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By Robert Rapier on Aug 8, 2011 with 103 responses

When Falling Oil Prices are Bad News

Economic Heartache

Normally, consumers consider falling oil and gasoline prices to be good news. They have to pay less to fill up their tanks. And if the reason for that is that oil supplies are increasing at a rate faster than demand is increasing, it can indeed be a good situation for consumers, and good for the economy.

But here’s the bad news: That is not the case today.

Oil prices fell last week to below $90 a barrel, their lowest level in six months. I think oil prices are likely to fall further in the short term, and gasoline prices won’t be far behind. While this news alone does mean that consumers will get some relief, the broader picture is grim. The reason oil prices fell by so much is not because a lot of new production came online, but rather because the economy is very sick, and a lot of people are out of work. Economic activity continues to be weak, and that means demand for oil is expected to be weak. In short, not as many people can afford oil and the things made from oil.

However, oil is a global commodity, and some economies continue to boom. Therefore, I don’t expect prices to go down and stay down. Growth in just China and India will see to that. And thus we have a dilemma that led me to the Long Recession hypothesis. It essentially says that when there isn’t much spare oil production capacity, growth in developing countries will tend to keep oil prices high. But high oil prices are a drain on economies that are highly dependent upon oil (like the United States). Thus, if oil dependent countries are in recession during a time that oil production capacity isn’t growing (or worse, shrinking), they are going to have a pretty tough time coming out of that recession. (More details on my reasoning can be found here).

Or a simpler way to put it is this. It may be that the U.S. economy and our per capita oil consumption of 23 barrels of oil per person per year can’t grow in the face of $100 oil. But if countries like China and their 2 barrels of oil per person per year continue to grow while buying $100 oil, then we have truly entered a new paradigm. What may happen is that both China and the U.S. end up consuming 5 or 8 barrels per person per year, which could still grow China’s economy, while the U.S. gets there by shrinking ours. In my upcoming book, I address what I believe are the most serious energy-related threats to the U.S. economy in the years ahead. China’s growth is probably the most worrisome factor because we will be competing against them for global oil supplies.

George W. Bush, Barack Obama, and the U.S. Deficit

Some would argue that oil isn’t the biggest story here. And certainly there are plenty of other issues at play. Over the past decade, the United States went on a spending spree, and yet our taxes were cut at the same time. Our deficit ballooned. And while I gave my reasons recently for thinking that President Obama’s tenure has and will continue to be mediocre (which even his staunch supporters are starting to acknowledge), let’s not pretend that he created this situation. He might not have done a lot to make it better — and one can argue that he made it worse — but it was clear when he took over that he had his work cut out. It wasn’t like he was handed a robust economy and then ran it into the ground (it is much easier to argue that Bush II did just that). I commented many times during the presidential campaign that whichever candidate won had a very difficult presidency in store. I thought Obama would win, and the night before the election I wrote “He is going to preside over a difficult four years.” I think we can safely say that this has been the case so far.

Why did I believe that? Oil prices were one thing. I thought they would continue to be a drag on the economy; that as the recovery gained steam high oil prices would again slow things down. But I also felt like our deficit spending had gotten totally out of control, and after President Bush finished his spending binge someone was going to have to make some very tough decisions to keep the United States from declining into mediocrity. It would take political leaders with courage.

The New York Times recently published a story on exactly how the deficit got so out of control. In that story was a graphic comparing the deficit contributions of President Bush and President Obama:

That is pretty shocking. There is one obvious flaw in that graphic, and that is that one is based on 8 years of the Bush Administration, and one is based on 2 and a half years plus projections for future years under Obama. It could turn out that 8 years of an Obama Administration will add as much or more to the deficit, but one thing is indisputable: President Bush spent a lot of money on his priorities without coming up with the revenue to pay for them — either through tax increases or by cutting other programs. That was irresponsible, and we will pay for those decisions for years.

Some have argued that the budget deficit as a percentage of our overall gross domestic product (GDP) was pretty typical under Bush. We can check that as well. From the Wikipedia article on United States public debt:

That graphic shows that the deficit (relative to GDP) under Bush II had begun to grow shortly after he took office, and after falling under Clinton. To be fair, that also coincides with the slowdown after the 9/11 terrorist attacks and then we went immediately into war with Afghanistan. The deficit grew throughout the Bush Administration, but then really took off as the recession started to bite and Bush went on a spending spree to kick-start the economy. Under Bush we had the TARP bailout, the Economic Stimulus Act of 2008, ongoing wars in Afghanistan and Iraq, and a Medicare drug entitle­ment — to name a few — and we left the bills for our children to pay.

The most shocking thing on that graphic was to see deficits falling under Democrats and increasing under Republicans. Given that Democrats are considered the “tax and spend” party and Republicans are traditionally presented as the fiscally conservative party, that graphic is a shocker to me personally. One caveat that should be noted on that graphic though: If I understand the disclaimer correctly, the way they draw the borders on the administrations extends into the following administration. So if I understand it correctly, the end of the Clinton graphic was actually 9 months into Bush II’s term, and the end of Bush’s graphic was 9 months into Obama’s term (the end of the Oct. 1st fiscal year that began in the predecessor’s term). The reason given for that is that the previous administration’s budget is primarily responsible for the deficit behavior until the end of the fiscal year.

Of course President Truman did manage to take a similar situation — a deficit that exploded with World War II — and turn that around. In doing so, his administration was so unpopular that people were stunned when he was reelected. But besides presiding over lots of labor unrest, President Truman also presided over a country where oil production was growing rapidly and contributing to the overall economy. At present, our oil consumption is draining money from the economy by sending a lot of money out of the country.

The Weekly Standard has a different take on who is mostly at fault:

Obama Vs. Bush On Debt

When President Obama took office two years ago, the national debt stood at $10.626 trillion. It now stands at $14.071 trillion — a staggering increase of $3.445 trillion in just 735 days (about $5 billion a day).

