[MonteQuest]

The consumer spending that sustained the economy in the pre-crisis years isn't coming back because the housing bubble isn't coming back, period. Even as late as 2007, 80% of refinanced homes resulted in an equity withdrawal and that refi-ATM nonsense is over for good. If you bought a home during the run-up, you not only won’t ever see a profit but you won’t ever get back what you paid for it. That price was an illusion. And I think you could say the same thing about buying a house even now. The bottom in real estate is nowhere in sight. Even with a substantial down payment, I think many could see themselves upside down (owing more than the house is worth) in just a few months.

When many people were using their houses as ATMs, the savings rate dropped nearly to zero. In 2008, we have seen the savings rate ( % of disposable income saved) rise back above 1%, partly as a result of the rebate checks last spring and people hunkering down.

What do we do? We just have to have another spontaneous make-believe source of wealth or we are a screwed puppy. As Eric Janszen wrote in Harpers last February, “The bubble cycle has replaced the business cycle.”

In 1971, the U.S. ran its first trade deficit with gold-backed dollars. France, worried that the United States intended to repay the money borrowed to cover its trade gap with depreciated dollars, had a hissy-fit and demanded payment in gold for the US securities it held. Nixon took the dollar off the gold standard to prevent a run on the US gold supply.

For those who don’t quite follow, I’ll use my Wimpy analogy. Wimpy, of course, was a character in the Popeye cartoon show. He had a jones for hamburgers and was noted for saying, “ I’ll gladly pay you Tuesday for a hamburger today.” So, let’s say this is Friday and you sell your hamburgers for $5. You give Wimpy his burger, and come Tuesday, Wimpy drops by and pays you the $5 he owes. However, over the weekend the value of the dollar drops 50%. While you did get your money, it was now only worth $2.50 in terms of purchasing power.

After 1975, the United States never posted a trade surplus again. Our era of manufacturing export dominance was over, save for debt and Disneyland. The new kid on the block was a “financial speculation” machine that promised to raise asset values without producing any real goods, as we had done during our manufacturing dominance. Some economists have opined that as much as 40% of recent GDP growth has been “financial speculation.”

After the tech stock bubble burst, sending $7 trillion in fictitious value back into the thin air from which it was created, something had to be done to counter that liquidity loss. Greenspan and the FED lowered interest rates to unheard of lows, sparking a $12 trillion dollar bubble funded by collateralized debt obligations (CDO’s) and other financial instruments whose value was supposedly secure, via a synergy of sorts, where the end product was less risk-laden, than the sum of its parts. One of the big reasons banks aren’t lending, especially to one another, is that no one knows the sums of those parts.

Ok, now we need $12 trillion. Where will that money come from?

Well, most of us here at peakoil.com see a huge future in renewable energy, but with oil at $35 bucks a barrel, it is going to take a lot of govt subsidy to blow that bubble.

As economist Paul Krugman wrote recently, “it may take a lot longer than many people think before the U.S. economy is ready to live without bubbles.”

[ReverseEngineer]

$this->bbcode_second_pass_quote('MonteQuest', 'A')fter 1975, the United States never posted a trade surplus again. Our era of manufacturing export dominance was over, save for debt and Disneyland. The new kid on the block was a “financial speculation” machine that promised to raise asset values without producing any real goods, as we had done during our manufacturing dominance. Some economists have opined that as much as 40% of recent GDP growth has been “financial speculation.

[InToWishin]

$this->bbcode_second_pass_quote('MonteQuest', 'W')ell, most of us here at peakoil.com see a huge future in renewable energy, but with oil at $35 bucks a barrel, it is going to take a lot of govt subsidy to blow that bubble.

[cube]

I once had a debate with someone in which my position was absolutely ironclad:
"The average person (aka most people) will NOT make money through investments. A person may get lucky for 1 year, maybe even for 5 years but in the long run they will NOT make money."
Another person disagreed with me and this was years ago before the stock market crashed.
At the time I honestly cannot say I made a sufficiently good argument to actually "win" the debate but that's perfectly fine with me.

[BlueGhostNo2]

Dunno cube, the average person in my friend circle doesn't play stocks only saves into a bank account. Now that person will make money through investing, what they won't do is gain value!

[Tanada]

Financial bubbles are nothing new, look up the Dutch Tulip Craze of the 17th Century if you don't want to take my word at face value.

LINK 1

Link 2

13,098 more leads here

[Quinny]

Never like West Ham and the fact their main song was never matched by results resulted in their Icelandic demise.

Apart from that Merry Xmas to all. Monte & RE have it right in my eyes.

Although some say the recent economic disasters have no link to Peak Oil, I believe they are the direct result of there being nowhere to go for the Capitalist growth ethic in a worls of 'Peak Resources'.

I fear the only bubble now will be in the shares of Funeral Directors

[patience]

I read somewhere that the only NEW wealth in the world is that produced by fishing, forestry, mining, and agriculture each year. If that be true, and there are to be no more bubbles, then the sum of those producers will be our "budget" in the future. With each of those 4 sectors having depletion issues, we have a declining income, the basis, I think of the case for dieoff.

