Thursday, June 12, 2008

Nothing is certain... but...

There is no guarantee of anything.  Oil prices could go down, and oil supplies could go up.  Anything is possible - though I doubt this scenario in the extreme.

So let us play a little "What If", shall we?

"What If" my contention that Oil imports into the U.S. decline by 5 % to 15 % for the next 12 years until oil imports are only coming in from Canada, and; domestic production continues to decline at 2 % to 3% per year until there is NO MORE (I will be long dead when the NO MORE comes to pass, but I will be here during the worst of the impacts from the decline)?  What if...?

If so, this year will be better economically than next year, and next year will be better than the year after, and so on.... and I would think this process continues until the imports stop and many adjustments have been made.  So this year's crummy economy is going to be remembered fondly.

If so, the number of transaction in the Real Estate market will fall, continuously, for many years.  Every divorce, job loss, or illness will end up in a foreclosure or a tax sale - as the homeowner will not be able to SELL the home.  The effects on the banking industry and the U.S. $ is sure.  Neither survives and a new system and currency would need to be reconstituted. 

If so, the unemployment issuing from the Home Depot's, home builders, appliance retailers and manufacturers, to the landscape folks would overwhelm any government sponsored program.  Please reread the above paragraph again on job loss and foreclosure.

If so, the number of new cars sold would plummet to essentially Zero.  Auto supply, repair, maintenance, etc... is a HUGE portion of the U.S. economy.  The dislocations will be surreal.  The unemployment issuing from the sector would overwhelm any government sponsored program.  Please reread the paragraph above the previous paragraph yet again on job loss and foreclosure.

Retailers?  Dentists? Real Estate & Insurance Brokers? The Local Deli?  Just shake and repeat.

The number of homes that actually SELL will decline from now on.  For the most part, where ever you are now is where you are going to be.  At some point the banks will stop foreclosing, and that will be the end of the story.  $11 trillion or so in mortgage debt will have no value.

The collapse will come from the banking system, which creates money in our economy.  The political and social repercussions of such an outcome I will leave for you to imagine.

And if my "What If?" comes to pass,  I don't see how the mortgage market initiated banking collapse does not destroy the value of the U.S. $ COMPLETELY, and since ALL of the import/export data for oil supports the "What If", I think you have to take this seriously, really seriously.

So, for the next couple of posts, I am going to put up some numbers and link my sources, sort of like a "peer review".  PLEASE!  Find holes in my assertions!  If my analysis is incorrect, by all means - SHOW ME WHERE I ERRED - but please don't give me the usual Wall Street salesman's brushoff of "I just don't believe it".  BELIEF is not a legitimate analytical tool.

Back to you soon.

Mentatt (at) yahoo (d0t com  



14 comments:

Unknown said...

What are you gonna do if this unfold like your scenario

Anonymous said...

This member of the blogosphere thinks your unfolding scenario is all too plausable. Geological facts are easy to predict, while the actions of the Feds and central banks aren't. Yet, fiat money has always collapsed in the past, and it seems this will hold true for the future no matter how TPTB juice the markets. A happy, shiny future for Homo sapiens-NOT.

Monkeymind

A Quaker in a Strange Land said...

I will get to the what I am going to do shortly (I have already done it). Any hard data you think I should see please email me.

Greg

Mayberry said...

The only flaw I see is in your time table. I think oil will essentially "run out" in our lifetime (unless you're 60 or more). I also think the financial collapse will be pretty much be complete in the next 5 years or less. It is already having a big impact on Average Joe, and the dominoes have started to fall....

Andrew said...

Bear in mind that if the banks fail and the dollar collapses, oil pumping will come to a halt too. I can't see any way that companies will be able to keep operations going in the US - or anywhere for that matter that doesn't give them access to credit & a stable currency.

If that's true, once things start to go down this road the energy situation would rapidly worsen & the problems would compound.

I don't live in the US & can only go off what I read (which is a lot), and I've come to the same conclusions you have. Europe & Britain are in trouble too, and Asia's economies are too immature and volatile to survive without healthy western economies with which to trade.

In Australia (where I am) everything still seems just peachy, except for rising fuel costs & a high interest rate regime, plus a serious case of "Dutch disease" killing what's left of our manufacturing sector.

If all this comes to pass, governments everywhere will be overwhelmed as you've pointed out. What then happens to "law and order"? If you've bought, say, some nice rural property on which to attempt a sustainable lifestyle, what's to stop it being overrun by the hungry and desperate when all semblance of normalcy is gone?

Mayberry said...

"what's to stop it being overrun by the hungry and desperate when all semblance of normalcy is gone?"

Guns. And a few good friends and family to man them.

Andrew said...

If guns are the answer I'm picturing a world with small hideouts manned by red-eyed farmers with a hoe in one hand and a pistol in the other, while outside the walls are hordes of starving enemies who are to be shot on sight. Not to mention the fact that if the farmers have guns the lawless will too.

Sorry, I can't see that being any kind of answer.

Besides, don't forget you have to sleep sometime.

A Quaker in a Strange Land said...

Mayberry,

I believe that the probability for a banking collapse in the next 5 years is a NEAR certainty. But I am going to lay it out a page at a time, and take in alot of feedback to see what others might think, too. I received many emails with some good stuff, (and a few pointless emails too).

