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Peak Oil and the Housing Bubble!


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2006 Feb 6, 3:02am   12,054 views  98 comments

by San Francisco RENTER   ➕follow (0)   💰tip   ignore  

James Howard Kunstler has recently equated Peak Oil as a contributing factor to the decline of the Housing Bubble. In one of his Blog entries of a few weeks ago, he writes the following:

"You can only introduce so much perversity into an economic system before distortions cripple it. From 2001 through 2005, consumer spending and residential construction had together accounted for 90 percent of the total growth in GDP, while over two-fifths of all private sector jobs created since 2001 were in housing-related sectors, such as construction, real estate and mortgage brokering. Much of the money spent did not really exist except as credit -- incomes as yet unearned, hallucinated liquidity, wished-for wealth, all based on the expectation that house values would continue to rise at 10 to 20 percent a year forever. It became a reckless racket, all predicated on sustaining an economy that had lost its other means for generating wealth -- foremost its infrastructure for making things besides suburban houses.
This housing bubble economy represented, holistically speaking, the wish to maintain a sense of normality in American life, under conditions of disintegrating normality, and it is no symbolic accident that it centered on the images of hearth and home, because fundamental comforts were what many Americans actually stand to lose in a reality-based future. The decay of standards and norms in banking behavior applied-to-housing started, as in the case of the proverbial rotting dead fish, at the head, the federal reserve, and infected every lowly loan officer through the body until, in effect, lending standards ceased to exist.
The suburban housing bubble and its related activities were predicated on the idea that we could continue building out a living arrangement dependent on cheap oil and methane gas, and that all the subdivisions and strip malls would retain value for decades to come. Of course, this was the central delusion of the suburban sprawl economy, because it was obvious to anyone who gave the situation more than a cursory glance that cheap oil and gas were the things we were least likely to have in the decades to come.
This reality had begun to penetrate the American collective consciousness and will be represented in 2006 by millions of individual choices to not buy a new suburban house, either because the individuals fear the expense of long commutes or they fear the cost of heating a 4000 square foot house occupied by only a few people (or both). As the inventory of unsold new houses mounts up, the prices of all houses, new and old, will start to go down. There will be enormous psychological resistance to this reality, expressed in a lag of correct pricing, as the owners of these value-shedding "investments" wait for the bubble behavior (anticipated 10 t o20 percent asset appreciation) to return. Eventually they will get the picture.
The velocity of change in the housing bubble (and the psychology involved) will be greatly affected by oil and gas prices. It seemed to many of us watching the energy markets that the world may indeed have passed through its all-time oil production peak in 2005. Production in 2005 was nearly flat over 2004. The world was producing and also using roughly 82 million barrels of oil a day. "

So what do you all think? How real of a phenomenon do you think Peak Oil is and how much does it relate to the energy price spikes of this past year? Will it have a real effect on the housing bubble and is it indeed a harbinger of decline as Kunstler suggests above? Is it likely that we're on the path toward a lower-energy future? Is high-density centrally-located housing the wave of the future?

#housing

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45   Randy H   2006 Feb 6, 3:28pm  

Thanks PS. I thought some of the French experimental designs were also FBR reactors. I know I read something about the plutonium consumption aspect of these being an economic consideration in the French energy policy: they'll agree to dispose of the rest of Europe's nuclear waste in exchange for free plutonium fuel.

46   praetorian   2006 Feb 6, 3:29pm  

While nuclear is great for electricity, permit me some skepticism on the viability of electric vehicles, the long-term prospects for hybrid vehicles and the workability of the hydrogen automobile.

We have a clean burning, renewable liquid fuel that runs in engines that are 20 to 50% more efficient that todays gassers and that are so simple that an idiot like me can understand them. These engines are repairable with basic tools, have over 100 years of engineering behind them, and last for well over 300K miles of heavy use. Further, the fuel can use our existing distribution infrastructure.

I know, I know. Diesel just doesn't seem futuristic enough, does it? Maybe if we dressed it up. Called it hydrozryixtonium or something.

