Rural Housing Prices

IndyDoug points us to a Financial Times article leaking the IMF's soon to be released conclusions.

The IMF estimates that oil prices explain half of the deterioration of the US current account deficit between 2002 and 2005. In that period, the deficit rose 2 percentage points, to a record 6.5 per cent of gross domestic product. Rodrigo Rato, IMF managing director, this week warned that "good economic performance rests on a shaky foundation, because of large and continuing global imbalances". The US current account deficit is forecast to increase again in 2006, Mr Rato said, partly because of the impact of high energy prices.

Mr Rato has called for a "multilateral" approach to resolve the global imbalances as he warned that the "risk is that global imbalances will be unwound in an abrupt and disorderly way". "If a disorderly adjustment does take place, it will be very costly and disruptive to the world economy," he said this week.
So I guess that gives a little more respectability to those expecting a financial meltdown as a result of peak oil. The IMF is worried too.

But for some people, the abrupt and disorderly unwinding of imbalances has already occurred:

I was very struck by this personal account at itulip, which GreyZone pointed out.
I live in a rural area about an hour and 20 minutes north of a major U.S. city. I moved here in 2000, selling a home in the suburbs for a $55,000 profit after living in it for three years. I trained horses for other people and was looking for a place to hang my own shingle rather than work out of other people's barns and pay to board my own horses there. Having once owned my own successful retail business, I ran the numbers and concluded I could stay home, board and train horses and earn more than I could by working off the farm. My husband could continue to work in his present job and commute.

I paid $140,000 for a fixer-upper house on 40 acres. The house needed work, but the land was everything I dreamed of. Pastures, meadow, woodland. Plenty of room to build the barn and arena, and long trails through the woods for my boards. I put $45,000 down on the property and spent a year cleaning it up: building fencing lines, a new indoor arena with attached horse barn, and so on. I paid for half that building with my own money and financed the other half with a home equity loan. To save money, I did a lot of the work myself, including installing the water and electric, building the stalls, swinging a hammer to build the barn and arena. Lots of sweat equity.

In no time at all I had horses here for both boarding and training. I was doing well. Better, in fact, than I had projected. Life was good. That was in 2002.

But in 2005, she needed to sell, and started making some needed repairs.

Then Katrina hit in 2005. Gasoline prices skyrocketed. Most of the people in the area commute to the city for work. The cost of gasoline made that commute much more expensive. When I moved here gasoline cost about $1.20 a gallon. Recently I filled up at $2.69. When I moved here, $400 a month was my budget for gasoline. The same amount of fuel would cost me close to $900 a month. Just to commute. Because of the added commuting cost, people are not buying property out this far anymore. Real estate sales slowed to near nothing.

Soon after, the house of cards really started to fall. One local builder went bankrupt, unable to sell over 20 homes he built in a development. Those 20 houses in foreclosure fed the buyer's market, driving prices of other homes for sale down farther. Then another builder went bankrupt, then another. In the past three months, six builders have filed in the area. The number of houses in foreclosure is staggering. They can be had for next to nothing. Banks are jumping through hoops trying to find people to buy them. The local newspapers all have classified ads reading "Builder's inventory Reduction Sale." Land prices started to fall. What had sold a few months ago for $10,000 an acre is now sitting dead on the market at $2,500 an acre.

That's the nastiest housing slowdown I ever heard of. If you were wondering how we managed to get vehicle miles traveled down a little bit after the hurricane, now you know. Did many Americans voluntarily carpool? Nope. Take the bus or the train or bike? Nope. Use their more efficient vehicle? Nope. Instead, the poorest and weakest parts of the economy took it in the shorts and stopped driving as far because they had no choice: they couldn't afford the gas.

And preparation didn't help a lot:

I thought I was smart. I have no credit card debt. Both vehicles are paid for. The debt I took on in the form of a home equity loan was taken not for toys, vacations or expensive cars, but to add value to my property. The only debt I currently have isfrom medical expenses. I never allowed the debt secured by my property become greater that 50% of what I thought the property might reasonably sell for, based on the information I had at the time. I had enough savings that I was able to carry the family for something like nine months without any income. All in all, I was in better shape than a lot of people are. Being a good country girl, I grew a fair portion of my own food and raised chickens so grocery bills were vastly smaller for me than for many people. I saw heating costs could grow to be a real threat to my family budget down the road so I installed a woodstove large enough to heat my entire home and burn wood from my property. I have not purchased propane in four years. When my friends were experiencing sticker shock on propane, which for many people rose from $300 to $600 for 4-6 weeks of fuel, I could simply toss another free log on the fire.

The point of all this is that I had made wise choices at the time, worked hard to insulate my family from problems I saw coming down the road, and I am still getting hammered by the real estate market.

But it brings up a larger point. I know many of our readers either live in or have moved to rural areas because they feel they'll be more survivable post-peak. I've been concerned that rural areas will actually take the biggest hit from peak oil, because of their high gasoline dependence. This story seems to suggest that the combination of peak oil and housing bubble can be really bad for at least this one area.

So how's it going out there in the country? Is this lady's story an aberration? Or just part of a gathering trend?

It can happen in the city, too:

The American dream is nightmare for some

PHILADELPHIA -- To walk Thayer Street in northeast Philadelphia is to count, door by door, the economic devastation afflicting a working-class neighborhood. On a single block, 18 of the 42 brick rowhouses have gone into foreclosure in the past three years.

Once a certain percentage of homes are in foreclosure, the value of all the properties in the neighborhood will drop.  You can suddenly find yourself owing more than than the house is worth, even if you were careful.  

It's true.  Denver has been having record foreclosures for the last three years and last month, foreclosures were up almost 30% from March of 2005.  Scary, but with all of the arms and interest-only loans (over 50% of mortgages in Colorado in 2004 and 2005), it's only going to get worse.
On the opposite end of the spectrum, there was a WSJ article a few weeks ago that discussed the problems that celebrity owners were having trying to sell their trophy ranches.  

Once they bought their ranches, they realized that: (1)  it took a lot of money to run them and (2)  they were in the middle of nowhere a heck of a long way away from Starbucks and the Sunday New York Times.  It seems that potential buyers are aware of the same thing, combined with the realization that long commutes are now more expensive--plus the beginning of the implosion of the housing  bubble.

BTW, the is a good article in the NYT this morning on gasoline prices.  January, 2006 demand in the US is up 2% over January, 2005.   Most economists are  baffled by the increase in demand.  

Energy Economist Andrew McKillop wrote an article in 2003 called "Why we need $60/Barrel Oil."   He predicted that the arrival of $60 oil would cause more and not less economic activity.  I believe that he suggested that we would need to hit the $75 range before we would actually begin to see some drop off in demand.

The problem is that most Americans are still viewing the price runup as temporary, courtesy of our MSM, that wants to keep selling advertising pushing Urban Assault Vehicles and McMansions.  Therefore, last year our already pitiful national savings rate went negative as Americans went into debt trying to hold on to the commuter way of life.  

McKillop Article: ndrew+mckillop&hl=en&gl=us&ct=clnk&cd=3&ie=UTF-8

People will spend their last discretionary $ to buy gasoline.

Motor gasoline demand, which exhibited almost no growth in 2005, is set to grow 1.7 percent in both 2006 and 2007.

There was no Demand Destruction last year.  None.

Every drop of "extra" gas was therefore imported.

Short-Term Energy Outlook=EIA

And from Resource Investor-

Rumours are starting to circulate that and (an) overstretched refinery complex cannot recover properly from the hurricane damage. The hurricanes came, refiners ran over time to make more money, bits fell off the refineries, they have to close longer and places like Texas City are taking even longer to bring back than anyone thought.

This time the market might pull back from $68.50 for WTI and $68.40 for Brent. But if something odd happens, then traders will see an opportunity and pile straight through. Now $60 is the new floor, $55 is absolutely unbreakable and if we get one more spark then stand back, it's party time. Not for you of course, you have to pay.

$2.99 Texaco  Dallas - North  Fri Central Expy N & Royal Ln

$2.57 Exxon 201 central expy Allen

In Ft Smith-usually some of the cheapest in the nation, along with Tulsa-$2.55.



People will spend their last discretionary $ to buy gasoline [and a Starbucks].
I noticed this morning that Sheetz convenience stores in Altoona are advertising ATMs with no service charge.  Sheetz sells gasoline as a loss leader, but if no one has money left over for their snacks and convenience goods, they'll have to change that strategy.
People will spend their last discretionary $ to buy gasoline.

I don't think that's really true.  The problem is that most people's gasoline use is not discretionary.  They have to get to work.  They have to go to the store, get their kids to school, etc.  

Those who really are using discretionary income for gas - teens who cruise the streets for entertainment, say - are cutting back.  

I suspect most Americans are still treating it as a temporary price rise.  Once it becomes clear that it's permanent, people's behavior will change.  

