil prices

When ConocoPhillips became the first of the big oil groups to announce 2008 financial results, it was with a string of bad news.

Kuwait oil giant planning $80bn investment

A top official at the Kuwait Petroleum Corporation announced on Wednesday that the company would invest about $80 billion over the next five years to increase production and expand refinery capacity.

Oil-rich nations 'seek majors expertise'

Dave O'Reilly, chief executive of Chevron, said the oil-rich countries that erected barriers to international oil companies amid the run-up in commodity prices were now seeking their expertise in managing the drastic fall.

"They're back now looking for [our] investment,'' Mr O'Reilly told Chevron's annual analysts' meeting.

Norway's oil output on the rise

Norway's oil production rose to a preliminary 2.16 million barrels per day on average in February from about 2.11 million bpd in January, the Norwegian Petroleum Directorate (NPD) said.

Production of natural gas liquids and condensate fell to a preliminary 340,000 bpd in February from 353,000 bpd in January, the directorate said in a statement.

Norway Oil Fund Drops 23.3% in 2008 on Stock Plunge

(Bloomberg) -- Norway’s sovereign wealth fund, the world’s third largest, had a record loss of 633 billion kroner ($90.5 billion) last year as the worst financial crisis since the Great Depression battered markets.

Opec becomes well-oiled machine

Having headed into 2009 in freefall, the price of crude has defied the pessimists and recently found good support above $40 per barrel. This is mainly because the Organization of the Petroleum Exporting Countries (Opec) has been much more effective in reducing supply. Even though the demand side of the equation is still declining, there is greater expectations today that Opec can continue to act much more decisively than it has ever done in its history and quickly match eventual demand with supply. Why? The organisation is much more commercially focused than it used be, as most producers find themselves in greater need of higher oil revenues.

Total sees oil pricesrising to $60 next year

PARIS (Reuters) - French major Total expects oil prices to average at $40-$45 a barrel this year and rise to an average $60 next year, a senior executive said on Wednesday. The company expected oil prices would rise further to $80 in 2011, Jean-Jacques Mosconi, Total's vice president of strategy and planning, told reporters.

Japan’s Wholesale Price Declines Accelerate as Slump Deepens

(Bloomberg) -- Japan’s wholesale prices fell at a faster pace in February as the global recession cut the cost of energy and commodities.

Producer prices, the costs companies pay for energy and raw materials, sank 1.1 percent in February from a year earlier, after falling a revised 0.3 percent in January, the Bank of Japan said in Tokyo today. That compares with a median estimate of 27 economists surveyed by Bloomberg News for a 1.2 percent decline.

Putin promises Europe enough oil and gas for 100 years

Russian Premier Vladimir Putin says research shows that Russia has enough oil and gas for itself and for Europe for the next 100 years.

“We have enough energy resources to meet our own growing demands as well as the demands of our European consumers for at least another hundred years. I am saying this with full responsibility based on serious research,” said Russian Prime Minister Vladimir Putin at a news conference following talks with his Hungarian counterpart Ferenc Gyurcsany.

Ukraine politics may trigger Russia clash

An economic crisis in Ukraine compounded by a power struggle between the president and prime minister could trigger a fresh clash over gas with neighbouring Russia and disrupt supplies to European customers. Tensions rose last week when Ukraine's elite forces raided the headquarters of Naftogaz, the state energy firm that imports Russian gas and that has in the past had problems paying for the commodity, saying they were pursuing a criminal inquiry.

In Kiev, there was no doubt that the raid, days before Naftogaz had to make a crucial payment to Gazprom for February's gas supplies, constituted a fresh battle between President Viktor Yushchenko and Prime Minister Yulia Tymoshenko. Naftogaz had settled the bulk of the bill before Russian Prime Minister Vladimir Putin entered the row by threatening supply cuts, and a row like the three-week stand-off in January that cut gas off to millions in Europe was avoided.

State, local officials clash over stimulus funds

The Obama administration and some governors such as Perdue want the money spent quickly to create jobs and stimulate moribund local economies. But some local officials say basic repaving and other quick-turn projects will provide only temporary benefits and won't meet long-term transportation needs.

Urban areas see revival in housing construction

A substantial amount of housing built this decade has shifted from open fields on the edges of suburbia to dense central cities and their nearby suburbs, a new government study suggests.

The change suggests that a much-publicized urban renaissance in the past 15 years is more than an isolated trend, some urban analysts say.

Ford builds 100,000th hybrid

CLAYCOMO, Mo. - The Ford Motor Co. on Tuesday produced its 100,000th vehicle powered by a combination of gasoline and electricity and said it continues to see alternative power as a big part of its future.

GM delays innovative new diesel truck engine

General Motors' deteriorating financial situation has caused the company to delay one of the most advanced engines that it has ever designed, a 4.5-liter diesel for light-duty trucks.

"We have to make tough decisions right now," GM Powertrain spokeswoman Susan Garavaglia said.

Truck, SUV values driving upward

If you've got a pickup or an SUV that you're thinking of selling, this might be a good time.

Two reports out in recent days - one from the Kelley Blue Book and another from Manheim Consulting, the auto auction company based in Atlanta - say values of many used vehicles rose from January to February and again from February to March, with pickup trucks out front, gaining more than 17 percent in value from the beginning of February to the beginning of March.

American Air to cut capacity

DALLAS - AMERICAN Airlines, which plans to cut US flying by 9 per cent this year, sees bookings for the next four months running behind last year's pace and might be forced to ground more flights.

Government’s cutback on energy, water use is slowing

Many agencies are slowing in their goal of using less energy, raising doubts over whether they can cut energy use 30 percent by 2015.

Chris Tremper, an analyst at the Energy Department’s Federal Energy Management Program, said half of agencies reported a smaller reduction in their energy use in 2008 than the previous year.

Oil scarcity hits Mombasa

A crippling fuel shortage has hit the coastal city of Mombasa with motorists driving around for hours in a desperate search for the commodity.

The city center is the worst hit with a shortage of super and regular petrol being reported.

A spot check by KBC found long queues of angry motorists lining for hours at pump stations where the commodity was available.

Economy to slow U.S. nuclear power growth: NRC head

LOS ANGELES (Reuters) - An "excessive exuberance" for expansion in the U.S. nuclear power industry has calmed because of the global credit and economic crisis, the head of the U.S. Nuclear Regulatory Commission said on Tuesday.

Separately, a GE Hitachi Nuclear Energy official warned that the lack of credit will slow the pace of U.S. nuclear power development.

Recession has taken toll on alternative energy

Worldwide sales of solar cells, biofuels and wind turbines soared 53 percent last year to hit $115.9 billion before the global recession started sapping their strength, according to an annual report issued Tuesday.

Have we reached peak water?

We all know about peak oil, but peak water? Water expert Peter Gleick of the Pacific Institute poses the possibility that, despite the vast amounts of water on "Planet Ocean," we may be running out of sustainably managed water.

What is sustainably managed water? This term relates to the way we use, manage and abuse the fresh water that is regularly replenished by precipitation. In several places in the world, such as the southwestern United States and China, so much fresh water is withdrawn that rivers have actually dried up before they reach the sea.

Judge rules against water district on wells

MONTARA — The future growth of the urban Midcoast has been thrown into doubt by a recent federal court ruling that prevented a Coastside water supply agency from taking possession of three groundwater wells on which its customers rely.

The Montara Water and Sanitary District, serving 5,000 residents of Montara and Moss Beach, lost a bid to seize title of the wells under a portion of the Half Moon Bay Airport by eminent domain in a ruling by U.S. District Judge Jeremy Fogel in late February.

Record dry start to 2009 worries farmers, firefighters

The first two months of 2009 are the driest start of any year since the USA began keeping records over a century ago, leading to severe drought in Texas, dipping reservoir levels in Florida and a surge in wildfires across the nation.

Farmers, cattlemen, firefighters and others worry that the dry start may be a harbinger of a bleak summer that could lead to increasing risk of fire and poor crop conditions.

Ponzi 2: What Year Will Coastal Property Values Crash?

Coastal property values will crash when a large fraction of the financial community and of opinion-makers -- along with a smaller but substantial fraction of the public -- realize that it is too late for us to stop 4 to 5 feet of sea level rise.

This climate crunch heralds the end of the end of history

We are on the brink of a major revolution - the demise of the fossil-fuel economy. Now is the time to think through the implications. On the nitty-gritty side, one major concern has to be jobs. A climate change new deal will create new jobs, its proponents argue. I'm not so sure, if by this they mean net jobs - that is to say, larger numbers than existed before. As more energy is produced from low-carbon sources, and energy efficiency increases, some workers in the fossil fuel industries, like coal mining, will be put out of work. Most forms of technological innovation reduce the need for labour power.

Rising methane levels in Norwegian Arctic

OSLO - Levels of methane in the Norwegian Arctic increased in 2007 possibly because the thawing northern tundra released more of the greenhouse gas into the atmosphere, officials said Monday.

UN climate chief: US carbon cuts could spark 'revolution'

The head of the UN body charged with leading the fight against climate change has conceded that Barack Obama will face a "revolution" if he commits the US to the deep carbon cuts that scientists and campaigners say are needed.

EPA Plans U.S. Registry of Greenhouse Gas Emissions

The Environmental Protection Agency plans to establish a nationwide system for reporting greenhouse gas emissions, a program that could serve as the basis for a federal cap on the buildup of carbon and other gases linked to global warming.

EPA Aims To Declare CO2 Endangerment In Mid-April -Source

WASHINGTON -(Dow Jones)- The U.S. Environmental Protection Agency is considering officially announcing that carbon dioxide is a danger to the public - a finding that would trigger regulation of the greenhouse gas across sectors of the economy - in mid-April, an Obama administration official close to the matter said Tuesday.

By making such a declaration, also known as an "endangerment finding," Clean Air Act laws would force the agency to draft rules for emitters across industry. It could create a legal basis for challenging nearly every emitting source, though EPA chief Lisa Jackson has said the agency would restrict rules to major emitters such as coal generation, cement and chemical plants, refineries and a raft of other energy-intensive industries.


March 10 (Bloomberg) -- China vehicle sales surged 25 percent in February, the first gain in four months, after the government cut taxes on some models, helping the country extend its lead as the world’s largest auto market this year.

Sales of passenger cars, buses and trucks climbed to 827,600, the China Association of Automobile Manufacturers said today in Beijing. The tally in the first two months rose 2.7 percent to 1.56 million, compared with a 39 percent decline to 1.35 million in the U.S.

Perhaps the Chinese will be able to use all those new cars in the new suburbs they are building as part of their plan to emulate American's great and enviable successes in that area. They are now outpacing us in Big Head production. I get it. Why should they forego their version of the American dream just because the demise of the planet as we know it might get in the way? China is in their adolescence. I can relate. When I was 16, driving a car was just fun, fun, fun all the way. And oh how we loved driving up and down the strip.

" I get it. Why should they forego their version of the American dream just because the demise of the planet as we know it might get in the way?"

I think we are entering a phase of The Transition where each party tries to keep their economy alive long enough for the others to collapse.

The last economy standing gets to eat the most of the remaining cake.

I think we are entering a phase of The Transition where each party tries to keep their economy alive long enough for the others to collapse.

I think of it more like putting off the inevitable... And besides, the further up you are in energy consumption, the harder the fall will be post-peak... And for China, it's looking to be a BIG fall...

The last economy standing gets to eat the most of the remaining cake.

I don't know who'll crash first, but we are all going down more or less together. That's the one real "accomplishment" of globalization. There are people who defend empire saying that if it isn't us it will be them. But things are different this time. No one will be left standing -- no more world empires. Everyone will be forced into survival mode.

There are preferred modes of collapse. I prefer the way the Soviets collapsed, not that it was pleasant for the populace (it was disastrous, remains disastrous) but at least the nukes didn't fly. That part should be emulated.

Here's an Orlov interview I liked:

Well, surely that won't result in an increase in consumption, right? (Note to the inept: That was sarcasm.)

It blows my mind when people argue that supplies will be A-OK when we have China and India increasing their consumption when production isn't increasing... Even people who remember the 70's vividly don't seem to comprehend that supplies MUST eventually become tight, it's only a question of time. The levels in which people consciously ignore facts is amazing to me..

On the other hand, maybe all those new cars sold will help out GM, since it's their largest growing market? (More sarcasm, even though it *IS* true that China is their largest growing market.)

~Durandal (http://www.wtdwtshtf.com)

It has been their largest growing market for a long time-for some reason Chinese consumers think GM products are great-God forbid the USA government, so good at wasting taxpayer funds on bailouts, should in any way help GM leverage this illogical attraction by the Chinese consumer.

IMO, regarding the auto industry, the big difference between now and the Thirties (when we saw in increase of three million more cars on the road in the US in 1937 versus 1929, per Downsouth), is that millions of people wanted to drive a car for the first time in the Thirties---while today hundreds of millions of people want to drive a car for the first time.

That's one of the reasons I believe the oil bears who think world oil demand may sink by 15 or 20 million BOPD in the event of a world-wide depression could be mistaken.

I have yet to see anybody walking home from the grocery store with their bags.

In eastern Europe, women take an empty bag with them to work (on mass transit), and come home with something every day. It never crossed their mind to make a special trip to fill up the car.

My wife is from the Czech Republic which we visit regulary. I don't know about you but I've only seen malls mushrooming on the edge of minor and major towns with giant car parks and people wanting and going to shop, shop, shop. It's a very one-sided picture of Eastern Europe you paint there.

indeed. i'm from romania, and i can confirm this.
malls and supermarkets are thriving. the only thing is, most of them are inside town, where pretty much all the population is. The trips are made by car, but it's a 10 mile round trip at maximum. also, good public transportation is available, but it's kindof hard to buy much stuff and carry it home by bus.

the only malls outside town are the DIY and furniture (ikea) types. where you make a trip maybe once a year.

I am talking about Bucharest!

It's true, I am being a little nostalgic for a few years ago. Everybody is getting all caught up in being more American.

I traveled through Europe extensively in 2000, both western nations and eastern. On the fringes of every city across Europe I saw what could extensively be referred to as suburban/exurban housing, with nearby auto-centric shopping centers. All nations also had highways very much similar to American interstate freeways.

While Europe does have better mass transit options and much higher population density I get a little perterbed about the misconception that no Europeans drive or live in the "suburbs" when in actuality many do.


I get a little perterbed about the misconception that no Europeans drive or live in the "suburbs" when in actuality many do

I'll back you up on that. Due to my Irish heritage, I've been going to Ireland off and on since the early 90's. From 2002 to 2007 I did an annual 500 mile bike tour in the west central part of the country. As much as I think about doing it again before air fares are prohibitive (and yes, I do feel a little guilty about flying - but, I don't rent a car) I have lost much of the interest I had before urban sprawl and auto size/traffic increased so dramatically. It has become so much more dangerous on the narrow scenic roads that the charm is fading fast.

We only stay at B&Bs and I've yet to find an owner that lets their kid bike to school except where the roads are unusually quiet. We found it interesting if you talk to almost any 10 to 15 year old kid there, they can tell you exactly how many days before they can drive a car. As far as I can tell, auto ownership is a real passion in Ireland.

OFF-TOPIC: I did a backpacking tour of western Ireland back in Jan. '87. An amazing experience. We did about 250 miles, I think, in about 27 days. We didn't walk all days, so the avg. was something like 13 mi/day.

The B&Bs were how we traveled, too. We hit the Shannon, Limerick, the Dingle Peninsula, Galway, The Burren, Connemara and many little towns along the way. I remember many nights in front of a pot belly stove stuffed with peat. While most had a lot of money on hand, I lived off of pub sandwiches and an occasional Shepherd's pie.

The B&Bs were a wonder of wonderful people and cold, damp beds - despite the inches of sheets and blankets we had. The breakfasts could fuel you through half your 13 miles! Eggs, sausages, blood pudding, marmalade...

One of the best times of my life. Thanks for bringing this to mind.


if you ever visit bucharest again, give me a sign :)

My bus driving experience confirms that shopping bags and buses don't mix well. I've witnessed poor women bringing home several bags of groceries on the bus. It can really put us behind schedule which is a disservice to the other passengers and is not something I would recommend to anyone. There really are things that are better done by private cars and taxis.

The groceries required for a day or two for a small family are not typically disruptive in my experience.

Shop every day or every other day and the problem shrinks dramatically. So does walking to the grocery store.


Shopping trips by bus are perfectly normal everywhere in the world, cause zero inconvenience, and should be encouraged.

"zero"? Really?

I could see "acceptable" or "tolerable", but "zero"?

I have only every tourist-shopped by bus, but I have traveled a lot by plane and in some localities by bus and subway, and it's noticeably more difficult for all involved with a toddler and car-seat in tow, or even just a roll-along suitcase.

I recall as a teen visiting Holland that the people I was staying with shopped every day for foods, and were unexpectedly kept running for food by a house full of teen boys rather than the normal couple of toddlers. For them a loaf of bread and some lunch meat and cheese was lunches for a week...for us it was a not quite satisfying lunch once. Some families see a couple of bags of groceries as a weeklong supply; others see that as barely enough for lunch and dinner.