To put that into perspective, when President George W. Bush took office, our national debt was $5.768 trillion. By the time Bush left office, it had nearly doubled, to $10.626 trillion. So Bush’s record on deficit spending was not good at all: During his presidency, the national debt rose by an average of $607 billion a year. How does that compare to Obama? During Obama’s presidency to date, the national debt has risen by an average of $1.723 trillion a year — or by a jaw-dropping $1.116 trillion more, per year, than it rose even under Bush.

I post that to show that there is plenty of blame to go around. Democrats who blame Bush are partly right, and Republicans who blame Obama are partly right. But at the end of the day, it doesn’t matter which guy was bad and which was worse. Each has made a major contribution to this mess.

When the Bills Come Due

So where do we stand after this decade-long deficit spending spree? At the end of last week, as the stock market was crashing, it was reported that the jobless rate fell, seemingly positive news. Not so fast, said USA Today:

It’s a product of something the government calls “discouraged workers,” or those who were unemployed but not out looking for work during the reporting period.

This is where the numbers showed a really big spike—up from 982,000 to 1.119 million, a difference of 137,000 or a 14 percent increase. These folks are generally not included in the government’s various job measures.

So the drop in the unemployment rate is fairly illusory—stick all those people back in the workforce and you wipe out the job creation and the drop in unemployment.

Following that, the credit of the United States was downgraded by Standard and Poor’s for the first time in our history:

S&P said that in addition to the downgrade, it is issuing a negative outlook, meaning that there was a chance it will lower the rating further within the next two years. It said such a downgrade to AA would occur if the agency sees less reductions in spending than Congress and the administration have agreed to make, higher interest rates or new fiscal pressures during this period.

In its statement, S&P said that it had changed its view “of the difficulties of bridging the gulf between the political parties” over a credible deficit reduction plan.

S&P said it was now “pessimistic about the capacity of Congress and the administration to be able to leverage their agreement this week into a broader fiscal consolidation plan that stabilizes the government’s debt dynamics anytime soon.”

This downgrade will cause interest rates to tick up, which raises the cost of borrowing money and impacts government and consumers alike. It is an additional drain on an already anemic economy. The Obama Adminstration cried foul over the downgrade, but what did they expect? If a person borrowed more money year after year than they earned — and then started openly discussing default — would we expect anything differently? (To be clear, I am not blaming Obama for the default talk). Instead of criticizing the downgrade, I think what Obama probably should have said was “What did we expect? Look at the debt-reduction fiasco that just played out. It is a strong signal that we need to get our fiscal house in order.”

Conclusion: Cloudy With Thunderstorms Likely

I honestly see no easy way out of this mess. Spending will have to be cut, and nobody wants to lose out on money being spent on them. By almost every credible analysis I have seen, taxes are going to have to be raised — because we have to pay for things we spend money on. But nobody wants to see their taxes raised either.

There is going to be an enormous amount of lobbying as groups seek to have the pain pushed off on to other groups. The President and Congress are going to work against each other because they have different ideas of what is needed to address the issue. Meanwhile, neither side has put on the table anything that can realistically bring the deficit back under control in the foreseeable future. That will take real pain, and politicians don’t like to bring the pain. It is hard on their careers, so it will take courageous leadership to do the right things.

I would really like to see a publicly televised discussion where leaders from both major parties stand up, show the data, and then present their solutions. Instead, all we get are sound bites: “Democrats want to raise your taxes!” or “Republicans want to take away your Social Security!” I saw a recent CNN story where John King broke down the spending of the United States (video here), and showed the different scenarios of what might have to be cut if the debt ceiling was not raised. It certainly appeared to me that the cuts would extend deeply into programs that impact the majority of Americans, so this is the information I would like to see presented and discussed by the political leaders. If a program is wildly popular but still putting the country into a deep deficit hole, then raising taxes must be on the table. If raising taxes is not on the table, then the politicians keeping it off the table have to offer the specifics on what they would cut in order to bring revenue in line with spending.

Some people think things aren’t so bad. I heard one talking head predict that we were about to come out of recession. I disagree. I think things are worse than most people believe, and I am more convinced than ever that the Long Recession will continue unabated. I am with that list of people documented here — Ben Bernanke, Alan Greenspan, George Soros, Paul Krugman (Nobel Prize in Economics), Joseph Stiglitz (Nobel Prize in Economics), Nassim Nicholas Taleb (author of The Black Swan: The Impact of the Highly Improbable – a fantastic book that I read in 2007) — who believe that the ongoing economic crisis could ultimately be worse than the Great Depression.

In conclusion, I am not — nor have I ever been — a Doomer. But I don’t see a lot to be optimistic about over the economy, and I think we are going to endure tougher times ahead.

  1. By EDward Kerr on August 8, 2011 at 7:52 am

    Mr. Rapier:
    Thank you for a well written and thought provoking article. While you outline the problem well it appears that NO EASY solution appears on any horizon. The problem, in my opinion, has a relatively simple though traumatic solution. First, we must examine this crushing debt and consider why we have it. The short answer is: malfeasance in present and past congresses. They have plundered every saving/resource that they could place their hands on to send pork back home (It’s what they promised to do) while lowering taxes irresponsibly (also promised to do) then borrowed every cent that they could. All the while knowing that they would never pay those debts back in any REAL sense as they knew that the FED would continue to inflate the money supply thus making repayment actually less than what was borrowed. Criminal, to be sure, as inflation acts an an internal “hidden” tax on those citizens least able to pay and helpless to do anything about it (even if they understood the mechanics behind the illusion)

    Since the national debt is a bifurcated situation, we need to examine exactly who we owe to and how much. At this time about half of the debt is owed to the Fed (a consortium of PRIVATE banks and other interests) with the rest owed to foreign governments most notably China, Japan, Brazil and the UK. Those debts are legitimate. The debt owed to the FED, on the other hand is not.

