Yesterday, president Obama announced emission standards which he said would raise the cost of automobiles by $1300.
While the new fuel and emission standards for cars and trucks will save billions of barrels of oil, they are expected to cost consumers an extra 1,300 US dollars per vehicle by the time the plan is complete in 2016. Mr Obama said the fuel cost savings would offset the higher price of vehicles in three years.
His remarkable comment caught my attention, because one of the primary purposes of Obama’s “cap and trade” plan is to massively raise the cost of fuel. There aren’t going to be any fuel cost savings. In fact, Mr. Obama told the San Francisco Chronicle last year that he actually intends to bankrupt coal fired power plants using cap and trade:
You know, when I was asked earlier about the issue of coal, uh, you know — Under my plan of a cap and trade system, electricity rates would necessarily skyrocket. Even regardless of what I say about whether coal is good or bad. Because I’m capping greenhouse gases, coal power plants, you know, natural gas, you name it — whatever the plants were, whatever the industry was, uh, they would have to retrofit their operations. That will cost money. They will pass that money on to consumers.
Two automobile companies are already going bankrupt, so I think we should take Mr. Obama’s words seriously.
I can make a firm pledge. Under my plan no family making less than $250,000 a year will see any form of tax increase. Not your income tax, not your payroll tax, not your capital gains tax, not any of your taxes.
WASHINGTON – Democrat Barack Obama said Sunday that if elected he will push to increase the amount of income that is taxed to provide monthly Social Security benefits.
Audacity indeed. The assumption seems to be that no one remembers what was said last week.
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a more recent alaska link: http://www.adn.com/news/environment/story/555283.html
NC (10:08:50) : Gary the last I looked it was deregulation of banks, read free market, that got everyone into this fiscal mess.
Um, no. Fair warning, I’m an Economist so I’m far more interested in the stuff down in the weeds on this kind of thing than most folks…
1) Congress passed a law (later loosened even more under Clinton) to promote home ownership by folks with no chance of making it work. CRA – Community Reinvestment Act of 1977 and sometimes called the Community Redevelopment Act of 1999. This law also included penalties up to and including loss of franchise, i.e. termination of the bank for any bank that failed to make enough of these lousy loans. Barney Frank was a key promoter, as was much of the rest of the democratic central committee…
See: http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Legislative_changes_1999
for some detail on the Democratic involvement (at least until the DNC “cleans” the wiki…)
2) Congress shoveled lots of money (and rule changes) at Fanny & Freddie to promote this broad base of home ownerships (and in return, F&F sent tons of donations to Congress – mostly but not exclusively to democrats).
3) The banks figured out they could dump the lousy loans they were forced to make BY LAW, onto F&F (since congress had set the system up to allow this to happen).
4) F&F figured out that they needed to shove some of this crud off on others, but to get them to take it would require some work… The Clintons wanted more “home ownership juice” so they pushed for greater loosening of the lending laws and more money to F&F…
5) At this step, we DO get a bit of deregulatory influence, but it isn’t key. It changes the scope, but not the nature of the collapse. Glass-Stegall was repealed in 1999. This was, in some ways, the “payoff” required by the banking system in exchange for the Clinton / Dems desire to shove even worse and more bad loans down their throat. Suddenly, stock brokers / investment bankers could also “do” mortgages and Banks could suddenly sell securities and insurance companies could be banks and sell stocks. What fun.
Never mind the ‘mind set’ needed to make mortgages you hold 30 years as a bank is the exact opposite of that needed to sell stocks and securities. Never mind that insurance companies ought not to be investing in risky products, let alone creating them… One Small Problem:
We left “Banks” with full government insurance and we left “Investment Banks” naked. Gee… one side is protected against a “run on the bank” by the Fed and the law. The other side is naked. Otherwise the same companies can sell the same products… One with FDIC insurance, one without…
6) The CDS / CDO instruments were invented as a way to dump the bad loans that were stacking up and hard to sell. These let you add an insurance ‘wrapper’ around the mortgage (CDS) and let you blend 9 good mortgages in with 1 bogus one and sell the whole package as AAA rated Insured (CDO or Collateralized Debt Obligation). With Glass-Stegall repealed, anyone could go into the mortgage business and anyone could be an insurance company (and banks and investment banks would carry the same product lines and…) So anyone could make these SIVs (Special Investment Vehicles) and similar products… This would not have been too bad, but the quantity of “crud” was too high and the “sausage” started to have an off smell…
7) We had a business downturn. This happens about every 10 years. Normally not too bad a thing. But now, with everyone leveraged up to their eyeballs and running naked of firewalls between banking – insurance – investments, and 1/2 running naked against a run on the bank; the small added mortgage failures turned into a Very Big Smell. As “the light dawned” and folks realized that all that stuff they had thought was AAA insured really had some “rotten sausage – overripe and unclean” blended in we had the “one apple rots the barrel” effect make all mortgages in all devices suspect. As trading ground to a halt, companies that depended on trade volume started to be suspect, that lead to the final collapse. (At this point it would still have been recoverable, IMHO, but for “mark to market” and “bear raids”.)