It's certainly more efficient time-wise to have one big shopping trip per week than a small trip every day. A monthly trip to Sam's even moreso -- how would one transport a trunk and backseat full of large boxes and cans by bus?

I find a 2.5 block to Zara's Grocery many times/week to be a "zero waste of time" since I enjoy the walk, and the break if working from home.

My 2 or 3 times/month 7 block walk to WalMart is much more trying. I sometimes drive because of the "stockpile" effect.

There is no inherent reason that multiple/daily shopping trips have to be more inefficient than a SUV full at Sam's.


I was replying to the complaints of the bus driver who thought transporting shoppers was inconvenient to other riders.

But to your point about bulk shopping, I would say that shopping habits in the US are driven by sprawl rather than considerations of convenience. If you live in Amsterdam, the closest shop is going to be a block away and on your way home from work. You can park your bike and be in and out in 10 minutes. Repeat every day and your food will always be fresh. In the US, total shopping times are probably longer because they usually involve dedicated trips and just making a full circuit of a place like Sam's takes a long time.

It's not the drive that bothers me. It's waiting in line at the checkout. I go shopping at 6am Saturday morning in order to avoid lines.

I really, really hate grocery shopping. Shopping every day is my idea of a nightmare.

Then you would like shopping at Zara's every day. Two cash registers, if a line of 3 appears, the second one typically opens.

Good place to catch up on the neighborhood gossip (sometimes wish lines were longer).

When WalMart targeted Zara's for comparison shopping# (why haven't they shut down like our plan said they should ?), Zara's ad response was "Life is too short to wait in lines".

# On a number of items, such as milk, olive oil, local bread & coffee, Zara's beats WalMart pricing. Overall, close to a tie (+3% more to shop at Zara's vs. WalMart ? Cheapest is detergent, toilet paper etc. at WalMart and daily items at Zara's)

And the food selections are typically healthier, and portions perhaps smaller, with daily or every other day shopping.

Best Hopes for Local Shopping,


Then you would like shopping at Zara's every day. Two cash registers, if a line of 3 appears, the second one typically opens.

No, I wouldn't. It's still a line.

And I don't like going through the checkout, even if there's no line. It's just a pain. I hate shopping.

I would pay someone to deliver groceries if I could.

I'm with Leanan.
Going to the store. What a mindless, brain dead chore.

Antoinetta III


"Once upon a time" I used to make the once a week run to the grocery store (fresh food ran out before next weekend). A fair amount of time/mental energy was spent planning what to buy & scheduling meals for a week (see home delivery).

Now is MUCH more enjoyable. More than once, around noon I will get hungry and start walking towards Zara's unsure of what I am going to buy for lunch. Today the Azaleas are just past their peak, some camellias are hanging on and the crepe myrtles are thinking about budding. Trumpet vines have just a handful of flowers now.

So much more fun than walking past rows & rows of cars.

The real drag for me was the planning and lists of "what to buy", then endless trips up * down aisles to buy it.

Best Hopes for NOT wasting time in sterile stores & parking lots,


We only buy canned and bulk goods at Walmart -- fresh stuff always comes from smaller, more local stores. I'd get produce at a farmer's market if there were one close, but there isn't.

Walmart wins on price hands-down here though -- everyday prices are cheaper than sales elsewhere, if you don't have coupons.

I'd get produce at a farmer's market if there were one close, but there isn't.

I wonder why there isn't one in your neighborhood ?

The closest one to me is about 3/4 mile down Magazine on Saturday morning (they rotate around city, next closest are two about 3 miles away) plus the oldest Farmers Market in the USA, 7 days/week in the French Quarter. I now buy most of my fish & shrimp from the Farmer's Market.

Could there be a cause and effect ?


I Googled this review of the Farmer's Market I go to most often


I shop everyday, bus or foot. My local supermarket has automatic check out (no lines.) With a little scanner you scan your own purchases and then pay by debit or in cash if you like. Honor system.

In Switzerland both the big supermarkets (and there are only two) deliver for a very low cost: they call that eco-shopping and print comparison maps/stats of kms/trips/travel of the food etc. Order by internet, delivery can be same day even.

I sometimes get the feeling the US is a little old fashioned.

I like little shops, like butchers shops, dairy store, and such, but there you wait in line for some random time for others to be waited upon. At Walmart you always do, too, except it's at checkout unless you get lucky with a self-check register.

I can see that for some the walk, chatting with clerks and neighbors, and getting fresh produce every day would be welcome. Maybe once I'm retired it would be for me, too (except I don't think that day will ever come).

But for now, spending time doing all of that seems largely wasted, the effort unpleasant, and line-waiting intolerable. Now at least the pain comes but once a week while shopping in bulk, and perhaps another once or twice for a quick run-in while I'm out. I think I'd rather order on-line and pay somebody to bring me the stuff.

I think I'd rather order on-line and pay somebody to bring me the stuff.

Surely a viable strategy post-Peak Oil.

Best Hopes for walking or bicycling to get food,


Drive or Starve Americans

I occasionally wonder what percentage of Americans could put food on the table with driving.

Assume an oil supply emergency, "they" are unemployed and get food stamps. Can they, in their physical shape, walk & return with enough food (or bicycle IF they already have a bike, buying a bicycle may not be a given in these circumstances) ?

The answer will differ between next door neighbors, depending on age, health & shape and whether they have a bicycle with baskets.

My guess ?

30% of Americans are "Drive or Starve".


monthly bulk shopping by car is its own negative feedback loop. no exercise and crappy, processed bulk food just lead to obesity and ill health. shopping often in smaller batches for fresh food and ingredients has the opposite effect. in my neighborhood in spain people of all ages shop frequently and they have little carts that can hold quite a bit. they are easily hoisted into a bus for the rare person who lives too far from a market to walk. this is just totally commonplace.

Not for me. I buy in bulk, but the same stuff I'd buy otherwise. 4 pounds of butter, 25lbs of flour, 10lbs of long-grain rice, 12 cans of tomatoes, 10 cans of tuna, etc. The only pre-packaged crap is chips and Gatorade for the kids lunches. At least they eat home-made sandwiches like God intended!

I went with some friends in Bogota, Colombia last week to one of the big box hardware stores like Home Depot and I couldn't believe it. It was a weekday morning and the place was like a zoo. People were not only lined up to buy, but to buy big-ticket items.

I commented on the crowds to my friends and they told me that was nothing, that I should go on a Saturday.

I am on a four month gig in Bucharest and the best things that I have brought over here was my over the shoulder gym bag and my two handle canvas bag. I do not leave home without them. I like the place as it still retains some of the good parts as it has electrified rail, subway, electric trolleys and the electric buses. It takes a little while to get around, but most of the populace can walk or take public transport to farmers style markets. In addition they have central steam heating plants which help keep the stray dogs warm.

I have a car, only because I work in the future sprawl area on the road to Pitesti. Driving in Romania is a little more Darwinian than the US and I think that is good. No old people on the road! Old people have the time and public transport to get where they need to go. The credit crisis may have hit Romania at a good time, before the politicians sold out public transport for increase car travel. The selling of the Natural Resources to outside interests appears to be an issue, but I have not delved into it too much. We shall see, but I like the place; however, I am from Dayton, Ohio, Bucharest is a Big Move up IMHO.

Well when there is a world wide depression, that would imply a sharp drop in purchasing power as people lose their jobs, factories shut down, people travel less and generally less energy is required. If countries experience a severe credit crunch depression as I expect than social unrest will dismantle global oil demand. The Chinese have reported 26 million unemployed people in rural areas alone last year and if Roubini is correct they have experienced 0% growth if they conducted their statistics in the same manner as those of Western countries - using quarter over quarter growth rather than year over year, hence in a few years (or less) we could see massive social unrest there. As well as the US, Europe, Latin America.

This does not bode well for oil consumption. Also if we were to have a systematic failure in the global banking system than oil production and consumption could fall like a stone by half or even worse as there would be no credit and no guarantee of payment let alone ability to pay your staff and costs.

Picture shown acres of trashed taxis;

"Taxi Graveyard"


"Thousands of scrapped taxis are abandoned in a yard in the center of Chongqing, China. Traffic congestion and pollution have worsened dramatically in Chinese cities because the country's long-running economic expansion has allowed increasing numbers of consumers to make big-ticket purchases such as cars, which means many no longer have to rely on taxis or public transportation."

Interesting. How does this "China vehicle sales surge" jive with this story then...with "data showing lower Chinese crude imports":


I was reading or hearing on the news that China had "filled up" there SPR's too.

From the article:

* China's crude oil imports fell 15 percent in February,
although fuel imports rose.

Probably the more meaningful number would be January & February net oil imports versus same time period last year.

In any case here are some 10 year (1997 to 2007, EIA) consumption & net import data for Chindia (China + India):


5.7 mbpd to 10.4 mbpd (+6.0%/year)

Net Oil Imports:

1.6 mbpd to 5.6 mbpd (+12.5%/year)

If we assume flat production, and assume a +3%/year rate of increase in consumption (half of the rate over the past 10 years), to 14.0 mbpd, their net imports would increase at about +5.0%/year to about 9.2 mbpd in 10 years (2017).

If Chindia were somehow able to maintain a +6%/year rate of increase in consumption, again assuming flat production, they would be (net) importing 14.2 mbpd in 2017.

Our middle case is that the top five net oil exporters will be (net) exporting about 11 mbpd in 2017, versus 24 mbpd in 2005.

Well that might change drastically in the next few months,

China’s customs agency said Wednesday that merchandise exports in February plunged 25.7% from a year earlier. That is one of the biggest drops on record, and extends the 17.5% fall in January for a fourth straight monthly decline. Imports declined by a slightly less dramatic 24.1%, thanks in part to government spending, which other data also issued Wednesday showed picking up in February. That left a monthly trade surplus of $4.84 billion – the smallest in three years. The number was just a fraction of January’s $39.11 billion, reversing a string of record surpluses in recent months.

The crisis is affecting China in a bottom-top manner. With the poorest labourers feeling the pinch first. The middle and upper classes will be severely affected in the coming year.


Urban fixed-asset investment climbed a more-than-estimated 26.5 percent in January and February combined to 1.03 trillion yuan ($150 billion) from a year earlier, the statistics bureau said today in Beijing. Exports tumbled 25.7 percent.


Surging spending outweighs a slump in trade because fixed- asset investment accounts for 40 percent of China’s economic growth, versus 7 percent for net exports, said Sun Mingchun, a Hong Kong-based economist at Nomura Holdings Inc.



Sometimes even NEWSWEEK gets it right, as in this missive on the fearless leader http://www.newsweek.com/id/188565/output/print

As Tom Brokaw said, the "winner" should have demanded a recount.

Of course, the problem is that there is no solution in the conventional sense. A honest politician would have used my proposed campaign slogan for Alan Drake, "If we implement my program, things will probably not be as bad as they would otherwise have been." Of course, this hypothetical politician would not have been elected.

Regarding energy policy, I think that the energy industry has been its own worst enemy. From what I can tell, the Obama Administration apparently believes ExxonMobil, CERA, et al, that the worst case for world oil supplies is an "Undulating Plateau" many decades from now.

So the admittedly self-contradictory "establishment" is losing faith in the President after 50 days in office? Well then, I guess the show is over. Bring back "the establishment" as they clearly will get us out of this mess (perhaps just by tracing their own steps backward?).

What exactly does "the establishment" envision as a desirable endgame?

Thinking people have long noted that American BAU was unsustainable. Peak oil is the main event in demonstrating this as fact rather than opinion. Something different has to come along, either on a bumpy descent or a sheer drop out of sky. I am comfortable with Obama at the controls. Who, pray tell, would you rather have piloting this beast to a lower altitude?

I don't spend any time analyzing potential Presidential candidates-if I had to pick one guy that has expressed interest in the job it would be Kucinich-who has about as much chance being elected as you do. I didn't say the mess could be fixed-nobody that could help could be elected or would even want the position.

'it would be Kucinich..'

Well, I'm glad you said that.

Let's not forget that Kucinich is still out here, and still pushing in the right directions (at least I think so, too) http://kucinich.us/index.php

I'm not as down on Obama as you seem to be, but I hope you're also finding the people or the few policies that ARE going in the right direction and figuring out how to help that push somehow.

(Got 'Hey Jude' on the random shuffle right now.. 'It's a fool who plays it cool, by making his world a little colder')


The only real two-party election we could have had would have been R. Paul vs. D. Kucinich. Now that's getting closer to what I would call a real choice.

I live in Ron Paul's district, Galveston county, Texas. I was a staunch Ron Paul fan while he ran for president. i lost interest when he was in the presidential debates and he made a comment about talking with terrorists, or something to that effect which pretty much sealed his fate as the next presidential candidate, but then recenty during this omnibus bill filled with pork, i learned through the Houston Chronicle that Ron Paul had requested at least $90 million in earmarks, (the highest earmark in Texas} knowing full well that he and fellow republicans would vote it down, (which he did) knowing all the while that the democrats would vote it in. Thus, he can say he voted against it, knowing that the democrats would approve it anyway. same goes for all the other republicans (in other districts and states}. They knew full well what they were doing, they threw in their earmarks and voted down the bill knowing that the dems would vote it in. they are all the same, just different titles. many of them have been in office way too long. congress needs new blood, same for the senate.
They are not interested in helping this country move forward in a fiscal manner, they think this is business as usual. I really believe they are out of touch with the average american. But, i like D. Kucinich.

on a seperate note, someone mentioned listening to The Beatles, Hey Jude. I recently read a report saying that among college students nationwide, the 3rd most popular musical group listened to by college students is The Beatles. case in point, my daughter comes home from University of Texas, and what does she want to put on her computer? my Beatle CD's. evidently, she says she can understand the words, the music is catchy! and basically she really likes the music. She also confirmed the report by saying everyone she knows at UT listens to The Beatles. glad to see the youth like The Beatles and older music.

"day after day, alone on a hill, the man with a foolish grin is keeping perfecttly still, but nobody wants to know him, they can that see that he's just a fool, and he never gives an answer but the fool on the hill sees the sun going down, and eyes in his head see the world spinning round."

Would have been a hell of a ticket with K on the top half and P on the bottom half. The PA, the MCA, the Fed... all would be endangered species about now.

Americans are stupid.


these are the times we live in, i am just a squirrel trying to get a nut, but i do know that if Bank of America and Merrill Lynch were to merge and employ former treasury Sec. Henry Paulson, the title would likely be "America Lynch Paulson"

Agreed, americans are stupid. not all, but most, and there you have it. majority rules. so here we are. (thanks to television and sports)

Did you ever listen to "Hey Jude" on an album but at 45rpm. really shortens the ending and sounds like alvin and the chipmunks.

I'd rather have someone who was more "in your face," as the article puts it.

This is not based on Obama's 50 days in office, but on his entire career. This is who he is. He's not going to change.

From der Speigel not the onion although sometimes...

"Tender, Juicy Obama Fingers Hit the Shelves"


"A German frozen food company hopes to raise sales with a new product: Obama fingers. The tender, fried chicken bits come with a tasty curry sauce. The company says it was unaware of the possible racist overtones of the product."

How about....The Rock Obama

The Newsweek portrayal of Obama very much reminded me of the tragic fate met by Mexico's Emperor Maximilian.

It seems the conservatives who begged Maximilian to come to Mexico didn't know their man:

Maximilian and his brother had different political ideals. In Vienna, Francis Joseph, after crushing the liberal, nationalist upsurges of 1848, ruled in the autocratic fashion native to the Hapsburgs. In Trieste, and before that in Lombardy, Maximilian sympathized with liberal reforms and an aggiornamento of the church and the empire.

--Carlos Funtes, The Buried Mirror

So once installed as the emperor of Mexico, Maximilian immediately began doing things that alienated his conservative base:

...howls could be heard from the haciendas of Jalisco to the halls of St. Peter's when Maximilian, to prove his liberalism and leave his personal stamp on affairs of state, decided to sustain th reform legislation of Benito Juarez.


Bereft of conservative support, and hated by liberals who reeled at the thought of foreign rule, Maximilian found himself isolated and alone. When Napoleon withdrew French troops his fate was thus sealed, and on June 19, 1867 Maximilian was executed by firing squad at the Hill of the Bells in Queretaro.

Feh... Newsweek's got it right. 51 Days into his administration, and he hasn't even cured cancer yet.

In other news, futures for sarcinol are down on the apparent discovery of an infinite supply.

OK-so your premise is that eventually Robert Rubin,Larry Summers, Ben Bernanke and Timothy Geithner will make everything rosy (Hank Paulson was getting there but he wasn't given enough time). Show your evidence or show evidence that Barack Obama is taking the punch bowl away from these drunks.

Sorry, I was making a snarky comment and you were expecting reasoned commentary.

As for your thesis, I'm simply not a member of "The Establishment" (defined in this article as "a three-sided force, churning from inside the Beltway, from Manhattan-based media and from what remains of corporate America") and my personal agenda does not include the government bailing me out, or making me whole for mistakes I've made.

