Drew Dowdell

You've bought your last car.

11 posts in this topic

We're not going anywhere for a while.

GDP falls 6.1%

• Consensus estimates were way too high — Wall Street economists forecast a drop of -4.6% versus -6.1% actual data;

• GDP has fallen three consecutive Qs, something that hasn't happened in since Q3 1974 through Q1 1975; (WSJ)

• These 2 consecutive quarters of minus 6% contraction is the worst 6 month span for the economy since 1957-58; (Bloomberg)

• All investment-related segments of the economy showed significant weakness; we surmise that lot of this weakness is credit crisis related;

• Real exports of goods and services decreased 30%;

• Residential building declined 38% — the deepest drop in the cycle so far.

• Commercial construction fell 44.2% in 1Q –the largest quarterly decline ever recorded (data goes back to the 1940s).

Recessions Follow Oil Price Increases

A recession has followed every significant oil price increase. Although our current economic malaise is blamed on the credit crisis, people forget what happened to the price of oil. In 2008 the average price of oil was $99 per barrel (per the Energy Information Administration). The year before it was $72 per barrel.

Year Oil Price (WTI) Total Spent on Oil:

2007 $72 $2.160 trillion

2008 $99 $2.970 trillion

In just one year, that price difference sucked an additional $810 billion from the world economy.

The same level of increase happened from 2006 to 2007. Simply put, we were going to have a global recession even if the credit crisis hadn't occurred. By the way, did you notice that the price increase is roughly the same as the current stimulus package? Do you think any future stimulus package will have any effect when oil goes back up in price?

The End of the Car Age

In other words, the recent high price of oil has destroyed much of the capacity for us to move off of oil. When you pull together these items:

  • the date of peak oil (most likely 2008 since so many oil projects are being canceled)
  • the still-increasing fleet turnover rate
  • a collapsing economy
Most Americans have bought their last car. I don't mean their last "gasoline powered" car, I mean any car. Unfortunately, the same mechanism is playing out in the renewable energy sector. Investment is down by almost half. Enlightened government could have put a floor under oil prices for the previous three decades, thus moving us completely off oil while we had the economy to do it. Now it's too late.
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We're not going anywhere for a while.

Recessions Follow Oil Price Increases

A recession has followed every significant oil price increase. Although our current economic malaise is blamed on the credit crisis, people forget what happened to the price of oil. In 2008 the average price of oil was $99 per barrel (per the Energy Information Administration). The year before it was $72 per barrel.

Year Oil Price (WTI) Total Spent on Oil:

2007 $72 $2.160 trillion

2008 $99 $2.970 trillion

In just one year, that price difference sucked an additional $810 billion from the world economy.

The same level of increase happened from 2006 to 2007. Simply put, we were going to have a global recession even if the credit crisis hadn't occurred. By the way, did you notice that the price increase is roughly the same as the current stimulus package? Do you think any future stimulus package will have any effect when oil goes back up in price?

This is what I mean when I say the CAFE regulations are going to help NOTHING. You can make the car manufactures raise their mileage standard all you want, but thats not going to get people to buy anything and keep the economy going when gas is $5.00 a gallon!

Edited by Daryl Z71
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My hope of a nuclear/hydrogen future is diminishing, and it's because of the lack of foresight shown by our North American governments, and their 'bailout packages,' and their overall reaction to the economic failure by simply throwing money, instead of putting it towards alternative-fuel infrastructures.

Edited by Captainbooyah
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We are "doing it wrong" and have been for decades.

I said many years ago that the car as we know it would disappear in my lifetime, I just didn't expect it to happen so soon and suddenly.

Can we change all of this?

I hope so, but it is a pale hope.

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6.1% is an annualized rate. Not the rate for the 1st quarter alone.

But bigger numbers get bigger ratings :AH-HA_wink:

you think it's going to get better over the next 9 months?

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That article fails to look at other aspects in the economy that are looming. What that article is doing is equating "stock market" with "economy". Yes, the stock market will improve slightly over the next 9 months, but the economy will not. The sub-prime mortgages are mostly done imploding. Commercial real estate is just getting warmed up and Prime/Alt-A mortgages are back in the green room getting changed.

Even if all new housing starts stopped today we have 3 years of housing inventory that we know of. There is an estimated 30% of bank owned housing isn't even on the market today.

Housing prices are going to continue to fall well into next spring at least.

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Almost half of that 6.1% GDP decline is due to decreases in inventories. Decreases in inventories are actually a sign of economic recovery. No guarantees here however.

The author is correct, however, about the significance of run up in oil prices. This is the which came first the chicken or the egg question turned on its head. Mortgage defaults didn't cause oil prices to increase, but the opposite is very likely true.

I know most of you hate the CAFE rules. Without them, the oil price buildup would have been sooner and steeper. "Democracy is the worse form of government except for all the rest". CAFE is the best form of oil price control except for rationing which no one seems to have the guts to consider.

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interesting, i never considered CAFE as a functional price mechanism but i guess there would be some truth in that.

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"Democracy is the worse form of government except for all the rest".

What!? that quote makes no sense. Democracy is amongst the worst form of government (mob rule is always bad). Thus it is up to the Republic (preferably a democratically elected representative one) to fill the void.

Anywho as for the money "lost" by the rising oil prices, the Federal Reserve tends to print a lot of money each year just as yearly allotments, it alone covers the money "lost."

Whatever congress does only impacts against what the Federal Reserve is doing... thus the massive increase in monetary supply from the Federal Reserve more than makes up for the increase in oil prices, however with the addition of deficit spending from the government, it will likely lead to really awful inflation or very high interest rates in a couple of years to control said inflation.

This would not have become a crisis because we have a fiat money supply. If we were on a gold standard this may have been a problem.

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