Until rather recently, the basis of real wealth was the ownership of land. Serfs to work that land were always available. Do we have a case then, for a return to feudalism? Possibly with at least a few "freeholders", who will have to constantly battle TPTB to maintain their status.

[MonteQuest]

$this->bbcode_second_pass_quote('InToWishin', '')$this->bbcode_second_pass_quote('MonteQuest', 'W')ell, most of us here at peakoil.com see a huge future in renewable energy, but with oil at $35 bucks a barrel, it is going to take a lot of govt subsidy to blow that bubble.

[MonteQuest]

$this->bbcode_second_pass_quote('patience', ' ') If that be true, and there are to be no more bubbles, then the sum of those producers will be our "budget" in the future.

[ReverseEngineer]

$this->bbcode_second_pass_quote('patience', '
')
Until rather recently, the basis of real wealth was the ownership of land. Serfs to work that land were always available. Do we have a case then, for a return to feudalism? Possibly with at least a few "freeholders", who will have to constantly battle TPTB to maintain their status.

[Ayoob]

$this->bbcode_second_pass_quote('patience', 'I') read somewhere that the only NEW wealth in the world is that produced by fishing, forestry, mining, and agriculture each year. If that be true, and there are to be no more bubbles, then the sum of those producers will be our "budget" in the future. With each of those 4 sectors having depletion issues, we have a declining income, the basis, I think of the case for dieoff.

Until rather recently, the basis of real wealth was the ownership of land. Serfs to work that land were always available. Do we have a case then, for a return to feudalism? Possibly with at least a few "freeholders", who will have to constantly battle TPTB to maintain their status.

[patience]

Fishing can be included in with another if you wish, but manufacturing doesn't create anything new-it only changes its' form, so it is a value-added activity. Same as making flour from wheat-the wheat is a new resource, the flour is only wheat that has been "value added". At least that's what my Econ teacher said.

The problem of budgetting remains, however we count the inputs, which are pretty much limited. It appears that we have pushed about far enough to find out where those limits are, so with that answered, the choices we haave are narrowed to what we will do with the little we have left? Let's hope that we deal with it wisely.

[patience]

Adding value to a commodity is a matter of adding energy to it in some way or other, so as we hit the limits of energy use, this too is constrained. I see the future being defined by how well we apply the energy we have available to us. From our track record as a society, this doesn't look too good. It's a paradigm change from, "how much energy CAN we add to make something most useful, over to, "how much energy MUST we add to make it useful." We have little experience at that, since energy has been so cheap for so long.

For myself, it means exploiting what renewable energy resources are available to me in the most economical means possible. The list is short. Direct passive solar heat, solar PV, wood for heat, small amounts of coal, and animal power are about it for our area. YMMV. The limits on these sources total dramatically less than what we commonly use now. I can live with this, but I question the ability of the masses to do so.

[ReverseEngineer]

$this->bbcode_second_pass_quote('patience', '
')For myself, it means exploiting what renewable energy resources are available to me in the most economical means possible. The list is short. Direct passive solar heat, solar PV, wood for heat, small amounts of coal, and animal power are about it for our area. YMMV. The limits on these sources total dramatically less than what we commonly use now. I can live with this, but I question the ability of the masses to do so.

[InToWishin]

$this->bbcode_second_pass_quote('patience', 's')olar PV

[MonteQuest]

Yesterday, a friend of mine I was talking to about the next bubble, asked. " Why do we need another bubble, again?”

I responded, “Because the economy cannot grow fast enough in real terms to redeem the debt financial speculation in toxic assets created. That debt was financial instruments being traded, not the purchase of real goods and services.”

In other words, no one is willing to swap real present wealth for financial speculation debt even with a high return because that debt is worth much less.

The following is a quote from a summary of a seminar taught at MIT by M. King Hubbert in 1981:

“The world's present industrial civilization is handicapped by the coexistence of two universal, overlapping, and incompatible intellectual systems: the accumulated knowledge of the last four centuries of the properties and interrelationships of matter and energy; and the associated monetary culture which has evolved from folkways of prehistoric origin. The first of these two systems has been responsible for the spectacular rise, principally during the last two centuries, of the present industrial system and is essential for its continuance. The second, an inheritance from the pre-scientific past, operates by rules of its own having little in common with those of the matter-energy system. Nevertheless, the monetary system, by means of a loose coupling, exercises a general control over the matter-energy system upon which it is superimposed. Despite their inherent incompatibilities, these two systems during the last two centuries have had one fundamental characteristic in common, namely exponential growth, which has made a reasonably stable coexistence possible. But, for various reasons, it is impossible for the matter-energy system to sustain exponential growth for more than a few tens of doublings, and this phase is by now almost over. The monetary system has no such constraints, and, according to one of its most fundamental rules, it must continue to grow by compound interest. “

Debts have to be paid back out of future real growth, thus, the need for bubbles of financial speculation based upon ever more spurious “bundles of assets” to keep up the illusion we are growing richer.

There is no “market price” for these toxic assets and pricing them is, at best, a guess. That’s why banks won’t lend to each other; there is a repudiation of this unredeemable debt they all hold.

The FED will buy some of this toxic paper, and then sell it into the market place later to withdraw the excess liquidity once inflation gets underway.

Good luck with that move, Ben.