    So, here, in a nut (and I guess I am) shell is my traumatic solution. If I were GOD for 10 minutes I would nationalize the fed. Repudiate that part of the debt and then go on a real and necessary ‘SPENDING SPREE”. That spending would be for several issues that we are going to need to spend on anyway. (1) developing a totally sustainable energy system (2) with the focus being on the environment and mitigating CO2 and (3) rebuild our infrastructure with the main focus on a, so called, SMART GRID.

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  2. By EDward Kerr on August 8, 2011 at 8:00 am

    kinda cut myself off there.
    Caveats. My solution is obviously only a dream. True the situation with the FED is illegal as “the congress shall coin money and regulate the value thereof”. Not a private bank. Problem is, even though the guys at the fed are criminals they know what they are doing. The congress, on the other hand, are, in the main, idiots and wouldn’t have the foggiest idea of how to regulate an economy.
    So we are, as you note “going to endure tougher times a head.

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  3. By me on August 8, 2011 at 10:14 am

    I am not a Dem or a Rep. The President himself cannot just start spending or just stop spending. You need to see who was controlling the congress during those spending years and who voted for the spending. I think sometimes the compromise between the Dem and Rep is what creates our problems. We end up doing it half ass. It is like a business who is at the beginning of a failure and they keep telling them self that they just need to spend a little bit more or they need to spend a little less to fix things and then boom they file for bankruptcy or close down. It would be interesting to see what would happen with either side doing completely what they want to do. (which could be bad for the USA) Now everyone has a opinion on which way is better for the economy but because both sides have to negotiate – the side that wins only gets to do half of what they said needs to be done. Now for one thing I do not understand why the Dem did not do what they would have like to do when they controlled congress and the pres side of things. We could have then found out how bad or good it would have been for the country.

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  4. By rufus on August 8, 2011 at 10:27 am

    It looks as if, in the near to medium term (say, 10 yrs.) our economy is going to resemble a Descending Sinusoidal Wave.

    Lower Highs, and Lower Lows.

    Note: Our highest GDP in constant dollars, to date, was the 4th qtr of 2007.

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  5. By Kit P on August 8, 2011 at 10:55 am

    Thank God for Obama. Finally in my lifetime we have world peace. This ‘change’ was overdue. The Noble committee had the foresight to award the Noble Peace Prize to another Jimmy Carter!

     

    Renewable energy is booming too. Thanks to Obama all those ‘shovel ready’ renewable energy projects are not tied up new regulations. This ‘change’ was overdue.

     

    One of the first accomplishments was putting a stop to the solutions to spent nuclear fuel. It is good to bring science back to the Whitehouse. This ‘change’ was overdue.

     

    Second, was sweeping new energy policy published on the internet if the first few months of the admin. Kudos to the VP, Secretary of Energy, and the team that put it all together so fast. This ‘change’ was overdue. Secrecy has replaced by action.

     

    Thanks to Obama the economy is better too. This ‘change’ was overdue.

     

    Since Obama has fixed all those things that Bush screwed up, his job is done.

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  6. By Wendell Mercantile on August 8, 2011 at 11:35 am

    One of the first accomplishments was putting a stop to the solutions to spent nuclear fuel.

    Did the Obama Administration ever make an alternative proposal after killing Yucca Mountain, or do they think something will magically appear?

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  7. By rufus on August 8, 2011 at 11:43 am

    If, as I suspect, history will show that this “recovery” topped out at a lower level than the previous high before heading back down we will, officially, be in, as Robert puts it, “The Long Recession.”

    This is my, personal, bet.

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  8. By Wendell Mercantile on August 8, 2011 at 12:21 pm

    This is my, personal, bet.

    And with nine casinos in Tunica, you know bets, right? Wink

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  9. By Ralph on August 8, 2011 at 12:26 pm

    I thought the release of our oil reserves was the main reason for prices falling? This is a very short term limited fix that still keeps America sucking hard on the oil tit over the long haul. Putting solar energy on the rooftops of America, along with promoting the use of electric vehicles will do more for the economy than these “band aid” type fixes. Get some of the energy dollars out of the greedy hands of the billionaires and into the pockets of average Americans. An extra $300-$400 a month in every citizens pocket every month from using renewable energy would be a great boost to the economy. Getting our military out of the oil price protection business at the same time, will save trillions.

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    • By GreenFreaksSuck on March 23, 2012 at 12:48 pm

      Where did your average $300 to $400 per month in the pockets of average Americans come from?  Got any credible studies to prove it?  It’s not time to put all our eggs in one basket, because as you know, all our American Solar Co’s. are going bankrupt and the President is doubling down on them with our hard earned tax money that we don’t have.  Why don’t we invest in cheaper and cleaner energy like natural gas as an option first?  Last I heard was that natural gas is like under $2.00 per gallon.  It’s not time yet for solar power, unless someone can make the panels cheaper and more efficient.  How about hydrogen?  2/3 of the planet has all the water we need for that.  We’re as close to having practical solar energy as hydrogen power technology right now which is nil.

       

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    • By GreenFreaksSuck on March 23, 2012 at 12:51 pm

      BTW, how do you suppose we get our electricity today for electric cars?  You gotta plug them into an electrical socket to charge them.  Where does that electricity come from for the most part?  COAL!

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  10. By rrapier on August 8, 2011 at 12:38 pm

    Ralph said:

    I thought the release of our oil reserves was the main reason for prices falling?


     

    No, the oil price initially dipped but then rose back up higher than it was before the release was announced. This free fall only started as the debt talks began to drag on and was accompanied by much bad economic news and a crashing stock market.

    RR

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  11. By Wendell Mercantile on August 8, 2011 at 1:01 pm

    I thought the release of our oil reserves was the main reason for prices falling?