A Quaker in a Strange Land said...

Andrew:

I gotta be careful when I say "collapse". I don't mean the $ goes to zero, nor that their will be NO BANKING SYSTEM LEFT.

I consider a long term jam up in the credit markets a banking collapse, with plenty of bank failures the time frame for which could last as long as a decade before the final nails are put in the coffin.

I define a $ collapse as a decline in purchasing power of the $, from here, of more than 50%. BELIEVE ME, that will be enough to convince you too. The $ will still exist for some time thereafter as the government will want its taxes paid in that currency - until it doesn't.

A Quaker in a Strange Land said...

Finally,

I do not define collapse as a breakdown of society! We will all have out hands full as it is! Lighten up, guys, I am talking market, banking, currency collapse.

Remember, the Soviet Union collapsed and people were not shooting each other in the streets.

Oh, and BTW, the U.S. has NOT collapsed and people are shot in the street everyday here.

Andrew said...

Hehe, good points Greg :) Its all too easy to imagine the worst!

Re what I was saying with oil supply - its not necessary for banks to collapse etc for there to be problems. Like any other industry they need to be able to borrow money to finance new explorations, upgrades of equipment and the like. If credit is difficult to come by then it'd have to have an effect.

Anonymous said...

Speaking of the Soviet Collapse, Dimitri Orlov lived through the Soviet Collapse and has written a book on the subject comparing the Soviet Collapse to the American Collapse. He posted excerpts on his blog, including the 5 stages of collapse, which I cut and pasted below:

Stage 1: Financial collapse. Faith in "business as usual" is lost. The future is no longer assumed resemble the past in any way that allows risk to be assessed and financial assets to be guaranteed. Financial institutions become insolvent; savings are wiped out, and access to capital is lost.

Stage 2: Commercial collapse. Faith that "the market shall provide" is lost. Money is devalued and/or becomes scarce, commodities are hoarded, import and retail chains break down, and widespread shortages of survival necessities become the norm.

Stage 3: Political collapse. Faith that "the government will take care of you" is lost. As official attempts to mitigate widespread loss of access to commercial sources of survival necessities fail to make a difference, the political establishment loses legitimacy and relevance.

Stage 4: Social collapse. Faith that "your people will take care of you" is lost, as local social institutions, be they charities or other groups that rush in to fill the power vacuum run out of resources or fail through internal conflict.

Stage 5: Cultural collapse. Faith in the goodness of humanity is lost. People lose their capacity for "kindness, generosity, consideration, affection, honesty, hospitality, compassion, charity" (Turnbull, The Mountain People). Families disband and compete as individuals for scarce resources. The new motto becomes "May you die today so that I die tomorrow" (Solzhenitsyn, The Gulag Archipelago). There may even be some cannibalism.

Orlov said the Soviet Collapse got to level 3 before rebounding.

ZMan

Donal Lang said...

If there is any 'good' news in this, it is that the collapse of the American economy and the dollar will mean rapid demand-destruction in the oil market, because American use 25% of the oil. At the same time the high oil price will reduce expansion of demand in the rest of the world, especially India and possibly China. This doesn't help Americans much, but could reduce the long-term impact on Europe.

Also bear in mind that France gets 80% of its electricity from nuclear, Germany and Holland have made huge investments in wind power, and all of Europe is connected with an excellent electric rail system.

And most people over here DON'T own guns!

All in all, I'm glad I'm in Europe!

Anonymous said...

The geologic realities of peak oil are now nearly certain. There are no more Saudi Arabias waiting to be discovered. They might get production up over 10 million a day for a short time, but they are now relying on heavy oil, offshore fields, and fields they abandoned 20 years ago and have redeveloped at huge cost. Look at what they are doing -- then listen to what they are saying. There is no other Ghawar - the king of kings pumping 5 million a day for 40 years -- still out there. They talk about saving oil for the next generation. Meanwhile more and more exporting countries hit the peak and begin to decline -- soon to be hungry consumers at a shrinking banquet. Mexico is about to join the hungry.

So, will it be bad? Yes. Will it cause upheaval? Yes. Will society break down? No. It will change. We're not going to go back into the dark ages. We'll still have technological and manufacturing capabilities. We'll have much less power and it will be used much more efficiently. Populations will fall around the world, but I don't think because of war and revolution. There will be less healthcare. People will die naturally for the most part -- earlier and infant mortality will rise again. For all of you that think America will turn into a dust bin, think again. We have amazing hydro, wind and solar capabilities. We have more wind power generation here in Texas now than Germany. We have low population density to arable land and widely diverse agricultural areas. We are the world's largest producer of grain and while that will fall, we'll also be producing lots of food in small family plots and community gardens. Our coal resources and gas resources are significant and, while we won't produce nearly enough to keep things as they are, we can produce for a long time and dedicate that energy to focused manufacturing efforts. We will once again make and invent things and work together. Maybe, just maybe, we'll all be better in a smaller, more sustainable an more local future. We certainly won't be threatening to or be threatened people around the world after most forms of air transport stop and armies become hugely inefficient and wasteful things. Ships will still ply the sea, but mostly by sail. Trains will certainly run and carry heavy freight and people, but they may be steam powered and run on coal or wood again. Boats will follow the rivers as they have for more freight, but the highway system will certainly decay.