They have to go to the store, get their kids to school, etc.  

Those who really are using discretionary income for gas - teens who cruise the streets for entertainment, say - are cutting back.  

Funny, strange-not ha ha, I passed a high school yesterday(one of Arkansas'largest.  The parking lot, similar to a WalMart's,
was full).  In addition, there were two Hummers.

Who in a HS, makes enough to afford a Hummer?


Someone that already got their military signing bonus.  I used to do work for a Navy base, and the road near the base was chock full of auto dealerships.
Who in a HS, makes enough to afford a Hummer?

Roger Clemens' kid:

I suspect they didn't buy those Hummers themselves.  Mommy and Daddy bought them.  

Teens still see driving to school as essential.  But cruising has been cut back.

Well, like a lot of other things, "have to" is a slippery and relative term. It's gotten ridiculous.

In my area (Madison, WI), even high schoolers are somehow not expected to be able to use a simple side-street crosswalk. So many of them are driven (or drive themselves) to school. We even have entire streets blockaded by Jersey barriers just to enable soon-to-be adults to yak about absolutely nothing on their cellphones in utter obliviousness to their surroundings. Amazing - but 100% discretionary.

(Look. I grew up in NYC. I had to cross "New Dorp Lane", far busier than Madison's "Coldspring Avenue", from first grade on, and "Hylan Boulevard", far busier still and no cossing guard, from seventh grade on. So I have little sympathy for so-called parents so obsessed with consumer greed that they can't be bothered to take a few hours to teach their kids to cross the street by high school age. Maybe it's time to take a harsh French approach to working hours, in order to enable us, in fairness, to direct harsh social opprobrium towards irresponsible parents, as we did until a few decades ago.)

In a different form of discretion, I know somebody who drives about 20 miles roundtrip each weekday to work a three hour office stint at $8/hour. I'm 100% certain that closely similar stints, i.e. at a very modest skill level, are available for within 50 cents of that wage much closer to home. What we have here is an utter incomprehension of the very simplest arithmetic. On the other hand, it's easily remediable if and when gas gets high enough. Only I can't imagine how high that needs to be, since, counting taxes and eating out for lunch, this person, even now, is barely breaking even.

All in all, these behaviors and countless others like them show how risibly cheap auto fuel is for most people, at least in terms of utility (or "hedonic") value, and even for some quite far down the economic ladder. Matthew Simmons is probably right to underline this by his otherwise silly exercise of citing the price per cup.

We have a long, long, long way to go, if need be, before we even begin to cut into uses that are truly "not discretionary".

The question of discretionary fuel consumption strikes me as extremely important. How inelastic is the cost of fuel consumption? A more detailed study seems to be needed. The Hirsch report sited a reference that states 67% of personal automobile travel is discretionary. I have a hard time buying that. I currently live in the inner city of Cleveland. Traffic on the weekend is MUCH less than during the weekdays. Might commuters move downtown to save petrol? Not if they have kids in suburban schools.  A 28% high school graduation rate here recently. Lowest in the nation at the time I checked but symptomatic of the problem. Not a chance in hell you would send your kids here if you could afford otherwise. And there is a lack of housing suburbanites would consider acceptable, by quite a margin.

Do you move your business out of the inner city? Could help, but your current employees are likely coming from many locals so energy savings means some have to move. At what cost for that? Those in the Exurbs--burning surely a disportionate about of fuel--tend to have the most money so presumably petrol costs are not as much as issue with them and they likely won't be quick to move.

If not fuel savings from driving to work, than where? Stocking up on shopping maybe to a small extent. Not taking one's brother to see a movie over the weekend? Unless you live out an hour or so, gas is not so much an issue as movie tickets and popcorn prices. Same for restaurants. Again, oil cost is seemingly rather inelastic. Only easy call: recreational travel. Meaning long distance (auto and air).

If the kids are within walking distance of a school (2 miles? Maybe the federally mandated minimum for school bus service?), I doubt their driving there or being driven there matters much in terms of total energy burned. Certainly not using public school buses in a pretty darn safe city like Madison is discretionary. Likely, if they are doing so the parents make a good living, which goes back to the fact that they won't easily be squeezed by higher gas prices.


Goodbye M3- What is the Government hiding?


It is no coincidence that the M3 went up an annualized 9.4% in the last three months and an annualized 17.2% in December alone and now the FED wants to stop tracking it!

Why bother tackling a problem of this magnitude when you can just bury the evidence? Who wants to leave a "smoking gun" laying around? A 9.4% increase in money supply should translate into a 9.4% inflation rate (if GDP produces exactly enough to counteract obsolescence).

Even if there is a 1% increase in the supply of goods, that still means that we really have 8.4% inflation rather than the 3.6% the BLS is telling us.

In order for the 3.6% number to be true-- we would have to have 5.8% more stuff than last year (9.4% - 3.6% = 5.8%). Do you have 5.8% more stuff than last year? I didn't think so.

The writing is on the wall. When the Government starts hiding data the problem is big! If this trend continues, inflation is going to come roaring back big time. We will see the late 70's all over again. The war is Iraq and the Billions in Hurricane damage have to be paid for somehow and the "hidden tax" is the easy way out.

Now is the time to begin stocking up on inflation hedges.

Jerome a Paris wrote a diary about this:

Excuse me, but all this M3 stuff is twaddle and nonsense. No data is being hidden, because from what is still published you can rather easily reconstruct M3 by yourself.

For various reasons, M2 has much more useful information in it than M3, and if you are seriously interested in money and finance you track a whole bunch of series of data, not just M1 or M2 or M3.

In regard to the BLS inflation numbers, I agree that they are wrong, but the BLS is trapped by years of tradition and more-or-less locked into particular ways of estimating the rate of change in the general price level. To maintain validity, you cannot just change the way you define indices or the way you construct them whenever you feel like it.

Believe it or not, the big constraint on the BLS is not integrity (They are a remarkably honest and competent and hard-working bunch. Praise to them!) but budget. They do not have nearly enough funds to get better data and to revise and improve the way indices are constructed and changed to reflect changes in the real world.

BTW, this budget constraint applies not only to the BLS but also to the Fed, which used to have abundant funds to finance research and improve techniques of collecting and publishing data, but which is now so strapped for funds that they can no longer do much to subsidize the food service at district Fed banks.

Follow the money. The reason M3 is being put to bed is to save funds; that is the official explanation, and for once, also the truthful one.  

I have to raise the B.S. flag on this one... putting the M3 to bed to save money? Sure, that is the official line. How much does it cost to gather the M3 data? Treasury provided no information on this. Generations of Treasury chiefs past, however, seemed to find it worthwhile. In the absense of any real data, I'm not inclined to lent much credence to the rationale stated in press releases by this administration--too many direct, personal experiences to the contrary. (Here's the official press release)

As for "no data is being hidden," and "what is what is still published you can rather easily reconstruct M3" -- that's completely false. M3 contains M2 PLUS larger holdings in dollar reserves by foreign banks (all CDs above $100k, eurodollars, repurchase agreements). You can ONLY reconstruct M3 from M2 IF you ASSUME that M3 growth is pacing M2 growth. This is often, but NOT ALWAYS the case. Here's what The Economist had to say about it recently:

"The Fed claims that M3 does not convey any extra information about the economy that is not already embodied in the narrower M2 measure, so it is not worth the cost of collecting it. It is true that the two Ms move in step for much of the time, but there have been big divergences. During the late 1990s equity bubble, for example, M3 grew faster; over the past year, M3 has grown nearly twice as fast as M2. So it looks odd to claim that M3 does not tell us anything different. The Fed is really saying that it doesn't believe money matters."

Article Link Here (subcription only)

I'm not saying that we need to all jump directly from this M3 issue to hysteria over the Iranian Oil Bourse or something. But the dropping of M3 IS SIGNIFICANT, and is definitely not "twaddle and nonsense." If you are to have us believe that, then you need to provide us with more than words, specifically, you need to establish either 1) HOW you can derive M3 from M2 without the afforementioned and eroneous assumption that M3 will always grow in line with M2, or 2) that money really doesn't matter after all. Good luck.

Just read the data (free) published by the Fed and do simple column addition with a pencil on the back of an envelope. Might take three minutes a month.

Sometimes the facts are so simple that conspiracy theorists simply cannot grasp them.

If all the data needed to calculate M3 is collected anyway, and the calculation is so simple, how can not publishing M3 save money?
Hmmmm...this logic tends to lend credence to the world's conspiracy theorists--like The Economist!
Thanks for the explanation.  Interesting indeed.  The Economist isn't exactly known as a bunch of conspiracy theorists.
I hate to think it, but I'm afraid you are right about this, jeffvail. It's just too...coincidental.