@Peter,Harm,SQT,Jack,etc: sorry for the extended lurking. Work.

Cheers,
prat

47   Randy H   2006 Feb 6, 3:41pm  

Praetorian,

I agree 100% on next-gen efficient Diesel. I think sometimes people get too hung up on "the sky is falling, buy a farm in Iowa" hysteria and they fail to realize that marginal improvements in efficiency through technologies like Diesel combustion engines will yield enormous economic benefits over a very long time horizon.

By the way, I grew up in rural farm-community Ohio; my wife lived her entire childhood on a family farm. For those who might be fancying some neoagrarian utopia, I suggest you actually try farm life for a while first. We didn't "ride our horses into town on market day". We "knocked the catalytic converters out of our old Fords so we could burn tractor fuel".

48   Unalloyed   2006 Feb 6, 3:53pm  

Iran will lead the way in meeting energy needs with fission reactors.

49   praetorian   2006 Feb 6, 4:09pm  

The technology to convert electric power into motion is actually pretty simple.

Quite right. And also quite efficient. However, consider todays hybrid engines. Simple? Easy to work on? Hrm.

As you point out, it's the storage that's the killer.

Not that biodiesel is without problems. Right now algae seems like the most promising source of it, and the theoretical yield is about 15,000 gallons per acre, per year. Probably only enough to supply 10 to 20 heavy drivers per year.

_shrug_

Still, in the long run, I'd bet on bioengineering and a simple combustion engine. Also, diesel landcruisers rock.

Cheers,
prat

50   Unalloyed   2006 Feb 6, 4:28pm  

...the common sight of a homeless person loaded down with what looks like their own bodyweight in stuff...

I saw a homeless man downtown wearing a shirt that said "Another Andon College Success"

51   praetorian   2006 Feb 6, 4:31pm  

It used to be far cheaper to buy diesel, but now it’s even more expensive to buy per gallon than unleaded.

Yeah. Crazy, considering petro-diesel is much cheaper to make. In the Bay Area all diesel is lunatic expensive. You can get straight bio-diesel for $3.60 a gallon in Berkeley.

It really is sad that such a great engine technology got such a horrible reputation thanks to GM's engines back in the 70's. A bare-bones, small 4x4 with an inline CRD 4 cyl engine could get 30 mpg highway easily, with plenty of low-end torque.

Dammit.

Cheers,
prat

52   Unalloyed   2006 Feb 6, 4:36pm  

What's the difference between a Realtorâ„¢ and an elephant?

Ans. A Realtorâ„¢ always forgets.

53   praetorian   2006 Feb 6, 6:16pm  

And this is why it will take more than simply not buying their goo and vacating their soil to get the jihadists to back off, it will take stopping the reason for jihad, which means stopping the war against them by Israel, supported by us, that was started against them first.

Perhaps we could move the jews to Alaska...

Anyone seen any good cartoons lately?

Cheers,
prat

54   Michael Holliday   2006 Feb 6, 10:04pm  

Sunnyvale_Renter Says:

"...it will take stopping the reason for jihad, which means stopping the war against them by Israel, supported by us, that was started against them first."

Ahh...No!

55   San Francisco RENTER   2006 Feb 7, 1:16am  

"This has NOTHING to do with being a homedebtor, the rare homeowner, or a renter, it has everything to do with our society being based on, He who dies with the most stuff wins."

Sad but true. I am reminded of the end of "Citizen Kane" where after Charlie Kane's death the camera pans across a vast ocean of consumer goods he has accumulated in his gigantic mansion and then falls upon some workers who are disposing of all of his crap by throwing it in the furnace! It all goes up in smoke and the man died lonely and alone, so look where the life-long quest for material shit got him!

56   Peter P   2006 Feb 7, 1:53am  

DinOR, is your e-mail address working?

57   Peter P   2006 Feb 7, 1:56am  

I guess I could have afforded a new boat but boats are only new the first year. It’s the payments that last forever!