    Ralph,

    Releasing oil from the SPR had only a short term effect. It just meant we will have to refill the SPR with more expensive oil later — oil we can’t afford.

    More than a month after the Obama administration said it would tap the country’s emergency oil reserve to try to combat supply disruptions in the Middle East, gas prices at the pump actually have risen 10 cents.

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  12. By Benny BND Cole on August 8, 2011 at 1:04 pm

    Oil is headed for $80 a barrel, maybe lower.

    I disagree with RR on one aspect of this: I contend oil is always vulnerable to price drops when it gets close to $100 a barrel.

    At that price, conservation, alternative fuels and new production are very compelling. I have stated we have already hit Peak Demand for crude oil, and so far I am right on that.

    Today’s economic problems are much more related to our monetary policy and accumulation of debt. Sheesh, I wish the problem was was oil. That problem is easily solved. The price signal does wonders.

    Try getting Congress to balance the budget, or to convince the Fed to get over its fetish for minute rates of inflation.

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  13. By rrapier on August 8, 2011 at 1:31 pm

    Benny BND Cole said:

    Today’s economic problems are much more related to our monetary policy and accumulation of debt. Sheesh, I wish the problem was was oil. That problem is easily solved. The price signal does wonders.


     

    Benny, I have documented before that over the past decade, we are sending $160 billion more dollars a year out of the U.S. to pay for oil. That is only from imports, and doesn’t include the sum total of the oil we use where high prices have taken a toll on everyone. You simply can’t put that kind of strain on consumers and not expect to see financial trouble.

    RR

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  14. By Kit P on August 8, 2011 at 2:07 pm

    “Did the Obama Administration ever make an alternative proposal after killing Yucca Mountain, or do they think something will magically appear?”

    A Blue Ribbon Commission was formed to take testimony on anything but Yucca Mountain. Two years later American’s brightest have determined that we should do something without being too specific. Well duh!

    Spent nuclear fuel is like AGW. How much do you want to spent to solve an the problems when the only people who are concerned about the problem are against all the solutions especially if the solution is in their backyard.

    I neglected to add AGW to my list of sarcasms. Wait for it!!

    It took to the middle of his first term to accomplish what Bush failed to get done. Obama pushed through sweeping legislation limiting the fossil use to pre 1990 levels. Inspired world leaders fell inline. China dramatically announced a cultural revolution returning coal use to the days of the cultural revolution.

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  15. By Benny BND Cole on August 8, 2011 at 2:28 pm

    RR–We share the view that it would be smart for the USA to conserve, and develop domestic sources of energy. A gasoline tax, or a tax on imported oil would do wonders.

    I resent the fact that we send gobs of money to unreliable oil-thug states, and then spend more gobs of money to protect our “interests” (relations with unreliable oil-thug states).

    That said, the import bill is not that bad. We will spend $1 trillion this year on Defense, Homeland Security and the VA. And in each of the 10 years after that, we will spend even more. That dwarfs the oil import bill.

    It gets way OT, but our Fed is choking our economy through tight money (we need steady quantitative easing).

    How bad is it? Oil could be soft for years, and it won’t help the USA. I hope my negativity is wrong, but it could be ugly.

    We have to deleverage through robust economic growth and moderate inflation–but right now, the right-wing has developed an absolute fetish for zero inflation rates.

    We could see oil in the $60 to $80 range for along time, and the USA will not rally in response.

    We have met the enemy and he is us: Our own fiscal and monetary polices.

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  16. By Techno on August 8, 2011 at 3:35 pm

    Let it go DOWN to $5 dlooars per barrel, let’s see what the station is going to charge us per gallon, I know everybody will be working again, and the economy will go up regardless of the f stock market

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  17. By Benny BND Cole on August 8, 2011 at 4:34 pm

    Oil hit $80 today. We have yet to see oil stay above $100 for very long. I don’t think it can.

    Demand for crude is flat to down.

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  18. By Wendell Mercantile on August 8, 2011 at 4:45 pm

    We have yet to see oil stay above $100 for very long. I don’t think it can.

    It certainly will as the U.S. dollar becomes more and more devalued. We are about to see the Fed print more money through another round of “quantitative easing.” Check the latest worth of the USD v. the Swiss franc. It’s at an all-time low.

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  19. By Roger Korby on August 8, 2011 at 4:50 pm

    Ralph said: Putting solar energy on the rooftops of America, along with promoting the use of electric vehicles will do more for the economy than these “band aid” type fixes.

    Great idea, Ralph, but this average income earner from Texas can not afford to put solar energy panels on my roof nor buy an electric car right now. I sincerely would like to go to the dealership today and trade my ’01 gas-sucking Expedition for a Toyota Prius. Yes, this conservative Texan would do that. My financial-reality can not afford it. I will take on no debt given the unstable reality of this economy. Real estate sales are at an all-time low. My residential and commercial properties are not selling unless I am willing to nearly give it away. Long-term recession? The Japanese went through a 20-year recession. I am beginning to believe we will experience that here regardless of who is in the White House. Buckle your seat belts, folks. We are in for a long and bumpy ride.

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  20. By rrapier on August 8, 2011 at 5:00 pm

    Benny BND Cole said:

    Oil hit $80 today. We have yet to see oil stay above $100 for very long. I don’t think it can.

    Demand for crude is flat to down.


     

    The problem, Benny, is that the U.S. is not the world. We can’t stand it because we use so much oil. Many developing countries can continue to grow because they use a fraction of the oil we do.  Imagine if Chinese oil consumption doubles. They will still only use 4 barrels per person per year compared to our 23. That’s why developing countries threaten to wreck the U.S. economy: They can afford to spend a lot more on oil because they use so little of it, but collectively they will likely drive prices much higher in the long term as they grow.

    RR

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  21. By rufus on August 8, 2011 at 5:59 pm

    Besides, the Actual, World Price of oil is $103.70, as measured by Brent Crude, as we speak.