One theory I've seen suggests that M3 is being dropped because of the way money now comes into existence - less under the control of the Fed and more under the control of individual banks making loans. As such the Fed doesn't feel the statistic is useful because it's not one they can control. However, it still leads to distortion in the total money supply which is why reports inflation is much higher than reported, unemployment is far higher than reported, and the economy is actually shrinking.

John Williams (the fellow behind has been assessing each annual report on various numbers. He notes the government never hides what it is doing and is very straightforward about it, but you have to read the appendices and footnotes to get all the changes they apply each year. What Mr. Williams does is unwind those changes so that he has data going back to the late 1970s that is all measured against a (theoretically) consistent standard. By that standard, unemployment is over 12%, rather than the stated 4.7% we saw reported this week. Inflation is more near 7.5% than the 4% or so that has been claimed. He charges for his full set of stats and services but does write occasional papers for the public. He makes this data available to companies so they can do more accurate business planning. In his own words:

One of my early clients was a large manufacturer of commercial airplanes, who had developed an econometric model for predicting revenue passenger miles. The level of revenue passenger miles was their primary sales forecasting tool, and the model was heavily dependent on the GNP (now GDP) as reported by the Department of Commerce. Suddenly, their model stopped working, and they asked me if I could fix it. I realized the GNP numbers were faulty, corrected them for my client (official reporting was similarly revised a couple of years later) and the model worked again, at least for a while, until GNP methodological changes eventually made the underlying data worthless.

That began a lengthy process of exploring the history and nature of economic reporting and in interviewing key people involved in the process from the early days of government reporting through the present. For a number of years I conducted surveys among business economists as to the quality of government statistics (the vast majority thought it was pretty bad), and my results led to front page stories in the New York Times and Investors Business Daily, considerable coverage in the broadcast media and a joint meeting with representatives of all the government's statistical agencies. Despite minor changes to the system, government reporting has deteriorated sharply in the last decade or so.

-- John Williams

Anyway, I had read an article that quoted him (and unfortunately I can't find the article now) where he mentioned that the above theory might be why the Fed doesn't want to deal with M3 any longer since it doesn't look good for there to be swings in M3 which lend the appearance that the Fed has lost control of the money creation process, even if that is not true (since appearances impact investor mood and sentiments).

There is something to what you say, but it is not the whole story.

The whole story would take about 3,000 words and have a bunch of links, and I do not think it is appropriate to put all this financial stuff and the history of economic statistics on TOD.

Briefly, M3 never has been very important and in recent years has become less so.

There is a continuum between M1 and various substitutes for perfect liquidity (which is what M1 is). There is NO ONE SINGLE SERIES OF NUMBERS theat tells you what you really need to know if you are tracking money and finance and debt in the U.S. As a doctor needs about four dozen numbers (blood, urine, EKG, pusle, temp, etc. numbers) to know if you are healthy, an economist looks at more than thirty (and sometimes more than fifty or one hundred) series of numbers.

To focus unduly on a single measurement, such as M3, is simply to reveal ignorance of economic data and statistics and finance.

In regard to "The Economist," most of their reporters are from liberal arts backgrounds, selected for good writing rather than knowledge of economics and business. They learn on the job, and they tend to be very bright and highly opinionated people--some of the best journalists to drink with;-)

And let us never forget the infamous "Economist" cover story of some years back that proclaimed a glut of oil and prices of $10/barrel and possibly falling for years to come. Though I think it is one of the best publications around, no source is infallible.

Don - write the 3000 words and send it to us as a guest post.
Thanks for the invitation, but am currently swamped with two different writing projects plus time demands to aquire an agent for a series of young-adult science fiction novels (a cheerful series, BTW, based on the premise of a 99% dieoff;-)

And so here comes the shorter version:

  1. Collection and compilation of data is expensive. Although the work could be done by an intelligent and responsible sixteen-year old, in fact you probably have to hire somebody with a masters degree (or higher) in economics, just to get somebody to do the work right. This sad fact reflects the credentialism escalation, whereby what a sixteen-year old could do a hundred years ago we now have to shell out $65,000+ per annum + benefits to find somebody to do the work right and on time.
  2. You have to collect data point by point, and there are THOUSANDS of financial institutions involved, and you have to get data from every single one (or pretty damn close).
  3. Data is collected region by region by each of the 12 district Federal Reserve Bank. Each region compiles data on, without exaggeration, hundreds or thousands of banks and other financial organizations that may be issuing near-money type of instruments (savings and loans, credit unions, etc.).
  4. 97% of the people who are supposed to send you data at the Fed do so completely, correctly, and on time.
  5. The other 3% do not, and that is where you spend maybe 80% of your time reminding, begging, cajoling, wheedling, weeping, screaming, and maybe evening threatening, trying to get them to send you the data you need to get your report in--because until your particular report goes in, data cannot be compiled.
  6. Data is compiled and checked at each of the 12 District banks.
  7. Each of the 12 District Banks sends in its report--on time--and then the data is compiled, checked, and finally published.

Thus you have a labor-intensive rather expensive set of procedures in collecting and compiling and publishing data. Some data just is not worth the cost. By way of comparison, many doctors no longer do a PSA test, even though prostate cancer kills more men than breast cancer kills women. It is not that the PSA number is worthless, it is just that (in the judgment of some doctors) it is not worth the extra expense and often leads to expensive and unnecessary surgery because of its unreliability.

If I were going to look at 100 numbers to figure out how the economy doing, M3 would not be on the list of the 100 most important ones. If I were to look at 300 different series of time series data, it would be on the list, because M3 does have some useful information.

But not much.

For people so interested in M3, let me ask this question: Why? What is the special significance of the stuff in M3 that is not in M2? Granted that it is volatile, but so what?

Note that over time definitions of money change; this has been going on for at least fifty years, and probably longer; the Fed has many, a great many times changed what it compiles and what it publishes.

>Thus you have a labor-intensive rather expensive set of procedures in collecting and compiling and publishing data. Some data just is not worth the cost.

Except that the fed is continuing to collect all of this data. They are just no longer making it public.

In my opinion is because the Fed does not want the spook the markets because of the growth in trade imbalances created by bretton wood 2. M3 is usually associated with credit expansion, but because China, Japan and other are holding huge reserves it not significantly affecting inflation. Personally I don't believe this game will end anytime soon because all the players are vulnerable. They will keep on holding export surpluses until after the Post Peak oil of some other major crisis begins. When PO arrives globalization and export driven economies become irrevelant.

Fascinating info.  It would sure explain why the economy doesn't "feel" as good as the numbers look.
I have had a theory for a couple of years, which I have posted before.  I am posting it again because of the money supply issue.  

My theory:  Bush Cheney were aware of Peak Oil from day one.  Therefore, they knew that the federal debt will never be repaid and they knew that the remaining oil reserves in the Middle East were the biggest remaining prize on earth.  Ideally, in a Peak Oil world, one would want to "own" Iraq, Iran and Saudi Arabia.  

So, if you know that the federal debt will never be repaid, why not max out the federal credit card by increasing federal spending beyond belief?

And, if you want to "own" Iraq, Iran and Saudi Arabia, one would want to move a large permanent military force into the Middle East.

The third part of my theory was that Buch/Cheney would, in effect, renege on the US debt (perhaps by inflating our way out).  This would have the added benefit of hurting world trade, which will contract anyway, and of hurting competitors for the remaining oil supplies, especially China.

We know that oil and precious metals are going up and we know that the Fed has somewhat mysteriously decided to quit publishing the M3 data--just as it started hitting sky high levels.  There are also some rumors floating around about massive increases in the money supply.  You will recall that our current Fed chief talked about dropping "hundred dollar bills from helicopters."

I basically agree with your theory, except that the M3 issue is not as big as it first appears because we still have the M2 and other measures to reference.

In the past few years the US current account defict has rapidly expanded to about a $1 trillion rate per year.  So not only have foreigners covered the increased energy expenses of the US, but they have provided us with extra money.  Unfortunately most of the extra money went to buy SUVs and McMansions, so this gift has been essentially wasted.  

The bill on this spending will come due in multiple ways - so as it will not appear that the US dollar is - in effect - worthless.  Higher inflation, higher interest rates, etc. will appear to be seperate problems.

Eventually the rest of the world will wake up and say - Why are we sending all our money to the US so that they can get all the oil, goodies, etc.?  The rapid rise in gold, silver, etc., indicates that a diversification away from the rapidly receding dollar has alreday begun.  

Lets look at the defitions of M1, M2, and M3.

From the 4/1 FSN weekly broadcast transcript:
"Well, let's take a look at the simplest measure of money M1. And that's basically the dollar bills that you have in your wallet, and the money that you have in your checking account, that's the most narrow supply of money. M2 includes in addition to the dollars in your pocket and your checking account household savings deposits, time deposits such as CDs, and retail money market mutual funds. And then M3, this is what we call high powered money, this is what the Fed just got rid of. When the Fed really wants to inject money into the system they use M3 - it includes institutional money market funds and liability depositories, large time deposits, repurchase agreements (that's how the Fed puts money into the banking system) and man! Have they been using that, and also euro dollars.