Your list of fellows* above are surely worthy of criticism, but it's my opinion that the blame for the mess we're in lies directly on the shoulders of "The Establishment" -- who for years tilted the economic playing field further and further for their own benefit, championed deregulation of dangerous economic instruments, and provided 24/7 cable and broadcast propaganda for their point of view. Of course they are disillusioned with Obama, their entire world view of permanent growth was always an illusion.

Do I wish there was an economic team of outsiders that Obama could have picked? Sure. Do I wish they could have made sweeping changes and we were now 50 days into a pain free transition to a post-fossil fuel world? You bet.

Sorry, but I'm a realist, and an occasional woodworker. I know what happens when you push too much wood into the saw. This mess didn't happen overnight, and it won't be solved overnight.

*Yes, I know these fellows spent most of their careers in "The Establishment", but I've just spent the last eight years watching people who's major qualification for their position was the ability to believe things without evidence (AKA "Faith") mess up our planet. I'd rather have people who know how things work under Obama than Horse Association lawyers.

Hey some disillusioned sheeple are putting Barrack Obama up the there with Barrack O'Jesus, I don't know why he hasn't cured cancer yet. Perhaps, we weren't meant to know the allmightys intentions. perhaps when the time is right, we will know!



DC Metro to Tyson's Corner in 2013, Dulles in 2015

After Bush killed project 3 weeks before physical construction started.


Best Hopes for Much More,


By 2015, there will be little reason to go to Dulles.

Dulles will be a surviving airport.

Hard to take rail across water, DC is a major hub for both the US Federal Gov't & the World Bank.

I expect fuel efficiency to go up (see 787) and size to go down (see 787-800) for the remaining a/c.

The numbers of travelers is quite likely to go down significantly (see Recession/Depression + high fuel costs).

Ed Tennyson thinks that the Silver Line should continue past Dulles to Leesburg, to better serve commuters. All but the last stop will serve commuters.

Old airports can easily become TOD centers. National Airport in DC could become as very nice greenfield site, with a Metro stop already there. I wonder if Dulles could serve as both TOD & airport ?


“We have enough energy resources to meet our own growing demands as well as the demands of our European consumers for at least another hundred years. I am saying this with full responsibility based on serious research,” said Russian Prime Minister Vladimir Putin at a news conference following talks with his Hungarian counterpart Ferenc Gyurcsany.

Great! Since Hungary is the land of my ancestors I think I'll buy me a couple of Hummers (they are still cheap here in the US) and move to Budapest and start a stretch Limo service for Russian diplomats.

Just for the record there must be a Hungarian or two out there who suspects that Putin is full of shit!

Why would the former head of the KGB engage in disinformation?

What? You doubt Vlad's serious research? Maybe he already knows that there will be a drastic reduction in the number of European consumers after he shuts down his gas pipeline for a few months of much needed repairs next winter, eh? See he is not really engaging in disinformation at all, he just means something a little different, The surviving European consumers, heck they could easily have enough oil and gas for them...

Putin may actually believe it, perhaps having not looked at export math, but in any case he probably perceives that the illusion of infinite export capacity probably is in Russia's best interest.

In 1930, after the East Texas Field was found, and after a string of other large oil discoveries, how many US oilmen believed that the US would be a net oil importer 18 years later? And BTW, 18 years is our middle case for Russia approaching net oil importer status.

Maybe Putin is including Natural Gas in his list of "energy resources".
How long will Russian Natural Gas last?

Russian estimates of Artic & Okhotsk sea reserves are much higher than Western auditors. From what I have read Russian estimates (I am not a geologist) are based on samples of the sedimentary rock, whereas the USGS uses seismic studies. Apparently sedimentary analysis is more accurate than seismic studies(correct me if i am wrong) Last week Rosneft was quoted as saying only the sea of okhotsk has 88 billion barrels(http://www.marchmontcapital.com/story.php?story_id=6662&story=Okhotsk-oi...) of oil equivalent their estimates for the artic continental shelf are much higher. Mind you I believe the cost of extraction will be so high (EROEI so low) that these areas will be not be sustainable.

Dparkins -- I’ve been a petroleum geologist for 33 years and can offer some insight. The following might sound critical but it really isn’t. Both the Russians and USGS are talking “potential reserves”. Lots of different definitions for “potential”. Feel free to make up your own...everyone else does. These are big picture numbers. In other words, none of these folks can point to a spot and say “X millions of BO exists right here”. They can’t even say with any certainty that any oil exists at that particular spot. But that doesn’t mean they are just throwing around a lot of BS. But studies can indicate a potential for oil generation and trapping in a region. Actually sedimentary and seismic analysis compliment each other in such an effort. It’s not an either/or situation.

But at best anyone’s number is just a very loose guess. The best example I always offer is the North Sea. I’m sure way back when different folks had a wide range of potential reserves for this basin. Even though the N Sea has produced 25 billion (?) BO there were 92 wells drilled there before the first major discovery was made. The analysis that goes into drilling a single specific well would greatly exceed the resources applied to estimating the regional potential. They may use computers and real data models to generate those numbers. But they really are just "back of the napkin" type calculations for the most part. Another example if the great Mukluk (sp?) prospect drilled decades ago way up north near the Arctic Circle. A consortium of oil companies built an ice island to drill from....very high tech at the time. This one well cost $100 million (probably closer to $250 million at today’s prices). Needless to say Shell et al had numerous studies pointing to the potential of this huge undrilled region. Not only did they not find oil, but analysis of the well sample showed that oil could not have even been generated in this particular region.

And remember the majority of those exploratory wells find nothing. Also, to use the term “auditors” by any of those folks is a little misleading IMO. It gives the impression of very detailed and data rich analysis. Such is far from the truth. But someone has to make those guesses. But IMO we shouldn’t try to factor this “potential” into any sort of specific expectation. Or, put another way, I’ve only drilled two “sure shot - can’t miss” prospects in my career. And everyone agreed with me. And both wells missed. Now I avoid the sure things and just stick with ideas that have a reasonable chance of success.

Ideally, in a study of reserves you would want to do both. Seismic studies are quite accurate in finding potential reserves and identifying the geometry and lateral extent of the hydrocarbon accumulation. This is especially true if there are good open hole wire-line logs within the area of the shot. Both 2d and 3d seismic are more accurate with good logs from exploration drilling in the area. These logs can be used to generate synthetic reflector traces for the well, which can put depths to reflectors and allow correlation of the actual rock to the seismic “picture” giving a more accurate view of the formation with regard to porosity, relative water/hydrocarbon saturation, and structure to name a few. 3d seismic in particular can be instrumental in development of depositional models for potential reservoirs.

In evaluation of the recoverable reserves, sedimentary studies, and creation of a depositional model via geophysical and petro-physical data are important in identifying and modeling likely trends of quality reservoir and quantities of reserves. However in terms of reservoir permeability and wetting, which are important in evaluating any expectation of recoverability, much of that data is still derived from samples of the rock in the form of cores or sidewall cores taken during drilling of exploration holes, or wildcat wells.

In short in assessment of Russian reserves, a lot depends on the methodology of the exploration and assessment and the amount of exploration drilling in the area.

Russia import oil from where?

And California import food from where?

California is a net exporter now, and has TONS of land that's great for farming and unused. I've been outside of CA, you all can have it.

Pls clarify. We all can have California or the outside?

I love California, but I think Chu is right. It's not sustainable. Hard to grow things without water.

And now we have towns trying to take well water via eminent domain and such. The fun is just beginning.

While generally true, it's not entirely true. I would encourage people to not make such broad claims without some sort of nod to the fact people *have* and *are* greening the desert. I'll refer you specifically to the story posted here, last summer I think it was, of the brothers in Arizona who had transformed their plot of land using careful planning and water capture techniques. Proper use of mulching greatly aids water retention. Mollison's Global Gardener series also has an excellent example of barren, hard pan land being transformed.

I don't know to what extent water capture would serve the entire state, but some portion of the population absolutely can remain sustainable, at least in terms of food. Let's also be careful to note only the southern half is desert.

Don't get me wrong. I am encouraging my family to get the hell out, but that is because of overall temps and taking a generations view. And, *I* don't want to live there, but would very much prefer to live with/near family as TSHTF. I also have horrible allergies when in the Inland Empire. Call me selfish. He-he...

Your last point is the most salient one, imo. Eminent domain as water supplies dwindle, exacerbated by competition with other states, is the real killer here. It means you have no control over your own sustainability except as I stated above. Even then, aren't there places already claiming rainwater, too? If they'd leave people alone, some could make it sustainable. I'm even toying with the idea of straw bale greenhouses, or even underground greenhouses as temps get to levels where agriculture shuts down.


This statement makes no allowance for the price that we may need to pay to bring this energy to market -even if it exists. The price we pay will determine the 'shape' of our future societies. In the short term Society simply cannot tolerate costs above a certain level without painful crashes/recessions as we adjust to more expensive energy by down-shifting.

If I have a quantity of some commodity and I use half as much of it in the next decade than I did in this one then it will last forever... But future decades will have to look radically different to the present one


Jobs opportunity as drilling ends

The job of dismantling thousands of redundant offshore platforms in UK waters could provide contracts worth £15bn, according to a report.....The report, prepared by Interact Activity Management Ltd, estimates that 3,725 platform wells and 910 subsea wells in the UK offshore will need to be abandoned, the majority in the next 15 years.

Also true in the Gulf of Mexico OCS waters though I haven't seen a cost estimate. The damage from recent hurricanes has greatly changed the insurance coverage for these platforms and has many companies moving quickly to remove them.

Maine Governor Baldacci - State of the State Address


...Baldacci used his State of the State address to announce a strategy that he said will help lift the state out of recession and keep it out. At the center of his plan is an extensive energy initiative that ranges from weatherizing every home within 20 years to creating a renewable energy industry that benefits Maine as both consumer and producer. He also announced a new agreement with Bangor Hydro to explore the use of the state’s transportation corridors for underground energy transmission lines.

There is some work underway to reinstate some of our quiescent Railway corridors, and I hope others besides myself are advocating that the state look at the Electrification of Rail in conjunction with this Grid development, which lets both networks support each other. (Supplies and repairs available directly to grid by rail, and repair equipment for rail or grid could be powered from the grid..

EIA now expects US real gross domestic product (GDP) to decline 2.8% in 2009, leading to a reduction in energy consumption for all major fuels. EIA forecasts that an economic rebound will begin in 2010, with 1.9% year-over-year growth in US real GDP.

Someone like Gail the Actuary needs to answer my stupid question. In the latest EIA revision, December 2008 oil demand was down 7% year over year. On the way up, it seems like oil demand shared a 0.3 relationship with GDP in the US. It took 3 points of GDP growth to gain a point of oil demand growth. If demand is down 7% and the relationship is reversible, then GDP is down 21%, and it is just lagging the oil data. If not, why not??



Good point FF, oil consumption is a great guide as to how the economy is doing. But is it a leading indicator or a lagging indicator, or just a current indicator.

EIA IPM Demand (Excel file)
OECD demand in thousand barrels per day:

2005 49,824
2006 49,562
2007 49,128
2008 47,328 (first 11 months)

Well, from that I would definitely say it is a leading indicator. Which is to say that peak oil plus the price of oil played no small part in the economic collapse.

Ron Patterson

Fractional_Flow -

I'm not sure there is a clean, definitive answer to your question, which is a very good one and one that has also bothered me.

My hunch (and it is only just that) is that something was wrong with this apparent 0.3 relationship between oil usage and GDP in the first place. The 0.3 number is probably only a correlation (and most likely a weak one at that) rather than an actual causal relationship. It is certainly nothing like the direct one-to-one relationship between electrical power generation or steel production and energy consumption.

After all, many of the components currently included in what is defined by the government as GDP have little or no relation to oil consumption. If I understand correctly, many transactional fees, such as real estate commissions and legal fees, are included in the GDP. Apart from trivial things the office electric bill and the gasoline used by brokers going to and from their offices, there is essentially no relationship between the economic output of such activities and their energy consumption. So, as long as a brokerage still has people coming to the office, even if its economic output is zero, its effect on energy consumption is essentially zero.

One other consideration is that at least for energy consumption related to personal auto use, there is probably a sort of saturation point, in that even with a booming economy and full employment, there is only going to be so many personal vehicle miles driven and no more. I think this further weakens the validity of trying to correlate energy consumption and GDP. While there is a pretty good causal relationship between energy consumption and heavy industrial output, GDP is entirely different animal.

I think this is an example of the pitfalls in trying to come up with causal relationships using macro aggregated statistical data coupled with a somewhat dubious artificial abstraction such as GDP.

Joule, I agree that the .3 relationship is tuning things way too fine. However....

Apart from trivial things the office electric bill and the gasoline used by brokers going to and from their offices, there is essentially no relationship between the economic output of such activities and their energy consumption.

Now you are trying to tune things way too fine. There is definitely a strong relationship between energy consumption and GDP. "Brokers" going too and from their office has little to do with anything. Oil consumption by industry as a whole as well as the general public has everything to do with everything. High fuel prices drove consumption way down. People spent less on everything else as their energy prices rose. As people spent less industry produced less. Services were also way down. This meant people got laid off or had their pay cut. This had a snowball effect.

Housing prices peaked in 2006. Is it not likely that the price of gasoline had an effect on people's decision not to buy a house 20 miles from their job? And people who already owned houses way out would try to unload their home and try to find something cheaper and closer to work. Would this not constitute a direct relationship between oil and the GDP?

It is my contention that the availability and the price of oil were, at least in part, responsible for the housing collapse and in a very large part responsible for the economic collapse.

OECD oil consumption has dropped by 2.5 million barrels per day since 2005. The GDP grew as long as oil consumption was growing but once oil consumption started to drop then the decline in growth began. And last year that growth finally went negative.


Darwinian -

Perhaps I didn't make it sufficiently clear what I was driving at: That many of the sectors of economic activity that comprise the GDP have little if anything to do with energy consumption, either on the up side or the down side. That was my only purpose of including the example of brokerages.

Other sectors, such as heavy manufacturing, resource extracting and processing, transport, etc. obviously are energy-intensive and thus have a pretty good correlation between economic output and energy consumption. So, many things are superimposed over each other.

However, even some parts of those energy-intensive sectors no longer have as direct a correlation as they used to. One of the reasons is the high fraction of energy-intensive manufactured goods that are now imported rather than made domestically. For example, the energy that went into building a Hyundai automobile doesn't get credited against US energy consumption, but rather South Korea's. However, at least part of the revenue from the sale of a Hyundai is listed as contributing to US GDP. So we also have that sort of decoupling.

Then, as you rightly pointed out in your previous comment, there is a lag between energy consumption and when the revenue derived from that consumption is credited to the GDP. For example, given all the unsold cars languishing in US dealerships, there is probably something like a 90-day lag between the time the energy to manufacture that car was expended and the time that revenue is realized when the car is finally sold.

One other conjecture, which I have no way of proving: When the GDP expands from say X to 1.05X the type of things that happen are not the same as the type of things that happen when the economy contracts from 1.05X back to the same initial state of X. The notion of thermodynamic reversibility does not apply to the energy-consumption/GDP correlation.

Joule, no it is I who did not make myself sufficiently clear as to what I was trying to say. Everything in the economy is interconnected. Nothing is disconnected from energy. I argued that the crash, both housing and financial, is connected to the lack of growth in the energy sector and the very high price of oil over the last three years. (See Graywulffe's post below.)

High energy prices definitely affected the housing market. The high price of heating oil, diesel and gasoline affected everyone and everything. Airline tickets went up, there was a diesel surcharge on almost everything, people just bought less. High energy costs were like a tax on everything. Even brokers got laid off because of the crisis.

Many, in fact most, would disconnect the financial crisis from peak oil and the high prices that accompanied it. That is totally wrong. Had oil production kept growing after 2005, and if prices had stayed low, then the economy would have continued to grow. GDP would have continued upward. There would probably still have been a housing bust but not nearly as severe as it was. Condominiums prices went bust here in Florida partially because people quit driving from up North because of the price of gasoline. However here is the important part...everything would have recovered. But with the energy supply in decline there can be no recovery.

Nothing and no one, save a few Amazonian Indians, are immune from the effects of declining energy production.


Darwinian -

I don't think many would deny that our modern economy is highly interconnected and that economic output and energy consumption are inherently intertwined.

However, I think this discussion originated with the question brought up by Fractional_Flow that there seemed to be something wrong with the presumed 0.3 factor correlating energy usage with economic output.

My contention was that economic output and energy consumption are no longer as directly close-coupled as they once were and that the link between energy consumption and the US GDP is not that clear anymore.

I think we also have a cause-and-effect issue here. I contend that a not-insignificant fraction of energy consumption is not the direct result of actually producing economic output, but rather results from reaping the fruits of that output.

For example, if the economy is booming, the average family is far more likely to do more discretionary driving, e.g., for shopping, vacations, recreation, and the like. The energy associated with that driving was not expended in producing the original economic output that made that extra driving possible. I realize this viewpoint may be somewhat flawed, in that the discretionary driving itself produces some economic output, but I think it at least needs to be considered.