Actually, it is new only right before you buy it. After then it would be used.

58   Peter P   2006 Feb 7, 2:00am  

I remember my husband telling me that most people who retire early do so because they control their spending and save, not because they make tons of money.

If you ever played Cash Flow 101, you will notice that it is not easy to get out of a high-income/high-spending "rat race".

Disclaimer: I am not a fan of the game or the Rich Dad series, but I do have respect for Kiyosaki.

59   Peter P   2006 Feb 7, 2:05am  

Does anyone else find it strange that entertainment centers often cost more than the new plasma screen they’re supposed to support?

Actually, many people like to hang their plasma TVs with wall-integrated surround speakers. The answer: a complete living room renovation.

Where can someone go for reasonably priced furniture?

I envision a future with custom out-sourced furniture. One should be able to choose the fabrics/funishes on the internet and have it shipped directly from Mexico at 1/2 the price (or less).

60   jeffolie   2006 Feb 7, 2:27am  

I thought the Jihadists hated the West because of the Crusades not cancer and staph.

61   Randy H   2006 Feb 7, 2:40am  

Nuclear
Come on, it is not a safe option, Three Mile Island was my neighbor as a teenager, and nuclear is regressing folks. Even a tiny bit of fuel to dispose of will last thousands of years.
-- newsfreak

With all due respect, this is a kneejerk reaction to a very serious problem that is many orders of magnitude more demanding than "feel good" solutions. There is no energy production technology yet feasible which doesn't cause safety and environmental stress, including photovoltaic solar and turbine wind. Of all the feasible, *large-scale* energy production technologies *currently available*, nuclear is by far the safest, both historically and trendwise. The current generation of FBRs are capable of reducing the "long-lived" waste by 95%.

Sorry for the direct response, but we have to approach energy policy rationally, not emotionally, if we're to have any hope of transitioning without causing a world war in the process.

This peak is Darwinian, evolve or DIE.

"Evolve" implies building upon past and existing technologies and techniques to ensure future viability. The must include *all* options, including nuclear, or you're not talking about "evolution" at all; only regressive reexploration.

62   Peter P   2006 Feb 7, 2:44am  

Of all the feasible, *large-scale* energy production technologies *currently available*, nuclear is by far the safest, both historically and trendwise. The current generation of FBRs are capable of reducing the “long-lived” waste by 95%.

I agree. I am an absolute supporter of nuclear energy.

I also support wind energy. Offshore wind farms can provide much energy needs of some locations.

63   Peter P   2006 Feb 7, 2:48am  

I thought the Jihadists hated the West because of the Crusades not cancer and staph.

They hated the west because of our apparent prosperity. Also, they need polarity for population control.

64   jeffolie   2006 Feb 7, 2:51am  

Any views on coal gasification?

65   San Francisco RENTER   2006 Feb 7, 3:03am  

"Any views on coal gasification?" --Jeffolie

Yes, I recently read a lot about it in "The End of Oil," by Paul Roberts. BTW, I highly recommend this book to anyone who is remotely enjoying this thread.

Anyway, coal gasification is costly, and expending the energy to remove the CO2 and sulpher and what not from the coal certainly decreases the effective energy yield of the coal. But given that the Earth has HUGE amounts of coal in the ground, and given that coal gasification technology will continue to increase the efficiency of the process, it is a good investment to make. So I do expect this "clean coal" technology to increase in popularity in the near future.

66   HARM   2006 Feb 7, 3:48am  

Wow, some great posts on alternative NRG --plus Prat & Escape from DC are back! Now all we need is for Jack to pop in agains.

newsfreak,

I have to second Randy H & Peter P on nuclear. Most people's perceptions are based on PAST technology --the old-fashioned light water Three-Mile style reactors. This design is inefficient and (as you mentioned) produces unacceptably large amounts of extremely dangerous and long-lived plutonium isotopes. The latest generations of Fast Breeder Reactors (FBRs --not be be confused with "F@cked Buyers) are much more efficient and --as Randy H pointed out-- can cut radioactive waste by up to 95%. Also, the waste that is produced has a much shorter half-life (hundreds vs. hundreds-of-thousands of years). The whole discussion on using thorium to consume plutonium was also intriguing --it might even be possible someday to dispose of the remaining 5%.