8) One of the “neat tricks” was that anyone could write a “life insurance policy” on a company, then feed it poison. Now I wish I’d been cleaver enough to figure this out, but I only figured it out after the fact. One of the “derivatives” was a CDS – Credit Default Swap. It lets you create insurance that if “Olde Joe” fails to pay his debt, you get paid anyway. You could sell the risk of his default even if you had no bond due to you and had never even talked to the company. So I just print up a bunch of these and push them on the market. Suddenly all this ‘action’ causes folks to wonder what’s wrong with “Olde Joe” since his CDS rates and volume are going nuts… so they start to pull their deposits and transaction volume; thus driving Olde Joe into default and triggering Manna From Heaven to me, with all the CDSs I created (taking out “life insurance” on Olde Joe) suddenly saying that folks need to pay me for the $10 Billion of Bonds that I had insured (never mind that there was no $10 Billion of Bonds, I owned nothing, other than the CDS that I had created…) This is what took down Bear Stearns and Lehman Bros.
Oh, and there is evidence that naked short selling was used to drive the stocks down too, but that’s a bit of detail I’ll skip for now – just realize that a trade rule called the “uptick rule” was removed just prior to the collapse. It had been put in place just after the Great Depression for similar reasons…
So I write a ton of CDSs on you, short your stock and short your collateral and keep doing this till a run on the bank starts and collect ALL the marbles… $Billions were made this way. No risk, all it takes is enough money to do it. Classic bear raid of the 1929 style (that was illegal until the rules were removed), dressed up in the new CDS / SIV / wrapper.
The fact that you could, thanks to the asymmetry of the law, have a “run on the bank” on the investment banks but not on the bank banks, was a fundamental flaw… (Is it any surprise that the remaining investment banks immediately petitioned to become bank banks?… There are now exactly NONE of the original large investment banks still in existence – they are either gone or re-chartered as Federal Banks… )
9) The final piece I’m going to cover: “Mark to Market”. The accounting profession gets part of the blame here too. They made a change from “marking” or putting a value on your assets, based on what they were worth to you from things such as their cash flow; to instead saying that you must value them as what they are worth in the market now. Sounds good. It’s worth what someone will pay you for it, nothing more. But what about when the market freezes up? I’m not allowed to say “Bob pays his mortgage on time, it’s worth the 6% interest and principle return”. I must instead say “Flakey Hal defaulted on the bad side of town, so Bob’s mortgage is worth 80 cents on the dollar because that’s all the loan shark will pay me for it right now.” It is simply not possible to sell all the mortgages in the country This Month and get a fair price. It is lunacy to apply mark to market (short term pricing) to long term hold assets. No bank can survive that (and they didn’t…).
There is a fundamental truth in trading: “Markets can remain irrational longer than you can remain solvent”. The entire banking, political, and accounting professions had to learn this truth, at your expense…
So as the worries started, some mortgage packages sold for less, causing ALL banks to “mark to market” ALL mortgages, causing them to be “short of capital” causing their stocks to go down, causing all the insurance companies and others holding banking stocks to “mark to market”, causing THEM to be “short of capital” causing their stocks to drop; causing all the banks holding the stocks and bonds of insurance companies and other banks to “mark them to market” and driving them down … Repeat until you reach zero. Which is what happened in many cases.
IMHO, the whole spiral decent into hell could have been stopped by any of:
1) Dump Mark to Market. Allow banks to value an asset as they choose: a) market price if the market is liquid. b) Net present value of revenue stream (if performing and no reasonable market). c) Inherent value (if no revenue stream and no market) via a professional appraisal. Basically, what it was before the “Mark to Market” fad nuked us.