And let us not forget that GDP is really a measure of economic activity, and not necessarily useful production. Paying someone to dig and hole and then fill it back up will add to the GDP. In the same vein, selling US arms to Israel to destroy half of Gaza and then spending $1 billion plus to rebuild Gaza does indeed contribute to the US GDP but obviously hasn't resulted in anything productive.

In my opinion, the concept of GDP gets far more attention and respect than it deserves.


I largely agree with your assessment.

Here is OECD crude demand compared to the price of WTI. Brent, or a basket of oil types would make for a more meaningful comparison, but this is what I could put together in a short amount of time. The data depicted are 12-month sliding averages, starting with Jan 2001. The first data-point therefore begins Dec 2001. I use 12-month averages to smooth the data (demand has strong seasonality).

Looks like demand halted and began to erode around $50/bbl, and the erosion picked up at about $65/bbl. At about $90/bbl, demand seriously took a plunge.

Here is US oil demand against WTI spot price, likely a better comparison:

Interestingly, the US demand held up a little more strongly than the OECD in total. Though, again, demand growth ceased at about $50/bbl. US demand began a serious dive when oil climbed to about $75/bbl.

Here is US oil demand against the Dow Jones Industrial Average:

Certainly the DJIA is not GDP. However, it is interesting to see that growth in the DJIA halted when US oil demand began a marked fall. Only later, as US crude demand continued steadily downward, did the DJIA begin its own collapse.



First, thank you for an interesting thread.

There are weaknesses by the way GDP currently is estimated, but generally, there seems to be a correlation between GDP and energy consumption.
There will always be flaws in macro economic indicators or metrics.

Back to the example with the person shuffling paper. Even though he/she does not use a lot of energy in performing his/hers work, this person is paid and is also a consumer. Everything he/she consumes is brought to him/her by the use of energy and energy is also embedded in the product (also food) this person purchases.

Even in a consumer economy there will be a realtion between energy consumption and GDP.

The challenges we are faced with forward is declining ERoEI, the prospect of declining oil production and thus declining GDP. Or will GDP continue to grow in the face of shrinking energy consumption?

This is an interesting and important debate, and I think many of these rrelationships as of now is poorly understood.

From this morning's NY Times:

At the height of the savings and loan crisis in the 1980s and 1990s, Congress and regulators adopted new rules known as “prompt corrective action” that required the government to quickly close weak financial institutions if they could not raise money to absorb mounting losses.

The rules were a response to a consensus that keeping weak institutions open longer, under an earlier practice known as forbearance, damaged healthy banks competing with the government-subsidized ones and ultimately destabilized the banking system. By shutting weakened institutions before their losses grew, prompt corrective action was also seen as less costly to taxpayers and the deposit insurance fund.


"Forebearance" certainly seems to be the order of the day with the Obama administration. The level of sophistry the administration is willing to stoop to in order to protect its banking constitutency is apparent here:

Administration officials say that some of the banks at issue today are simply too large to be seized by the government, making comparisons to the savings and loan crisis less meaningful.

Moreover, they say, the public outrage over the growing cost of the bailout makes it politically imperative that they exert greater control over the way the money is being spent.


The rules were a response to a consensus that keeping weak institutions open longer, under an earlier practice known as forbearance, damaged healthy banks competing with the government-subsidized ones and ultimately destabilized the banking system.

This is something that is hardly being talked about at all. By keeping the dinosaurs bailed out, the healthy, well-run smaller banks are being denied the opportunity to expand into niches that would otherwise have been vacated by extinct dinosaurs. In the long run, the banking industry and the entire economy can only suffer as a consequence.

The smaller, profitable USA banks are not too happy about getting screwed by the latest Bair Witch Project.

"the healthy, well-run smaller banks are being denied the opportunity "

It sounds like many smaller banks were more heavily involved in local commercial RE markets - a niche where they could apparently compete with the giant banks the past decade.

It will be interesting to see in the months ahead how many of the currently "healthy, well-run smaller banks" can survive the now-buckling commercial RE market.

Yes, and it will be interesting to see how many are bailed out by the FedGov. My guess is that most will be left to sink and swim on their own. All the free market rhetoric in the US is pure BULL SHIT (sorry, I'm not going to use polite initials this time, I'm too angry); we don't have a free market, we have a non-level playing field that favors the politically connected - in other words, crony capitalism.

I certainly hope no one here is surprised about this ... What does the individual get if he has no credit card debt, house paid off, some savings in the bank etc? We get screwed. The argument goes that my house will be worth more if we give all sorts of money to those who live here and can't make their payments. Well, I don't care what my house is worth! I intend to live here, not sell it. My ambition is to live well and yet somewhere down the line to have my funeral expense check bounce. The 'live well' part will be harder since I just picked up some $100K of debt that I didn't want thanks to all the congress criters and administration big spenders.

Though SNAFU and FUBAR are not new, they certainly apply to these interesting times.

Rant off//

To keep your good mood going, the risk of US default has risen 7 fold over the last year-the funniest line is the one about transferring the risk from the players to the taxpayers http://www.marketwatch.com/news/story/cost-buy-protection-against-us/sto...

Lynford wrote "Well, I don't care what my house is worth! I intend to live here, not sell it."

Although I sympathise with the sentiment, don't forget there's a certain proportion of people who may need to move location because of employment or other opportunities. Part of the reason I didn't even try and buy a house in the last couple of years was that I do need to be able to move, and the risk of having almost all my savings wiped out if there was the widely predicted crash combined with a need for me to move and either couldn't sell or sell at an incredible loss dissuaded me. (The UK has recourse mortgages so walking away from the mortgage doesn't work either.)

House prices aren't completely irrelevant, which is part of why they "ought to" return to levels which are realistically payable by the people takingout the mortgage.

Although I sympathize with the sentiment, don't forget there's a certain proportion of people who may need to move location because of employment or other opportunities.

True, but how does that matter? If the house you have to sell is worth 50% less and the house you are going to buy costs 50% less, you haven't lost any ground at all.

Now if you are moving to a strong housing market from a weaker one you would be hurt, but that's always true regardless of weather prices are going up or down. The only people it would matter to are those buying their first house, who lower prices will help, or those selling a house and not buying another, who lower prices will hurt. But overall, it's a wash.

'I just picked up some $100K of debt'

We've all been building up that debt for a long time.. it's just starting to get noticed now. I'm not saying they're angels up there on the Hill.. but I think you're partly blaming the messenger..

You're absolutely right that the debt has been a long time coming; I didn't just pick it up. Further, I am not blaming the messenger. The congress has been robbing the Social Security System for years, which is much of the debt the country faces. I didn’t do it nor did Obama et al. We (my wife and I)have been trying our best to get along for more than fifty years within our means while many have not. I am really upset, not with the messenger, but with TPTB and those powers past because they have/had no sense of responsibility to you and me but only to get re-elected as often as possible. This latest splurge of spending adds another load to this old camel. I believe it is time for Atlas to Shrug.

NPR's "OnPoint" program right now is broadcasting a discussion of "The Great Disruption". http://www.onpointradio.org/shows/2009/03/creative-disruption/

Later presumably it will be downloadable here:

It seems that "limits" are breaking into the MSM.

Tom Ashbrook is a bit of a doomer. He's been following stuff like this on and off for the past couple of years.

The online comments there degenerated into the "it's all about population" vs. "it's all about per-capita consumption" shouting match. Can't anybody accept that it's both? And that, for ANY fixed per-capita consumption level no matter how small, exponential population growth (at ANY rate > 0) leads to disaster? Sigh.

The worst of all worlds is represented by the octomom.

Octomom Publicist Calls It Quits
"This Woman Is Nuts"

For the second time in less than a month Octomom is down a publicist.

"It just got to be too much," Victor Munoz told Usmagazine.com. "It's pretty much a free for all over there right now."

Suleman, who is 33 and unemployed, said in early February that she lives off of food stamps and intended to use student loans to help finance her 14 children.

Munoz said octomom became greedy during his short tenure as her go-to PR guy.

"Nadya got real greedy. This woman is nuts," he told Usmagazine.com.

I will bet with anyone on this site she is pregnant again within 36 months with more kid(s).

For those who may have missed it, a video of the octomon giving birth is now available:


I'm not going to that link, thanks.. just asking, don't you think this is getting pretty tabloid for this site? What does it offer, really?


I'm not going either ...but x got you to engage him via the post, eh ?

Guess you're right.. just healthy human intercourse by consenting bloggers!

The video offers levity by Jimmy Kimmel Live.

Denninger wants to give the financial system 6 months to come clean. Ilargi at TAE did not like that call. Denninger's response today:

My call for a temporary suspension of mark-to-market set off a shizstorm of controversy, characterized by this sort of idiot savant comment over at The Automatic Earth:

Moreover, the drive to change fair value rules (were they ever executed?) gets so strong that blogger Karl Denninger, who's spent months clamoring for fair value and mark-to-market, today does a 180 and argues for a suspension of the all-too-rational principle. Thinking of a career in politics? Any idea of the damage a suspension would do? I think you do, Karl.


For the intellectually-challenged (a group that is ballooning by the minute) let me put things in stark relief for you, hopefully this time in plain enough English that you can understand it...


I look forward to this discussion between these two and hope other intelligent bloggers out their join the fray.

I was thinking we should replace congress with a dozen of these guys and gals for 6 months and see what happens.

Yeah, well Denninger is a jerk, but he is partially (and only partially) right. Immediate application of mark-to-market plunges them into a death spiral. Six months is too long though. That new CDS exchange and clearing house needs to be set up pronto; then give them just one month to get their balance sheets as clean as they are ever going to be; then apply mark-to-market. If they can't make themselves solvent after that one month, then it is time to pull the plug. As I mentioned in my other post above, keeping these dinosaurs alive on life support is not fair to the healthy smaller banks; they are being denied a level playing field, and the opportunity to take advantage of niches opened up by dying dinosaurs. If the dinosaurs can't clear their toxic trash in a month, then it is time to get them out of the way.

Maybe you should join the dirty dozen in replacing congress.

Would you consider one quarter, instead of just one month?

The bad banks already have done their death spiral. They are insolvent and no suspension of anything for any length of time will change that. Let the sun shine and the dead fish rot.

The thing is, though, if these institutions could start trading these things, they could end up acquiring quite a few of the CDS and other derivatives that other institutions had been holding against themselves. If they own both sides of the thing, then they can just wipe it off of their books, and the damage is gone. Allow a few days of intensive trading, and some of the institutions might be able to escape with an OK balance sheet. Of course, those that are still insolvent after the dust settles are beyond hope, and it is time to pull the plug on them.

This is truly the Last Chance Hotel for these critters.

Also from the New York Times:

Second, spreads are so wide that banks make enormous profits lending. As long as the government allows them to borrow cheaply and avoid deposit runs, most of the banks can make money and rebuild capital in this environment...

[Buffett] thinks that bank liabilities should simply be guaranteed at this point (at least for the large banks) and that guarantee should carry the personal weight of the President.


That sounds like a great plan, that is for banks that are (1) insolvent and (2) "too big to fail." Those banks will surely be saved, along with the prodigal bankers who manage (or should I say mismanage?) them that got us into this mess. Those happy-go-lucky winners of the government lottery will not only get to keep their ill-gotten gains, but get to salvage their egos and reputations, and their jobs, as well.

But for insolvent banks that are not "too big to fail," for banks that are solvent and liquid but must compete with the subsidized banks, for savings account holders like my mother who get 2% interest on their money, for taxpayers coerced to guarantee the debts of the insolvent banks as well as loan them trillions at ridicuously low rates, for households and businesses who must borrow money from the subsidized banks at rates kept artificially high by government intervention, and for those who were prudent and have money to buy, and perhaps profit, from acquiring the assets of liquidated banks, it really sucks.

Not only that, but the reckless gambling by these connected banks has not slowed at all-this is the equivalent of the taxpayers pulling someone out of a rip tide and immediately allowing them to jump back into the water (to be rescued over and over again).

Interesting article in the NY Times this morning on buying real estate in Colombia:


The world-wide recession is just now beginning to affect Colombia, but the government is still projecting 3% growth in GNP for 2009, and 0.3% for the region. (In comparison, the GNP of the U.S. fell 6.2% in the last quarter of 2008.)



This article also claims that real estate prices in Bogota have continued to rise at a clip of around 7% per year, though that's expected to moderate this year:


I know that going back to yesterday's news is generally anathema around here, but I have been bothered by something for the last 24 hours and, frankly, it smells a little fishy to me.

I'm talking about Citigroup's Vikram Pandit announcing that his company was profitable through the first two months.

Now, I'm not trying to question the veracity of the statement. But I am interested in why he would make such an announcement. Since when do large companies leak interim results like this? Indeed, since this was an "internal" memo with little in the way of specifics, one has to wonder what the motivation for the memo would be.

My cynical side says all is revealed in a line from the memo that says, "I am, like you, disappointed with our current stock price and the broad-based misperceptions about our company...."

Here's what really bugs me about this. In another few weeks Citgroup will be announcing its 1Q results. Is this not the correct forum for releasing results?

Is the interim "leaked" memo covered by "safe harbor" laws? Should the SEC open an investigation into an apparent attempt by Pandit to influence stock price?

And if I give free reign to my basest conspiracy theory thoughts, was there collusion in an effort to stem the market slide?

The SEC is an open joke-why should they pick on Pandit when everybody else gets away with murder?

Do you think this could be part and parcel of the media blitz to get the federal government to do what Warren Buffet wants it to do, i.e. "bank liabilities should simply be guaranteed at this point (at least for the large banks) and that guarantee should carry the personal weight of the President."

This essentially puts the full faith and credit of the U.S. Government behind the big banks, and their liquidity and balance-sheet problems disappear instantly.

Someone correct me if I'm wrong, but the "earnings" reported by Citi are sans any balance sheet writedowns. These figures represent what? Operating profits?

As the story I linked above stated, "spreads are so wide that banks make enormous profits lending." I think maybe the release of the Citi "earnings" was designed to send a message as to just how incredibly profitable the banks lending operations are in the current environment.

The plan, as I understand it, is to create a sheltered environment--like a greenhouse--for these hothouse babies:

1) The U.S. government gives a carte blanche guarantee of all bank liabilities, so that concerns about balance sheets and liquidity disappear,

2) Accounting rules are changed (such as doing away with mark to market) so that problems with balance sheet writedowns dissappear, or are at least greatly ameliorated,

3) Current management stays in place,

4) Banks pay almost nothing to borrow funds from either the government or depositors, and

5) Banks loan that money out to U.S. households and businesses at exorbitant interest rates so that they can "earn" their way out of the hole they're in.

1) The U.S. government gives a carte blanche guarantee of all bank liabilities, so that concerns about balance sheets and liquidity disappear,

2) Accounting rules are changed (such as doing away with mark to market) so that problems with balance sheet writedowns dissappear, or are at least greatly ameliorated,

3) Current management stays in place,

4) Banks pay almost nothing to borrow funds from either the government or depositors, and

5) Banks loan that money out to U.S. households and businesses at exorbitant interest rates so that they can "earn" their way out of the hole they're in.

I see the same thing you do, but I'm not responding with populist rage. Instead I'm willing to consider "forbearance" as a possible solution. I'd be happy, if the banks can work their way out of the mess, which is possible if they can make profits, which go towards repairing the damage. Sure some (actually many) unsavory characters will get away without just punishment. I'm just more concerned about the world my kids will grow up in, and that requires some sort of functioning financial system. Hopefully we can continue to downsize that system, it has grown to an obscene fraction of the economy -for something that creates no real value.

Bernie Madoff is going to jail, but his fantasy spin never dies. Math obviously isn't taught anymore-really nice how absurdly gigantic sums can be borne by the taxpayer indefinitely with no consequences of a material nature-it will simply make everything nice for your children. There seems to be little understanding that these TRILLIONS of dollars wasted could have been spent in more productive ways, or better yet not spent at all.

I was watching CNBC and there was this chap from Blackrock talking to Maria Bartiromo. He said that the US Govt should simply issue 100 year bonds so that no one would have to worry about paying them back for the conceivable future and then all would be fine (or something to that effect).

Essentially kick the can so far down the road that it dips below the horizon.

Our great grand children can deal in billion and trillion dollar notes.


We just missed the opportunity to downsize the financial system. Now it's institutionalized and codified with taxpayer dollars and gov't bureaucracy. I see little value in this financial system that could not be served by much smaller banks. Regardless of how the banks dig out, it will be on the back of the little people who do the work. No money can be created for free.

Why stop at the connected, as Buffett advises-using his logic, simply have the "President" personally guarantee all liabilities, personal and corporate, of the entire economy-should fix the problem. If a guy has an income of $50000 and liabilities of 5 million, having the "President" co-sign will solve his problems and now he can go borrow more or maybe just get an extra mill to play with on some wild CDS bets.

Or spend at Christmas ...

The drumbeat to do away with mark-to-market:

Dimon, speaking at a U.S. Chamber of Commerce economic conference, also said mark-to-market accounting may have been applied "to a ridiculous point."