Even so, I don't see next-gen nuclear as a permanent solution, anymore than moving to other fossil stores will be (clean coal, tar sands, etc.). However, every form of "bridging" energy technology buys us more time and brings us closer to long-term sustainable energy. Whether that will ultimately take the form of bio-diesel, wind, wave, solar, fusion or a combination thereof, I don't know. But I wouldn't completely dismiss something as proven and viable as nuclear at this point.

67   Peter P   2006 Feb 7, 3:51am  

And after X years, (where X=12 to 30), what will you do with the used photovoltaics?

Use them as the next trendy kitchen countertops? :)

68   Peter P   2006 Feb 7, 3:52am  

FBRs = Furious Bitter Renters? :)

69   HARM   2006 Feb 7, 3:58am  

I was always considered the “cheap” one in my family, but I am also in better shape financially than my parents, so I’m ok with being called cheap.

I hear you, SQT. Actually, one of my older brothers is nearly as cheap as I am ;-). Not surprising that we were raised by a Depression baby (our dad), so learned to embrace frugality despite living in the very capital of rampant consumerism (L.A.). The other brother, however, embraced the Dark Side and became the quintessential Boomer --McMansion, bling, trophy wives, Beemers, coke habit , etc. That is, he had all that until his past caught up with him.

I didn't realize you grew up in Oregon. May I ask where, and for how long (planning on moving there)?

70   HARM   2006 Feb 7, 4:08am  

"...they have passed a lot of it on to us. It still looks great and I like the fact that it has a family history. They love that some of the first furniture they ever bought is still in the family and being well cared for, so everyone benefits."

This is actually how I ended up with most of my furniture as well --and most of it's solid wood and much better quality than the typical parti-board crap you get from big-box retailers. If you don't have a lot of family around you for this to be an option, nor the budget for Ethan Allen, then like SQT said, there's always Craigslist, the Recycler, Pennysaver, yard sales, etc.

If you insist on buying new/matching, then there are often discount local furniture makers, even in places where you might not expect. For years, there was this place nearby me in Glendale called Furniture Barn that produced tons of great relatively inexpensive oak furniture in Mission (my favorite) and country style. They moved to the SFV, but are still in business as far as I know.

71   Randy H   2006 Feb 7, 4:26am  

Any views on coal gasification?

It is promising as a mid-term bridging technology, although there is a severe net-energy loss in the fuel cycle which really only makes it viable assuming global adherence to a carbon-limiting regime (like Kyoto). Such regimes are historically never successful because the temptation to cheat/ignore is too great.

That said, there are tremendous coal reserves in the world. My fear is that they will be mostly burned the "old fashioned" way. By the way, coal combustion produces significantly more radioactive waste--most of it directly into the environment--than even the oldest, unsafest nuclear technologies.

Tidal: there are serious environmental impacts from this as well. Any titdal energy farms deployed on a large scale would disrupt wide ecosystems. Further, the cost to maintain these systems is even larger than wind farms, so there is still a net drag on the system cycle.

Solar: solar technologies are viable, now. But there's a catch. For any large-scale, efficient, environmentally safe architecture the solar arrays would need to be orbital, returning the energy to Earth as microwave. The problem here is the astronomical (pun intended) up-front investment necessary. This implies the necessity of building orbital elevators, which make a great read, even if a bit science fictiony (in fairness, we could build these now but for a few problems with material strengths, but this is being solved as we speak). There are great economic arguments for building space elevators, but I fear that we're far from any form of political discipline and international cooperation necessary to pull it off. One of the derivative uses of elevators could be the commercialization of mining in space by automatic mining craft, which could extract precious minerals and even Uranium from large asteroids.