2) Only folks holding a security can buy / sell a CDS against the issuer. All CDS must have a matching asset. All issuers of CDS instruments are insurance companies subject to state regulation (the 1999 law specifically exempted them… ) Basically, don’t let me take out a life insurance policy on my neighbor without his knowing and without my having some good reason… especially if I can burn his house down with naked shorting…
3) ENFORCE the “no naked short” rule. It’s on the SEC books, but they have basically ignored it. Normally I must borrow your stock from you to sell it “short” when I don’t have it (that “hypothecate” clause in your brokerage agreement). “Naked shorting” means I sell what I don’t have. Technically not allowed but I’ve seen several companies with more than 100% of their total stock “in circulation”…
At one time an SEC petitioner pointed out that he had bought up 100% of his companies’ stock, yet it was still trading in volume and it’s price was being driven down! Just today I noticed that INT has 95.6% held by institutions and 5.57% held by insiders. That leaves MINUS 1.17% for the public… and it traded an average 810,000 shares a day for the last 10 days(!) It shows a 30.2% “short interest”… well Duh! (This is very risky for the short unless they are very large and rich… if the insiders and institutions choose not to be scared, there is one heck of a “short squeeze” possible… Porche recently did this with buying up VW stock and it more than doubled and shorts screamed…) This position of shorts in INT is theoretically not possible and illegal AND MUST BE FIXED. The SEC needs to fix it or be fired.
http://finance.yahoo.com/q/ks?s=INT
4) RETURN to the “uptick rule”. (It said you could only short a stock after it had gone up 1/8 back when we traded in 1/8 dollar increments. It was eliminated when we went to ‘decimalization’ since a penny was not very significant. I guess they couldn’t quite figure out how to make it a “10 cent uptick rule”… They also exempted “market makers” in things like options, which makes the whole rule useless, so don’t exempt them!
BTW, 3 & 4 were the mechanism by which the “bear raid” on companies was initiated. They were put in place after the bear raids of the Great Crash in 1929-32 … Personally, I think it is criminal that those two rule failures, along with mark to market, and the repeal of Glass Stegall were allowed to happen.
5) Get the Government OUT OF THE MORTGAGE BUSINESS. F&F ought to be disbanded. The “root cause” of all this was the desperate attempt of the banking industry to try to stay in business while being forced by law to write bad mortgages. Oh, and prosecute every single politician who got a “contribution” from F&F and voted on any law regulating or influencing them…
6) Return to Glass-Stegall. Investment banking is about wild west gamblers betting at the craps table. Insurance companies are about stable 100 year contracts and investments and measured risk taking. Banks are about risk avoidance and mitigation. These ought not to be mixed. We’ve seen the results. Twice now…
FWIW,
1 has been softened a bit.
2 is in the process of being legislated.
3 & 4 are being talked about (why talk?!)
5 will not happen as long as the politicians continue to get millions of “donations” from F&F in exchange for continued patronage and now that ACORN is added to the mix, it’s going to get worse, not better.
6 is no hope. But a bit more moot now that there are no investment banks and the government owns chunks of the big banks anyway…
Basically, this whole problem is 100% the creation of the U.S. Federal Government systematically dismantling the protections built after the great depression while at the same time promoting graft, corruption, and political patronage in the mortgage business via Fanny Mae and Freddie Mac (and a bit of Sally Mae too ) and the “Everybody ought to own a home” fantasy. They had to keep loosening the rules so the banks wouldn’t die, but everything has a limit…
Governments simply can not run a business nor can they “adjust” a market. Yet politicians persist in the fantasy that they can change the laws of economics by fiat.
BTW, the “Efficient Market Hypothesis” that is the foundation for “Mark to Market” is “settled science” in academia. It is also 100% wrong, as evidenced by every single successful trader … I make my lunch money by exploiting “market inefficiencies” that “can’t exist”, in the settled science. An example? Stock prices tend to “roll down” the last hour or two of Friday. Traders sell out and “go home flat”. So a company is “worth less” on Fridays than on Tuesdays… at least per the efficient market hypothesis that says the market price is always “correct”.
More amazing? Average folks “get it”. They know that if a bad rumor circulates on Amalgamated Mudpuppies, the stock will drop even though it’s an irrational act. It all comes down to error bands. Gold is presently “worth” about $850 to $950 as a real value. It will wildly bounce between the ends since information is not perfect and folks are prone to panic. Basically, the market is not ‘efficient’ since neither people nor information is perfect. The goal of the good trader is to buy at $880 and sell at $930 while being neither afraid nor exuberant. But then again, trading isn’t “settled science” 😎
Oh, and when The Ministry of Stupidity Speaks: sell, just sell… buy it back a day or two later after the government is done “helping”…
It seems to me that one of the main reasons that this site is so popular, is because a wide range of important topics are discussed in terms which people of all different backgrounds can understand.
Political correctness does not filter or censor here. As such, WUWT is very unusual.
ajones (21:45:46), that was stunningly beautiful!!!! A pleasure to read!!!!! Stephen Goddard (22:16:42) Also an excellent posting, sir !!~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ See, waayyy better than anything you can find on the Telly!!