The mark-to-market accounting rule, which requires assets to be valued at market prices, is defended by investor advocates and some lawmakers as giving a clear picture of the assets held on banks' books. But the banking industry, which has been forced to write down billions of dollars' worth of hard-to-value assets in illiquid markets, has pleaded for a suspension or modification of the rule.


I wonder what Jamie would say if there actually was a hot market for this crap the taxpayer is being force-fed. I think a fair approach is bank assets should be valued at the higher of market value or any fantasy value some employee can justify with a bogus formula.

I would be more interested in the nature of the profit since the entire market went ape shit on the news. To what extent is this profit transferrable to the rest of the real economy. If the stock market is so freaking happy about a report of profit from just one financial company, what does this say about the viability and sustainability of our economy.

The sham economy just keeps rollin' along. Dollars divorced from reality.

I wonder how many USA companies could churn out an 8 billion dollar profit if you gave them 45 billion dollars of taxpayer capital.

Brian - You remind me of a very old joke: when the farmer who won the $1 million lottery was asked what he was going to do with all that money he said "I suppose I'll just keep putting into the farm until I loose it all".

Shaman, The FT did some digging and to ease your concerns the profits excluded writedowns and other losses. http://www.ft.com/cms/s/2/1997b610-0d7d-11de-8914-0000779fd2ac.html

But investors should not lose their heads. The headline-grabbing revenue number, of course, does not include costs or writedowns. Besides, Citi exceeded $20bn in adjusted revenues for eight quarters up until the end of September. Even in the nightmare final quarter of last year, revenues excluding writedowns were still a respectable $13.4bn.

So Citi having a bumper top line is nothing to get excited about. That “profitable” remains unquantified gives no comfort as to what extent writedowns have eaten into that haul. That is the problem. In volatile markets, flow businesses such as foreign exchange or cash equities will always do well. And all banks are benefiting from short-rates being close to zero.

But provided the global economy keeps deteriorating, and house prices sink lower, balance sheets may fail even harsh stress-tests. It remains a brave investor who believes that this time bank revenues can overwhelm the writedown bogeymen.

VK - appreciate the link. I've been busy today so haven't had a chance to see if anybody else is looking at this with anything other than rose colored glasses.

What bothers me most, though, isn't whether or not the numbers are true - but the way the note came out after a week where Citi's stock price fell precipitously. Not only is it a little too convenient, it strikes me as unethical and potentially illegal. Yet no one (at least yesterday) responded that way.

I work for a publicly listed company and our executive team absolutely would never give out numbers to employees before the quarterly reports are made. And interim numbers? - no, never.

Hey- didn't Enron release numbers like this once in a while...?

C'mon! Bring back the tilted 'E'...

CNBC said over and over again that these were profits, period, without any qualifications. CNBC should be sued for fraud. They were desperate for a rally so they failed to put in the caveats. I am sure they have people who know how to read a balance sheet. Just to say they had profits is tantamount to lying. And I don't think even CNBC is too stupid to realize that these profits are a sham.

Capitalism is a sham, based on deceit.

Why can't people understand that?

I am sure that CNBC has many caveats, disclaimers and "media" rights that insulate them, regardless of their culpability. Further, CNBC is not in the financial business, they are in the entertainment business. I have heard many times that CNBC is a network that is played constantly on the floor of various exchanges. WTF? If I am a meteorologist, do I watch the Weather Channel while I work?

What I want to know is why Standard and Poor's, Moody and Fitch have not been annihilated by class action lawsuits?

IMO, regardless of any malfeasance by various corporations, a rating company is supposed to be a bulwark against said malfeasance. Perhaps they (the rating companies) don't have sufficient resources to make it worthwhile to sue them but they are still culpable. If rating companies are not trustworthy, then they should be eliminated in the same way that the government ensures (or tries to ensure) that the food we eat is safe.

There was a very recent decision in the supreme court about drug companies that said that FDA approvals were no protection against faulty drugs. Similarly, if the SEC failed, it stands to reason that jiggery pokery by a financial company can not be excused, just because no one caught them.

Look, if I am a homicidal drug dealer and no one saw me on the radar, that does not mean that I am innocent because the police never caught me.

Gaming the system does not imply innocence, just cleverness. All too often people are excused and even rewarded for so-called "cleverness". It is high time we enforce the spirit of the law, any law, not the letter of the law, because it was the spirit (i.e. intention) that created the law in the first place. The first world claims to be a place of laws, but the past, unaddressed transgressions like Plame, Alito, Rove, Bush, Cheney, Rumsfeld and a host of others tells me that the status quo is nothing less than pure unadulterated BULLSHIT.

Sorry for shouting, but when will this be addressed?

My answer is likely never until the torches, pitchforks or AK47's emerge.

My personal choice is a load of food and seed, and a Mossberg 930 SPX. For those alarmists, I am not a crazy, I am a pragmatist (go figure). I hope that I spend the money and never reap the (potential and dubious) benefits.

If the laws are enforced, I will be a happy and pacifist camper.

/rant off

Charlie Rose with Timothy Geithner, U.S. Treasury Secretary


also .... with Steven Chu, United States Secretary of Energy


Chu seems to think there are things in the Laboratory that will save us ???

I liked and agreed with Chu that the #1 thing we need to do is become more efficient with our use of energy.

Looks like my argument that we will convert home equity to cash flow is starting to be recognized by more people.



These article are looking at the fact that falling equity is killing baby boomer retirement but
they are missing that it increases the cash flow of working families substantially.

The run on the bank is different today from the 1930's since most of our savings was in the form of home equity. So today to perform the same run on the bank as we saw in the 1930's we have to go through the more painful process of allowing home prices to fall to increase cash flow.

Although the process is not the same the total effect is the same via falling home prices we are able to convert Baby boomer retirement money stored as home equity into current cash flow in the form of cheaper housing.

In my opinion we can expect this run on the bank to continue until it no longer generates significant cash flow.

Secondary similar runs in the form of deferring new car purchases and defaulting on credit card debt or paying it down will also work to increase cash flow.

Now whats interesting is this is a slower process then simply going to the bank and attempting to withdraw your money since its based on the longer cycle of driving down home prices yet the stock market seems to be tracking the crash during the Great Depression.

This implies that this crash will both take a lot longer to play out and go much deeper then the first depression. The fall itself could take as long as five years if only financial issues are the cause.

If oil prices continue to firm up then increase later on then they should accelerate the process.

I've estimated that housing probably will loose 75% of its current value over the next few years 2-5 depending on external circumstances and I think that this is starting to look very realistic.

Bottom line if your a homeowner and had planned on using your home equity to bolster your retirement then you need to think seriously about when you sell your home. Esp given peak oil waiting for the market to return is a dangerous game.

From the Alternet article:

Boomers are maximizing room occupancy for the same reason that their kids in their 20s and 30s are still competing for the best group rentals on Craigslist: they're broke.

This will of course cause home prices to fall further, as people consolidate in fewer units.

I had a chat with one of our neighbors last summer. Her husband had recently died, and she was moving out to California where her adult children lived. She had just put her house for sale for the maximum that her realtor would list it at (about $500K). I suggested that she list it at 5% less than recent comparable sales in the area, and then incrementally cut it every 30 to 60 days if it didn't sell. I told her that you need to below market prices in a declining market. She pretty much said no way. She said that if she did not get her asking price, she would take it off the market, and put it back for sale the following year. It's still for sale after about eight months.


Eventually I want to buy for shelter reasons and to lower my daily expenses but no rush.

With the current web based interfaces you can do searches that pick out these wishing priced homes.
They are becoming rarer but often because these people are doing exactly what she threatened pulling them off the market for a bit then putting them back on later so its a sort of round robin shadow inventory.

In any case I'm actually waiting until these people get desperate since in general their homes are marginally nicer then others not enough to bring in a premium but they do maintain their homes.

I'm already seeing several of these people obviously hit the wall and market a decent house at a decent price. The mistake these people are making is not understanding that it matters what they want it matters what similar sellers are able to do. With enough finally caving in then the few holdouts become unimportant.

Probably the biggest thing right now that stops me from buying a home is a similar reason its not that I can't afford to buy but I can't see how that many other people could afford to buy the home I could buy.
Thus I see no reason to buy because I have no way to sell a home without losing more money then I'm willing to lose.

The key is to look at what the marginal buyer can afford vs what you want. Right now the differences are huge the marginal buyer can basically afford nothing. And worse as near as I can tell the pool of strong buyers i.e 20-30% down and good jobs in needed industries and can afford to sell and existing home well below market prices if needed is so small its almost non-existent.
The only pool that seems fairly constant so far is people that get windfall's like inheritance but with the economy collapse its not clear how much these people will actually be getting going forward.

So for me at least I have little choice but to wait until prices drop to the point that a loss on a home is exceptable or less probable the pool of buyers improves substantially.

For me at least this means a loss of 50k or less. Next I assume that if I buy and can't sell I probably can rent for 50% of todays current rental rates. Given this if you rented then you might take a loss less than 50k.

Translated to home prices and I'm looking for a 4/2 with 1/2 acre+ lot for a garden this means a price range of 100k-150k before I'm in range that no more than a 50k loss is reasonably probable.

What I find interesting is that I suspect even with my generous loss criteria most people have similar thresholds with 50k near the top they just can't easily take a higher loss. This puts a hard limit on the absolute value of the average home if home values are falling. This is a different way to look at things but it seems really powerful most Americans can only handle a loss in the 10k-50k range before it becomes a tremendous burden. This range happens to be about the same is most people could save in a 2-4 year period.
Or basically not purchasing a new car. Its also a common credit card debt load etc.

Overall it seems to be a very "hard" data point. Losses outside this range are generally simply not easily absorbed.

I was talking to a retiree yesterday whose nest egg has dropped from $248,000 to $120,000. He doesn't know what he's going to do.

I'm with you about buying a house. The way I see it, prices still have a lot more room to drop. If it looks like things are getting inflationary, I can buy then.

More likely, I will move in with family. They are doing the mortgage thing. They would take me in anyway, because that's what families do. But if the economy is trashed, whether via inflation or deflation, I imagine they'd be very happy to have someone help out with the mortgage and/or taxes.

Funny my plan B is quite similar. My parents have 20 acres in Little rock and a big house all paid for.
If it comes to it I'll move in with them they would love it ( no comment on my part :) they are not retired yet.

But if I did that I'd just build my own home on the land or at least a deluxe man cave to hide in :)

I actually moved to Irvine CA to be near my wifes parents who are retired another advantage of renting you can move close to the Grandparents when needed.

Either way buying a house is not a huge desire on my part unless I pay cash for it.

What I really want to do is just get a land with a trailer and build my own house. Building your own home seemed to be a lot more fun than buying a house. Or rebuilding a old house I bought cheap. Either route seems to really be more rewarding then simply buying some house. Buying some building because thats what everyone does never has really appealed to me.

So I'm not really against having a home I just feel that its building it yourself thats the meaningful part. Or like with my parents the memories from when I was a kid mean a lot if I end up with them.

Getting a 30 year mtg then worrying about it forever has never been appealing to me.

Maybe I should get you guys to move in with us in Jacksonville, FL. We have a big ol' restored historical house that was built for the larger family. We've had six adults staying there and never felt crowded. I think the company would be exceptional!

(Why does a BC engineer have a house in Jax? Well, I got kicked out of the country for a minor visa infraction that is normally bypassed with the marriage to an American - which I am. Gotta love those Bush administration days...)

I'm moving to Oregon this summer as I stated in another post but as far as house sizes go this is on of the things I've been thinking about.

Do I go for the minimal reasonable house size for a family of five which in my opinion is 1100-1500 sqft 3/2 or do you go for a bigger old home and accept you might have to rent out rooms.

If I built myself I doubt I'd build a big house no real reason. So that route would mean a small home.
However if I bought old it seems like your approach is probably a smart move.

Right now in Oregon the older homes are still being bought and sold by flippers its a bit funny since I'm seeing failed flips getting bought by flippers you would think that maybe they would get a clue and if the first guy lost their ass maybe they better not buy. Lots of the cheap homes are partially finished mid construction messes being marketed at obscene prices to other flippers.

But I think as long as your open to sharing your home i.e renting rooms or letting family live with you the big homes are not a bad thing. Its if you want a big home for a few people and would not dream of sharing it that its a big issue. Personally I'd rather share even if it means renting to strangers makes life more interesting. I think the big thing is that you have a personal space of some sort it does not have to be large but you need your own little nook or area somewhere thats yours. It could just be a small table or chest or something with your stuff. But I think if you read my other posts you will see that I think a lot of people will be amendable to renting rooms out in the future either as tenants or landlords so decent renters should be available. I'm not sure which one I will be the renter or the landlord but either way I actually look forward to more communal living coming back it makes life fun.

I built a small house, 24' x 24', post and beam so there are really no interior walls except for the bathroom. I'm lazy basically, it's easy to heat, and light. Takes 4 chords of wood no matter what the winter brings, and we are warm, open window in the bedroom at night. Not like some folks we know who heat with wood and wear sweaters and hats to bed. Chuckle, wife has a tendency to shed clothing when I heat it up so I do it pretty frequently. Central brick chimney. A salt box, 15 degrees east of south so we get the early morning warmup when we have sun. Did all the labor myself, framing, brickwork, electrical, plumbing , not really all that hard to learn. Wood was from a local sawmill.

One thing to mention if you are building, plan to use the basement, it's very expensive space to use for just storage, we have full sized windows and a walkout door on the south side. At one point it was two bedrooms for the boys. The girls had their own rooms upstairs, and wife and I had the main floor.

Yup six people, just fine in a 24' x 24' house.

I've never worried about the value of the house, I don't really care, I built a home for my family. Renting means you work for the man and throw that money away, you have nothing to show for it. You can be out on the street tomorrow, shelter you control is prime. Building small also means taxes are easy to handle. We're under $500 a year. All done by square footage.

Working a farmstead you have outbuildings, and spend a ton time outdoors. So space is different.
If you live a life style that plants you inside all day, with a pile of people you've got some problems. Plenty of space for people to have their space. We do a bunch of stuff outdoors, even in the coldest weather, snow shoeing, cross country skiing, and there is always the woodpile.

Many days I got home only to find everyone backed up to the wood stove, toasting their butts, just getting done with their chores as well. Everyone puts a meal together and then kicks back.

I do suggest headphones, in a small house, for music or TV, not always the same taste or not always the right time.

This wasn't hard to do,yes it was work, doing the roof work took me much longer than I figured, I made some mistakes. The work was for me and mine, no third party, no mortgage. I'm not interested in how the financial market values my home, my creation, my shelter from the storm, and we do get those storms up here.

Don in Maine

24' x 24'

Isn't that a little deep for passive solar, or are you relying more on mass and heat retention? Would a shallower design have helped with passive solar and reduced wood use?

I thin you've posted some detail on your home before. That didn't include drawings/floorplan did it? I'd be interested as I'm hoping to move to a colder climate to offset AGW-related temps for, primarily, future generations.


I've never worried about the value of the house, I don't really care, I built a home for my family. Renting means you work for the man and throw that money away, you have nothing to show for it. You can be out on the street tomorrow, shelter you control is prime. Building small also means taxes are easy to handle. We're under $500 a year. All done by square footage.

Not as long as you save :)

My point I think is there are two ways to live that seem to make sense rent and save like a bastard and move for opportunity or to lower your rent if you have hard times or to live like your suggesting. Or do both at different times in your life.

I'd suggest that your solution is not scalable for our current population it works for some and to be honest it should be and option for more. If we had higher density housing then we would have more land for those that wanted to and could live as farmers.

One of the problems that I can see is a lot of people played at living whats really a mockery of your lifestyle on mini farms mortgaged to the hilt driving long commutes into town to pay for it. This ruined it in a lot of ways for people willing and able to move out into the country and homestead it.
In a sort if ironic twist my parents fit this profile. Eventually they paid their place off and became countrified if you will but they certainly leveraged up to achieve it. Just because in a lot of ways they where lucky does not make it right. I talked with them last year about each house they bought and only the last one did things really work out for them. The three before they had nothing to put down and last one before the one they bought in the country they assumed the loan on and got out 5 years later even ignoring the interest paid. Technically they lost a bit vs renting. My point is you have to think hard about what sorts of lifestyles make sense and more that it may change as your life changes.

There seems to be a set of lifestyles that make sense.

1.) Rent below your means and save money.
2.) Pay cash preferably for a house you build or renovate.
3.) Group living i.e extended family renter other. (Large home but shared spaces)
4.) If you have major medical problems or say too old to work depend effectively on charity of some form.

If your doing 1. then your planning on eventually doing 2. thats me.
Your a number 2.
3 and 4 make sense and some people need help its a tough world but as long as we can we should ensure that some people can live even if they can no longer contribute.

For many young adults a group living arrangement can provide the social life without the expense i.e you could say share cars and cut rent. Better renting a room from a older person you provide a sort of parent without the dominance i.e a older person to talk to. Renting on your own seems to be of more value to young couples who want the privacy or young families. Both have no money but may not fit well in a group lifestyle. This is not to say some might find group living arrangments that work.

