Monday, November 24, 2008

Bye Bye American Pie

The end of suburbia is near and almost no one gets it yet. The whole gigantic misallocation of national wealth has probably ended soon to be followed by the great national garage sale. My borther who lives in California's central valley told me that unemployment has jumped to 11 %
In Merced a town just north of him, 75% of all house sales are foreclosures and property values have dropped 50%. Even people not in foreclosure can't sell their houses unless they price them at foreclosure prices. Access to american dream boxes is only possible by private car and the charade in Washington of uber wealthy Auto CEOs's with tin cups was act 2 of The Great Depression Revisited, a play coming to your town soon. And the financing of all these boxes and BMWs was c/o the american banking dream which is in full retreat begging all the way down, with Citigroup the lucky reipient of today's cash for trash award. So now the two pillars of the american dream: cars and crapboxes are collapsing with congress falling over itself trying to keep the dream alive with more credit and debt. But I think the music has died. What most economists and politicians have failed to see is that in an environment of declining economic growth, assuming more long term debt makes no sense whatsover.The banks may have already figured this out. How will you pay back the debt if you lose your job? The only thing that keeps credit alive is the assumption that you can pay back the loan with every rising income and appreciating asset values. The music has died and those assumptions are dying with it. This great suburban build out of America with its sprawl of highways, crapboxes and big boxes, strip malls and office parks could only have happened with free energy. That party will be over soon. The sudden world delationary economic collapse has detroyed all asset classes, oil included, and slackening demand will buy us a few years until supply falls to meet demand and then we're back to the roller coaster again. With credit drying up, there will be no drill baby drill. We need renewable energy and infrastructure upgrades but it is beginning to look like we wont get very much change from the new administration. The names have changed but the pool of applicants come from the same" growth is good" school of economics. Obama's solutions look perilously close to Paulson and bush solutions. We don't need any more stimulus packages. We need savings, we need manufacturing jobs at home, we need local food production and rail transportation and taxation of wealth, not income but I don't see it happening until the depression worsens to a full scale collapse. Trying to keep John McCains's American Dream alive will ultimately bankrupt the country and lead to full scale default. We need real change, a new American Dream but I don't see it happening. We were lucky to elect a president who has intelligence and perhaps he will find a way to lead us to a new paradigm but if the quality of his advisors to date is any indication, I will remain skeptical. Gertrude Stein of "a rose is a rose is a rose..." fame summed up our current economic predicament :"There ain't no answer. There ain't gonna' be an answer. There never has been an answer. That's the answer."