Peter (10:41:56) :
All this Cap and Trade will be a nice addition to Extraordinary Popular Delusions and the Madness of Crowds, by Charles MacKay, written in …1841. No difference whatsoever …
(Though it really is titled “Memoirs of Extraordinary…” and is one of the best reads you will ever find. Much of human folly becomes clear as well as the fact that we have always been incredibly silly as a species.)
You can get a free download from:
http://www.gutenberg.org/etext/24518
Or, in audio format:
http://librivox.org/memoirs-of-extraordinary-popular-delusions-and-the-madness-of-crowds-volume-i-by-charles-mackay/
It is an interesting to watch the dialog with misbegotten Rob. When asked p to defend the cornerstone of AGW, he demurs to semantics. As do the wee wizards behind each new press release to counter the mountain of evidence refuting AGW.
Rob, you have here in the various posts addressed to you, the key to *learn* the difference between fact and fiction. You probably really believed that Cap N Trade was a good thing for “the planet.” But attempting to change human behavior with punitive taxation based on falsified science – gets you three strikes (baseball ref for UK bros.) And the consequence is… you’re out.
For yet another view of your missteps consider this:
According to an analysis by climatologist Chip Knappenberger utilizing the EPA funded MAGICC: Model for the Assessment of Greenhouse-gas Induced Climate Change, developed by Dr. Tom Wigley and scientists at the National Center for Atmospheric Research – IF the Waxman/Markey bill were implemented and achieved a 80% reduction in CO2 by 2050 – it would result in a “savings” of only 0.05ºC!
http://masterresource.org/?p=2355
“By the year 2050, the Waxman-Markey Climate Bill would result in a global temperature “savings” of about 0.05ºC regardless of the IPCC scenario used—this is equivalent to about 2 years’ worth of warming. By the year 2100, the emissions pathways become clearly distinguishable, and so to do the impacts of Waxman-Markey. Assuming the IPCC mid-range scenario (A1B) Waxman-Markey would result in a projected temperature rise of 2.847ºC, instead of 2.959ºC rise— a mere 0.112ºC temperature “savings.”
In other words, mitigating CO2 emissions at the draconian levels demanded by your Cap N Trade – will have a negligible effect on warming, if any. Rob, you believe the role of government is to punish those who do not conform to your standards. The majority of human beings believe government should serve the people’s pursuit of life and liberty. Unfortunately your belief system is backed by the science of imagination. It is wrong science. A fraud. Fake. Stick around and you’ll see.
All this Audacious Cap & Trade and New Vehicle Emissions stuff reminds me of MTBE additive that was supposed to work miracles. It looked good on paper, ruined fuel injectors on cars & trucks alike and contaminated ground water everywhere.
The beaurocrat behind it was like the sentinel adamant at the bridge. You shall not pass. By the time it got yanked, the damage was very nicely done.
If you want lower emissions, quit making the Hogs and put out smaller vehicles without all the fancy junk. Like we had in the 70’s & 80’s. Remember?
If you want energy efficiency, go breathe fire down the necks of those who waste it the most – i.e. – the monopolies. We’ve seen them before, and gotten rid of them before.
rob (19:26:51) :
We know that through human activity, we are increasing the concentration of some of the key GHGs.
How did we increase water vapor?
anna v (22:26:41) :
I hope those folks up there in Alaska & the Yukon are better prepared for the coming winter. Looking at what’s going on down under in Australia, it bodes to be even colder for the Far North next winter.
They had a tough time in Plymouth, but the Viking experience in Greenland comes to mind. Finito.
Perhaps Obama is only being sensible for the future.
According to this research (based on computer models of course), we’re going to need to save all our fossil fuels, so that in 55,000 years time we can avert an ice age. Perhaps Obama expects the Democrats to still be in power then, so they can complete their 55,000 year plan!
http://www.physorg.com/news153556935.html
hareynolds (11:08:19) : So what does it all mean, Obama playing Banana Republic Strongman? I note with some trepidation that ALL the gun stores in Texas are STILL sold-out of 9mm, .40 S&W, and .223 ammunition; it’s STILL selling-out within minutes of hitting the shelves. Everybody I know has a minimum of 30 days of food and gasoline. Most have an “abandon ship” bag packed (although they call it the SHTF bag).
There too, eh? Well, “God Bless Texas!”. (I’m sort of an honorary Texan, seeing as I married into a Texas family… and grew up in a redneck farm town…)
BTW, that’s why you want a .357 Sig with the .40 S&W alternate barrel. Nobody EVER sells out of .357 Sig! 😎 I also just finished “topping up” my short term food kit (60 days+) and need to get my water bbl cleaned and filled (more due to the King Tide being Real Soon Now – june 25th? … well, some high tide… and quakes are more likely then. I’m betting about a richter 5.5 on the Calaveras…) We had a 5 ish in Long Beach last week.
http://chiefio.wordpress.com/2009/03/09/are-we-quaking/
I’m seriously afraid that if Obama follows this political “arc” for another year or so, there is going to be real, serious trouble. Summer of 1968-type trouble,
Well, I think California (of all places!) might have just started it off… but in a quiet understated way. We just voted “Up Yours” to the funding for the big government socialist state.