The people in group two i.e own there home have financial freedom and security and generally I'd assume a good neighbor network. Group one is the loneliest one of the four assume charity living is probably of group form. If you look at the historical record before WWII all the way back into history these four living patterns seem to be dominant.

This is a pretty good overview of the middle ages.


If you read outside of the living on charity which is not mentioned I think you will see that the other three lifestyles are present.

The key is that it seems that moving to cheap mortgages with low down payments has really distorted our current lifestyle from those common from say 1910 back into history thousands of years at least.

The theme that runs through all four is security of some sort especially if you limit the individual renter i.e one to be uncommon. The other three offer lifestyles highly resistant to changes in your financial fortune if your home has enough room for a garden or you have rooms to rent.

What I find fascinating obviously is that you view renting till you can pay cash as throwing money away I wonder how you view taking at a mortgage with little down. You can't have it both ways homesteading even building your own home requires money.

My opinion is somehow Americans and from what I can tell Europeans and Australians etc became convinced that renting money via paying interest was not throwing money away. I'd argue that at the basic economic level that paying a local landlord and other local people associated with maintaining a rental property and saving is a better way to spend money. Economically the ways of living I discussed above keep far more money in the local economy in general vs paying some large anonymous bank to borrow money.

Only one of the four involve owning your own home and in general this seems to be associated with either being a landlord or being a farmer to ensure financial security.

I find it a bit ironic since it looks like I might be leaving the world of renters and buying a house right at the point that everyone rediscovers that renting and saving and paying cash i.e living one of the three lifestyles I outlined except for charity are the best in uncertain times.

I'd not be surprised if I don't end up living like Don in Maine with the one exception that I'd say renting was throwing money away unless your saving enough to either be a landlord if you need to or a farmer if you need to and own your own dwelling. One could extend this to owning ones own business outright etc.
Basically until you can own property that actually can earn cash if needed you want to rent and save.

Notice that via this completely different approach you start heading towards WT's ELP ( Economize Localize Produce ). I find it very interesting that by elimination of renting money for non productive uses ( loans with interest ) you can recreate the concept of ELP. Indeed it seems renting may actually be important for ELP since a steady supply of renters willing to pay locally for housing helps build a income stream that support owning homes without resorting to loans.

Obviously since these renters are furiously saving money they also would be interested in local stores who are more able to purchase locally grown produce. And in the spirit of saving they also would be likely to choose to live without a car thus extreme interest in local jobs of all sorts.

So you can see that ELP can be viewed as being against our current fiat money/debt/mortgaged lifestyle in the sense if you removed that lifestyle you effectively get ELP.

Hopefully you can also see that renting at least at stages in your life is a critical part of people actually escaping the cycle.

memmel -- A little tip for you and others thinking about building on your own rural property. Read a story about some folks who threw up a relative cheap metal barn. As it was a utility building its property tax was rather low. But when you entered the simple looking metal barn door you entered a very modern and actually luxurious interior. They finished the inside as nice as any McMansion in the area.

As it sounds like you're a DIY type this could be an ideal incremental way to reach your goals. Hopefully it won’t become so popular that the taxing authorities change their approach


I hope to heck you're on high ground! 1.5 meters sea level rise by end of century - and some multiple of that in storm surge - is not a good sign for much of Florida, and sure as heck not for the St. Johns river plain. And those Florida summers at 1.5C+ warmer world? Ugh...

I am not now and have never been nostalgic for my time living in Florida, except as far as running around in the forests and fishing.


If you are inferring about avoiding home ownership... I heartily disagree.

There is a growing consensus that we will be facing a future of high inflation as soon as things become stable. Now, if you sell your house in a high inflation environment and rent someone else's place, do you think that the landlord will hike rent to cover any inflation losses? You better beleive it.

So, you can lock yourself into a mortgage that you pay (hypothetically) $1,000/month for the next 30 years.

Or, you can rent a place and be subject to inflation... and I will GUARANTEE that you won't be able to rent ANYTHING for $1,000/month in 10 years because of inflation.

This is how one becomes wealthy by home ownership: you lock in the cost of living in a property at one price forever. (Unless you use your home like an ATM, and then you are just plain stupid- I'm sorry, I have no other word for it.)

It's nice that, yes, at the end of your life you have something with some value, but as I said the real value in home ownership is by locking tomorrow's 'rent' costs TODAY. Who here would like to be paying 1980's prices for rent NOW? And if you bought your home in the '80's with a 30 year fixed, you indeed are...

And of course, the interest on the mortgage is tax deductable, as well as home improvements, which of course are going to be necessary for Post Peak... For instance, I am putting in energy efficient windows, better roof insulation, and other weatherization improvements in my home. I know where Nat Gas prices are headed, and as a homeowner I can make improvements to my dwelling to protect myself from the rising price of heating and cooling. Renters can't do that...

Oh, and refinance now before inflation does go up. I am locked in a 4.8% 30 year fixed mortgage. If inflation ever goes above this (which, hey, it just might), the effect is that I've given myself money over time, even if I never can sell my home for a dime...

Possibly, but be aware that the large increase in debtload in the economy over the last 25 years was the fuel for the property appreciation. The debt as a % of the economy is so high now that increasing it like in the past is a real problem. Not saying you are wrong, but there are headwinds that didn't exist before re real estate values.

You think things will become stable? Optimist!

I love this argument.

My answer is simple you buy when inflation has finally overcome falling home prices.

Before this happens one would assume.

1.) Interest rates increase.
2.) Wages start increasing.
3.) The currency is devalued.
4.) The fiat currency debt bubble is re-inflated.
5.) House prices have at least showed a steady increase at the inflation rate.

All of this has to happen before you would see housing prices actually increase.
As a cash buyer I'm better off waiting until interest rates have increased at least back to 6-8% norms before even looking at buying. One would expect home prices to continue to fall as interest rates rise since most buyers would still be looking at monthly payments.

I don't lose waiting until after the bottom is obviously in. Housing prices don't suddenly jump in a few months it takes years for them to bottom and return. I'd only lose theoretically if the next bottom was lower and occurred before say five years or so.

Now as far as renting goes if your like most of us and worried about your job and I am worried the biggest and most valuable thing I have is the ability to move if I have to to find a job. I find it interesting that rent vs owing calculations put no value on mobility esp given that many people move every five years.

So far for me at least I've made far more money renting vs owing because of the value I've extracted from having mobility. Only now that I'm at the top of my wage range and have been for a few years is mobility no longer paying off. But I got to the top moving as needed. Its a opportunity costs sort of thing by being mobile I was able to seize opportunities that I could not have taken if I had bought a house.
I've lived in 15 cities in the US and 3 cities in Asia also and again the value of this experience is hard to convert to cash but you learn a lot.

I'd argue from my personal experience that people that rent and take advantage of this mobility come out far better than people that rent and don't use it to their advantage. How many people that rent have decided to go to college after one to many layoffs ? How many homeowners could make the same decisions easily ?

Needless to say mobility increases from renting has a lot of advantages that are seldom brought up. Its only recently for me at least that the advantage to renting has dropped enough to make it worthwhile to own. And this only after having experienced a life of mobile renting.

Now renting the same place for 10 years vs owning sure maybe owning is better under some conditions but thats not why I rented, getting a chance to live in Shanghai beats the crap out of living in the same SFH for 30 years for me.

I get the idea about home ownership; however that plan only works if you have a job that will keep you in one place for the next 30 years or at least long enough to see a gain on your purchase. I have worked in oil and gas as a service company engineer; I live in a small home I have rented for the last three years. I got a pink slip due to the decline in drilling activity, and have resided myself to the fact that I am SOL for finding a job in the near term other than flipping burgers or waiting tables somewhere, and perusing graduate studies. I had friends you would mock me for renting in an environment where credit was easy, however now they are out of work and landlocked to their mortgage and have the same employment prospects I do. I can pack up and go anywhere in the world. For some people buying a home is an investment, but for others, it’s a burden or a gamble. Housing prices in Vernal have already fallen 50-100K already and the market is flooded with houses for sale and no expected increase in demand any time soon. I’m glad to be renting. I would rather have a job I enjoyed, as opposed to have a job I hated with a vengeance and the financial investment in a home any day.

The key is real home ownership not the faux mortgaged homeownership we have now.

If you actually owned your home and wanted to stay in it you could rent rooms flip burgers what ever it took its up to you. Or you could sell for what ever the market price is pocket some cash and rent.
Or rent the place out for enough to cover your costs at least and move and rent.

Real true home ownership where the building is paid for is not that bad and I'd say it gives you more options than just renting alone.

Mortgages are really just rent to own aggreements and I suspect a lot of people are finding this out.
Sometimes they make more sense than a simple rental agreement and saving money but the problem is they don't work well during economic duress when either renting or owning outright the extreme ends of the spectrum become the best position to be in. Some facts.


33% of individual homes are owned outright.


32% of people rent.

Thus actually only a minority 35% have chosen the Mortgage route or better are stuck in it at the begining of a major downturn. Of this number right now about 20% are underwater.


This is amazing already right at the start of the next depression 20% of the people that gambled on Mortgages are underwater.

If we look at equity.


It at 46.2% given that 33% own their own homes this leaves only 13% with equity. So supposedly
20% are underwater but only 13% have equity. This makes some sense since in many regions the values
have dropped by about 20% a common down payment ( I think half the homes sold have a 20% or higher downpayement) So basically right now if I did the math right about 60% of homes with mortgages are at zero equity. Id suggest of the remainder 13% that a good portion may have minimal equity. And last but not least HELOC's are not included which would push the number down across the board.

As you can see most of the people that gambled recently on a mortgage are screwed given the drop in values and that that given that most people move every 5-7 years that many of the current mortgages are of recent vintage i.e less than 10 years have been paid on them and it seems few when buying new homes put more than 20% down regardless of what they made of the old home sale. I suspect this is because most people on the mortgage train are move up buyers going with ever larger mortgages so that they never had more than 20% equity in their homes.

This does a similar calculation.


They come up with 25% of mortgages as being close to underwater i.e less than 5% equity.
I suggest they are low I suspect I'm closer with a 60% estimate.

But the point is that regardless have how you do the math 25-50% of the people that bought into the mortgage game recently have been seriously burned and 60% of the people either made it to the end and manged to own their homes or are renters and thus not directly involved.

I actually find it interesting in the extreme that despite the massive propaganda and efforts of the government that a majority of the people did not buy into a mortgage game that they would loose at.
One has to imagine that give the 33% that own their homes that they obviously bought at least 30% years ago or where very conservative. Whats interesting is this puts them on the path of home ownership back in 1979.

Looking here back into the past.


We can see the big jump in the 1980's.

Median Home Values Inflation adjusted

2000 1990 1980 1970 1960 1950 1940

Adjusted to 2000 dollars
United States $119,600 $101,100 $93,400 $65,300 $58,600 $44,600 $30,600

Median Home Values: Unadjusted

2000 1990 1980 1970 1960 1950 1940

United States $119,600 $79,100 $47,200 $17,000 $11,900 $7,354 $2,938

Now I have no way to find out how many people have owned their homes for many decades i.e they paid it off well before 2009 and thus have owned outright for many years. From the data one can see that the last people to make it in on a traditional 30 year loan would have been in the early 80's late 70's.

I'd suggest that a substantial fraction bought homes well before 30 years ago.

This has 12% of the population over 65 in 2006. I'd suggest that these people would have bought and paid of their first house by the time they where 55-60 which puts them buying back in the 1960-70's.

So of the 33% that own their homes a good precentage probably built up signifcant equity before 1980 and thus where able to ride the boom in a smart way rolling most of the profits into the new home or just buying one or two and paint it off. At least 12% it seems of the 33% really got into owning before the bit
equity boom started in the 1980's.

Its important I think to look at it this way since only the people that got into the boom at the very begining way back when mortgages where very difficult to get and others that where very prudent managed to successfully use longer term mortgages. So if we put the Mortgage bubble as starting in 1985 you can pick many years in the 1980's it looks like very few actually made it. In fact the typical ponzi scheme only has a fairly small set of winners. If anything the mortgage ponzi game was fairly successful with depending on how you do the number between 10-15% winning assuming that for the most part homes bought and paid for before 1980 where purchased before the scheme really took off under stricter terms.

This is more "winners" than the typical ponzi scheme and one reason it lasted so long. I tried to find if anyone had calculated the actual number of winners in a given ponzi scheme. It depends on how long it runs but its striking that for housing the key signature i.e the first ones in are winners shows up with housing. And the precentage of winners looks about right to me. So 10-20% win and 80-90% lose.
Whats really interesting is that Maddoff's scheme and housing seem to be strikingly similar and ran for about the same amount of time. I'd love to find out when the 33% of homes owned outright where purchased.
I really suspect many where bought earlier in the 1960's 1970's or profits from homes bought back then were rolled forward. Basically a good bit of this 33% represents housing stock thats been owned outright for 10 years or more. I really suspect its high like 50-60% where bought before the bubble even began esp if you include rolling gains forward.

Hopefully you can see that once you remove the people that either where in before the bubble really took of or where in early and prudent you can see that indeed the so called "norm" of mortgaging a home with a small down payment is indeed a perfect ponzi scheme and the majority of these "normal" people are probably going to find out that they where just the suckers in the biggest ponzi scheme in history.

The idea that all the boomers were going to sell their homes when they retired and cash out their equity was always stupid; just like the idea that they were going to be able to sell all their stocks in their 401(k)s at the peak of a long run-up in market values.

When everyone rushes to sell, guess what happens to prices?

I'm not at all sure that it is a total coincidence that both housing and stock values are plunging RIGHT NOW, right as the first of the boomers start shifting from asset build-up to cash-out mode.

I'm also thinking that from this point on, you can forget about boomers being in a buying mode, whether it is for housing or for stocks. This hardly seems to me to be the foundation for a "recovery" in either the housing or stock market.

The reality is that for most boomers, we are going to be "retiring in place". I knew a couple of decades ago that we would pretty much need to be where we wanted to be by the time we were around 50, because that is where we would be stuck for the rest of our lives. I also knew that all of those "expert financial advisors" that were counseling people to keep being invested mostly in stocks with only 5-10 years left until retirement didn't have the slightest idea what they were talking about.

Probably bigger than individual boomers is that pension funds will have to divest of their investments to get cash. This is the really big problem most will probably be forced to sell assets over the coming months and years and most are probably insolvent now.

Raising taxes to cover pension fund shortfalls for government pensions is not going to work since it simply drains more money out of the economy. Printing money to fund state and local pensions has the same effect.

For business pensions having to make larger pension contributions will erode the profit margins and force stock prices down further depressing the economy.

The typical baby boomer is going to be trying to sell assets with these correlated elephants in the room.
Its probably the biggest moral hazard that we have ever created and dwarfs the size of the credit bubble.

I'd suggest that losses here are 10 times larger then what we will loose from the current credit bubble deflating.

Right now I have credit bubble deflation losses at 50-100 trillion. With at least 10-20 trillion loss in residential real estate alone.

The retirement bubble is so fricken huge its beyond measure best guess is a further 100-500 trillion loss.
The problem is the retirement bubble keeps on losing enormous sums of money for like 20 years. Its not just paying all the baby boomer retirements its paying the continued retirement of their children over the next 20 years that the boomers themselves could live after retirement. Like I said if you try and add it up is so huge its impossible to calculate.

Basically retirement funds are beyond broke for 10 years at least and over those ten years they have more applicants coming in sending them even more negative. Its like some of the wedge models we have done for alternative energy but running in reverse effectively from what I can tell we basically have to fund ten years worth of retirement expenses every single year. What I mean by this is that we basically only have enough cash to fund 10% of the retirements of the people that will be retiring over the next 20 years thus funding for the rest of the 90% will have to be done simultaneously with them retiring.

Its effectively impossible to do.

Boomers personal finances are simply collateral damage or road kill vs this in fact they barely register.

This is a old report for one fund.


And you can do this forever if you wish.
Its staggering literally beyond comprehension.

Roger that memmel. A friend of mine is retired from GM and of course we were discussing 'What if GM goes away?' No problem he says because the first $50K/year is insured by the government and his retirement is well below that. Of course add to things like that with SS and Military Retirement which I believe are both presently financed on a real time basis and not taken from an accumulated reserve.

A line from RWS that I grew up with; "A promise made is a debt unpaid and the trail has it's own stern code".

Our whole country is about to learn about the code.

I'm thinking it is just a real damn shame that we all couldn't have been putting all our retirement money into 50 year bonds to finance Alan's EOT rail scheme and/or a build out of renewable energy production. Either would have provided a relatively secure cash flow to service the P&I on those bonds.

The "money" quote from the first link:

Finally, the projections show that for both age groups, the renters within each wealth quintile in 2004 will have more wealth in 2009 than homeowners in all three scenarios. In the second and third scenarios, renters will have dramatically more wealth in 2009 than homeowners who started in the same wealth quintile.

