Bill Totten's Weblog

Tuesday, April 03, 2007

In the Zone

by Jim Kunstler (April 02 2007)

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 (sixty 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.

Bill Totten


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