The (possibly) Great Oil Shock of 2010-2012!

 In the last year, America (and the world) has witnessed an unprecedented decline in demand by a few percent as a result of the global economic downturn.  While America’s housing bubble played a major part in starting the global domino catastopcrapcade, oil prices also caused major consumption cutbacks in other areas once Americans began paying over $4.00+ a gallon in May 2008.  (coincidently this also led to a major decline marketshare purchase of gas guzzlers, which has since abated since oil prices are back down below $2.50 – People are so short-sighted and/or stupid). 

Anywho, one important question to ponder is what will be the near future prices of gasoline and has this recession changed projections of future prices…

Well this handy dandy chart I stole from Infectious Greed (HT Paul) gives some illustration.

For those less chart savvy, the above provides three different senerios as to the severity of the recession and the resulting less demand for oil.  It must be noted that while the Western world is using less oil, this is not true for Asia (China will likely increase demand 5% this year, as opposed to 12% last year).  Global demand will likely grow as a result of growth in developing countries.

If you notice that the X-axis of this graph begins at the point where oil demand exceeded supply…the result was rampant speculation and increase in prices (see chart below, the point is the first spike in the green line)..

The Green line is the price per barrel.  To adjust this to the price of gas let’s go to this little nugget of within info from the Energy Information Agency

So let’s just make simple.  Currently Light crude is trading at $63 and price at the pump is around $2.50 nationally…

63/2.5 = future oil price projection/x

So if we put all the charts together what could we get.  Well on the first graph if we take the middle point of the middle senerio (severe economic downturn) we find supply hitting demand in about May 2011.  Now if we plug that the projected price of oil into our other formula for that date we get this…

63/2.5 = 125/x

x= $4.96 per gallon. 

THE SAD IRONY IS THAT THE LESS SEVERE OUR CURRENT RECESSION IS THE QUICKER IT WILL LEAD TO HIGH GAS PRICES AGAIN.

I would start seriously thinking about how you use energy now and make the necessary lifestyle changes that will prevent you from having to cope with high energy costs.

The Peak Oil Update….

The Oil Drum has provided an update regarding current and forecasted declines in global crude oil extraction (including the oil sands).

 

Or for a different perspective…

 

Declines are true on the global scale…

According to the International Energy Agency:

“Forecast 2009 global oil demand is revised down 0.2 mb/d on weaker-than-expected preliminary data and non-OECD country baseline changes. Global oil demand is projected at 83.2 mb/d, 2.6 mb/d (3.0%) below 2008.”

Peak Consumer Credit and the Zombie Apocalypse

Nearly 3 trillion in consumer debt and then the bubble popped.  Without any precedents, I have little insight as to the effects of this, except my own intuition and that intuition suggests that when TCCO retreats back to 2 trillion, it will trigger a zombie apocolypse (see photo below for survival tips).

The Silent Coup and the American Financial Oligarchy

Simon Johnson  presents an excellent article in the May 2009 edition of the Atlantic that really sticks a dagger into the global banking corporations.  As a chief economist for the IMF in last last few years, he offers a unique perspective on how the U.S. economy is currently is functioning.  Spoiler alert;  He claims there is a Financial/Governmental Complex that pulls the strings and will seek to maintain their power structure at the expense of average tax payers.

Andrew Jackson’s view on Big Bank Bailouts.

The dude on the $20 had a lot to say about large financial institutions back in the early 19th century.  Much can still ring true today.

“Gentlemen, I have had men watching you for a long time and I am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter, I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I intend to rout you out, and by the grace of the Eternal God, will rout you out.”

Just around the corner…

 

The G20 meeting begins this Thrusday in London.  This should be a meeting for the history books. Protests and arrests have already begun.  On a side note the G20 nations are said to be signing an agreement not to devalue their currencies.  I would be shocked in a few years if this is still the case.

Deflation today…Inflation tomorrow.

Pollyanna Forecasts

This guy has no idea what he is talking about.

FTA: “Home sales will turn around by midyear and home prices will begin recovering by the end of this year after bottoming out at 35 percent of their value from peak to trough. Home prices won’t return to their values of a few years ago during the boom, but will recover from current lows, he said”

This is not the case. The only senerio I can envision where aggregated home prices only drop by 35% requires a boost of inflation, a false reality of wealth.  Please refer to chart below.

Housing prices will need to be cut at least in half from inflation adjusted national peak values before they are back in line with household incomes. That’s not all, there is a demographic factor. The baby boomers who own most of these houses out-number their children who are poorer. Gen Y and X simply do not have the means to purchase these houses, even before the bubble.