Sunday, November 9, 2008

Swiss and Icelandic solutions

This is the quiet time in Jackson Hole. The motor homes have long since departed down the winding road in Hoback Canyon, the hotels are empty, the restaurants slow. The recession is starting to show. The local paper historically had pages of want ads to a few columns of rentals and that ratio has reversed with pages of rentals. Rents appear to be off 20%. There is talk of falloff in visitation of perhaps 25%, the local GM lot is full of unsold Suburbans and Tahoes. The ski area at Teton Village has spent a fortune replacing its old Tram with a new 100 passenger module made in Switzerland complete with new towers and buildings. I have no knowledge of the financing involved but it is a business model that caters to only the well to do and in a world where trillions of wealth has vaporized, one wonders how long that business model will continue.
A large real estate development, the Canyon Club has gone bankrupt and we are starting to see a few residential foreclosures.
Over in another snowy part of the world in Iceland, the unraveling continues. The NY Times ran an article last week highlighting layoffs and inflation in Reykjavik: Some of her generous neighbors: The Faroe Islands, Poland and Norway have sent offers of help but I have read no significant help from the US which is odd considering that the US military long used Iceland as a North Atlantic aircraft carrier. I landed there on numerous occasions when I wore the uniform. The Times article mentioned the fall of the Icelandic Krona from 65 to the dollar earlier this year to 130/dollar. On Yahoo finance the rate this morning was 225/dollar. I get the impression reading blogs and the Icelandic press that no one has been punished and the government is unsure what to do. There are allusions to the spoiled indolent youth who couldn't be bothered to work during the recent boom in jobs that required getting up early and going home tired such as agriculture and construction, jobs that went to laborers from Eastern Europe The layoffs have just started, but Iceland's employment safety net precludes immediate layoffs for 90 days after which unemployment kicks in. One wonders where the money to pay these benefits will come from with an insolvent government making payments in a plunging currency. Fortunately Iceland made some really sound decisions within the past 3 decades which will at least keep them warm and help them cope. The US could learn from their prescient planning. In the 1970's Iceland used imported coal for 3/4 of its energy yet in 2007 over 82% of its energy was met with hydro and geothermal sources. Iceland has no petroleum resources of its own yet 16% of its energy is met with imported oil , chiefly to power cars, trucks and buses and of course its fishing fleet. Paying for that oil in the krona will get increasingly expensive especially world oil prices rebound which they almost certainly will. I regard the current plunge in the world oil price as an unfortunate event which will impede US and world planning to lessen dependence upon petroleum. Renewable energy is more than competitive when oil is $150 barrel but with a drop of 50% in all the major fossil energy prices, the incentive to conserve and switch to renewable energy vanishes. I am not a conspiracy theorist but if I were a Middle East oil producer I would be doing exactly what they are doing. Keep oil high enough to continue the transfer of trillions of western wealth but not so high that those same western economies start switching to energy sources that might eventually end up bypassing their sun baked sandstorm paradises.The US citizenry is starting to get it. They for a while were using less petroleum, and the impending recession will continue that reduction in energy use, but the reduction is nowhere near enough to make a significant difference. Oil and gas supplies 65% of US energy and 16% of Iceland's energy. Iceland uses 25% of the Oil per capita that the US uses. If the US could get to that figure we would be using 5 million barrels per day instead of 20 million per day. At 5 million barrels per day we would be Energy Independent in oil. 5 million barrels per day is our domestic production. But 5 million barrels per day is still a lot of oil use compared to most of the rest of the world.The US could get to this number if it embarked upon massive electrification of its transportation as the Swiss did 70 years ago. Now here is an amazing statistic: The US today consumes 400 times the oil per capita that Switzerland consumed in WW2. We consume about 20 million barrels/day. If we were to consume at the rate of Switzerland in the second world war we would be consuming at a rate of 1/4 of 1 % or only 50,000 barrels per day! Could the US ever get to that figure? Of course not. But I think it could get to a consumption rate 100 times that figure if we made massive investment in electrification and upgrade of our electrical grid. Of course to get to that figure we would as a nation have to end our sprawling suburban missallocation of national wealth and begin to live and work locally. But that will have to be the subject of another blog.

Saturday, November 1, 2008

Weekend Update

The first winter snows have already arrived and we will see more fresh snow this weekend. The pond is beginning to freeze, a metaphor for the world carried a recent survey that said 50% of Icelanders age 18-24 would consider emigrating compared to 33% aged 18-75 . These are stunning numbers especially when you consider that just a few years back Icelanders were considered among the planet's most wealthy and fortunate, at least on a per capita income level. Iceland must be suffering. But consider her neighbor Sweden especially if you are a Volvo Truck AG employee.In the 3rd quarter of 2007 Volvo trucks for export to Europe totaled 41,970. The 3rd quarter 2008 figures recently released total........are you ready for this.....?...155!!. That is not a misprint. Here is the link:
Any you thought only US car makers were in trouble. More evidence comes from the Baltic Dry Shipping Index, which is a measure of world shipping costs. It is down 90% year to date which means it is 90% cheaper to ship cargo on the world's oceans now than it was on Jan 1st of this year. I have posted the apocalyptic news about the credit collapse in Eastern Europe and the news continues to be even bleaker. Even Italy which somehow escaped the toxic waste of US Subprime is sinking on world credit markets as the government is finding it harder to peddle its bonds compared to comparable Eurobonds. Italy has had to price its bonds 108 basis points(1.08%) higher to unload them.
Back in the US, Paulson's shameful and shameless bailout of garbage is picking up speed. More money is flowing to AIG and the 9 big banks who are going forward with enormous bonus plans for their executives and plans to buy out weaker rivals with our taxpayer money.That first bailout sure worked good. In the first 9 months of this year $108 billion was set aside for bonuses by those banks and Paulson just gave them $125 Billion. Whew! Just in the nick of time for Christmas. What will it take to get the attention of these clueless crooks? Mobs with torches and pitchforks marching on the Hamptons? With the exception of a few watchful congressmen like Henry Waxman, nothing is being done. My final item will get your attention if you are one of those sub prime or alt A borrowers. On the books is a proposal to offer lower interest fixed government mortgages but the bankers have slipped in one slight catch. If you take the bait you are offered the mortgage as a recourse loan. The mortgage is now not secured by the house as collateral but by the immortal soul of the borrower. If the borrower loses his job or health and defaults, he will owe that money for the rest of his days!! No one but no one should ever accept such an offer from these Faustian bankers. I would urge all voters in this country to vote their representatives out of office if they voted for TARP. My Wyoming senators voted against it and so it appears I will be voting Republican this year.