The Tyranny of Distance, III

The Oil Conundrum is doing its thing, reasonably on schedule.

The Leftist Media and the tenured political operatives would have you believe that Shale Oil & Gas has solved the energy issue for Americans and Westerners in general, and y'all can go back to going into massive debt for your education, homes, cars, vacations, cosmetic surgeries...

I always like to go to the video tape. When the end of "Peak Oil" was declared because of massive increases in domestic production in the U.S. I went and had a long look at the stock price behavior and earnings of the companies that should benefit from any such outcome. Low and behold, the market didn't think much of "Tight" Oil & Gas.

This was confirmed by the earnings reports from Big Oil last quarter. I mentioned this as being a highly likely outcome in a post back in March, 2013.

What has really caught me by surprise is how well "the rich" have made out in the midst of all of this. I underestimated the Federal Reserve and the U.S. Treasury. Shame on me. The impact of zero interest rates on the liability side of the balance sheets of the 1% combined with the impact of QE 1, 2, 3, etc... on the asset side of the balance sheet of the 1% has brought the 1% through this relatively unscathed for now.

Of course, private demand contracted, and with it the labor participation rate, pretty much in line with total vehicle miles driven. It is still fun to watch the mainstream press go through their gyrations to explain the decline in driving.

I wrote this post back in November of 2006, nearly 6 years ago. While "the rich" can handle $100 per tankful gasoline, the 99% cannot. A 2 car family earning the American median family income of $52,762 must accept, or are being forced to accept, the realities of the "Tyranny of Distance". People earning $15 per hour, TWICE the minimum wage, simply cannot spend $1000 per month in total automobile costs. Unfortunately, our "typical"American two-income family needs 2 cars for those 2 (or more) jobs. Given the realities of child care and total auto expenses, the jig is up: The two income family for the 99% is kaput. Notice I said "family". The response has been to give up having kids - the American fertility rate of 63 children per 1000 women between the ages of 16 and 44 is a new all time low. The Media beat itself senseless trying to paint this as the bottom. Maybe. That remains to be seen. We have created an economic system here in America in which raising children without overwhelming inputs from the State is nearly impossible for the majority of the population.

How did this happen in a nation with 80% of the population living in an "urban" environment? (Wasn't urbanization the answer?)

Well, that's a good question with a very complicated, multi-part answer. In short, politics.

(Have you been following the "Naval Academy rape case"? How is it possible for a woman to drink too much, get into a car, drive the car, and be a criminal... but if that same woman has too much to drink, gets into a car, performs oral sex on a man... she is a victim of rape? How is it that she is capable of making a culpable decision to drive BUT NOT for performing oral sex? In what universe does that make sense? Can anybody make ANY sense out of that one? Welcome to the politics of the Feminist Left and their cohorts in the Education/Industrial Complex.)

It will be interesting to see how this all plays out. I sincerely doubt that the bottom half of the American income pool can afford higher Oil prices. Oil has become elastic for them at the volumes they consume Oil at these prices. I doubt that that is the case for the Chinese or Pacific Rim Oil consumer. It will be interesting to see if demand destruction curbs production (and prices) at the margin (Tight Oil) or if prices will continue higher. The price curve for Oil is in serious backwardation. I haven't seen $25+ backwardation since 2008... and we all know what happened then.

Which is why America is about to engage in another Act of War on a Middle East nation. Our government does not give a good fart about 400 dead children gassed in Syria. There are millions of starving children around the world we could be feeding. No, what we give a good fart about is not letting unrest spread to Saudi Arabia. That's it. That is our entire Middle East strategy. Now, I have no idea how our government arrived at the idea that launching cruise missiles at Syria is going to help with that strategy. Frankly, I don't know what any elected official is thinking of besides their next election (but its the lobbyist/regulator/security apparatus folks that scare the sh#! out of me in any event). Yet here we are, with a completely de-stablized Iraq, a de-stablized Af-stan, a de-stablized Libya, a de-stablized Syria... you get the idea.

An Arabia without the "Saudi" is not unfathomable. The impacts to the West are.