    The present Wholesale Unleaded price futures translate into $3.40/gal, which is still higher than the price that started us onto this present road to recession.

    And, remembert, the U.S. and the IEA are Still pumping a Million Barrels of Oil a Day out of the various countries Strategic Reserves and into the market. That comes to an end in another 40 days, or so.

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  22. By mac on August 8, 2011 at 6:47 pm

    Look… Europeans have suffered through artificially high oil prices (taxes) for decades.

    That’s not why Greece is in trouble. Greece is in trouble because they spent more money than they had. (or could raise without further deficit financing)

    The EU Constitution stipulates that deficit financing on the part of EU member states should not exceed 3% of GDP.

    It’s that simple. While high oil prices may hinder economic growth they are not the root problem in Greece or the U.S.

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  23. By rufus on August 8, 2011 at 6:57 pm

    The Europeans have built up to those high oil prices slowly, through the years. As they were doing that they were moving to smaller, and smaller, more fuel efficient vehicles. They also drive many fewer miles to work, etc.

    Also, a significant amount of the high oil taxes are made up for by the fact that the governments pay for healthcare.

    It’s been proven many times, now, that when the “cost per mile driven” gets close to $0.20/mile America goes into recession. It is the ONE indicator that has never been wrong.

    (actually, there is another 100% indicator – a 0.5% rise in the unemployment rate – but, That one isn’t flashing, YET.)

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  24. By mac on August 8, 2011 at 7:31 pm

    Rufus,

    If Greece has gotten used to high oil prices over time, why are they now in trouble financially ?

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  25. By rufus on August 8, 2011 at 7:43 pm

    I’m not saying oil prices are the “Only thing, Everywhere,” Mac.

    Greece is in trouble for a Lot of reasons – way too numerous to go into, here.

    We have our share of other problems, also; but it’s gasoline prices that are sinking us “here, and now.”

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  26. By mac on August 8, 2011 at 7:53 pm

    Rufus.

    I hear you loud and clear. Yes, Greece has a lot of problems — perhaps there are too many tall, dark and handsome Greeks sitting around on beaches waiting for cute American, or Scandinavian or German “Blondes” to suddenly interrupt their Ouzo Beach Party ?

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  27. By rufus on August 8, 2011 at 8:11 pm

    :)

    They might have a problem, Mac. Them American Blondes’ daddies are getting kinda stretched, too. Looks like they might be going to Muscle Shoals this year.

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  28. By mac on August 8, 2011 at 8:23 pm

    Rufus.

    Yes…. There will undoubtedly be less “fraternizing” with the Greeks as airplane fares go into orbit as crude prices rise.

    Keep America’s Blondes Free from Greek Influence. Amen.

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  29. By rufus on August 8, 2011 at 8:39 pm

    It never did nobody any good sending “Baby” on a trip to the Mediterranean. :)

    Tha’s fer sure.

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  30. By rufus on August 8, 2011 at 8:43 pm

    I’ve gotta get me one of those “computers for dummies” books.

    I would dearly love to be able to graph gasoline prices in constant dollars, and then flip the chart upside down, and overlay it on a chart of U.S. GDP. Maybe allowing for just a month, or so, lag time.

    I’ll Guarantee you it would be an eye-opener.

    Someone? Anyone?

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  31. By mac on August 8, 2011 at 9:10 pm

    Gasoline prices were not the cause of the Great Depression of the 30′s

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  32. By rufus on August 8, 2011 at 9:24 pm

    First Greece, and now the great depression? puhleeze, brutha. :)

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  33. By mac on August 8, 2011 at 9:32 pm

    Look Rufus.

    I am saying that various governments world-wide are in a pickle because of fiscal decisions they have made, which have absolutely (Or very little to do with the price of crude oil)

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  34. By Wendell Mercantile on August 8, 2011 at 9:50 pm

    Gasoline prices were not the cause of the Great Depression of the 30’s…

    True, but irrelevant. How many people had cars in 1929? People still knew how to get things done without burning fuel. During the Depression, my Grandparents still used horses on their farm, and they listened to the radio at night using batteries they had charged with a generator connected to their windmill. (The kind of small windmill you once saw on every farm in the Midwest.)

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  35. By mac on August 8, 2011 at 10:01 pm

    Wendell,

    “True, but irrelevant” says Wendell

    Oh really ?. It certainly proves the point that not all Recessions or Depressions are caused by fluctuations in oil prices.

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  36. By Wendell Mercantile on August 8, 2011 at 10:32 pm

    It certainly proves the point that not all Recessions or Depressions are caused by fluctuations in oil prices.

    Can’t argue with you on that. Here are just a few from when no one used gasoline:

    * Panic of 1797
    * Depression of 1807
    * Panic of 1857
    * Panic of 1873 and the Long Depression (land speculation and bimetallism)
    * Recession of 1882-1885
    * Panic of 1893 (caused by a run on the gold supply)

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  37. By rrapier on August 8, 2011 at 11:00 pm

    There is no question that there have been recessions unrelated to oil, but has there ever been a sharp run-up in the price of oil that didn’t lead to a recession? I have seen quite a bit of data that says a fast increase in the price of oil almost always leads to recession.

    RR

    [link]      
  38. By RBM on August 9, 2011 at 11:16 am

    Speaking of data, here’s a fresh chart from Stuart Staniford at Early Warning Blog that charts oil/gas prices.

    [link]      
  39. By rufus on August 9, 2011 at 1:26 pm

    Problem is: Gas prices are, now, tracking Brent much more closely than WTI.

    [link]      
  40. By paul-n on August 9, 2011 at 3:29 pm

    Of course they are tracking Brent – that is now, despite what the mainstream media might have you believe, the real world price for oil.  The WTI price at Cushing, Ok is has been depressed sine the start of the year thanks to new supply coming in from cdn oilsands and the Bakken play in the Dakotas.  But there is not enough pipeline capacity to get it to the Gulf refineries, so the US midwest market is oversupplied.

