In the Zone

      The fiasco in real estate and mortgage lending seems finally to be breaking through the reality shield of the mainstream media. Last week, for example, NPR's nightly Marketplace show actually ran a segment saying that the production homebuilders were choking on unsold houses and that (as if NPR had just discovered this) the mortgage industry was rife with irregularities in lending standards! And that this seems to have led to a lot of mischief! And that it may actually have repercussions throughout the financial sector and maybe even the economy in general! Golly!

     It's been a long slog for the dullards at NPR, and elsewhere in the mainstream media.

      Meanwhile, also last week, the General Accounting Office came out with a report last week that acknowledges some problems ahead on the world energy scene -- oil in particular -- with possible adverse implications for the US. It's the first time that any responsible party in the executive branch has acknowledged the situation, but the tenor of the report was -- how shall I say -- fucking unbelievably stupid and craven -- insofar as it suggested global oil could top out somewhere around the year 2030 (possibly sooner!). The poor grinds in the GAO didn't want to stick their necks out too far on that one.

     Independent researchers studying the global oil situation -- including retired geologists for major oil companies -- have established a pretty firm consensus that we are already in the zone of the global oil production peak -- meaning that whether we are just past, passing now, or passing imminently, the effects are already thundering through the complex systems we depend on to maintain advanced industrial societies. For instance, the crashing of Mexico's Cantarell oil field (60 percent of Mexico's production) means that inside of five years the US will receive no more imports from what has been its third leading source. Being in the zone means that the world's oil exporters in the aggregate will see their exports drop seven to eight percent this year -- because nations like Saudi Arabia, Iran, Venezuela, and even Norway are using more of their own oil and have less to send out. Being in the zone means that new pricing arrangements will be made, taking the power away from the spot futures markets in New York and London, and shifting that power to long-term deals made by nationalized producers like Russia and Iran, who may decide to embargo consuming nations who don't dance to their tune. Being in the zone means that people in poorer nations will starve because so much of the corn grown in North America will go to ethanol distilleries instead of the dirt-floor kitchens in the Third World.

     The more interesting point in all this, for the moment, is that the media has still not put together the collapse of the housing bubble and the permanent oil crisis. These events will be happening simultaneously. The housing industry, so-called, will never recover because the oil crisis spells the end of the suburban build out. The cycle is over. The big production homebuilders will go down and never come back. We won't need any more retail, either. We won't be building anymore WalMarts and Target stores, and the thousands now running will die off just as the giant Baluchitherium of the Asian steppes crapped out in the early Miocene epoch.

      The end of the suburban build-out will be a stupendous trauma for the United States because, unfortunately, we have made it the basis of our economy for a generation, as well as our living arrangement. Not only will incomes and livelihoods be lost on the grand scale, and never come back, but, as the global oil predicament deepens, the existing fabric of our vast suburbs will become increasingly useless and worthless. The people stuck in them will lose whatever wealth they have accumulated and our arrangements for daily life will become increasingly nightmarish.
This is the part of the story that the mainstream media still can't put together. Peak oil and the housing bust are a mutually-reinforcing clusterfuck.

Comments

[Tony]

So why CAN'T the (mainstream) media put any of this together. They seem to revel in bringing us every other form of bad news possible. So, why not THIS particular form of bad news. I suspect it's exactly the same reason the politicians can't/won't discuss any of this; there is no viable solution, and opening that can of worms just ends their own political career.

With this type of pervasive mentality about these problems I'm afraid the "dieoff" option is the only one that we are going to see come to fruition.

[greenbeans]

Great job, Jim, connecting Peak Oil and the end of the suburban build-out.

Too bad the optimal time to address these issues was about thirty years ago. Oh wait, you did deal with the suburban housing debacle back then, in an article you wrote for Rolling Stone, if memory serves me!

[Saint Bif]

JHK says it all this week. On the money. Also on NPR's Marketplace show last night, weekly stockbroker guest David Johnson, described the jitteriness of trading last week as it was like rumors and freakouts about Iran, and that crude oil could go to $100/bbl in the blink of an eye. A dark comment that was eerily different from his usual happy-go-lucky chat. He sounded genuinely bummed.

[Scott]

Yes the housing bust is directly related to global energy constraints, without growth in available energy consumption there can be no secular growth in housing or anything else.

The problem is that once it is widely reported that there is an intractable energy problem it will be to late.

[nipple]

still....... looking on the bright side, there are far to many of us human cockroaches and a good cull is just a natural result. Mother nature will be obeyed!

[anonymous]

Two small corrections. GAO is not part of the executive branch. It's part of the legislative branch.

And it changed its name to Government Accountability Office.