You Just Know that phones are ringing in DC from California. Everything from Boxer and Pelosi saying “This isn’t good” to the Governator asking “Hey Buddy, can you spare a hundred billion dimes?” (That, BTW, is an ACCURATE number… we’re short about $10B right now…)
It’s going to be a long hot summer in L.A.; especially when the state checks either don’t come or bounce… FWIW, my dad drove through the Watts riots in ’68 (wrong exit!) and had some harrowing story to tell when he got home!
This time, however, there may be some real serious hardware coming out of closets.
I’m working for “Passive Agressive” myself. Not doing anything that generates revenue to the government if at all avoidable. Managing for minimum income / maximum growth in tax deferred accounts, no new car, no expensive vacation, etc. I can be Very Happy with a 6 pack and a fishing pole… (and I can make and bottle my own home brew and make a bamboo pole, for that matter…) We’ll see if it takes more than that. I do have a closet and I know how to use it, 😎
What socialists “just don’t get” is that folks don’t NEED to be productive “in the system”. That they don’t NEED to participate in the economy. Make it unpleasant and they can leave. Stop them from leaving and they can just be lazy. Force them to work and, to quote a soviet citizen “we pretend to work and they pretend to pay us”.
But leave someone alone and they just love to be working on their grand dream. (I spent thousands of hours working out a market trading system… no, make that tens of thousands… because I wanted to and it’s mine… I bake bread because I want it home made. While I pay a mechanic to fix my car, I can do it myself if it becomes too expensive due to social fees loaded into the market.) You can not force people to be productive, but leave them alone and they will be.
So I’m expecting a lot of folks to just step back and watch the “splat”. It’s what’s happening in California. Venture cap left. Rich and Mobil folks left. Jobs left. Now even mid scale business is packing up. A local bullet casting company moved to Nevada about 10 years ago due to the pain involved in using lead in California. They were early. Half of my siblings moved to Nevada (I’m late).
California just dispatched a “delegation” to Nevada to find out “why so many folks are moving to Nevada”. Maybe they will catch a clue… In the mean time my mechanic is talking about Brazil (his wife is from there), my neighbor is moving to Ecuador, and I’ve been given the OK from the spouse for 1 1/2 years from now when kids college is done so we’re looking at: Texas (family), Florida (friends), S. America (friends and novelty), or ??? And until then, not one dime spent here that I can stuff in the sand somewhere else… With luck, California will splat so loudly they will even be able to hear it in DC and on the LEast Coast… And give pause…
But rest assured: If something interesting breaks out in Texas, I can be there in about 30 hours to “hep out” … I’m keeping the wagon fueled and loaded with the “bugout bag” which is what we call your shtf bag out here. My Texas Uncle has a spare room and keeps asking us when we’re moving out and what’s keeping us… The Montana law about “made in Montana for Montanan’s — Feds go pound sand” is being replicated in Texas and, well, I’d just LOVE to participate in THAT movement :-}
John Galt (11:47:36) : As I understand, this really isn’t a tax increase because you will be reimbursed for the cost through increased government services.
Oh God Please NO! The last thing I need is for this Government to “service” me again… I haven’t recovered from my last “servicing” …
E.M.Smith (22:27:31) : & E.M.Smith (23:56:28) :
Very interesting!
Cheers G
Roads (12:17:15) : Oil prices rose to $147 and the economic crisis was seeded when Bush was in power.
This is confounding 3 unrelated things. Now I’m no fan of Baby Bush (he was OK I guess, but spent like a democrat), but the “economic crisis” was seeded by a slew of democrats and planted by the Clintons when they signed the 1999 changes to the (already broken) CRA Program. Bush in office had little to nothing to do with it. (He was busy playing world saviour in Asia…)
Oil rose to $140+ because of an economic boom and China needing to buy all the oil it could to run the electric generators to make all the crud we were buying from them AND fill their new strategic reserve. FWIW, while traders have a small impact, it follows the natural direction it doesn’t lead it. Oil was not driven up by traders, it was traded up due to demand. Notice that it was traded down just as fast when China stopped buying due to 1) The Olympics hiatus. 2) Economic slowdown. 3) They finally started to get enough coal and hydro on line to shut down some of their Diesel generators.