Homeownership is not everywhere and always an effective way to accumulate wealth. For those who owned a home in the last few years, the collapse of the housing bubble led to the destruction of much or all of their wealth.

Owning a home as a way to build wealth only works if the ponzi scheme continues. If it doesn't - if home prices fall, or you can't make the payments - it's a wealth destroyer.

Well that depends and I hate to have to justify home ownership.

First and foremost most people that call themselves homeowners are not really homeowner they have a mortgage.

These people are playing a game with cost to rent money via a loan vs the value of the asset. If the asset value declines in price then they loose you don't need to do a lot of calculations to figure this out.

Next up even if you calculate the value most renters choose cheaper living conditions vs the cost of a home they would buy to save money often for a home so real rent equivalents are actually lower than rent for and equivalent structure. You need to really discount the renter's real choice i.e a apt instead of a house if you want to calculate this. If you do it with real world numbers even if home values are increasing moderately you at best often break even and of course your not discounting the lower amount of interest paid if someone is renting and saving to buy vs buying the max they could afford.

I guess I'm a bit weird in the sense that when I get really old I'd rather receive what ever medical care I can on charity vs losing my home to pay medical bills. If this means I die because I could not afford some treatment so be it. I'll tell my kids about my stash of gold or leave it for some lucky future archaeologist if the piss me off.

So despite the twist and turns I can easily see buying a house under the right conditions for a short amount of time while your kids are living with you then maybe into early retirement after that I really don't see like it makes a lot of sense and you can always lose it all on the first medical emergency so putting to much into it does not make sense regardless.

For example I'm better off even if I want to buy to wait till I have 20% down and a good credit score even if its my first home. Then if I do buy buy at less than 3X income say 2-2.5X. Thus if I'm going to choose to be a money renter its best to ensure the asset covers a lot less of the loan value. You still get burned even if you do this if home values are falling. But this sort of baseline which is effectively the old lending standards is not bad.

My own personal standards are that if I borrow money then its 1x income max or basically never take a loan that cannot be reasonably paid off in 5-10 years. The 1X rule seems to work out fantastically you never worry about your finances. Thus if I did buy a house it would be with a mortgage at 1x income at most.

So renting money vs renting property is not bad if you do it in a very conservative manner.

Now for people with Mortgages that are small vs yearly income i.e in my 1x rule or have their houses paid off then it depends on if they where able to save for retirement while doing so. If so fine if not then you have to deduct market value of the house if you have to sell it. Again here you have to do various scenarios if value fall taxes increase etc etc medical expenses etc.

Now as far as I can tell given the way the US medical system works the chances of actually successfully retaining valuable property till you die are slim basically 50:50. Chances are if you own something of value you will lose it because of a medical emergency. Better off just being poor when your older vs tying up to much money in a house. You can always do what I plan on doing when I get to be that age and buy a lot of gold and platinum and store it. You can readily accumulate precious metals without it showing up as and asset. I'm not currently a big gold bug but when I get closer to retirement it seems like the only real way you can ensure you have money is to literally hide it. Gold and obvious choice but the bottom line is if you really want to ensure you don't starve during retirement you have to have a significant store of wealth that can be hidden from everyone. You can certainly have it physically stolen but at the end of the day it seems like the only thing you can do that ensures your not stripped of all your assets when your older.

So any decision to purchase a home should leave room for conventional savings and this secret stash.

With all that behind you then you can buy a house and enjoy it. Or as I said in another post build or rehab one. Nothing really wrong with having one and it can make sense to buy esp if you can pay cash but other than that as long as you can save you may be better off simply eventually buying a very small retirement place or trailer once your kids are grown for example.

I think there are lots of reasons to buy a home - but building wealth isn't necessarily one of them. If you can buy a home without a mortgage, you're not really building wealth. You're already wealthy.

As for me, I've borrowed money in the past - for school, for a car, etc. I am going to do my best to never be in debt again, though. It's a different world now.

I can't yet buy the house I want for cash but I can buy a nice home thats more than enough for my needs for cash. So on this I agree but my point to many people is I can say that renting played a big role in giving me this chance if I had bough a home with a loan I'd never have reached this point.

And paying of the student loans was one of the best experiences in my life. I also don't have any debt at the moment. Pay off credit cards etc. I know very few people with Mortgages that live the same way. Most of the people I know that have their houses paid off are much older than me like 20-30 years I'm 41.

Maybe I don't have some dubious equity that others do to bolster their net worth but so what.

My main reason to start considering buying is because I'd like to be able to live on minimum wage if I have too it my goal. I'd like to be able to grow a large garden and not have a house payment and be able to live with a very minimal daily expense level. Buying for cash seems like a good way to prepare to live on a lot lower monthly income if I have too. Also of course if things got that bad I could rent some rooms out for real cash thats not going to a mortgage. Or rent the place out for enough to cover expenses and taxes if I have too and go back to renting if I have to move.

At one point in my life I did come close to bankruptcy because of a sick child so I know how that can go. It woke me up to the real issues of living in debt. Since then I've obviously become very conservative and overall it just seems for me at least to live a conservative debt free live means renting for a very long time.

A little bit more personal info. I rent a really nice effectively condo in Irvine CA for 200k a month and I can easily afford it but I'm moving up to Oregon because my kids are getting bigger where I can rent a really nice 3-4 bdrm home on a large lot for 1100-1500k per month so its actually cheaper than where I'm at now. I plan to check out the area and am thinking about buying maybe in 2-3 years I'm watching the economy etc and worried of course about my own future. And of course the bubble is deflating later in Oregon vs the rest of the country but given they topped 10% unemployment they may have been late to the party but it looks like they will fall harder. I'm lucky in that I can work at home.

I know this is a lot of personal info but I think a lot of people worried about the future are buying farms etc with mortgages and I just don't think this is a smart move. If you have a mortgage you really need to think about how you would live on a minimum wage job for example. If gasoline gets really expensive and I have to work in town then I could move to a place closer to work for example.

My point is that I've found that renting has worked out great for me and despite its bad rap if you want to really live conservatively a long period of renting and conservative financial views seems to work well in uncertain times. The other route is pay cash for a house of be fortunate enough to have paid off a mortgage or almost paid one off while times where good. Certainly both extremes seem viable its the huge ground in the middle that seems quite dangerous as time goes forward. Renting money via paying interest esp for the place where you live or for the car you need to get to work seems to be simply a risky proposition right now. Better to pay for what you can afford and be able to move as needed for work or have neither expense and be able to take a very low wage. Thus the extremes now seem to be the best place to be.

Surely you mean 2k and 1.1 - 1.5k?


LOL yes no I'm not a rich millionaire :)

Yes $2000.00 and $1100.00 and $1500.00

The only reason I had to bring these up is these are actually monthly payments that are similar if not high for most 30 year mortgages. The reason I tried to use them is to show that I'm not someone who could not easily make a mortgage payment in most areas on a decent house outside of the highest cost regions in the US.

But even though I could do it I've made out better than most renting and saving to pay cash or a huge downpayment on a home "below" my income level. And also I'm not renting section 8 either a $2000.00 dollar a month apt is very nice even in Irvine CA. The cheapest 3/2 SFH in the area according to zillow works out to about 360k or so and its payments with 20% down are about 2000 a month. Technically its nicer than I should be living in for the area one reason to move and lower my rent and get a bigger place. This is and expensive area but one you do taxes etc and esp if you add in declining home prices I still win over buying here even with the payments close to the same. Throw in the stupid HOA's that are common around here and prices would still need to fall.


The average for Irvine is 1,950 and I actually pay 2,300 Its a posh pad even though I'm a stinky lowlife renter :)

Understand that our home prices are down now about 20% and until recently most homes where over 500k making most payments with 20% about 3k so when I got this place about 2 years ago it was 1000-1500 less than buying and a substantial savings. With prices falling and rents getting close to mortgage payments I'm skipping town to cheaper digs instead of buying in because "its cheaper to own then to rent" :)

In Oregon the savings are not as good but coming from what I'm paying now renting a few more years there vs here is a good deal. Also I see a lot of 3/2 SFH and 4/2 SFH going for rents right now in the 800-1000 range average sales price right now in Portlant is 257k so the payments would be about 1500.

So if I can get a rental for 1100 then its 400 a month less or a saving of about 4800 a year. With that savings alone I'd have 20% down saved up in about eight years. Just renting for two years gives me about and extra 10k in saving vs owning. Thats a nice used car. Given prices just really started falling and I figure they will fall about 20% more over the next two years I could lose 50k vs gaining 10k if I rented.
Even if I ended up paying 1500 a month rent I'd still win if property values decline at all.

I'm of course really hoping that by this summer I'll see a lot more decent places to rent in the 800-1000 range. Then if I got a place for 800 vs 1500 a month for buying I'd save 700 a month or 8400 a year.
Thats getting to be some serious savings vs owning. Nice 3/2-4/2 would have to fall to 150k from 250k to compete or about 30% before I'd potentially be losing money renting. Understand as long as housing is falling in value renting wins hands down. Thus if I rented for 800 for two years and houses fell to 150k before I bought I'd save 60% if the traditional 20% down just in the differential regardless of my additional savings.

Really its only when values start dropping below 150k that further gains start becoming difficult I'm forced to seriously consider buying. With all the houses on the market rents won't increase much but its hard to find good houses for rent for less than 800 a month I'm guessing they just don't cash flow for much less than that for most people. I just checked Columbus Ohio not the richest place in the US and rents for 4 bedroom homes seem to be about 700 or higher so under this for something decent gets hard to find.

There is this sort of natural floor for housing in most of the US with 3/2-4/2 SFH bottoming out in the 100-150k range. As you get below this you really start hitting a wall with to many rental units themselves underwater.

I'm not saying it can't be breached Detroit fell right through this barrier with houses falling to 10k.
Detroit has some serious slums but looking on hotpad it looks like decent rentals are firmly around 600 a month and up and in Detroit at least you can't win playing the rental game. We may see them fall to 300 or so over the next year but this does not really beat the 20% buying rule your better off just buying with a big downpayment. Rents are pretty interesting they seem to stop going up the moment housing start busting but they don't readily go down as fast at least so far. I think they will in Detroit by the end of the year to many 10k homes going on the market as rentals but its slower since housing prices have to fall to the point that rentals cash flow to lure in more investors before rents really fall from oversupply. So you lose your advantage renting to some extent.

In any case as you approach prices that are feasible with two people making minimum wage and a huge downpayment it becomes harder and harder for me to justify renting. For example a 50k loan would give
you payments of 375 a month. Minimum wage gives you and income of 800 a month. For me I can assume two people working or given my skill set at least twice minimum wage or 1600 a month so a 400 a month payment fits the 3x rule for minimum wage so its really hard for me to justify not taking out a 50k loan on a home.
It would be hard for me to not to be able to pay it esp if I rented a room for 100 a month.

This sort of thing say assuming twice minimum for two workers or 10 dollars and hour gives 3200 or with 3x a payment of about 1000 a month for a 20% down this puts you close to my 150k house range.
Minimum wage in Oregon is 8.45 and hour so you can see that as lower end homes dip below into below 100k-150k that minimum wage laws actually work to put a floor on housing. This is 3X gross income and you
of course have a much higher debt to income as you get into these pay scales so you probably can't afford a 100k home with this wage but 3X income with a minimum wage of 8.45 for two works out to 97,000.
A little below 100k. Whats really intresting to me at least is that in many places in Oregon the median household income is close to the 32k a year which implies two people making minimum wage. The median for Portland is $47143 assuming two wage earners this implies a median house price of 150k using the 3x rule and it implies a average hourly wage of about 12 dollars and hour.

What I find amazing is that I obviously make a lot more than this and being the tightwad I am and dealing with the mess of people being able to get cheap loans I'm having to compete with people earning a fraction of what I make for a house since I'm ultra conservative.

If we instead had had rules of 40% down for housing then that would have shifted this price bottom down by at least 50% into the 25-50k range for a home given the substantial down payment required I I could buy a very nice home for 150k as a prudent buyer. 40% of 150k is 60k down which is of course 20% of a 300k loan.

So if 40% was the norm everyone would be better off the people that make more money would be forced to be prudent regardless of what you make using a realistic salary range of 50-100k coming up with 60k is hard.

The other interesting part is I pay cash for my house and I only make the save bet that minimum wage won't be lowered ( we will print money first ) and that I have a garden taking care of half my grocery bills.
And if insurance is covered then I come out ok at minimum wage. If I just make the median income which would be a big wage drop for me I'm still ok if my house is paid for since I should be able to save 500 or more a month. I'd never really be able to retire and would be dependent on my children in my old age for sure. But it would be a fairly small burden. You really want to get a house paid for and 100k in the bank before the next great depression strikes home :)
Then you should be able to make it out ok.

This is pretty conservative of course but hopefully it shows how I'm thinking. And you can see that room for a garden really helps a lot esp if you can use public transit. If you throw in peakoil and say 10 dollar a gallon gasoline your really screwed the math simply does not work a car alone does not work.
So the last part is you have to have realistic public transportation choices i.e be near a rail into the city regardless of what choices you make. But given that there seems to be a balance between having your own garden and being able to work a job. So if you put all this together the winner seems to be a small town with cheap housing and big yards on a rail within reasonable commute of the city center.

The smaller towns in Oregon are just now getting devastated by the 10% unemployment assuming gasoline goes up in the next two years we can expect a significant drop in prices in the outlying small towns as few choose rail transport by choice and the flow is out of these towns towards the suburbs and city center.
I expect with the loss of people doing long distant car commutes and a reliance on the local economy that housing prices will practically collapse in these small towns until the local agricultural economy revives and rail is made reasonable. This is of course when I plan to buy.

I've done some research into growing all my own food and growing bulk foods such as wheat simply don't work out your better off buying your wheat from a "real" farmer. Once you remove wheat then your left with the need for a half acre garden and a decent small pond for fish and some chickens and maybe a pig or goat.
So you can easily provide most of the food minus the cereals for a family of four on once acre if you eat only a little bit of meat mainly chicken and say have a small fish pond raising catfish. It looks like you should probably catch some fish from the local rivers or streams once a week or so if you want to balance your diet with meat.


However the caveat is that as far as I can tell to make this work you really should have 1/2-1acre of land and access to a rail line to work. Most small towns still have the traditional 1/4 or smaller acre lots for the homes so most of the homes are not suitable for really replacing enough of your food to make it worthwhile. This means that you would have to tear down at least 25%-50% of the structures in many small towns to make them really decent micro gardening commuter towns. Maybe less. But even in a little town you really need to have a dense micro city center for people that don't garden surrounded by more sparse dwellings on 1/2-1acre plots. This implies that somehow you need at least for a short period of time for prices to drop so low that tearing down a few dwellings makes sense. Sine you suffer the same suburbia 1/4 problem regardless of where you are. To some extent with the small towns a few acres outside of town devoted to vegetable gardens could help. But no matter how you do the math these towns need to dwindle for a bit so some structures can be torn down. Assuming rail becomes vital later then you would get the needed dense housing with some of the surrounding 1/2 -1acre homes able in aggregate to sell surplus food cheaply to the denser living conditions. Its not horrible in a small town give you have farmland a few miles a way its more of a cost perspective but they still need to revert back to dense housing around the tracks and downtown.

The other route I won't go into in the sprawling reply would be as a landlord in he city. Not my personal choice but its viable even in depressionary conditions. But overall the US should be "ready" for the depression in the sense its survivable when houses fall below the 100k mark and as peak oil becomes a issue rail is expanded. We won't be rich by any means and many people will be poor I estimate 30% in fairly abject poverty living in shacks. ( I think minimum wage will fail in this sense i.e only professional workers will get a real minimum wage ) Lots of people will be pushed into more like 1-2 dollars and hour and social services will be pulled back. But I do see that if you play it smart and careful and buy a house for cash at the right time that you can come out ok. Also I don't really see that waiting to long is really possible since houses may well fall to 10k or less in many parts of the country. You may be in a sense treading water to a certain bit since rents won't fall as fast as housing over the short term. But you just need to decide when you can jump. And I'll just finish it really looks like getting as much in savings as possible over what you need to buy a house could make a huge difference if your forced into minimum wage. Since your house could still become worthless 50-100k in savings may have the purchasing power of 1 million dollars today with the exception of food and fuel. Every other possible needed product can easily deflate 10 fold even with high fuel costs. Things like a good shovel could fall to a dollar a piece for example. On the food side even with more local crops costs could stay quite reasonable.

Enough :)

If you can afford 2k/mo, you're rich compared to me.

And a LOT of others.A majority, I'd guess. This brings up an interesting side issue: to what extent is relocalization, or even survival, going to be restricted to the upper middle class and above in a place like the US?

On our own, my wife and I will barely be able to get set up, and not at all if we had to do it near where family is now. At least, not if we want land.


Yeah to some extent I hate bringing this up but I tend to catch a lot of hell from people suggesting expensive alternatives such as 30,000 dollar cars. Sure I could walk in and pay cash for one but I don't consider I'm the average Joe and having suffered through effectively bankruptcy for medical reasons with a sick child I well how fleeting and unimportant money is.

