I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
Posted: Fri Nov 16, 2007 12:05 pm Post subject: Re: Deleveraging the world economy
HydroLuver said:
Quote:
This could also significantly reduce demand for oil in the coming years.
I have been saying for several years that a decline in economic activity would come before a decline in oil production. That is because the energy contribution of oil after Peak, falls faster than production falls. We might again some day see $30 oil, of course, the average American household would be making the equivalent of $500 per year.
Posted: Fri Nov 16, 2007 7:57 pm Post subject: Re: Deleveraging the world economy
Quote:
What it all comes down to is that Joe Six-Pack has been taking equity out of his house and supporting the U.S. economy
I guess I do not need to tell all of the doomers here about the seriousness of this financial stuff, and how once the crap starts to flow, it is going to tend to build up steam, as it were.
My favorite example of this is the case of Walgreens, an annoying US pharmacy chain. We have talked about this somewhat before.
Walgreens does not actually physically own its stores. They lease them from someone who is in that business. Right now, according to their latest 10Q:
they have leases that will amount to $1.5 billion next year. They have long term leases, amounting to $25 billion over the next several years. They are in the "grow or die" strategy: their whole business depends on their ability to continuously open new stores, thus growing their "top line".
Who do they owe this money to? People like GE Capital:
These guys have about $700 billion in "assets", defined as the value of all of these leases, and about $600 billion in long and short term debt: in other words, 90% of their business is borrowed. They are in the business of borrowing money, building a walgreens, and leasing it back to them. It's a far cry from making light bulbs, which is what they used to be good at.
Iff the money dries up, and GE can't borrow any more so that Walgreens can't build any more stores, Walgreens will not be able to keep the game going on the basis of selling aspirin at 4AM.
So the people to keep an eye on is the big providers of capital, such as GE. If they start having problems getting money, the whole system really is going to come to a screeching halt.
Posted: Fri Nov 16, 2007 8:09 pm Post subject: Re: Deleveraging the world economy
pup55 wrote:
So the people to keep an eye on is the big providers of capital, such as GE. If they start having problems getting money, the whole system really is going to come to a screeching halt.
I have a bad feeling about GE Money, something about a logo you associate with heavy machinery displayed on the front of a bank (close enough) doesn't sit right. _________________ Volatility. When life isn't exciting enough.
Posted: Fri Nov 16, 2007 8:35 pm Post subject: Re: Deleveraging the world economy
Quote:
Quote:
What it all comes down to is that Joe Six-Pack has been taking equity out of his house and supporting the U.S. economy
It’s called the current account deficit, and yes “Joe Six-Pack”, you are spending far more than you make, ever will make or ever could hope to make. You are flat-assed, butt-less, beer-less, gas-less - broke.
Joined: Oct 18, 2004 Posts: 2103 Location: kiwibush
Posted: Fri Nov 16, 2007 8:52 pm Post subject: Re: Deleveraging the world economy
Lol....Joe 6 pack is well and truly buttfcukked and he didn't have to serve any time...hahahaha!!!! _________________ Bugger me, I hear oil's runnin out mate!
Joined: Sep 25, 2004 Posts: 4681 Location: Boston, MA
Posted: Fri Nov 16, 2007 9:33 pm Post subject: Re: Deleveraging the world economy
Here's another thing to think about.
The US imports about 700 billion more than it imports. If we eliminate those imports (without reducing anything else), the GDP actually increases by 700 billion.
As the US trade deficit improves, GDP is going to grow despite a reduction in consumption.
However, the exporting nations will experience a recession as exports decline and reduce GDP.
Both countries are worse off but the GDP figures support the importer. Go figure. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Posted: Fri Nov 16, 2007 10:21 pm Post subject: Re: Deleveraging the world economy
Although, a large amount of the US GDP is in services. As our internal economy shrinks, these service jobs go away. GDP shrinks. Quickly.
Any time a dollar moves in the US it is marked as part of the GDP. Most of it is smoke and mirrors. Government spending is based on deficits. Many homeowners are also spending deficits. The rubber band will snap and GDP drops exponentially.
The healthy economies are the ones that have resources and value-added goods to sell. Even they will find fewer and fewer buyers.
The contraction has begun. _________________ Civilization is a personal choice.
Posted: Sat Nov 17, 2007 9:31 am Post subject: Re: Deleveraging the world economy
Tyler_JC said:
Quote:
The US imports about 700 billion more than it imports. If we eliminate those imports (without reducing anything else), the GDP actually increases by 700 billion.
$550 billion of that 700 is for oil. If we eliminate that $550 we will be living in the woods eating rabbit cooked over a camp fire (if we are lucky). We could have a strong currency while we starve to death.
Letting our population explode, globalization, a debt based fiat currency and the consumer economy are failing policies. Oil is the lubricate that is letting all these pieces slide to the floor. Back to the drawing boards folks!
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