Oil is a (short term) highly price inelastic commodity. It moves A LOT in price with minor changes in the demand / supply relationship. Longer term, it is more elastic, so the trends run a long ways, then collapse (either UP or DOWN yet no one complains when oil drops from $140 TO $28 … )
For years, Bush had ’spared’ the US automakers the inconvenience of investing in higher environmental standards, including the decision to back off from implementing specific mpg targets.
Last I looked we had rather strict smog standards. You confound “environmental standards” with mpg. Two different issues.
In the short-term, that might have seemed like a gift to US car manufacturers, but it was incredibly short-sighted. Because when the oil price rose and gasoline costs increased in 2008, pretty sensibly no one wanted to buy fuel-inefficient cars any more and those companies simply collapsed.
Nice theory. Completely wrong. A Mercedes is NOT particularly a low fuel low cost car. They are made in America, just fine thanks. Ditto BMW. Toyota has added their largest truck yet – a Full Sized pickup. My Sister-in-law just bought a monster Honda (something… Odyssey?) that seats 6 or 7 and carries a ton of junk. Full sized van as near as I can tell. Honda, you know, made in America?
What distinguishes the GM / Chrysler from the Mercedes / Honda is their UAW contract and “legacy costs”. It’s the 2 x labor cost and the $2700 / vehicle ‘retiree’ costs that sunk GM. That forced them to make lots of “high margin” cars that tended to be large. It also forced them to make “cheapen the product” decisions. Between these two you get expensive barges that were not always very well made and had cheap quality decisions. Near nothing to do with gas milage. (The insurance on a new car costs more than the gasoline… )
I have an old V8 Mercedes sports car that gets 16 MPG on a good day. 14 on a bad one. I would not think of trading it in on a brand new GM product, even if the new one got 30 MPG. The GM product is a 5 year car. Mine is a 5 DECADE car. The sales tax plus $2700 retiree cost together will, invested in a nice oil trust like LIN or PGH pay for my fuel costs for the car FOREVER. (This is not a theoretical. I own PGH and PWE in sufficient quantity for the dividends to cover my fuel costs… If oil goes up, I get more dividend, if it goes down, I need less… it’s a very well matched “hedge”.)
GM and Chrysler were pushed to the wall by labor costs and did not have the room to survive a normal business downturn as has happened about every 10 years their entire existence. Ford was better positioned due in large part to their more frugal ways and not having as many retirees as GM per new car sold; but they are still at some risk. They focused more on “work trucks” and that market is more stable (i.e. they make big gas sucking trucks because it is a better strategy.)
The oil price today is $61. When you bear in mind that it has only exceeded $70 for 12 months in the whole of economic industry, then today’s ‘low’ oil price looks an awful lot higher. And it’s $61 in the middle of the worst economic crisis the world has seen for decades.
It’s $61 now because the dollar is tanking against all major currencies and the OPEC members maintain a nominal dollar price scheme but clearly try to maintain the real value of their revenue stream. (I’ve traded oils long enough to know that I have to watch the Euro to ‘have clue’. It looks to me to generally track the Euro on a day to day basis, but longer term tracks global economic production levels. The present price is neither “high” nor “low”.
In that perspective, a move towards more fuel-efficient vehicles is not only desirable. It’s going to be financially unavoidable for each and every one of us.
Not at all. I will be keeping exactly the present fleet I have until I die, or the car dies. I might add a large truck if I get a farm in 2 years. Under no circumstances will I be buying a light weight econo anything NOR WILL I WANT TO regardless of fuel costs. And not just because my fuel is hedged in my investments.
I’m old enough to need the added protection a heavy car brings. You get more brittle as you age and don’t heal as well. 2 ton+ is what I’m going to be driving. The ride comfort also matters greatly to us.
The cost of the new econobox is just too darned high. I’d have to pay more in reg fees and insurance each year than my TOTAL fuel bill now. Why bother?
Fuel costs are IRRELEVANT compared to all the other parts of the total cost of ownership and will stay so even if doubled and doubled again. Now, I don’t have a car payment, but I do see them from time to time. Several hundred dollars a month. Vastly more than the fuel bill… Why would I want that?
So you have a conundrum: Anyone who can afford to buy a new car, does not need to pay attention to the fuel costs. Anyone who must worry about the cost of fuel consumed, can’t afford a new car. Notice the word “must”. You might still CHOOSE to worry about it because you want to feel like you are being prudent. That does not change the truth that gasoline cost is not relevant. People buy the car they want. (Notice that Mercedes still sells lots of large cars with big engines in countries with high fuel costs…)
And this, BTW, is why fuels and oil are so price inelastic. Price has to rise a great deal to find someone who cares enough to cut back their use. Most of us just don’t give a dang…
Also, FWIW, the major issue in the oil market is TOO LOW a price. IFF we could hold oil over about $80 / bbl on a consistent basis there are a half dozen companies ready, willing, and able to provide all the motor fuels you want from non-oil sources (mostly coal, but trash, trees, algae all work).