And so when the Fed really wants to get money and credit into the financial system they do it through repurchase agreements, coupon passes as they're called. And then they really expand that supply in the banking system, because every dollar that goes into a bank, they can go out and make a loan - because we're on a fractional reserve system they can expand the supply of money by $10. So if the Fed let's say injects a million dollars into the banking system, they can turn that into 10 million dollars worth of loans due to the fractional reserve system."

Yes - M3 does matter and reviewing the reports of M1 and M2 is worthless, because it obfuscates what the Fed is really doing.

Yes, Fed repurchases are a high-powered money and very important.

The repurchase figures are not only available weekly from the Fed, but the Fed also announces its repos with domestic banks daily.

So we are missing part of the puzzle, but not a big part.  The Fed wasn't targeting M3 lately anyway, so M3 is not a extrenely important to monetary policy.

Why does the Fed create money?  To help finance the deficit and also to meet demand for money.

More unmitigated twaddle and nonsense.

Nobody has seriously suggested repaying the national debt of the U.S. There is no good reason to do so. The problem is the rising deficit, which rapidly increases the debt to unreasonable size.

N.B. The debt is a large number because it is an accumulation of many decades of deficits (minus a few rather small surpluses). The ratio to keep your eye on is the real GDP compared to the size of the national debt.

We get into serious trouble when the debt is rising much faster than real GDP over a number of years. There is no reason to worry about a moderate (say equal to GDP) debt that increases at the same rate as real GDP. Of course, it would be nice to get the national debt down to, say, half of nominal GDP, but this is not a high priority, considering all our other financial and economic problems.

BTW, I do belive that large and increasing deficits are a serious matter, but not nearly as serious as our negative saving rate combined with insanely excessive amounts of mortgage and credit-card debt. Accelerating inflation is something to worry about very much--but not because M3 numbers are no longer being published.  

I see the Balance of Trade deficit as the single most troubling issue.  This drives the Balance of Payments (which represent investor sentiment as part of the delta with BoT).

As the number of US$ abroad grow, the number of holders that can cause a "run" increases (and a threshold for a run decreases).  This includes the S L O W run such as the British experienced when the UK £ when it lost reserve currency status as well as a faster run (see George Soros).

IMHO, one of the contributing factors to the decline of Great Britain after WW II was the loss of reserve currency status for their £.

If people do not want to hold US $, and we want, say $600 billion in oil, $100 billion in LNG/Canadian NG and $600 billion in other products for the year above and beyond what we get for our exports, we will be in a crisis par excellence !

Any thoughts Sailorman ?

To a large extent, the history of money is the history of inflations.

The single biggest reason for our trade deficit is the huge and rapidly rising cost of our oil imports.

At some point, I expect the dollar to go the way of the Mexican peso.

BTW, fascinating historical footnote, both the Mexican peso and the U.S. dollar were originally defined to be the same amount of silver. Spain had most of the silver in the world from 1500 to about 1815 and minted an enormous amount, and because of the Hapsburg connection, the Maria Theresa Thaler (pronounced almost "dollar") became a widely circulated foundation for both Mexican and U.S. currancy. Because of a lack of small-denomination coins, Spanish dollars (or "thalers" or "pieces of eight") were often cut up into eight pieces. Thus, "two-bits" equals one quarter.

To illustrate inflation, I am old enough to recall the lines from a popular song, "Shave and a haircut, two bits!"

For a long time 25 cents would get you both a shave and a haircut in a barber shop, and many men went daily to the barber shop to be shaved by an expert and to catch up on gossip.

Now for your research as to the declining value of the dollar: Suppose you go to your favorite New Orleans barber shop and order a shave and a haircut. How much does it cost? Divide that amount by .25 and you'll come up with an interesting number.

I remember penny post cards and bottomless cups of coffee for five cents; five-cent Coca Colas and five cents for twelve ounces of Pepsi-cola, nickle newspapers, movies for a dime--and then the damn War tax raised it to 12 cents! Naive as we were, we expected the price of a movie (complete with cartoon, newsreel, travelogue and feature) to go down back down to a dime after World War Two.

Have you priced a movie lately? Or the popcorn?

IMO the future of money is for it to lose value.

To pick a nit - how many men could afford a 2 bit (or 1 bit) shave when that was all they cost? Income at that time period would have to be deflated back by about the same amount of as the shave and haircut. On a related note it is to bad there are so few real barber shops anymore. I do look forward to my visits to the barber - the discussion is almost as good as you get with a Dublin cab driver.
westexas, you wrote:

January, 2006 demand in the US is up 2% over January, 2005.

Actually, the NY Times article says that January 2006 demand is up 2% over 2004 demand:

Gasoline demand, which averaged 9.1 million barrels a day last month, remains very strong; in fact, it is up by 2 percent since January 2004 when oil prices began to rise.

The article is here:

I didn't get it quite right either.  The NY Times quote says that demand "last month" is up 2% since January 2004.  If they are comparing March 2006 demand to January 2004 demand, I'm not sure that that is a meaningful comparisation due to seasonal variation.  But it is clear that they are comparing recent demand to that since January 2004, not January 2005.
I would like to make a general plea.  Observations based on a single month are not useful.  
Arguments of the form "Jan 200X Y is up/down Z% over last year and therefore P" are invalid.  Not quite as invalid as "Jan 200X Y is up/down Z% over last month and therefore P".  Almost all the things we care about are somewhat noisy and somewhat seasonal.  So the fact that a given month is up, down, or sideways from before, by itself, could be noise.  Therefore, it cannot be used as support for an argument.  Only if we see a whole trend of things clearly changing outside of the normal fluctuations can we draw a conclusion.
You are absolutely right. It is incredible how many business decisions are made off of this mistake in spite of your point being continually made in an effort to bring some perspective to the data.
This might be good for $80/bbl when it gets out.


OH MY GOD! That Hersh article is the scariest thing I've ever read. The Bush administration is about to commit global suicide. If this reporting is true, the price of oil will be just one of a very long list of things to worry about.
OH MY GOD! That Hersh article is the scariest thing I've ever read.

Understatement.  Hersh is connected.  People in the know talk to him.  How stupid is Bush?   We may soon find out.


Excellent article. Seymour Hersh gets a  lot of it right.

One minor point, the US Navy is in the process of reducing its minesweeping force by a factor of 50%! They, the USN, normally relies on Allied navies to do the minesweeping. Initially there would be no one to supply those sweepers as bombing the heck out of Iran would not be a popular move around the globe.

Sounds like that lady made good decisions, but one has to be prepared to go "whole hog" in getting back to the land. Her way of doing business was still tied to long commutes, and ties to customers who had to have cheap unlimited gas.

That's not how it was done 100 years ago.

And, I'm curious to find out where she is, looks like a prime example of fertile, livable land that's undervalued out where she is.

Hello Fleam,

Good points.  People need to remember the olden days when most people NEVER travelled very far because local survival kept them busy, and there was no excess energy or reason to travel more than the nearest village to do a little trading every now and then.  We all recall how young Abe Lincoln walked ten miles just to borrow a book to read while resting between the exertions of splitting logs.  How many Americans do you see walking even one mile to the public library, especially with the convenience of the Internet?

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

Hello TODers,

Some more info: A properly designed RIVER DRAINAGE BASIN  biosolar habitat where the natural abundance is maximized should provide all the water, food, and clothing you need with remarkably insignificant amounts on detritus derived goods, mostly bullets and metal traps to harvest game.

A super-insulated, SMALL eco-tech home PV powered with solar water-heater, should mostly free you from the ancient task of gathering, then chopping firewood to cook food and heat the house.  Consider how common this task was for millions when Abe Lincoln was young.  A bicycle on a narrow concrete or asphalt path can easily haul loads equivalent to the oxen carts of yore struggling along a muddy trail:

But are people willing to build a modern day Shire, or will they go down like most African countries?  Time will tell.

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

I agree.  We are facing a decline in energy supplies, not a reversal of technology.  We may be forced to do less, eat less, travel less and expect less. For a few unfortunate areas that may also mean fewer people survive.  But unless we lose our collective heads and engage in destructive resource wars, the down slope could be adapted to and existing technological innovations adapted or improved to make do with fewer energetic or raw material imputs.  

Moderately paved roads or pathways and bicycle carts would make a wonderful, low energy alternative for short distance hauling.  Add a basic electric motor and battery pack and hauling a 500 lb load up a hill becomes possible.  Is it is as convenient as current options. Hardly.  But it's better than oxcart or pedicab hauling.