[Joh Padgett]

Dystopia anyone? I'm already prepared for it though, I already live in an urban neighborhood where the housing stock is in varying rates of decay and renovation at the same time, sometimes next door to each other. I live less than 3 miles from the city center, along a major mass transit route in a city trying to rework its public transport system into something usable.

I already stopped driving and have reoriented my lifestyle to more home based pursuits and interests, which will be necessary for all when the current Drug War we are engaged in is officially recognized as the Second Civil War that it has become and it spills into open warfare between urban militias, cops and military ala Baghdad right now. The real reason we are in Iraq? Urban combat training for Americans for the not too distant future at home when the Peak Oil and Suburban Implosions dawn on Ken and Barbie in the McMansions.

[Laura Louzader]

Being "in the zone" also means that many millions of American citizens will starve, including millions who are now middle-class.

It will take twice as much land to grow half as much food, at least, and food for everyone will compete with ethonal and biomass for the lucky few still able to afford their cars.

Given how deeply undemocratic and top-heavy this country has become since 1980, it is no problem to figure out that ethonal for the rich will beat out food for the 70% who will be fighting to remain above the poverty level...

.... and will likely include me and almost everyone I know, including some who are now pretty prosperous, but whose prosperity is based on industries and instruments that will be non-existant and/or valueless.

Tens of millions of new economic losers will be created, and there will be no social safety nets to catch us as we fall.

Will all the stranded suburbanites pile into the cities, and add to the population of guns and desperate people? Or will they head for all the small towns and disrupt life in those places?

We all wish it could happen in someone else's lifetime. A person is torn by the prudent urge to pile up on blankets, coats, and rugged shoes,plus all the dried fruit and cereal you can store, and go down into the smallest and most efficient dwelling available, while feeling an equally compelling urge to pile up on genuine, non-fuel-consuming luxuries (books, silver, oriental rugs, silk clothes) while those are to be had.

[Dr.Doom]

Bummers, Jim, it's like, all this talk of Peak Oil and Housing and Stock Market Crashes, and on and on, food riots, massive unemployment, closed gas stations, supermarkets, etc., etc. Why, it's really spoiling all my plans!

Seriously, we will be in critical need of some genuine national political leadership soon. Maybe too soon for the 2008 elections. We need another FDR, but what we have is far worse than Hoover. I think it will be recorded by history as yet another tragic mistake that Pelosi and the democrats did not pursue wholesale impeachment of the president and vice president asap.

[auscanman]

Great post this week Jim. The imminent Iran war will exacerbate and quicken both the imploding suburban housing market and the energy issue. With the oil price spikes we'd likely see to $100+, suburbia could become unviable within months, rather than the 10 years or so I suspect it would otherwise take.

It may work out to be better if we go into a major, devastating shock quickly, since suburbia and profligate energy consumption would both end at that point, never to be resuscitated. We might even see a paradigm shift from the consumabot trance we're in now. In a gradual decay scenario I could see suburbanites clinging to their lifestyle, and the gov. they elect probably engaging in disastrous, resource consuming projects to try to retain suburbia.

[asoka]

I want to see some evidence outside of this blog that things are changing. Go to any mall and you find people shopping like nothing is happening in peak oil and housing markets. Go to car lots and RV lots and you find sales are brisk (even for 11 miles a gallon RVs) as boomers going into retirement want to spend some time happy motoring, even at the same time gasoline where I live is now at US$3.50 a gallon.

In other words, no one at the WalMarts, KMarts, etc. seems worried... and the shopping spree continues.

[southwestguy]

"I want to see some evidence outside of this blog that things are changing."

I don't think the change is necessarily hitting people over the head in an obvious way. There are many cities where many malls are in advanced states of decay. Albuquerque, is one example, of a city with a sprawl "die-off" at either end of it's longest street, Central Avenue. On the west side, there are several large and basically dead malls. They are increasingly dangerous and known to be hangouts for gangs. I understand that this particular city stretch is also harder for cops to patrol as they are spread out geographically and on tighter budgets. I've seen similar dead zones in places like South Florida, Baltimore and even in relatively prosperous Seattle. So the malls you see people at are functioning but many are not.

As for the shopping phenomena, I think much of this can be explained by the credit bubble creating the now flopping housing booms around the country. I know many people who are shopping away still while running up higher and higher tabs on their plastic. Many of these same people are looking at the end of the shopping spree when they start foreclosing on their "equity" in the next few years.

Why doesn't the media connect the dots? I think their are a variety of reasons. One reason for simply putting their heads in the sand is pure profit. Real Estate ads, for example, make up an enormous percentage of most paper's revenue. You want to alert everyone that the giant new stretch of McMansions going up (aka as future newspaper subscribers) are really overbuilt and wildly inflated in value? Probably not. There was no place more delusional than South Florida a year and half ago. Papers continued to tout the boom while a few questions about basic economics should have raised some eyebrows.