And obviously as you know from numerous posts I've chosen renting and saving money over buying a home for a lot of reasons.

Now you start having to deal with people that make a lot less and thats rather my point even for me to pay cash for a decent home is a huge deal and for land because so many people are willing to take long term mortgages with little down. It does not matter if you make 30k a year or 200k a year its difficult to compete with the masses that are not preparing for living in a world that does not support long term mortgages with small down payments even though a lot of people that chose this route are already hammered.

Now I don't think that relocalization is restricted to the upper middle class simply because once you remove the support of people taking out these ridiculous mortgages housing costs drop substantially.

My opinion is its more likely that the wealthier people can buy into localization earlier than people that make less money. For example I could easily buy a house on 1 acre once they hit the 100-150k range I expect that if housing is headed for zero i.e Detroit in a lot of the country that if you have less money then you have to wait. So even though I could buy for cash in that range the property would probably continue falling in price over time say down to 25k or so thus I'd really lose 75-125k at some point.

But it becomes a opportunity costs type of argument at some point after you can pay cash for a place renting vs owing becomes difficult to justify. For every person its at a different level.

Now with this said the moment I learned about peak oil one of my first goals was to make sure I had enough savings to buy a small trailer and one acre of land. This is my fall back position. For me at least this might be with my parents but thats a side issue.

A quick search of trulia.


Shows several mobile homes on large lots for 24,000 you can look through the midwest and find deals like this.

Jonesboro Arkansas shows a number of places 12k-20k that look like reasonable starting material for someone willing to work.


Now obviously if you move to Honesboro Arkansas getting a job any job is going to be hard to do.
But I'd argue that practically anyone can if they are frugal afford to pay 10-20k for a home.
It may not be the best house on the planet but if its important that you pay cash and that you have room for a garden the right type of structure is pretty much possible unless your at minimum wage.

If your working minimum wage then rent go to school do something and save and wait these 10k structures could well drop to 1-5k as the depression deepens. Or go make a offer for 5k and see if its accepted.

Buying raw land is not cheaper then buying these homes you just as well get something with a livable structure. But if your serious about buying to cut expenses I'd suggest you think hard about saving to reach this sort of minimum level you don't have to make the jump until the last minute.

One good thing about gardening is your pretty much in it in only a couple of years you can grow some stuff most of the time the first year by the second year you should have a decent garden. Fruit trees are not really needed you will find that in regions that grow fruit that its in excess and cheap esp if oil gets really expensive. I'd not be surprised to see regions that grow fruit actually cut the trees down and plant something else. But a lot of these places already have mature fruit trees and garden spots another reason not to start with raw land.

Can you do better than this ? Sure but the differences are actually fairly small if your only two people than on of these houses offer plenty of room. Once you get past this 10-20k mark with savings its really just a matter of judging when/if its right for you to move to this sort of situation.

Whats it take to save 10k ?

Well if its two people then I'd suggest it means renting a efficiency apt for 1 year if you both make minimum wage and living on one of the salaries and saving the other. You would have 10k in savings at the end of one year 20k at the end of 2 years. Better then to figure out a way to make more money even twice minimum helps a lot for saving.

To be very clear you don't have to make the move right away everything I've looked at seems to indicate that being "late" to buy and grow a garden is probably not a big deal. If all hell breaks loose then buy a good gun and go and homestead a empty place. If not then prices will keep dropping. However it seems that if you don't want to be a laborer stuck paying rent for a very long time or stuck in a mortgage you have to save at least 10-20k to give you the minimum buying option.

I picked Arkansas because I know more about the smaller towns you would note I did not use Pine Bluff as and example the crime rate is horrendous there.

But if you know some other state I'd suggest that cheap housing exists in most states that if you save you can pay cash for. In general because of winter heating issues you need to be careful about the northern states if you don't have money you need to have a wood lot which adds to the expense.

In the south esp if you looked further south and could handle the summers heating days are rarer.
In a sort of perverse catch 22 one reason the Southern states are poorer is because you can live a decent life with less money barring a few crappy months in the summer and a few in winter.

So at least with everything I've calculated its not impossible for almost anyone to achieve there own home with a decent garden thats bought and paid for if you go this route you have to accept it seems buying well under what your "salary" would buy if you took the 30 year mgt route. Your looking at places that are 50% below the 3X income standard basically you need to use my 1X-1.5X rule the high end requires more savings.

I think if you change your expectations to use my 1X-1.5X of income for housing and look hard you should find something that will work. And this does not mean a small mortgage is impossible in general it needs to be less than 50k so for my rule on that side I'd say for most people you would want a mortgage thats 0.25-0.50 of income. What this means basically is you want to do 50% down if your doing a mortgage.

Going back and looking at housing like I did and you see that there are a lot of places for 40k so if you can save 20k in a few years then a 40k place is in reach.

Look at this.


or here


This is a perfectly fine home works for almost anyone its 50k I'd be quite happy with it. This is outside the range I discussed above but obviously if your doing better than minimum and are willing to move you can get a nice place in the US for 50k and if your paying cash you could then work minimum or close to minimum wage to maintain a decent lifestyle. In general if your smart you can make a bit more in even the most depressed town. The hurdle seems to be that you have to have 10-25k in the bank at the minimum before you can even think about owning a place once you get past this then its a matter of saving and watching and thinking and paying attention to how things are going. You don't have to do more than this more is of course better but once your 10-25k in the bank and no debt you have in my opinion the option to reasonably buy a place that works as a post-peak home.

Notice several of the places I picked already are effectively a localized economy they are to far from major cities to commute so in general the economy won't change a huge amount either way. Some farmers will go bankrupt and things will get tight but the economy itself is agriculture centric already overall it really can't fall all that much worse case is more labor is used and less machinery which means more albeit low paying hard jobs.

When it comes to choosing to buy there are two ultimately limiting factors, time and price. Price is somewhat time dependent as you point out with your decision to save. The question becomes how much you need to save and how much time you have.

I have another equally limiting factor: location. This is driven by three factors, future changes to climate, proximity to rail in the expectation that any BAU or semi-BAU final solution will likely include electrified rail. Thus, for long-range transport of self and/or food or other goods I might produce in the future. Ah, and water. With the current climate model prognostications for extreme drying along the southern tier of the US and upper mid-west, I'm not real eager to be in any of those areas.

But this is really what I was getting at. I think in terms of solutions, always, with the three great limiting factors in mind: economic collapse, energy decline and AGW. Doing anything else is nothing more than mental gymnastics. As brainstorming that's fine, but when really looking to form up solutions it's not only inadequate, it's dangerously so.

Look at the demographics from the survey. A large majority make pretty good incomes. Is it any wonder the solutions tend to be a heavily weighted to things upper-middle class people can afford? Darwinesque thinking says this is OK. Survival of the fittest and all that. But in terms of any social compact one might think/feel exists to be one's brother's keeper (and I am always amazed at the number of supposedly religious people who have zero empathy for the less well off), this is not acceptable.

Then what to do? I start from the position that the greatest overall threat comes from climate change. The financial collapse can, and likely will, precipitate massive disruptions and loss of life, but these are avoidable in many different ways. Even if wars break out, what percentage of people, globally, are likely to die? WWII saw less than 2.5% die, including civilians. And people are resilient. They adapt. They will scavenge. They'll dig holes and cover them with tarps or palm fronds, whatever. Perhaps many multiples of that 2.5% would die in the end sans climate change, but given that 1 acre will sustain at least one person, it will be due to lack of cooperation, not due to the inherent problem of economic trouble.

But there is no adaption to catastrophic climate change. At least, not on anything like a global scale. How quickly can we build an underground or underwater or hermetically sealed living space for all of humanity? How do we grow food when from 40N to 40S is uninhabitable? We are a talking massive, massive disruption and a drop in population - even with perfect cooperation - of huge percentages.

Energy decline just makes everything that much harder. The results are felt so much in the economic realm I'll lump it in with the above comments on the economy and trust you to understand the oversimplification.

Now, while recognizing AGW as THE ultimate limiting factor, the fact is that this is a three-legged stool. If we fail at any one of the three it all falls down, so they are all equally important, but we must know where the absolute limit lies and work back from there. Where do we need to be to avoid total disaster?

If your are me, you agree with Hansen and say the first consideration is 350. You then recognize that happens only with a different kind of economy, different methods of production and different social organizations than we currently have. It means a simplified home and family life that is actually richer in content. It means localization. It means cooperation on a much greater scale than we see today. It means we become our brother's keeper, and he ours because we cannot have a steady-state economy without giving up the profit motive, without strong social compacts, a commitment to the commons, etc. Limiting climate change to non-catastrophic levels necessitates global action. Period. This is an all stand or all fall situation.

The corollary to the above is that to achieve this we must greatly alter how our economy works. A growth model means we have virtually no chance at limiting AGW to non-catastrophic levels. Steady state, sustainable seems the only choice here. Again, a social compact on a global scale.

Which brings me back to where we started: solutions that work primarily for middle class America aren't solutions at all. Unless you are a fan of a world ruled by Darwin's description of natural selection: survival of the fittest. If that's the case, then everything I have said is moot.

Personally, I'd prefer the non-Darwinesque approach. Given that time is short (tipping points, economy crashing), I really don't see how we can continue to leave the discussion at the brainstorming level. We, as a small society of The Drum, perhaps should engage in a discussion of broad outlines for future choices.

* Darwin or Ghandi?
* Growth or steady-state?
* Personal choice or The Commons (A false dichotomy, imo, but these should be seen as scales, not either/or.)
* Monopolies or Public ownership of natural resources?

Etc., etc.

At the very least, I encourage everyone to constantly frame their thinking, and their posts, with the endgame in mind. As just one example, if we did this, we would recognize quickly that discussing nuclear as anything other than local solutions. France might get to 100% nuclear electricity in a time frame that is useful and realistic. A small, relatively wealthy, compact nation with walkable neighborhoods like Korea might do it. But it's a solution that doesn't work on a global scale because of time limitations and probably costs. Discussing it as a global or primary solution is a waste of time. Etc.. etc.

We can streamline the conversation.


We rented for years and years when all our friends and working associates were home owners and thought us really weird that we weren't. It worked out well for us at the time, because we made a series of interstate career moves; renting left us free to move quickly, and since we were not in any one place for more than a few years, we probably did not lose out on much price appreciation anyway.

That stage of our lives ended about twelve years ago. My wife got a tenure-track college faculty appointment at a place where we wanted to be; thus, we knew that we were going to be staying put for the rest of our lives. Home ownership now became important, because that was the only way that we would be free to start planting fruit trees and digging up the yard for a vegetable garden. It also leaves us free to make substantial energy conservation and renewable energy investments. It has also been our plan to have the house paid off by what has been a normal retirement age. I figure that with no house payments or rent, and with the capacity to produce at least some of our own food and energy, our income requirements will be substantially reduced once our careers end.

A Swedish railcar that road wehicels can roll on or off in both ends:

(Warning, the movie is large, 152 MB)

I have an even greater idea ... oh wait ... it actually already exists ... probably for the last 100 years...

Placing the longer containers on top of the shorter ones looks a little screwy to me - like an accident waiting to happen?

ConocoPhillips require's $52 a barrel to break even.

"In the same meeting, ConocoPhillips Chief Financial Officer Sig Cornelius said the company needs oil prices to average $52 a barrel and natural gas prices to average $6 per million British Thermal Units to break even and for it to able to pay dividends in 2009. If oil prices average $40 a barrel, ConocoPhillips could lose $3 billion this year and force the company to cut its capital expenditure budget further, he said."

Interesting Marvin. For the last 10 years or so there has been on/off speculation that Conoco would be the next big acquisition prize. I'm sure some of that chatter came from preliminary conversations regarding such a possibility. This latest announcement by TBTB at Conoco strikes me as advertizing that they can be had for the right price. Essentially signaling the stcokholders that they shouldn't pass on any reasonable offer. With most of the active oil companies reducing their 2009 drilling budgets this allows them to quickly ramp up their acquisition war chests. During times in the past as we see now the strong quickly eat the weak.

I was just half-listening to the (odious) NPR program "Marketplace," when a deep southern male voice drawled:

"The match that lit tinderbox was high oil prices. Because what it did was make the borrower literally have to choose between putting gas in their cars of making their mortgage payment."

I perked up: Wait...is that Jeffrey Brown???

No. It was Fred Smith, CEO of FedEx.


More housing gloom from the UK:

House prices 'could fall by further 55 per cent'
House prices may fall by a further 55 percent and there is a "very real probability" that Britain will be bankrupted, a leading investment bank has warned in a private note to clients.



Re: 12.5 mbpd Saudi Productive "Capacity"

In support of Saudi efforts to equalize supply & demand, I am keeping my oil production to a level below one mbpd, and I am sure that if I were to call Julia Roberts up and ask for a date, she would say yes, i.e., I have the theoretical capacity to date Julia Roberts.

And in related news, the Texas Railroad Commission reiterated that Texas productive capacity was 3.5 mbpd, but the state continued to produce at lower rates, because of an inability, for more than three decades, to find buyers for all of Texas crude oil production, "Even Texas light, sweet oil."

And didn't Putin just say that Russia could meet domestic and foreign demand for natural resources for 100 years?

Of course, previously the Economist Magazine said that Saudi Arabia could produce at its 2006 production rate for 70 years, without ever finding another drop of oil. BTW, this is the 10 year anniversary of the Economist Magazine's cover story on the prospect for $5 oil for as far as the eye could see.

So, party on dudes! Let's all go SUV shopping this weekend.

Let's all go SUV shopping this weekend.

Funny, that's just what one of my friends did last weekend. She only went to look at the 2009 models, but the prices were so good she couldn't resist buying one.

As I have noted before, after 1930 the Thirties were characterized by rising oil consumption worldwide, with more cars on the road in the US in 1937 than in 1929. And now we have hundreds of millions of people worldwide salivating over the prospect of getting their first car.

And in any case, worst case Peak Oil will look more like an "Undulating Plateau" many decades from now, so your friend is making a good decision, according to ExxonMobil & CERA, et al.

Hey, Has anyone heard from Airdale lately? I worry about him.

Me too! I thought he would show up on the recent Ag thread. No Luck!

Just to expand on some of my previous comments with respect to our church retrofits....

I purchased a cheap mechanical timer for the BUNN coffee maker that will be used by staff and volunteers through the week. As noted, the timer will eliminate the standby losses related to the internal water reservoir outside regular business hours, thereby saving an estimated 452 kWh/year. The second coffee maker, which is used on Sundays only, will remain unplugged through the week; if this second machine operates an average of three hours per week, this simple, no-cost measure will save a further 645 kWh/year.

Total cost: $5.00. Dollar savings at current rates: $129.40/yr. Simple payback: 2 weeks. CO2 emissions offset: 1,005 kg/yr.

As also mentioned, the parish hall has two old chest freezers and two commercial refrigerators that are used by the food bank. After monitoring these four appliances over the past week, it appears the freezers are the largest energy users. The one of the left uses an average of 1.53 kWh/day (558 kWh/yr) whereas the one of the right consumes 3.54 kWh/day (1,292 kWh/yr). My recommendation is that both be replaced by a single 25.5 cubic ft. Kenmore model with an EnerGuide rating of 555 kWh/yr.

Total cost: $700.00. Dollar savings at current rates: $152.76/yr. Simple payback: 4.6 years. CO2 emissions offset: 1,186 kg/yr.

My primary focus, not surprisingly, has been the lighting. All T12 fixtures have been upgraded to high performance T8s and long-life incandescent lamps have been replaced by either CFLs or halogen-IRs. Some of the greatest savings pertain to the outdoor lighting -- a 1,000-watt mercury vapour flood that illuminates the front of the church, three 250-watt mercury vapour post lamps along the circular driveway, two additional 250-watt mercury vapour fixtures that illuminate the parish hall and its parking lot, and seven 100-watt incandescents at each of the various entrances. Total load including ballast losses: 3.225 kW. Operating from dusk to dawn -- an average of 12 hrs per day -- these fixtures consume a total of 14,125 kWh/yr.

The flood will be replaced by a new 100-watt metal halide, the MV lamps and control gear will be removed from the three post lights and be replaced by 27-watt CFL mini-twists, the two barn-style fixtures will be replaced by 70-watt metal halide wall packs, and the seven 100-watt incandescents have already been swapped out for 20-watt CFLs. The new connected load will thus fall to 0.52 kW. In addition, we will be adding a timer to the existing photo-eye control so that these lights turn off at 01h00 rather than the following morning. Upon completion, our outdoor consumption should be in the order of 1,139 kWh/year.

Total cost: $790.00. Dollar savings at current rates: $1,531.83/yr. Simple payback: 6.2 months. CO2 emissions offset: 11,895 kg/yr.

Granted, this stuff is pretty small potatoes in the greater scheme of things, but it does suggest the potential to reduce our energy demand could be far greater than most of us realize.


This is a fantastic article on CR


It points towards what I'm saying that the only winners in the morgtgage game where the old farts that got in early i.e 1960-1980 everyone else looks like that are going to lose big.