If remaining resources could be marshalled into maintaining hi-tech supply networks, (like ensuring chip mfrs have their needs met before other firms) there is no reason why a low energy future would necessarily be a low tech one.  Again adaptations would be ideal.  Perhaps it would mean an end to rapid innovations and most likely would require a more distributed approach to manufacturing with most products being in a particular region. That may force simplicity in design and perhaps more open source approaches (where innovation in one area is shared electronically with others) to manufacture and distribution of systems.  Would that mean a new computer for everyone every few years? Probably not.  But perhaps each household could have a basic device to communicate with the outside world (and reduce the need for travel) that may be designed to last longer and be more effectively recycled at the end of its lifespan.

I guess the key is to maintaining a stable decline in standards and avoid periods of intense bloodletting and dramatic energy supply decreases. Maybe that might let us march off into tommorow with the advances of today on the energy inputs of yesterday.

"But unless we lose our collective heads and engage in destructive resource wars . . ."


Have you ever heard of the "war in Iraq" or the "war on terror"?



Never said that that wasn't out of the question. As bad as the war on terror is, the destruction is at least localized at the moment.
about a year and a half ago my sister and i went to china, we went for a month and just railed around and had the adventure of a life time. The thing that really struck me was all the bicycles and the things they were doing with them. I saw a man and a youngster hauling three 25' logs thru bejing. the critical mass bike things they do in NY and SF are just business as usual.
Bicycles absolutely require two things to be used as trucks:
  1. That other road users understand what's happening and tolerate it.
  2. The terrain must be flat. When you see photos of third world bicycles hauling incredible loads you can be darn certain the location was a flood plain somewhere.
  Getting a heavily laden bicycle up a slope, even a tiny one, does not just require health, fitness, and determination (or judging from some of what you see in 3rd world really incomprehensible determination) it requires low low gears. And  with even 2% or 3% slopes you quickly reach a point where you can't gear low enough to keep the bike in motion. And the torque loads imposed grind down the bike almost as fast as they chew up the rider. And the low gear also means you are limited to walking speed or less on the flat. Or have a fancy bike. And I for one do not wish to attempt to control any currently existing bike on a downhill with hundreds of pounds of load.
  Adding battery power mostly just makes things heavier. To handle battery weight you are quickly building something so heavy it's not recognizable as a bike. Which is why 2-stroke mopeds exist.
  In flat areas with careful planning bikes can do amazing things. I used a variety of cycletrucks for work for years here in Chicago and the main limitation was intolerance from motorists. And being sideswiped by larger vehicles with no sense of how really long or wide they were. And on the small number of small hills in this city learned it was better to walk.
oldhippie thanks for the response
in response to the gearing of the chinese bicycles, that's what the youngster was for. I'm guessing 13 to 16 years old, they would see (or create) an oportunity to move into a NY style intersection and the youngster would push and push and push until I could almost feel my insides bursting. but as you said, every motorist understood what was going on. the motor vehicle is new to china not the bike, water buffalo, or old woman walking. a sharp contrast to US style road rage. if you every get the chance and are up to a challege go see china for your self, it will open your eyes to what humans can do.
Hmmm.  I may be mistaken, but I believe my 2.5mi trip home every weekend from downtown is mostly 1-2% uphill grade with a short section of 4%.  (I get over 25mph without the trailer going downtown - Whee!!)  I routinely pull over 100lb loads home.  This weekend that was two 40lb bags of composted manure, a weeks worth of milk, eggs, and produce, a large terra cotta pot, two packages of strawberry plants, and a half-flat of vegetable seedlings.  Oh, and about 10lbs of books (the kids went to the library too!)

I used a bike trailer rated for 120lbs, my two large panniers, and my regular touring bike.  The gearing, for those interested, is 22-32-42 chainring and 32-14 cogs.  I was climbing the steep section at about 4mph.

Geez, if I had to move something that weighed 500 lbs I'd have someone deliver it.  I doubt I could get that in our car either.  More likely, I'd move it 100 lbs at a time, over the course of 5 trips.  There isn't much in my house that I would want to bring home that I couldn't move by bike if I needed to, though it might take multiple trips.

Even a fancy bike is much, much cheaper to own and maintain than the simplest automobile.

And for the majority of trips, it probably makes a good substitute.  There is no reason to hop in the car to take lil' Johnny to soccer practice, or to run to the store and pick up eggs when you run out.

This assumes, however, that you live in a community where things are close enough together.  People that live an hour by car from the nearest grocery store will not find a bicycle a good substitute.  For them, perhaps a carpool is the answer (or, like we used to do, take turns buying for everyone.  Your turn comes up one week out of four, you'll burn about the same amount of gas bringing home groceries for four families as you will for one)

Sorry to ramble off on a tangent.  

Well judging by the apparent valuations of distant rural lands, most folks aren't betting on civilization ending in the immediate future.  If they were, this distant land would be increasing.  I think this may mean that a rush to land may not occur until things turn pretty ugly (crime/riots and starvation for starters) in the cities to scare out the folks.

This would jibe with a slow collapse theory where rising prices destroy the value of rural areas and far-flung suburbia while improving the circumstances of the cities.

Further out in time, this interest would once again turn outward as one urban area after another cease to be functional.

If you read the entire article at iTulip...the reason she has to sell is that a family member became seriously disabled.  He needs so much daily care she cannot work any more.  And she wants to be closer to doctors and medical care for him.  
I read this article several weeks ago. Seems like it was previously linked from TOD. She doesn't say where she is, but it sounded like she's 50 or 60 miles out of a big city like Dallas. So, maybe, somewhere outside McKinney?
I would guess farther.  An hour and 20 minutes is more than 60 miles, unless congestion is an issue.  

I was guessing Washington, DC myself.  People drive insane distances for real estate in the DC area, and there are still horse farms and such in Virginia.

The prices she names are a bit on the low side for the DC area, but if she's far enough out, it could be.

True; Dallas is probably a poor fit. During rush hour, an 80 minute commute might only get you into north Texas somewhere, which has horse farms and mcmansions and such. But when traffic is slack, you'd be in Oklahoma, which does not fit the description. So, Denver? Atlanta? she didn't say.
Winchester? Front Royal? Even Harper's Ferry?  All have seen a strong influx of DC area commuters. Twenty five years ago when I was in college in rural Virginia this was the hinterlands.
Tomorrow's Wash Post Sunday Mag has a feature titled "Doom Boom" about the impact of 9/11 on DC real estate.  Biggest boom since Pearl Harbor!
If the photo is representative of her area, that cannot be Dallas. It could be Washington, DC if she was near the mountains of Maryland or Virginia to the west. I'm familiar with both areas, living in Houston now and having lived in the Washington, DC area 20+ years ago, and I just cannot envision that photo fitting anywhere within 90 minutes of Dallas. However, if the photo is just filler not actually related to the article, then I would not attempt to guess where she is. I will note that housing has not shot up like that in most parts of Texas with which I am familiar. More than 60 minutes from Dallas and I can buy pretty darned cheap these days. More than 90 minutes from Houston and the same is true, especially to the northeast. Friends near Washington, DC tell me that such extremes in exurban real estate do occur up there.
That's correct, there is no housing bubble anywhere in Texas.  Oh, prices have gone up, but not nearly to the insane levels on the left and right coasts.
Agreed, the picture shows mountains in the distance and there are no mountains near Dallas. Could be Denver or Atlanta or up east somewhere.

I googled the phrase "Builder's inventory Reduction Sale." from the article and up popped McKinney. They've been building mcmansions in McKinney since about 1996 or so, I looked at a couple. It's about a 30 minute commute to Dallas from McKinney down 75. So if the writer lives on one of the "farm-to market" roads out of McKinney, she could be an 80 minute commute from Dallas. It would be right along the Red River somewhere, and there are some silly overpriced exurbs in north Texas.

I am going to take a position here, and I know it will not be popular on this forum:

The housing bubble collapse, when and where it comes, will have ALMOST NOTHING to do with the so called "Peak Oil" phenemonon.  

In my area, the people who had known housing and land prices in the area simply shook their head in disbelief over the last 5 plus years...."These prices JUST DON'T make sense" they said...and these folks had NEVER HEARD OF PEAK OIL.

This points up a grave error that is becoming very common....EVERYTHING from age spots to crab grass is being blamed on the oil price....I actually saw a post recently by a "peak aware" type that said he could now filter almost "every event" through the lense of "peak oil."

That is NOT something to brag on but instead is the very definition of a "cult"...the two common elements are becoming more present....(a) single sourcing, in which all information comes only through the priests of the cult and (b) a logic system, often very simple, to explain away all complexities of life.  With these two tools and a bit of companionship, a cult can function as the arbitrage point for all information and set the framework in which all existance functions.

So, back to the housing collapse....people got stupid on price.  They have done it before, they'll do it again.

Indeed, the housing bubble has a life of its own.  However, it would be foolish not to consider what the effects of gasoline at $3.50/gal might do to both the psychology of a nation in the midst of a bursting real estate bubble, as well the bottom line of many household budgets.  Lots of people have indebted themselves to within an inch of bankruptcy, and even a moderate rise in gas prices will push them over the edge.

