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alstry (36.17)

Economic Armageddon

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June 16, 2008 – Comments (9)

America's dependance on cheap oil may be one of the least understood vulnerabilities of our society.

No country in the world is as dependant  on cheap oil like we are.....it is the key support beam of our society and economic viability.

When people say look at Europe, they are paying $8 per gallon of gas, what are we complaining about....I think to myself have these idiots ever been to Europe?  In almost every country in the world, most of its population lives  near work or has access to public transportation to take them to work.

The average European Family consumes a fraction of the gas as the average American Family.  Therefore, higher gas prices has a much lower financial impact than the price differential would suggest. 

Our society is focused into suburbs with commuters often driving in excess of one hour each way to get to work.  We drive distances to shop and entertain ourselves.  Walking to the theatre or the store is almost non existant.  The entire socioeconomic functionality of America is built upon cheap fuel.

Not only that, we ship goods great distances within our country distributing products primarily by truck.  The amount of fuel America consumes per capita is simply unparalled to support our way of life. 

Therefore, no country in the would is as unprepared for high fuel costs like we are.  We have a very poor public transporation infastructure.  We live material distances from just about all of our activities.  Transporting goods for nationwide distribuiton is very fuel dependent.  Simply living our day to day existance forces many Americans to consume over a hundred gallons of gasoline per month.

Each time gas goes up $1 per gallon, it is like a $1200 tax just on usage of one's vehicle.  Then add in the extra costs for goods and services and we are looking at some pretty serious headwinds.

Niether Asia or Europe is burdened like we are by rising fuel prices.  Life is centered much more around the immediate community and public transporation.  As oil prices keep going up, or competitive advantage decreases further.  At some point, we simply shut down.  $4 per gallon gas, $5, $6, $7..... the drag is simply too heavy for our country to reasonably function.

Imagine, a nation perceived as the strongest power ever brought to its knees because its people, goods, and services can't afford to move......wow....think of all the money saved by not having to build up a big military effort to blow up our roads and bridges to accomplish the same end.

9 Comments – Post Your Own

#1) On June 17, 2008 at 12:28 AM, Imperial1964 (98.29) wrote:

But if we can't transport goods, much of the rest of the world can't eat. 

As fuel goes up, so does food.  We're better able to handle gas prices quadrupling than much of the world is at handling food prices quadrupling.

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#2) On June 17, 2008 at 2:31 AM, camistocks (< 20) wrote:

Well, the Spanish and French truckers disagree. They have gone on strike and are protesting against high fuel costs. In every European country fuel costs have become the main theme for governments.

One of the main problem is government subsidies for fuel in many third world countries, as it keeps demand artificially high. They are going to lower them soon. I wonder what that will do to the oil price... 

To the USA: since the US is a country of entrepreneurs, could it be that some smart people are going to open grocery stores in the suburbian neighborhoods? And restaurants? Where people only need to walk to or take the bicycle...

And as I have mentioned before, a new president could develop the infrastructure by building new public bus systems and modern commuter trains.

So the crisis means new chances, IMO. 

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#3) On June 17, 2008 at 7:07 AM, alstry (36.17) wrote:

Imperial, 

We export food....yes.  So do other countries like Brazil.  We also transport food great distances within our own country.  Food prices are going up all over the world....for everyone  Right now there is rioting over that issue in a number of countries.

The problem for America is food prices are rising rapidly and wages are stagnant or falling.  We can handle the higher prices right now better because are savings is higher...but once our savings runs out, we are in the same boat.

It is simply on a relative basis, higher fuel prices will deplete our savings faster than other countries bringing our standard of living down dramatically.

Cami,

Much of what you say is true....but the big issue for fuel consumption is distance driven to work...it is a structural issue that will need time to change.  The difficulties arise between now and then.

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#4) On June 17, 2008 at 8:02 AM, alstry (36.17) wrote:

Study: Health Costs to Rise Nearly 10 Percent- AP

June 16 (Bloomberg) -- Cattle futures rose to their highest in at least 22 years

Retail gasoline prices hold steady at $4.08 a gallon

 

The point is simple, how do we as a society function when our wages are stagnant or falling and the cost of everything around us is rising. 

For the past few years, the bridge was borrowing money as we had a negative savings rate....now banks are clamping down on lending.

Yes cutting back is necessary...but cutting back leads to lower wages exacerbating the downward spiral in income.

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#5) On June 17, 2008 at 2:07 PM, hansthered0 (< 20) wrote:

Is this where we put on our tin-foil hats?

Alstry, have you read James Howard Kunstler's blog? Sounds a lot like your posts.

http://www.kunstler.com/

http://www.kaliyasblogs.net/Tinfoilhat.jpg

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#6) On June 17, 2008 at 4:21 PM, alstry (36.17) wrote:

Its not about anything more than reporting the facts.  It is basic cash flow analysis.  If the cash coming in is not enough to meet the expenses, you must cut expenses.  If you can't cut expenses enough to meet cash inflow, you fail.

In America, our revenues coming in is shrinking and our cash going out is growing rapidly.  There is no way to reduce the massive amount of debt we accumulated over the past seven years.

Right now I see a bunch of individuals, businesses, and municipalities failing.

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#7) On June 17, 2008 at 6:16 PM, hansthered0 (< 20) wrote:

And you may be correct.

In many other cultures (Hispanic, Asian, Russian) it's more normal to live with your parents until you get married and to not purchase a home until you are married and out of college and can actually afford it. Or to live with your extended relatives (talk about an annoying money-saver).

I heard a news report the other day and they were talking about some differences in Germany as compared to the US.

I haven't ever been to Germany so I don't really know if this is true or not but basically they were saying if your house value went up 10% in Germany, life continues as normal. In america we go out and buy a new BBQ and a Boat. So it's no surprise that when home values fall out we are going to have to tighten our belts a bit.

This cultural entitlement mentality is killing us.

WAKE UP AMERICA!

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#8) On June 17, 2008 at 11:47 PM, DemonDoug (62.81) wrote:

alstry, i agree, and long-term, i think we'll be fine.  I believe that most cars will eventually be plug-in electrics or electric-gas hybrids... notice i didn't say gas electric.  what i mean by electric gas is the motor and drivetrain will be electric based, and there would be a small, 1-2 gallon fuel generator to recharge the battery for long distances.  Since a generator can run on any fuel, biodeisel or ethanol would become viable.

Also, the EROEI and ROI of algae-to-oil seems to be a very favorable option at this point.  Either way, we aren't going back to the era of coal-only for power, but i do believe that power options will be more diverse in the future, and probably overall more expensive, but we will adapt.

In the next 10-20 years however I wouldn't be surprised to see real severe pain like you are describing.

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#9) On June 18, 2008 at 12:22 AM, alstry (36.17) wrote:

Demon,

FWIW, I think the downturn is going to be much darker than most anticipate.....but I also don't think it will last too long....five years at the most....but I do think we could reach levels of distress that we have never experienced before.

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