    Anywhere that is importing is paying Brent -related prices.

    The next step will be for Brent oil to be traded in something other than rapidly devaluing US$- Euros, gold, even Yuan.

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  41. By rufus on August 9, 2011 at 3:42 pm

    Euros / Dollars – Same Game – both liquid currencies. – both “float.”

    Yuan? Nah, not for awhile, anyway. No liquidity. No International Market. They’d have to let it “float,’ first. Something they don’t seem to be very interested in, at present.

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  42. By Benny BND Cole on August 9, 2011 at 6:48 pm

    Wendell Mercantile said:

    We have yet to see oil stay above $100 for very long. I don’t think it can.

    It certainly will as the U.S. dollar becomes more and more devalued. We are about to see the Fed print more money through another round of “quantitative easing.” Check the latest worth of the USD v. the Swiss franc. It’s at an all-time low.


    Well, of course, if there is a lof of inflation, maybe we will see oil stay above $100.  Adjusted for inflation, oil is a long way down from the $45 a barrel it was worth in 1979. 

     

    The Limits to Growth book back then (late 1970s)  projected no more commercial oil by year 2000.  Ooops. As a earnest grad student, I read and believed that book.  In some ways, that belief retared my career, and believe me, I was doing enough anyway to retard my career.

     

    But why try anything if civilization is going to collapse? 

     

    In fact, we have the price signal. I have been prdicting Peak Demand for many years, and that seems to be holding.  At more than $100 a barrel, demand starts to go down.  I think anything over $80 sustained stops oil demand to a flatline. 

    Happily, we become more efficient, find alternatives.  The global economy keeps growing.

    Our economic problems are a lot harder to fix, due to ugly politics. 

     

     

    [link]      
  43. By mac on August 9, 2011 at 7:01 pm

    Graph showing the average annual retail price of gasoline in current dollars and constant dollars (adjusted for inflation) from 1920 to 2006. For more detailed information, see the table below.

    Note: 2006 data are for March 2006.

     

    Obviously. rising gas prices did NOT trigger the Great Depression of the 30′s.

     

    Gasoline sold for 30 cents a gallon in 1920 and just 21 cents a gallon in 1928, just befoire the Depression of ’29.]

     

    The price for gasoline was falling throughout the 20′s.

     

    Smile

     

    Fact #426: May 29, 2006
    The Big Picture on Gasoline Prices

    On average, the price of gasoline in recent years is
    higher than it has ever been before; however, when adjusted for
    inflation (constant dollars), gasoline cost more in 1981 than it does
    today.

    Average Annual Retail Price of Gasoline, 1920-2006

    Supporting Information

    Retail Price of Gasoline, 1920-2006
    Year Retail Gasoline Price
    (current dollars/gallon)
    Retail Gasoline Price
    (constant 2005 dollars/gallon)
    1920 0.30 2.91
    1921 0.26 2.87
    1922 0.25 2.93
    1923 0.22 2.51
    1924 0.21 2.39
    1925 0.22 2.48
    1926 0.23 2.58
    1927 0.21 2.37
    1928 0.21 2.39
    1929 0.21 2.45
    1930 0.20 2.33
    1931 0.17 2.18
    1932 0.18 2.56
    1933 0.18 2.68
    1934 0.19 2.75
    1935 0.19 2.69
    1936 0.19 2.73
    1937 0.20 2.71
    1938 0.20 2.70
    1939 0.19 2.63
    1940 0.18 2.57
    1941 0.19 2.55
    1942 0.20 2.45
    1943 0.21 2.32
    1944 0.21 2.28
    1945 0.21 2.22
    1946 0.21 2.08
    1947 0.23 2.02
    1948 0.26 2.10
    1949 0.27 2.20
    1950 0.27 2.17
    1951 0.27 2.04
    1952 0.28 2.03
    1953 0.29 2.10
    1954 0.29 2.11
    1955 0.29 2.12
    1956 0.30 2.15
    1957 0.31 2.15
    1958 0.30 2.05
    1959 0.31 2.05
    1960 0.31 2.05
    1961 0.31 2.01
    1962 0.31 1.98
    1963 0.30 1.94
    1964 0.30 1.91
    1965 0.31 1.93
    1966 0.32 1.93
    1967 0.33 1.94
    1968 0.34 1.89
    1969 0.35 1.85
    1970 0.36 1.80
    1971 0.36 1.76
    1972 0.36 1.69
    1973 0.39 1.70
    1974 0.52 2.08
    1975 0.57 2.06
    1976 0.61 2.11
    1977 0.66 2.11
    1978 0.67 2.01
    1979 0.90 2.43
    1980 1.25 2.95
    1981 1.38 2.96
    1982 1.30 2.62
    1983 1.24 2.43
    1984 1.21 2.28
    1985 1.20 2.18
    1986 0.93 1.65
    1987 0.95 1.63
    1988 0.95 1.56
    1989 1.02 1.61
    1990 1.16 1.74
    1991 1.14 1.63
    1992 1.13 1.57
    1993 1.11 1.50
    1994 1.11 1.47
    1995 1.15 1.47
    1996 1.23 1.53
    1997 1.23 1.50
    1998 1.06 1.27
    1999 1.17 1.37
    2000 1.51 1.71
    2001 1.46 1.61
    2002 1.36 1.47
    2003 1.59 1.69
    2004 1.88 1.94
    2005 2.30 2.30
    2006* 2.40 2.35
    * March 2006 only.
    Source: Energy Information Administration,
    Monthly Energy Review, April 2006, Table 9.4. Historical data from
    1920-1975 are from other EIA sources.
    Consumer Price Index from the Bureau of Labor Statistics was used to calculate constant dollars.