Without OPEC and government intervention, gasoline and Diesel could never rise over about $3 / gallon due to the well proven alternatives.
Hans Kelp (12:25:37) : I fear that at some point not so far away in the future we will read about Americans fighting Americans in the streets because the tensions will grow as the populace finds out they are being taken for a quite ruinous ride by the politicians.
No Worries! I’ve yet to find anyone willing to take up arms to defend the poiticians! 😉 So there won’t be much fighting…
James P (12:25:57) : This seems relevant..
http://en.wikipedia.org/wiki/Jevons_paradox
Yes, but, this one is less afflicted by the AGW Langoliers:
http://chiefio.wordpress.com/2009/05/12/jevons-paradox-coal-oil-conservation/
E.M.Smith (22:27:31) : made a great post. Is the original law you cite the one we paraphrase to NINJA -no income no jobs no assets?
I think the best documentary on the crisis was ‘Its a Wonderful life’ with James Stewart. It illustrates what happens when people panic and try to realise assets immediately that were never intended to be realised immediately.
Tonyb
RayB (15:14:46) : His tax pledge is worthless too, my cig taxes went up 18 days into his presidency. It was particularly targeted at the very poorest of smokers, the RYO guys, who’s can of Tops went from $13 to $38 overnight.
RayB, ever consider growing your own? I ordered some seeds for about $3 a few years back just to see how hard it was. It’s easy. At least here in California it grows like a weed. In fact, I planted a couple of plants once and never since. Now, after 5 or 6 years of sporadically pulling them out, I have 4 nice volunteers that grew on some of the most hard untilled dirt I’ve got with no tending at all.
The ones I ordered were Nicotiana Rustica (as opposed to tabaccum) since the article said it had 4 to 10 times the nicotine. I don’t smoke (my interest was mostly as a natural pesticide – tobacco tea works well!) and secondly as a “cash crop” if we ever had armageddon 😉 These are only about 2 to 3 feet tall and grow fine in a moderate pot. Not 8 footers!
Well, one plant that I pulled up was left draped over a pole in the shade on the N. side of the house last winter. Seems to have ‘cured’ OK. I tried a “chew” and it definitely gave me quite a rush! Not much flavor, though.
My point behind all this? At $5+ / pack, you might want to think about dodging the taxes. Just google “Tobacco seed” and stand back!
(Any thing I can do to help hasten the end of this tax tyranny… even promoting a habit I don’t like… )
It’s been at least 4 days, must be time for another “Economics is the dismal science for a reason” comment…
jeez (20:10:51) : It’s actually very debatable if decreasing smoking causes any savings in health care costs.
It is actually rather well shown that increased deaths from smoking reduce health care and retirement costs (both separately and together) significantly. I remember discussing this in one of the mandatory classes for the Econ degree, but don’t remember which one. I think it was the ethics section of Macro? At any rate, the specific point was covered that smoking kills after about 30 to 40 years of smoking. If someone starts at about 20, they die just after their major productivity and just before their long resource consumption.
Also, unfortunately, I can give personal testimony to the brevity of life after lung cancer is diagnosed and the low consumption of health resources in treating it (due to a family member who smoked… and died).
There was a specific discussion of when, in the course of advancing to modernity, a society could “afford” to promote non-smoking and what would happen to total deaths if non-smoking started too soon such that economic growth were slowed from the increased demand for ‘old age benefits’ and so others continued to die from poverty and / or more medical care was siphoned away from such things as neo-natal and well baby care.
Everyone dies, putting off the costs so that a person lives longer and is constantly fighting the diseases of the elderly, prolonging the health costs over many extra years is not likely to result in a net savings and far more likely to create a much greater drain on the health care system. There are lots of truisms like this that people rarely think critically about. For example, the increased drain on the social security fund from prolonging the life of people no longer contributing to it after retirement.
BINGO! Exactly right. The reduction of smoking is a net cost to the society. It increases total healthcare costs (rather a lot) and retirement costs very dramatically. There is a minor increase production during the longer life.
Does this mean that prolonging life is bad? Of course not, but we shouldn’t let poorly thought out arguments about societal costs enter into the discussion.
Economics is full of paradoxes and “upside down” answers that are the exact opposite of what a reasonable person would expect. (Part of why I liked it…) This is because people are feedback systems and have interesting feedback amplification / inversion behaviours…
Raise tax rates, get less tax revenue.