 

PPIP = TARP v.1.0

Im tired, frustrated and will simply cut to the chase.

The Public Private Investment Program is a scam.  George Orwell should give these asses an award for doublespeak. 

Here is an excerpt from Dr. Housing Bubble today that helps bring to light some of the details of the program…

I remember when the $700 billion Troubled Asset Relief Program was released back in the fall on the pretense that it was going to buy toxic assets.  Remember the storm that created?  The public was appalled and that initial gut reaction was proven to be right.  Ultimately the first $350 billion of the TARP went directly to banks as capital injections and did absolutely nothing for the health of our economy and ultimately was a major safety net for the banks.  Yet the bad assets remained.  No credit lending to average Americans.  Bad assets still there.  TARP 1 was a gift to banks and Wall Street.  Which brings us to the PPIP.

The problem with the PPIP is that it is designed to provide a major subsidy to so-called private investors to buy up toxic assets.  This is a misnomer.  Why is that?  Language is important in any legislation and especially when presenting a money grab like this one.  First, there is very little about this plan that encourages the “private sector” in buying these toxic assets.  At least it isn’t private in the sense that you and 95 percent of Americans would like to think of it as private.  That is to say, if you had some capital laying around and wanted to buy up some toxic assets yourself, you would not be able to do so?  Why?  Well let us take a look at the application for this PPIP on the Financial Stability website:

I’ll get into the details of the plan later in this article but this application pretty much sums up everything that is wrong with this program.  First, participating institutions must have the capacity to raise $500 million of private capital.  This is great for bailout participants that are deemed too big to fail since they’ll have that money easily accessible.  Next, they’ll need a minimum of $10 billion in market value assets under management.  This is important to keep out the riff raff of “small time investors” since only the big boys know how to mange money.  Finally, the deadline for the PPIP application is get this, April 10, 2009 at 5:00pm Eastern Time.  Bwahahaha!  They already know who is going to get the bids!  So much for that “open” market place notion.  They spent such a long time devising this plan and now they expect solid plans to come out in a little over 2 weeks?  The Treasury already has an idea who is going to play in this game on taxpayer funds and it is the same institutions that created this mess.

If you want a sense of who stands to benefit just look who posted massive rallies today:

Even though the market posted a “broad” 7 percent rally, many of these firms tripled that in the same day.  And don’t think this rally was somehow spurred by the retail investor sitting on the sideline.  You mean the unemployed ran back in to gamble in the stock market?  You mean to tell me that 50 percent of those in our country that are 1 or 2 paychecks away from financial trouble knew to invest in these firms that stand to benefit the most from this poorly planned investment program (the real PPIP)?  Amazing isn’t it?  This was a major gift to Wall Street.

Bernie Madoff’s Tweets (First Night in the Slammer)

This is pretty funny, although site went down quickly.

Compliments of Barry Ritzholtz of The Big Picture…hat tip.

Main Stream News has a few Diamonds in the Rough

I rarely read anything from the media powers that be that truly informs me of the ‘big picture’.  This article from CBS is an exception. 

FTA:

Now that the housing bubble, stock market bubble and commodities bubble have popped, the market is trying to adjust to non-bubbly conditions. Laws and regulations that interfere with that process can delay that adjustment and prolong the recession. (If a failing business is artificially propped up, valuable resources are being wasted rather than being used for productive purposes.)

Plus, the money for these bailouts has to come from somewhere. Last month Bloomberg News put the tab so far at $9.7 trillion, enough to hand each U.S. household a check for around $92,000, or pay off 90 percent of home mortgages in the country.

That money, of course, will come from taxes. We’ll borrow some from China, the largest foreign holder of Treasury debt, with the promise of paying it back with interest. Some will come from the Federal Reserve printing it, a move that devalues the greenback and leads to taxation through inflation.

At some point, though, the bailout costs will simply become too immense. George Mason University economics professor Russ Roberts wrote this week: “We can’t keep GM and AIG and Fannie and Freddie and every insolvent bank and every mortgage afloat. It can’t be done. It’s not a strategy. It’s just desperation to avoid pain. We’re going to have to start letting them fail. Sooner is better than later. Otherwise, we continue to throw good money after bad.”

We can’t bring back the bubble economy. But until our esteemed elected representatives in Washington figure that out, don’t expect an end to this downturn anytime soon.

It’s kind of funny that when certain voices were saying the very same things about our debt-driven consumption system a few years ago before reality showed its ugly face, mainstream media ignored these issues and people who did try to bring it to light were considered crazy or radical. 

I don’t know which is better, to be a sane person in a crazy world, or a crazy person in a sane world.  I feel I have lived in both now.