This last week there was an article in the NY Times about people who had purchased modest homes in the NJ area. Many were trying to maintain their lives on 2-3 jobs/household. Many aren't going to make it.

Another story was out there that there is a study that shows that it takes a %20 increase in gas prices to result it a 6% drop in consumption. This is bad news but shows that the pain to change ratio is pretty high to get your average American to do things differently despite the evidence.

The stories are out there but it is a complex economic situation and not always easy (or palatable) for people to digest.

[Laura Louzader]

The media doesn't connect the dots because most media people are trained for reportage, pure and simple. Real journalists try to make the connections, try to make sense, but most people writing the news blurbs on a daily basis take what they're told at face value.

Also, I detect that our media leaders, like our pols and bureaucrats, are in extreme denial, as are members of the general population who are reasonable intelligent and can tell that nothing is adding up, but can't face the truth.

I increasingly can't face it, either. It's too ugly. The coming of the end of the oil age will make the Great Depression look like a mild downturn compared. We only had about 140 million people then, and we were not nearly so car-dependent, and had plenty of natural resources including oil, fresh water, and arable land.

We also had a degree of social cohesion and order it's hard to imagine now. I live in a building built in the 20s, and am amazed that people built places with windows over stair landings- so easy to bust into!!-and think, yes, there was a time when public safety was taken for granted and when you built a house or apt building you didn't first think of ways to keep the criminal element out of it. No one then could have imagined the corrosive insecurity we have lived with since the early 60s. No one born since 1960 can imagine the days when, on hot summer nights, every one on the lakefront of Chicago went to the beach to sleep. They didn't have air conditioning then, but they could sleep on a public beach, or in their own back yards, or on the side of the road, with no fear.

We will be needing that kind of trust and cohesion in the years ahead. Will we of the Post-WW2 generations be able to build what we never knew? We had few examples growing up, unless we grew up in these old city neighborhoods that somehow remained intact through that period. People who spent their lives in post-war burbs have no notion of how an old-fashioned city neighborhood or small town worked and hung together.

[Joh Padgett]

I think the evidence of the collapse of our economy is all around us. In every major city in America there are dead big box retail buildings which are like blighted anchors in many suburban areas. Here in Indianapolis, we have two majorly depressed areas of the city where the city officials have created special property tax breaks for anyone willing to reuse these abandoned big box buildings. One entire corridor along the primary east-west artery from the county line halfway to downtown on the east side of the city has been designated an economic development corridor with even more incentives where a slew of retailers have abandoned big boxes and strip malls along US40.

And look at the store closing announcements from major department stores and the mergers taking place. Sears swallows up KMart and no one seems to think thats a significant development. A Sears or a KMart store serve as anchor tenants in many strip malls around the country, what happens to those malls when their anchor closes? The evidence is plenty, maybe not at the WalMart outlet or the Target outlet, but definitely at their competitors' locations things have slowed down plenty.

[Blinddog]

Not to mention the millions of illegal aliens that the government has allowed to be imported to build all of those suburbs...

[Kickaha]

I just finished "The Long Emergency" and even though I'm dubious about worst of Kunstler's predictions, he's a hell of lot closer than the cutesy-wutsey fuzz-bunny stories that the MSM spews out. And he was spot on with his predictions of the current mortgage crisis--at least three freaking years ago.

After an attack on Iran and/or a strong hurricane stomping through the Gulf of Mexico in the next few months, the American economy to count on that final kick to the balls to bring it gasping to its knees.

I'm really glad that I live in a century-old house that was built for a world without modern heating and cooling.

[German Mike]

Right on JHK. Pretty accurate desciption on the state of affairs. PO or not, the demand is robust and supply seems to be constant over the last 2 years.
...but still no one is worried in LaLa Land. "The sub-prime mess is contained and the economic outlook is fabulous. Nothing to see, nothing to worry people. Get on with your spending spree." It will be interesting to see how the blame game plays out once the average numb nuts & MSM catch on.
If the Iran situation deteriorates any further we'll be in for a very hot summer...especially without AC. ....I just bought that new Navigator...hell. Still makes for a decent storage building or basic accomodation once I'll lose my house in foreclosure ;-)

[ross]

Asoka, In the worst spirit of American denial, the dip buyers (about as unintentional yet rich a pun as ever was devised) rush in where angels fear to tread. My guess is when this wave of "dip buyers" get burned in places like Phoenix, you will see what it is you think you ought to be seeing now. In the meantime, even though (as many have pointed out here already) the evidence of deterioration is all around us, for many, the mantra remains "party on."

http://www.azcentral.com/news/articles/0331newbuilders0331.html

[Doug]

NPR won't mention or cover "peak oil" because they are underwritten my Archer Daniels Midland among other multi-national corporations inluding.....Wal-Mart.