Someone earlier mentioned sails (as in wind) for propulsion of ocean craft. Now it's my turn to say "c'mon". We are still talking about steel-hulled ships with enormous displacements, aren't we? Or are we going back to wooden square-riggers and Cap'n Hook?

72   Peter P   2006 Feb 7, 4:31am  

One of the derivative uses of elevators could be the commercialization of mining in space by automatic mining craft, which could extract precious minerals and even Uranium from large asteroids.

Even gold may be mined. A gold-laden asteroid may crash (pun intended) the gold market.

73   Peter P   2006 Feb 7, 4:35am  

Someone earlier mentioned sails (as in wind) for propulsion of ocean craft. Now it’s my turn to say “c’mon”. We are still talking about steel-hulled ships with enormous displacements, aren’t we? Or are we going back to wooden square-riggers and Cap’n Hook?

I think it is possible to use modern sails made of composite material to take adventage of the prevailing pacific wind, although wind should remain as a secondary form of power.

Enormous displacements? No problem, we just need enormous sails.

74   Randy H   2006 Feb 7, 4:35am  

Would even the venerable Peter P finally agree the economy is not "zero-sum" once we start exploiting exogenous resources?

75   Randy H   2006 Feb 7, 4:38am  

Enormous displacements? No problem, we just need enormous sails.

Remember, friction from displacement grows as a cubed factor. I'd like to see this tried just because them would be really unbelievably enormous friggin sails (even for composite materials, but then I was the one talking about space-ladders).

76   Peter P   2006 Feb 7, 4:41am  

Would even the venerable Peter P finally agree the economy is not “zero-sum” once we start exploiting exogenous resources?

Randy, how could I disagree with you on economics? You win.

77   Peter P   2006 Feb 7, 4:43am  

Remember, friction from displacement grows as a cubed factor. I’d like to see this tried just because them would be really unbelievably enormous friggin sails (even for composite materials, but then I was the one talking about space-ladders).

Perhaps a multi-hull design? If wind can help with 40% of the power one-way, we can save 20% of energy consumption round-trip.

78   Randy H   2006 Feb 7, 4:48am  

Perhaps a multi-hull design? If wind can help with 40% of the power one-way, we can save 20% of energy consumption round-trip.

Perfect. And a reactor for the remaining 80% so these passenger ships can ferry tourists off to the ocean-space-elevator-platform so they can disembark on their vacation to the orbital hotel of love.

79   Randy H   2006 Feb 7, 5:18am  

DinOR,

I agree for point of use solutions. I was referring more to plans I've read for tidal farms. The eco-damage would come in the form of light blockage, service vehicle traffic, disruption of breaking waves, and perhaps corrosion/cleaning agents. Wave energy generators are even worse than tidal energy generators.

The most efficient proposal I've read is in the low-tech form of coastal dams and reservoirs, using small-scale hydroelectric techniques. These would piss of environmentalists, though (rightfully so IMO).

80   Peter P   2006 Feb 7, 6:00am  

If your ships run on wind, and if sleeker, smaller-hulled craft have an advantage (speed, cost, whatever), it is possible that the economics may shift a little bit in favor of a fleet.

We can also have a group of cargo boats controlled by one master boat. This can minimize the need for additional crew members.

As I have noted before, the transpacific fleet does not have panamax concerns.

81   Peter P   2006 Feb 7, 6:08am  

DC, I am still laughing about your "Pokemon of Death"

82   Peter P   2006 Feb 7, 6:23am  

Peter - yes - very advanced methodology that I employ!

My wife said that there is a little "Batman" from Jan 19.

http://tinyurl.com/3og25

83   Peter P   2006 Feb 7, 6:59am  

Oh no, Cramer says "Drop in Gold Only Makes It Shine Brighter". Time to sell.

NOT INVESTMENT ADVICE

84   Peter P   2006 Feb 7, 7:05am  

“However, I’ve stopped looking at the blogs here because it got too political.”

This is a false statement. I always lie.

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