Aug
22
It’s All About The Price
August 22, 2007 | 2 Comments
I read lots of articles on sites and blogs for news and views that will amuse, abuse or simply entertain my readers. With that premise there is a basis for making consumer choices and in considering what investments one might choose.
There is one stunning theme that is overlooked enmass. That is the price, of oil, oil products and other fossil fuels and what rising prices are doing to the societies that are high energy and fuel users.
The impacts are all around you to see.
Let me explain. Most people, perhaps much more than half of us, live lives working or living on retirement incomes that just barely cover our expenses for the lifestyle we choose. Or more on point, we are living to the maximum of the lifestyle our incomes will support. This leaves us vulnerable to any shock or large change over time that consumes a larger part of our income. Then our lifestyle must adapt with less money for spending in the rest of the economy.
Now all the prognosticator’s comments thrown aside, look around you. Do you see some alarming facts? There is a credit crunch, as a substantial part of the new homeowners that are the least able to adapt to an increase in fuel and energy costs are in default on their mortgages. Sure, that is exacerbated by some incredibly stupid and greedy credit companies and policies, but the fact remains that most of these people could well afford their home if other costs had not accelerated to take a larger part of the family budget. Yes, there are lenders that invent a whole range of ways to increase the costs of the loan rather than find a way to economize and preserve the base in the national economy. But the blood bath for them has started with news of closings and thousands of people losing their jobs. The US Federal Reserve has used its big stick by reducing the discount rate a half percent in a 5.25% base or nearly a 10% price change in credit – instantly.
The effect runs deeper than most of us think. Oil and oil products are very deeply engrained into the entire economy. Practically everything you have brought home was made from, made using, or traveled by oil and oil products. The last oil price rise is just now coming fully into the prices we pay. Competition has kept the prices held back for quite some time, but many are here now and more still are coming.
That is the early stage of the price effect. The second stage is, these people whose adaptation is to lose their home and those who lose their job, become lesser participants in the productive part of the economy and increase the costs to others by their needs for public services. Which in turn creates costs that others must pay, that reduces the other’s ability to afford their choice in lifestyle, thus another small percentage becomes enrolled in an adaptation of spending less money in the rest of the economy or the slippery slope to public services.
The third stage is upon us, too. You may recall that the “Great Depression” was marked by the decline in asset values on the stock exchanges. A new depression is not here yet because our personal wealth is mostly in our homes and cars. There is a real estate bubble to burst and there are millions of cars, trucks and SUVs that from a practical lifestyle assessment are worth far less than what current markets can support over time. Thus depression, if it comes, will be much softer and slower to materialize, yet could get very deep indeed.
The fourth stage is rushing towards us. All complaints about business aside, many businesses are acutely aware of their energy and fuel costs and have and continue to reduce use, economize and invest in reducing costs. The problem rushing towards us is that the costs to invest in saving energy and fuel come to a point where the investment cannot be recovered which then forces the business to simply increase the prices incrementally as costs increase which reduces the number of customers.
Lastly is the problem of consuming the profit for immediate wishes rather than creating future wealth. America in particular has for some decades elected to put the net taxed profit from business activity ahead of the investment or spending in new wealth creation. It is in part a tax aspect problem that was in part solved by the reduction of capital gains tax, but so much more needs done. It can only be done by government policy because government consumes such a huge share of our profit and wealth. The problem of using a dollar that’s only worth less than 55 cents after the gamut of taxes for investment is a huge barrier to solving any economic problem whether the money is from a person, a venture capitalist or a giant corporation. The idea that we as a nation of creative and hardworking people can create new wealth to solve our problems when starting with our productive results measured in money cut nearly in half at the start is a dreadful disadvantage.
You may be thinking, “He’s so smart, what’s his fix?” In my own defense, I’m not that smart. Rather, I’m observant enough and experienced enough, and daring enough to try to make these points in the hope you might understand too.
There are some observations that merit being pointed out now. Things like people, businesses and government making the choices that ensure some fusion idea gets to market. Whether it’s the Bussard, Rostoker, Lerner, Putterman or other idea that wins out, the fundamentals of nuclear fusion and its benefits will be an astounding wealth creation that will totally eclipse wood, coal, oil, and atomic fission in mankind’s history.
We need to get a grasp on the practical limitations of photosynthesis. Our technical ability to amplify the products of photosynthesis is not noticeably on the research radar. We will need for decades to come to utilize plant growth for reforming carbon, both on land and at sea. But the potential for reforming that plant seized carbon again with boosts of hydrogen for high-density fuel is gravely lacking. Ethanol, even butanol are far short of the per dollar invested and per square meter unit of sunlight utilized to be worthwhile in any long-term economy.
We still limit our imaginations for what ideas are possible to acquire and develop for creating wealth. The seemingly outlandish, or wildly crazy ideas and the not thought of here syndrome or the narrow mental focus we prize that limits our ability to make connections between technologies are real and dangerous mental restrictions we impose on ourselves and others.
Yet there are some very bright ideas coming. Foremost is that Bussard and Rostoker have some prospect of getting further development work done. There is the solution suggested by the team at Purdue University reviewed here on August 1st that could very well assure that oil companies or large agribusinesses have a long-term path to selling economical hydrogen enhanced plant based carbon fuels far into the future.
Wind energy is getting a huge boost in utilization and has a vast opportunity to grow. Solar voltaics are racing to 50% efficiency and the pressure to reduce installed capital cost is just now getting competitive attention. Solar may well be the next boom, and could last quite a long while.
Looking far out there is a good chance that hydrogen will find a role as a fuel source, although carbon based feedstocks and fuels have a huge advantage both in density and practical applications. But its just silly to presume that hydrogen can fully displace carbon fuels and feedstocks.
In the outlandish zone gravity is being looked at, although for now its antigravity that peaks research interest. Perhaps a connection will be made that finds a role for the universe’s most prevalent and incessantly constant force which powers the stars to be harnessed by mankind.
But right now, it’s the price. The main challenge is to shift our transportation fuel choice away from oil. The only real contenders today are hybrids, full battery – electric drive, alternative fuels from coal and combined plant carbon and manmade hydrogen fuels.
Grasping the economic problem is far more difficult. It would require literally shifting money from the price of oil thus raising its price to the price of the alternative fuels thus lowering their prices. That should be measured against what might be the convulsion needed to displace the invested base in carbon fueled equipment. The shift of money might be much more easy to digest when everyone realizes what the new investment might be for a currently impractical electric or hydrogen switch over.
Finally lets try to reflect on our recent memory. Not so long ago oil was priced at less than half of today’s price and we look to remain on a knife’s edge for oil production vs. oil consumption. The last price shock has yet to fully work its way through the world economy. The lesson I am taking away is that oil will not likely get below $40 or even $50 per barrel again. The other side of the lesson is that these oil shocks have not finished coming. They started in the 1970s with periods of seeming stability hiding inside monetary inflation marked by only a brief reversal during the 1990s. They do seem to have a tendency to double the price making the next one on the order of $100 to $140 per barrel. I shudder to think of the personal suffering that will come next time unless human ingenuity can create a wealth that can at least begin to displace the oil supremacy in the world economy.
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residual income…
I discovered your site on faves.com bookmarking site…I like it and gave it a fave for you, I’ll be checking back regularly…
ketchum id…
I discovered your site on faves.com bookmarking site…I like it and gave it a fave for you, I’ll be checking back regularly…