[lise]

"WalMarts and Target stores, and the thousands now running will die off just as the giant Baluchitherium of the Asian steppes crapped out in the early Miocene epoch". I liked the comparison of Walmarts to a prehistoric animal. The prehistoric animal lived much, much longer than Walmart will.

[asoka]

I have seen the rust belt and I have seen economically depressed areas since I traveled around the USA in the 1960's. Is this related to peak oil?

When the big box stores die off, will that mean a resurgence of the little variety stores the box stores killed off? The Woolworths, W.T. Grant, J.J. Newberry's, McCrory's, Kresge, McClellan's, and Ben Franklin Stores?

Are we looking at a cyclical phenomena rather than at a catastrophic, apocalyptic end of civilization as we have known it?

I think I remember reading on this very blog (back when gasoline was closer to $2.00 a gallon) that when gasoline reaches $4.00 a gallon the trucking industry and, by extension, the whole economy, would come collapsing to the ground. Well, we are now at, and in some places above, $4.00 a gallon. And life goes on...

[Brit Wop]

Put a frog in a dish of water and apply the heat and you can watch the frog allow itself to be boiled alive (I am told). The change in temperature is too slow for it to become aware of the dangerous situation it faces. But put a frog into a dish of moderately hot water and the shock will make it leap out of the dish.

JHK complains that the media are not linking Peak Oil and the Great Housing Collapse in America. (It's not happening over here in Europe - yet). The fact is that the media, the professional economists, the great bulk of the people, are simply not aware of the imminence or significance of Peak Oil. The point is, as JHK himself says, we have entered the zone: it is a slow decline; there has been no crash, no dramatic disappearance of fuel at the pumps, no sudden strangulation of the nerves and arteries of suburbia. Perhaps there will be a crah to awaken the world to the approaching disaster - perhaps quite soon if the Great and Glorious Leader decides to launch his thunderbolts against Iran; but for the moment, Peak Oil is not lodged in the public consciousness. Peak Oil doomsters pronouncing the imminence of disaster and the End of Western Civilisation as We Know It are as much heeded - less perhaps - as the fundamentalists and evangelicals promising the Apocalypse.

[asoka]

OK, I can relate to the concept of a "long emergency"... or a frog in warm water. In Hinduism the concept is even longer: The Kali Yuga is traditionally thought to last 432000 years.

We will all be dead before the long emergency finishes, before the frog water boils, and before Kali Yuga reverses. This is a calming thought.

[New York Hillbilly]

(from Asoka) "I think I remember reading on this very blog (back when gasoline was closer to $2.00 a gallon) that when gasoline reaches $4.00 a gallon the trucking industry and, by extension, the whole economy, would come collapsing to the ground. Well, we are now at, and in some places above, $4.00 a gallon. And life goes on..."
Up here in New york (with some of the highest fuel tax in the Nation) Diesel is still around 2.789, Nowheres Near $4.00!! Think it won't affect the Trcking Industry..
Think Again......125000 average miles per year, 5 mpg (average mpg class 8 trk) $3.00 gallon= $75,000 fuel cost....$4.00 gallon fuel= $100,000 fuel cost! $25,000 added cost is insignificant????? How would you like to have 25 or 30 trucks in your fleet?? or 100 or 200 trks??? think this cost won't get passed to the consumer.. If you don't You'd better wake up!

[Jerry Johnson]

asoka, the rust belt is directly attributable to peak oil in the US. Once the US became a net importer Nixon had to abandon the international gold standard and jettison what else was left of Brtetton Woods. Oil peaked in 1970 and by late 1971, the tiny US balance of payments deficit was not supportable by gold settlement.

Nixon and Kissinger created the Petrodollar financed by US Treasuries held by foreign nations as long term static investments. This system demanded a strong dollar thus cheapening the entry value of foreign goods and making US exports very expensive. The vast hit to the rust belt and US manufacturing decline soon followed.

The Japanese pursue a cheap yen to support their manufacturing. They will even lend yen at zero interest to do so.

Want to see our manufacturing come back big, devalue the dollar 75%. That would raise imports entry cost in dollars by about 400 % . Retailers would be required to eat the bulk of the increase, especially ersatz imports like designer clothes in upscale stores. Most stores would not make it because their markups would shrink. They would be in somewhat same spot as the American manufacturers were during the seventies and eighties. Probably just as moribund too from the shell shock.