Michael Klare lays out how the bursting financial bubble and the escalating price of oil are combining to destroy the “non-negotiable” American Way of Life. Sorry, Mr. Cheney, market forces at work! (btw, Michael Klare was a councilor at the summer camp I went to as a kid in 1963…he was one of the cool guys.)
Something Had to Give: How Oil Burst the American Bubbleby Michael T. Klare
The economic bubble that lifted the stock market to dizzying heights was sustained as much by cheap oil as by cheap (often fraudulent) mortgages. Likewise, the collapse of the bubble was caused as much by costly (often imported) oil as by record defaults on those improvident mortgages. Oil, in fact, has played a critical, if little commented upon, role in America’s current economic enfeeblement — and it will continue to drain the economy of wealth and vigor for years to come.
The great economic mega-bubble arose in the late 1990s, when oil was cheap, times were good, and millions of middle-class families aspired to realize the “American dream” by buying a three (or more) bedroom house on a decent piece of property in a nice, safe suburb with good schools and various other amenities. The hitch: Few such affordable homes were available for sale — or being built — within easy commuting range of major metropolitan areas or near public transportation. In the Los Angeles metropolitan area, for example, the median sale price of existing homes rose from $290,000 in 2002 to $446,400 in 2004; similar increases were posted in other major cities and in their older, more desirable suburbs.
This left home buyers with two unappealing choices: Take out larger mortgages than they could readily afford, often borrowing from unscrupulous lenders who overlooked their overstretched finances (that is, their “subprime” qualifications); or buy cheaper homes far from their places of work, which ensured long commutes, while hoping that the price of gasoline remained relatively low. Many first-time home buyers wound up doing both — signing up for crushing mortgages on homes far from their places of work.
and the San Francisco Chronicle tells us that:
From 2003 to 2006, the last year for which complete data are available, the world’s oil production grew 6.25 percent, to reach 84.6 million barrels per day, according to the federal Energy Information Administration. But demand for oil grew faster, pushed by the growing economies of China and India. Worldwide demand rose 6.43 percent to 84.73 million barrels per day.
Can you say, “Peak oil,” boys and girls?
And in other news from the left coast, the LA Times writes:
Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They’ve been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now “upside down” — the total debt on the home exceeds the market value of the property.
That was very good, the way you said “Peak oil.” Now, can you say “Peak credit?”
and now for the punch line:
BANANA REPUBLIC–WITHOUT THE BANANAS–OR THE REPUBLIC
By Bill Bonner
The feds can try to play out more lines of credit to strapped families, but what they are really doing is giving them more rope with which to hang themselves. The real problem is that American wages have not kept pace with inflation…which means, the average American is not as rich as he used to be. He can only pretend to be rich…by exchanging more of his leisure time for dollars…and by borrowing. Both of those “coping mechanisms,” as Robert Reich called them, are now exhausted. Now, he’s going to swing.
Over the last 30 years, Americans believed they were on top of the world. Everybody said so. And, logically, they should have been. It was post Reagan Revolution, with the most modern, most capitalistic economy in the world…with the latest technology, with the world’s best brains, with the top schools, and with Wall Street to “allocate capital” in the best possible way. If workers couldn’t get ahead in this economy, they couldn’t get ahead anywhere. At least, that was what people believed.
But capitalism is a jungle, we keep saying, not a zoo. It lets animals get fat, but only so they can be eaten by hungrier beasts.
Which is why I am no fan of capitalism…Karl Marx said, “religion is the opium of the people,” and our economic religion has certainly lulled a lot of people into a false sense of security. Time to wake up!