     

     

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  44. By mac on August 9, 2011 at 8:25 pm

    Report: Average fuel economy of vehicles sold in July holds steady at 21.6 mpg

    http://green.autoblog.com/

    Amazing progress considering that the Model T actually got about 25 mpg.

    [link]      
  45. By rufus on August 9, 2011 at 11:43 pm

    That chart kind of puts $4.00 gasoline into perspective, doesn’t it?

    Also, after having such a booming economy, and cheap gas for the nineties, and early aughts, we have some really gas-guzzling legacy vehicles on the road.

    I have absolutelly NO proof of this, but I’m going to guess the average vehicle on the road gets, in the real world, about 16, or 17 mpg, average (the way it’s driven, not the way the EPA computer might drive it.)

    That would mean that somewhere in the $3.25 to $3.50 range the fleet hits $0.20/mile. I believe that is akin to “suicide watch.”

    [link]      
  46. By rufus on August 9, 2011 at 11:47 pm

    Mac, that was a really good chart; thanks. It brings quite a bit into focus.

    Maybe if I wasn’t so lazy I’d look some of this stuff up, myself. :)

    [link]      
  47. By mac on August 10, 2011 at 5:00 am

    Rufus said:
    “That chart kind of puts $4.00 gasoline into perspective, doesn’t it?

    Also, after having such a booming economy, and cheap gas for the nineties, and early aughts, we have some really gas-guzzling legacy vehicles on the road.”
    ———————————————————————————
    I think you’re right Rufus about there being a lot of clunkers out there. Here’s an interesting chart:

    Office of Highway Policy Information

    Average Age of Automobiles and Trucks in Use, 1970-1999
    Year Automobiles Trucks
    1970 5.6 7.3
    1971 5.7 7.4
    1972 5.7 7.2
    1973 5.7 6.9
    1974 5.7 7.0
    1975 6.0 6.9
    1976 6.2 7.0
    1977 6.2 6.9
    1978 6.3 6.9
    1979 6.4 6.9
    1980 6.6 7.1
    1981 6.9 7.5
    1982 7.2 7.8
    1983 7.4 8.1
    1984 7.5 8.2
    1985 7.6 8.1
    1986 7.6 8.0
    1987 7.6 8.0
    1988 7.6 7.9
    1989 7.6 7.9
    1990 7.6 8.0
    1991 7.8 8.1
    1992 7.9 8.4
    1993 8.1 8.6
    1994 8.3 8.4
    1995 8.4 8.4
    1996 8.5 8.3
    1997 8.6 8.3
    1998 8.8 8.3
    1999 8.9 8.2
    2000 9.0 8.0

    2007 9.2 7.1
    2008 9.4 7.5 (2007 and ’08 figures from Autoblog)

    This is just the average age for cars and trucks. There’s lots of people out there driving around in 20 year old rust buckets.

    [link]      
  48. By mac on August 10, 2011 at 5:10 am

    Rufus.

     

    The spacing in the chart got messed up.  In 1970 the average age for cars was 5.6 years.  In 2008 the average age for cars on the road was 9.2 years.

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  49. By rufus on August 10, 2011 at 10:20 am

    Thanks, Mac, that’s some excellent research.

    I was really tired from watching the madness on Wall St. all day yesterday, and I think I might have been a bit low on the average mileage of those vehicles on the road. Trying to remember what I’ve seen on vehicle miles traveled, and knowing that we use around 140 Billion gallons of gasoline, annually, I’m now thinking that the average vehicle might be getting closer to 19, or 20. Not, that it makes a lot of diffrerence; we’re searching for a theory to suit the date, not data to suit a theory.

    Our overall objective has to be to figure out “what is the cost of fuel/mile that causes the economy to go tits up?” Of course, That is just an academic exercise; what, obviously matters is: What is the Price of Gasoline that causes the economy to go into recession? And, as we’ve witnessed, this time it seems to be somewhere between $3.25 – $3.50 gal.

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  50. By Wendell Mercantile on August 10, 2011 at 10:32 am

    I was really tired from watching the madness on Wall St. all day yesterday…

    Rufus~

    Madness? Yet you go to the casinos in Tunica? In a casino you always lose. At least on Wall Street half the players win. Smile

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  51. By rufus on August 10, 2011 at 10:37 am

    Gasoline supplied over the last 4 wks is down 3.4% compared to the same period last year.

    This has been going on for quite some time, now. A few months, at least.

    I think this “gasoline supplied” number is one of the most important economic numbers that’s published, and it comes out every Wed.

    EIA Report

    [link]      
  52. By rufus on August 10, 2011 at 10:40 am

    I used to play a bit of poker, Wendell. I still have friends down at the poker room (and you can drink beer for the price of a dollar tip.) :)

    I haven’t “gambled” for years.

    [link]      
  53. By paul-n on August 10, 2011 at 11:10 am

    One thing to keep in mind when looking at the average vehicle age is that modern vehicles are – generally – much more reliable, and last longer without needing engine rebuilds and the like.

     

    That said, the mileage of a given vehicle decreases with age, so even a good one, gradually gets worse as it gets older;

     

    So, a vehicle that  does 160,000 miles in its life will use 10% more fuel per mile in the last 80k than the first.

    If that vehicle was a PU/SUV, starting at 15mpg, the last 80k miles it will use an extra 600gal of fuel, just for being older.

    Maybe this why the oil companies have produced “higher mileage engine” oils, to keep these vehicles on the road longer! 

    [link]      
  54. By rufus on August 10, 2011 at 11:29 am

    Common sense tells us that there is a certain “cost/mile” that we have to reach to keep the economy viable.

    We know that vehicles Will get more efficient. A really, really smart guy with a lot of time on his hands might even be able to figure out “how much” more efficient.

    The almost unknowable part of the equation, however, is “how much oil will be available, and how hard we will have to fight the emerging economies to get it?” Translated: Whut will it cost?