Raise engine efficiency, use more fuel in aggregate.
Reduce smoking and have more health care costs and consumption.
Reduce smoking and have lower economic growth and greater poverty.
Cap Carbon Dioxide and reduce the cap each year, get more CO2 via China.
It’s a very long list…
The beauty of markets is that they don’t confuse themselves with what they think ought to happen, they just signal what is really happening even when you don’t (or can’t) know why… It is important to keep a tidy mind and keep truth from being overrun by what you would like to think instead.
(My Bias: My father died from lung cancer from smoking. I do not like the behaviour. I have some allergic reaction – thankfully much less than it was in the past. I would happily live in a smoke free world and never want it in my face against my will – such as at work. I will also defend the right of any adult to choose to smoke and their right to do so in their own car, home, or other personal space; and I will do so against all comers. A smokers right to smoke only ends at my nose. To not see that is to advocate tyranny, and even the smallest of tyrannies will only grow; until it has formed tyranny against the freedoms of all. )
Like we had in the 70’s..
I liked those cars..
http://farm4.static.flickr.com/3627/3550570187_ef76915bb8_o.jpg
You want a carbon footprint? I’ll show you a carbon footprint! 🙂
Smokey,
as the resident historian, and i give that to you as a complement,
didn’t Ayn Rand write in detail decades ago of the present and not to distant situation?
Perhaps the Obama education was about loud speak and self praise, its obivious what others think is not part of his education.
TonyB (01:58:02) :
E.M.Smith (22:27:31) : made a great post. Is the original law you cite the one we paraphrase to NINJA -no income no jobs no assets?
The type of loan that the law enabled is called NINJA, the law itself is CRA.
I think the best documentary on the crisis was ‘Its a Wonderful life’ with James Stewart. It illustrates what happens when people panic and try to realise assets immediately that were never intended to be realised immediately.
Exactly! “Mark to Market” basically said that the bank had to “return everyones money” once a quarter or so by imagining that it sold all the homes on that day and that it had to have enough “value” in the market on that day to survive the sell out. Same problem, different clothes…
Tonyb
Yes, but, this one is less afflicted by the AGW Langoliers:
http://chiefio.wordpress.com/2009/05/12/jevons-paradox-coal-oil-conservation/
Thank you, EM Smith – I hadn’t realised that the WP article had been nobbled. Langoliers were new to me too, so I’m learning, although I can’t help feeling that there should be a comic opera in there somewhere.. 🙂
The BBC newsnight programme runs a regular report called ‘ethical man’ in the USA, basic premise being – has America caught the agm/climate change bug yet?
Well under the new President it seems so, lasts nights programme had good ole Jim (Hansen) marching with some college kids in an anti coal message/themed demo’, no coal is our goal etc and attempting to close a coal fired power station in Washington D.C.- they did not succeed.
Has the last great bastion of democracy succumbed to the crazies?
We have in England an educational policy which falsely inculcates children into the global warming theories of Gore and Hansen, without the counter arguments being taught, this is an appalling omission, and could be construed as (government UK+EURO) propaganda-(it is to my mind). Incidently Anthony the WUPWT site cannot be accessed in some educational institutions and Government offices here in the UK- they are blocked- now that is censorship to my way of thinking.
Are educational establishments particularly schools now ‘brainwashing’ children in the States? – I sincerely hope not. Yes! tell the people about the theories both pro and con and let them form their own opinions!!!!
Tom, (disgruntled and worried).
Now, I don’t have a car payment..
Well said again, EMS. We don’t normally do bumper stickers in the UK, but messages sometimes appear in rear windows – a popular one in old cars a few years back read, “This car may not be fast, but it’s paid for and it’s in front of you”.
Since 70% of new vehicles here are company owned and few can afford to buy their own new car outright, it probably hit the spot.
We have two Mazdas with a combined age of 37. Mine has full leather, a cream-smooth V6 and cost £600 two years ago. I will keep it going until something expensive breaks…
E.M.Smith (20:05:59) :
Jon, we care a great deal about future generations. I have kids, and would die before letting them suffer deprivation. It’s just that we know that the “running out” belief is broken. We “rapidly dwindle” out of oil in about 100+ years, maybe longer, but have all the energy the planet could ever need, forever. See:
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Can I assume “we” refers to the majority of contributors to this blog?
So what was the Iraq war all about if oil is so plentiful … don’t tell me weapons of mass destruction … was it worth all those deaths??? The article you posted admits that supplies will be dwindling in 100 years time so where is all the oil going to come from then for our future generations! These resources are finite are they not?
Jon