Note that I did not say that oil price and in particular gas prices had no effect, but argument is that we should be careful in tying the housing bubble to JUST the oil price...
Medical expenses are insanely high, I work with an attorney who says it is the biggest single cause of bankruptcy among his clients...
Tuition costs are going through the roof
And let us not forget vehicle costs WITHOUT the fuel....a luxury SUV now costs as much as a small home did only a few years ago
Vacation costs, fine furniture, boats....well, we get the picture...anyone of these large ticket items would pay for the cost of fuel for half a decade at 6 bucks a gallon...
Note we left aside the cost of the house itself....
This would be a good point to reference a recent speech by The Comptroller General of USA (hat tip to The Daily Reckoning) in which he outlines many financial problems without once mentioning peak oil. TOD contributers will no doubt add the peak oil effect to what he says - then reach for the whisky!!
People worry about debt and housing bubbles in a lot of nations around the world.  From my reading ("Irrational Exuberance" by Robert J. Shiller) it's more than an American thing.

I think it's a good call to break it out from oil and question the close (cultish) linking.

That said, oil price increases put pressure on a high existing debt burden which in turn put pressure on the bubble.  That becomes exacerbated if oil price increases are judged to be "inflation", leading to higher interest rates, putting more pressure on the bubble.

Regardless of what happens to the bubble, before or after peak oil, I think there will be winners and losers.  As always.

... I understand "rural" property in Alberta is doing pretty well ;-)

I am going to take a position here, and I know it will not be popular on this forum:

The housing bubble collapse, when and where it comes, will have ALMOST NOTHING to do with the so called "Peak Oil" phenemonon.  

Bubble: meet big giant pin. With barbs on it.

Cultish? No one I know claims that peak oil caused the housing bubble. The bubble is exactly that - a bubble, which by definition is fed by "irrational exuberance". Yet all bubbles come to an end and usually there is a trigger cause. Alongside this particular bubble, we have energy price pressures developing due to (drumroll) peak oil. Peak oil did not cause the bubble but it certainly appears to be playing a hand in popping it. To deny that is to deny the evidence in front of your face. That doesn't make peak oil a cult, not when rational assessment demonstrates the relationship between peak, energy costs, and economic growth (or lack thereof).
I agree of course that oil had nothing to do with creating the housing bubble, but it may have something to do with the timing of bursting it.  OTOH these guys were predicting it would burst in the middle of 06 anyway.
Hmm, the date in the file's PDF metadata is 04/01/2006....
Energy is the key to all life.

It only makes sense to interpret events through a  lense of energy-availablity.

Although it would be a stretch for the San Francisco Giants to blame rhp Tyler Walker's meltdown last night on Peak Oil.



Vaseline shortage?  ;-)
Rodrigo Rato is a former Spanish minister of economy (from the Aznar cabinet). He gave an interview for Spanish TV and when asked about energy, he said two interesting things (coming from the IMF):

There's plenty of energy out there... but at what price.


Energy can be a limit for economic growth

I think you might be hard hit in a rural area if you expect to live there with current society continuing as normal. If you've moved to the country with a view to becoming more self-suficient, then I think you'd fair better than those in urban areas.


To an extent, I guess, but in rural areas good medical care is harder to find.  Exactly the reason this woman is selling her place out in the country.

I have heard all the arguments for and against living in a rural area in a post-petroleum world, but as long as property prices in the country were driven up by the housing bubble, I am not inclined to be looking at property.

I'm not so sure.  Even if you're trying to be self-sufficient, your neighbors may not be.  Remember the "optimistic" Hemenway, worrying that his meth dealer neighbor would kill him for his garden when TSHTF?  
Not sure if this is an open thread but a couple of interesting articles in The Times (UK) today, giving a different interpretation of peak:

World 'cannot meet oil demand'

Oilman with a Total solution


or ala Kunstler 'States Delay Highway Projects Due to Costs'

That one always stood out for me, how fragile the highway system was, and how if not given constant care could crumble quickly.  I keep hearing blurbs (yearly?) about the poor conditions of our bridges and highways in the US, many getting a 'D' or 'F' ratings.  But, I have yet to see a massive reconstruction effort.

All the while our pork-barrel congress is considering and has allocated money ($400,000 US and $100,000 Georgia) to study this project which slices through the heart of the Southern Appalachians.
Total cost estimated to be around $50 B not to mention the damage done to critical watersheds, wildlife corridors, etc. Project is being pushed by trucking lobby who see it as a way to avoid the congestion of the Atlanta beltway even though it is only 15 miles shorter and will be subject to hazards like fog and snow. Locals have banded together to try to fight this project. A rail line to haul freight would be cheaper, more efficient and abandoned rail corridor already exists for the most part.
I keep hearing blurbs (yearly?) about the poor conditions of our bridges and highways in the US, many getting a 'D' or 'F' ratings.  

True.  The interstate system was built in the '50s and '60s, with a 30-40 year life.  It was an economic golden age.  We never imagined we wouldn't have the money to replace everything in 30 years.  We also didn't anticipate the growth in traffic, especially the two-car family, which doubled the number of vehicles on the road, and the huge increase in truck traffic (and truck size - tandem rigs, etc.) that causes a lot more wear and tear on our roads and bridges.  Perhaps worst of all, we didn't anticipate how dependent we would become on the new highways.  It makes it very hard to maintain or rehab them, since we can't close the road without causing a traffic nightmare.  If we'd known, we'd probably have built in extra capacity at the beginning, which would have been a lot cheaper in the long run.  

But, I have yet to see a massive reconstruction effort.

And you won't, because we can't afford it.  It's probably just as well.  Better to spend on public transportation, railroads, waterways, etc., than highways.  

You have to be careful about those rankings.  In many cases, the bridge is getting a low grade because of congestion instead of how structurally sound it is.  If it's really falling apart, they'll reduce the rated load and prohibit truck from using it.

If it's bridge capacity that's failing, that's really an attempt to widen the road now or in the future, but the bridge is too narrow to allow widening.  They have to put the bridge widening in the plans early since bridge reconstruction is so expensive.

To be fair, this sounds like it's not really rural but "exurban."  A bedroom community for people who commute to the city an hour and a half away.  Just where we would expect peak oil pain to hit first.  

What strikes me is that even this cautious, responsible woman seems to be shocked that real estate prices can go down.  I suspect most Americans are in the same boat.  Like the Enron employees who never saw the danger of investing everything in their own company's stock.

Yes, this woman's story fits the post I wrote Living Large In Exurbia. The collapse of some of these communities is already starting. I believe this will be the trend as energy prices stay high. She figured everything right except for the transportation costs, her achilles heal.
I for one, cannot wait for the price of good farmland to start dropping. I live in Iowa and I can tell you that there doesn't seem to be any concern about energy prices if you base land price accordingly. I have watched as land price continue to rise unabated and wonder just when we'll see a 1980's style price correction.. I seem to remember that in the 80's, you couldn't give housing away and it was truely a buyers market..
We don't have that yet but I suspect we're getting closer.

I would like nothing better than to move to the country, near a small town..

Speaking of Iowa, it's been interesting to see the prices of land in the beautiful loess hills in the western part of the state jump through the roof over the past eight to ten years as Omaha's economy has continued to thrive.  Farms that had been in families for generations have been broken up to sell to developers 40 acres at a time, then subdivided into little commuter acreages.  Don't know what part of IA you're in, but I assume the same thing's happening around Des Moines, Cedar Rapids, & the Quad Cities.

The nice thing about all these cities is that you can still get decent rural land close enough in so that, depending on what part of the city you live in, your drive time to work might still be only 20 to 40 minutes each way.  That's less than 1.5 gallons per day in a Prius.

Some of this land may level off and even go down a bit, but I don't expect to see any fire sales, at least not near the cities.  Maybe out in the boondocks.  If/when the big collapse comes, maybe this will change.  But, as Leanan said in a different post, the city may be a much more comfortable place to be then anyway.  

Interesting note, though-- I do have an associate who is looking to sell his home on 12 acres in the hills about 40 minutes out of the city, because gas is killing him.  My comments to him were 1) you ain't seen nothin' yet, and 2) trade off your damn F250.

That is the one thing that struck me about the lady's story, she said she had a $400 budget for gas but was paying $900.  But with a 1.5hr. let's 100 mi. one way commute you get (200*5) 1000 miles a week.  At 30 mpg and $3 a gallon for gas you end up at $400 a month, her budget.  You do your big time shopping on the way home during the commute, and you are making it, not happy but making it.  So give up the Yukon.
I linked to the iTulip article on the Sunday Mar 26 open thread, and I asked US members whether they could confirm it was genuine or not. I wasn't so much doubting the general scenario, but some of the figures. Since no locale is given, it's easy for the sums involved to become exaggerated.

This bit also got me:

When I moved here gasoline cost about $1.20 a gallon. Recently I filled up at $2.69. When I moved here, $400 a month was my budget for gasoline. The same amount of fuel would cost me close to $900 a month. Just to commute.
She should try living in the UK. Her fuel costs would be over $25,000 p.a. here.
The difference between the US and UK is that in the US, a hundred years is a long time, while in the UK, a hundred miles is a long distance.  ;-)
Sorry, I missed it the first time around.
   Well the opposite is happening to me.  Have quite a lot of farmland  in  absolutely rural area on a river near small farming town in NC.  Beautiful forgotten country.  
     Recently Floridians have been buying up here like crazy and sent prices soaring.  Price  per acre gone from $2,ooo to $12,000 in two years. These damn fools are building "retirement communities" out here in the middle of nowhere.  Nearest little grocery store 20 miles.  
Looks like a business opprotunity. Open a store/pharmacy near these new developments.
Looks like retirees think they are fleeing hurricane country. They don't remember that NC had hurricane related flooding in the 90s.
That assumes that the retirees will still have money by the time you have built the store. Look at what happened in the thirties for a good analogy. I expect that this time around they will have social security and medicare, but that's all. It's going to be bad.
I recently moved from California to small town in the midwest. (Not because of peak oil). I'm renting a house about 2 miles from work. I've noticed that quite a few houses have been put up for sale since November. The subdivision where I live only has 3 streets, so it's easy to spot em. When I moved here there were 3 houses for sale including the one I'm renting. I signed a year lease and he took it off the market. There are now 7 houses for sale in this subdivision alone.

One of my co-workers shared with me his current plight. He had a 4000 sq ft home built in 2002 and has an ARM that was originally something like 3%. Now it's more like 6.5% and he's on the phone all day at work trying to get it re-fied. He lives 30 miles from work and drives a good ole red blooded American car. He told me that he picked up a Jeep Cherokee because it got better mileage than his van.

I wonder what he takes to work everyday that requires a Jeep Cherokee vs: a used Honda Civic?  He must have a distorted idea of what constitutes good mileage.  Either that or he's one of those "buy American" dudes.
This woman's account can up earlier in a thread at a TOD.

Her expectations were unusual. Bought 40 acres + house in 2000 for $140K. Decided to sell house on 20 acres and subdivide remaining twenty into 5 acre parcels. Total expectations were:

Quote from story...

"Right now, I will be fortunate to find a buyer for my property, even if I drop the price to $250,000 for the entire farm on 40 acres, an incredible contrast to the total $890,000 my agent thought we could get a year ago.  At least I didn't borrow against it."

She won't lose a dime...

Stuart, I enjoy your inquisitive mind.  I live in Arizona and housing has been red hot for the past few years.  Currently, coworkers tell me that they're having trouble selling their homes. Last year, it wasn't unusual for homes and condos to sell immediately.   Easy credit, credit cards, leveraged buying, the fascinating and the all too complex world of derivatives probably hold some of the blame for these financially questionable times, as though money is supported by nothing more than the next loan, but in my mind, so far as housing, consumers fell to "spin", letting themselves be conned that while already stretched they could afford yet a bigger place and that the world would remain cheerfully unchanged. While I don't think oil had much to do with the housing bubble, cheap oil afforded the nails, the lumber, the reckless, dreamy commutes, and now as energy prices fly ominously overhead like buzzards, growing in size and number, they steal discretionary spending and before long they will go for the heart of the matter...unless we take preventative measures.  

Stuart what about a series of blogs on "solutions".  

This diary at DailyKos, by "souldrift," argues that we are not addicted to oil.  We're addicted to real estate.

Bingo, at least on the overall point. And see next item by tom deplume.

The U.S. government has massively subsidized and protected real estate acquisition, while harshly penalizing most other forms of investment, ever since the end of the second world war. Which is why tom deplume might make a fortune if he acquired that property. And...oh, what a shock!...the government got precisely what it - that is, all of us - intended and paid for.

Let's see, if you invest in productive assets, you get socked with capital gains taxes, income taxes, gross receipts taxes, specific business taxes, taxes on taxes, etc. etc. Worse yet, when the kids go to college, the tuition will be raised as high as need be to consume all those assets. (Ditto, perhaps, for the new individual health-care mandate in Massachussetts.) And you lose them all if you are unlucky enough to go through bankruptcy.

On the other hand, if you  invest in an all-consuming exurban vinyl box, you get State and Federal mortgage deductions, maybe FHA subsidies, "free" (i.e. at no particular marginal cost to you) highways, and endless other goodies, to say nothing of intangibles such as the oohing and aahing of friends and neighbors. And you have a shot at decent schools for your kids, which is a near impossibility closer in, where political correctness and corruption tend to direct nearly all the resources to a shiftless and thereby virtually ineducable few, leaving your kids with nothing.

Better yet, despite the "itulip" story at the fold of the original post, you are (or have been, anyway) almost guaranteed that ever more bloated government regulation will cause your asset to go up and up and up forever, despite a blip now and then. Best of all, when it comes time to send your kids to college, you can hide as much money as you like in the vinyl box, and it will be totally invisible to the social levellers assessing the tuition. And in most states you can keep the whole megillah even in bankruptcy.

There's really no point in becoming annoyed about people's behavior in these matters (which seems to be a theme in this thread) when it is perfectly rational under current law and social custom.

We have been looking for property in New Mexico, west Texas area for a few years now and have watched the recent drop in asking prices. Wish I could afford to pay cash for dozens of these properties and sit on them until serious inflation kicks in. My kids would inherit a fortune.
World 'cannot meet oil demand'

April 8, 2006

By Carl Mortished, International Business Editor
THE world lacks the means to produce enough oil to meet rising projections of demand for fuel over the next decade, according to Christophe de Margerie, head of exploration for Total and heir presumptive to the leadership of the French energy multinational.

The world is mistakenly focusing on oil reserves when the problem is capacity to produce oil, M de Margerie said in an interview with The Times. Forecasters, such as the International Energy Agency (IEA), have failed to consider the speed at which new resources can be brought into production, he believes.

"Numbers like 120 million barrels per day will never be reached, never," he said.

Snip ......,,13130-2124287,00.html

From this thumbnail summary of Portland area real estate, it would appear that outlying areas like Boring, Canby, Ridgefield, North Plains, Amboy are seeing signficant price appreciation in the range of 40 to 50 per cent year on year (volumes, however, are correspondingly down in some areas). These are not truly rural communities, as they lie within 30 miles of Portland, but there is no sense at all that commuting costs are affecting prices in the metro Portland area.
Another point that will come back to bite people is when they have refinanced to take advantage of lower interest rates.  In doing so, they have often moved from purchase-money security interests on their homes (where the lender can only take back the house) to being personally responsible for the entire debt.  So when the lender forecloses and only gets 50% (or much less) of the remaining loan value, the lender can come after the borrowers and the remainder of their assets.
I have never heard of home financing on a non-recourse basis (what you refer to as a purchase money security interest, although I think even a purchase money security interest is typically securing a note that remains an obligation after liquidation of the collateral).
A loan obtained to initially purchase a piece of property (even for paying off construction loans) is often non-recourse in California and, I believe, New York (encouraging the courts to allow causes of action for tortious waste for non-payment of property taxes resulting in impairment of security).  It may well be in other states also, so homeowners should at least think about this aspect before refinancing.
i looked at land in one norcal town.  very nice place, frogs & fish in a creek.

but everyone was dependent on their cars !  they were super surprised when i walked about 4 miles to a party.

i think part of the question is - where do you want to "be stuck" when gas is $10 a gallon ?

Her plans and situation are frighteningly similar to mine, but we have not been hit with a major disability.  The medical costs we do have are really hurting though.  

Her story is really as much about living in a world without a saftey net, where everyone is on their own, as it is about housing prices.  Just like in the old days, we're all just one step away from catastophy - and if it happens, tough luck for you.  

Her plans were not to sell it but to stay there, and if she had not been forced to sell, it would have been ok.  So I'm not sure it's a good model for testing whether rural or urban path is best.  

Her story is really as much about living in a world without a saftey net, where everyone is on their own, as it is about housing prices.

That is it exactly.  The solution is obvious.  You need the safety net people used to have before we industrialized.  The one still used in Third World nations.  Family.  She is doing the right thing, moving to be nearer her family.

There may be different "safety nets" being discussed here. Family as a safety net has and hopefully once again will be where we find our safety net. However I thought that the reason for her move back to the city was to be nearer to medical care. Should we expect the "safety net" to include universal access to all current medical technology? If we choose a more self-sufficient rural lifestyle should we be prepared to accept the level of medical care that is available locally? What is the trade-off between quality of life and length of life? Tough questions but pertinent to decisions about truly rural life.
Until a couple of years ago, I used to live in Humboldt County, a rural region about five hours drive of San Francisco (where I now live).  Humboldt Co has a handful of towns in the 5000-30,000 population range, and is otherwise redwoods, ranches (and dope plantations).  It is three hours drive from the nearest larger city.  It gets some tourism and some retirees from the city, but not nearly as much as the counties to the south.

There, the housing market has cooled somewhat, but prices have not really fallen, and nothing like what the iTulip lady described.

However, my experience of medical care there was that it is vastly better than what I've been treated to in the city.  The doctors I dealt with where smart, compassionate, I could always get an appointment within a week, the doctors would spend as long as I needed with me, and I could routinely see the same doctor whenever I went.  Only the first of those is true here in San Francisco.  The doctors are extremely smart, but that's it.

There is some issue with really major operations, but other than that, my experience was that very small town medicine was vastly better than supposedly world class institutions in the city.  Only one data point of course.

I'm not surprised by your experience. The positive "bedside manner" you experienced in Humboldt County would seem to reflect the type of people that are attracted to such an area. So I would agree that element of medical care would in fact be better in many rural areas. It is the high cost medical technology that requires usage on a high scale to justify that becomes less accessible. The point I'm trying to introduce is whether that technology is really a good thing if it prolongs a low quality life. Dick Lamm (former gov of Colo) caught a lot of flack when he introduced this issue quite some time back.

Is Humboldt County in the "State of Jefferson" that was just profiled in National Geographic Adventure? Sounds like a good place to survive the dieoff and to enjoy life if we manage to avoid the dieoff.

Would you care to discuss why you chose city over rural life? And, do you have an opinion of what is the best bet over, say, the next quarter century?
Stuart, very interesting topic about Rural home prices and problems with being a long distance from work.  I hope you are able to respond to this....I do think many people who have moved to the more rural areas and need to work in the city to make their mortgage will feel the pressure as gas prices go up as well as unemployment.  I do believe though, after a transistion period, the small towns and rural areas will be the ones that are sought out.

As energy becomes more scare and expensive...the city life will become increasingly intolerable.  You are correct right now, that those who have HOBBY FARMS or live out in the country but still live the RAT RACE STYLE will have trouble.  It is only when people change their lifestyle to actually become almost completely self-sustaining will small towns and rural areas become the hot real estate market.  

At first, there will be a collapse of real estate prices in both city and rural areas.  But, those who get out first in the Suburbs with a great deal of equity, will be able to purchase for cash places in the country that are either foreclosed or greatly reduced in price.  I think your right that somewhere in the middle of 2006 the housing bubble will begin to pop.  But as large systems takes time for entropy to make its way.

I agree with you, services like medical are better in smaller towns and rural areas.  The advantage of the small towns with old or new rail lines will not be felt until our society goes through this transistion from keeping the current system at all costs to a more local and self-sustaining in the country.  

Stuart, what do you think will happen with social services and police when the things start getting very expensive?  Just like what happened to those people in North Korea and in Moscow when energy becomes rare or expensive, those in the country will do much better.  I don't know what to say about those in rural areas with mortgages they won't be able to afford in the is quite scary.  I plan on moving to the country...but I have been somewhat more fortunate in that I will have no mortgage or any debts what so ever.

Stuart, what are your feelings about just how long it will take for things to get really bad in our society?

The true bubble cities have their own characteristics, but one of the spin-off affects is that a certain fraction of those with "monster equity" in a bubble city get out and go elsewhere.  For years people have been "cashing in" in southern California, and going ... what was it, first to Oregon, then to Colorado, then to Idaho, Wyoming, Montana ... basically all the places that come to hate Californians ;-)

A burst California bubble will take the pressure off those places as well.  And to the extent that people left, to establish "unsustainable models" (start a "bed and breakfast" anyone?), there's further downward pressure.

I met a guy up at the condo complex jacuzzi, as I was booking a little dot-com income.  His story was that he'd made money in a previous computer boom, gone to Oregon, established an organic beef ranch, bled away his money, and come back to make more.  He said it was fun while it lasted ... but it struck me as a model not to repeat.

The ca boomer exodus has been mostly to florida, nevada and arizona, I think in that order. As boomers retire, they will mostly move from colder to warmer climates, CA is both the biggest exception (warm to warm) and has the largest number of those moving away. In spite of this, CA is and will probably continue to gain population at a greater rate than the nation as a whole because of relatively high breeding rate, especially among the hispanic population. (Non hispanic whites became a minority a few years ago, will continue to shrink.)

Boomer migration will reduce average income, and therefore state income tax receipts, just as (for CA) the growing number of young people demand more services such as schooling. Other places, such as the northeast and the upper midwest, will lose population, jobs, income and political clout, all to the gain of sun-belt regions. Lower cost sun-belt regions will be immune to the popping of any bubble.

You encouraged me to look it up.  My progression above was based on the people I've seen leaving, but for what it's worth the top 1985 to 1990 was Washington, followed by Arizona, Texas, and Oregon (those three nearly tied):

Washington: 155,400
Arizona: 133,000
Texas: 133,000
Oregon: 129,000

The following link shows more recent data, from 1995 to 2000, and includes migration to and from all states, both gross and net. CA had the third highest inmigration and the highest outmigration, resulting in the largest net out. As you can see, WA and OR are fairly far down for CA desired destinations, which will probably continue - as boomer migration ramps up, sunshine will be a prime attraction. For example, the largest movements of all are from the northeast to FL, which is receiving by far the greatest net influx. For another perspective, I consider FL real estate to be a good bet for the next 20 years (assuming, of course, that gw does not accelerate too much.)'state%20migration'

Back up above I was talking about the history of destinations.  When I said Oregon, I was remembering people I knew leaving in the 80's.  And the reaction by Oregonian's to California license plates in the 80's ;-)

Later I was in Colorado and a guy behind the counter said "beautiful day ..." (smile fades) "you aren't from California are you?  It isn't always this nice." (we all laugh).

Should we expect the "safety net" to include universal access to all current medical technology?

Obviously not.  Few can afford that, and it will be even fewer when TSHTF.  

Agreed that we should not expect universal access to current medical technolgy. But that is the expectation today if you buy health insurance. That access is part of the coverage and it is impossible to buy coverage that excludes it. That is why the cost is so high.
But that is the expectation today if you buy health insurance.

Perhaps it is.  If so, it is incorrect. Insurance will not cover everything.  Even for things it does cover, there are caps.  Yearly, lifetime, etc.  One sick kid can wipe out a whole family's coverage.

Basically, you can't afford to get sick unless you're Bill Gates.  Most people who declare bankruptcy do so due to medical bills...and something like 75% of them actually had health insurance.

That access is part of the coverage and it is impossible to buy coverage that excludes it.

Not true.  The truth is, most plans do not cover everything.  But people want everything.  

If you are interested in the question of how sustainable rural living actually is relative to urban living, you should go back to Toby Hemenway's article, "Cities, peak oil, and sustainability" published last August:

While this woman's story is interesting, Hemenway's is much more so, and he is well qualified to make the general observations he does (which, to me, are as encouraging as they are eye-opening).

Is this thread still somehow live?
This is a reply to kjmclark.
Congratulations, it sounds like you're having fun on your bike. When younger, I used to do things like that myself.
I am amazed by the number of people I see in my city getting utility out of bikes and am now sure I will see a lot more of it.
In my original post I was replying to someone who enthused about pedal power replacing all sorts of motorized functions it won't. We can expand the niche a lot. If TSHTF in a big big way that niche may be bigger than is easy to foresee. But there are just limits. In my experience somewhere around 100lbs on or behind a normal bicycle was about it. 150 lbs could be done but it was a stunt, not business as usual. I also several times carried a 24 foot ladder on a bike --traffic stayed far far away on those days.
I just don't see a 22x32 low gear and a sweetsmooth operating bike that includes that feature as a normal thing. It's a doable exception. It's something an enthusiast has, not something that ordinary people will have, aspire to, or even think about. Or have the good health to enjoy.

Now here's one I just don't know but I'll Speculate: when seeing those 3rd world bikes hauling really monstrous loads it often strikes me that the bike and the load are so completely and perfectly matched that what you are seeing is a bike that has been custom--built to haul that specific load over a regular delivery route. Not surprising there's a  photo - it is a special thing. I know people used to photo me all the time and yes I had some pretty special bikes.

Two technical things: For carrying long or large objects forget trailers or tricyles. Get a sidecar. You will have to fight traffic for a space on the road but darn will they carry a load.    And, one of the few really new things under the sun, the xtracycle. Forgive me I'm enough of a Luddite I've never learned hyperlink but just Google xtracycle. Moves the rear wheel back 18 inches, you can carry 4 or 6 panniers, it has stability on fast downhills with a load. Eliminates the problem of the trailer trying to come around you. Easier to park. Take a look.