    [link]      
  55. By Wendell Mercantile on August 10, 2011 at 11:38 am

    We know that vehicles will get more efficient.

    Just as effective would be to change people’s habits and driving patterns. Getting the people who drive 6,000 lb SUVs — who don’t really need them for their jobs* — into something lighter and more efficient would be as effective.

    _______
    * I’d never tell a plumber, contractor, farmer, or rancher they don’t need an SUV or heavy-duty pickup truck to do their jobs and make a living. But most people who own SUVs are not trades people for whom SUVs and trucks are an essential tool.

    [link]      
  56. By rufus on August 10, 2011 at 12:24 pm

    In the meantime, we’re just lunatics, dancing naked under the full moon.

    Wall St won’t even admit that we’re in a recession, yet.

    Once they do have to admit it, they’ll spend months/years? looking in all the wrong places for the cause.

    Then? Well, we might be speaking Chinese before they admit to the real, honest to God solution. :)

    Meantime, get out of debt as much as possible, stay out of the markets, and buy a flexfuel.

    [link]      
  57. By Wendell Mercantile on August 10, 2011 at 1:36 pm

    In the meantime, we’re just lunatics, dancing naked under the full moon.

    The next full moon is not until this coming Saturday. Wink

    I don’t what they do in Tunica, but I’m not about to take my clothes off and go prancing around under the full moon Saturday night.

    [link]      
  58. By paul-n on August 10, 2011 at 1:45 pm

    In the meantime, we’re just lunatics, dancing naked under the full moon.

    Rufus, have you been sneaking out to Burning Man?

     

    Common sense tells us that there is a certain “cost/mile” that we have to reach to keep the economy viable.

    is it really the “cost/mile” or is it the “total transport cost” ?

    Might it be better to lower the total transport cost by also trying for “less miles”?

     

    The almost unknowable part of the equation, however, is “how much oil will be available, and how hard we will have to fight the emerging economies to get it?” Translated: Whut will it cost?

    I’m not sure that is a really good choice of words.  Some people might take the literal interpretation of “how hard we will have to fight the emerging economies to get it?”

    Do you really want more military adventures, and their inevitable human cost, in order to lower the “cost/mile”?

     

    [link]      
  59. By rufus on August 10, 2011 at 1:48 pm

    Well, That’s a relief. :)

    [link]      
  60. By rufus on August 10, 2011 at 1:51 pm

    You’re right, Paul; that was a poor choice of words.

    I think we’ve had just about all the foreign oil expeditionary adventures we can tolerate, much less afford.

    [link]      
  61. By paul-n on August 10, 2011 at 2:26 pm

    I say that because it reminded me of a rather disturbing conversation with a guy in Bakersfield in 09 who basically said just that – that America should just go out there and take over the countries with oil before China did.

     

    That aside, there are clearly more issues for the economy than just the cost/mile.  Even if fuel is cheap enough for people to go out and do things, it doesn’t address the problem of not enough people have jobs, or well paying ones, to allow them to afford to go out and do things.

    It is almost as if some new plan is needed to produce something, domestically, that is needed, would displace imports of something else, and would put a lot of people to work.

    [link]      
  62. By savro on August 10, 2011 at 3:15 pm

    Rufus said:

    Meantime, get out of debt as much as possible, stay out of the markets, and buy a flexfuel.

    Rufus,
     

    Why would I buy a flexfuel if I can’t fill it with e85 anywhere in my area? Besides, it’s still a lot more expensive to run on e85 than regular unleaded gasoline when factoring in the mileage differential.

    [link]      
  63. By rufus on August 10, 2011 at 4:01 pm

    So you’ll have the “Option,” Sam.

    Prices are subject to change, you know. :)

    [link]      
  64. By mac on August 10, 2011 at 4:25 pm

    Paul N said:

    “It is almost as if some new plan is needed to produce something, domestically, that is needed, would displace imports of something else, and would put a lot of people to work.”
    ———————————————————————————————-
    A number of people have suggested that the Information Technology revolution was the thing that carried the U.S. through the 80′s and 90′s. The U.S. was certainly a leader in that revolution with great multi-billion dollar companies like Microsoft, Intel, Applied Materials, Sun Micro Systems and and all the rest of Silicon Valley springing up seemingly over night..

    Many of these companies were literally started on somebody’s kitchen table or in a garage. Gates was at one time the richest man in the world and last night on the news they said Apple was threatening to over-take Exxon as the largest U.S. corporation and perhaps become the first trillion dollar corporation in history, Many of these companies seemingly sprang up out of no-where like Black Swans suddenly appearing on the horizon. There was the cell fone explosion and the internet explosion. On line banking and inter-net commerce (Amazon) (E-Bay) etc.

    You get the idea… What is the next great revolution that can put Americans to work ? Bio-tech ? A “green energy” revolution and jobs in solar, wind, etc. ?

    I don’t know. But getting some of the manufacturing jobs that have fled overseas back to the U.S. is starting to sound pretty good. Maybe some tariffs are in order……I don’t think there are any Television sets made in the U.S. or cameras or even sewing machines. It always amazes me that the people who seem most likely to advocate “free trade” are usually the people who are least likely to loose their jobs through “free trade”

    What are all these U.S. un-employed going to do ? Go out and get their barbers licenses ?, so they can all sit around cutting each others hair ?

    [link]      
  65. By cheryl on August 10, 2011 at 4:33 pm

    Robert –

    Do you think China is undergoing a slowdown? If so, how will it affect the amount of oil used?

    [link]      
  66. By Wendell Mercantile on August 10, 2011 at 4:43 pm

    What are all these U.S. un-employed going to do?

    Well duh. We’re all going to start raising chickens and ducks in our backyards and go back to subsistence farming and trade and barter. You grow carrots and I’ll grow sweet corn. If you want a dozen ears, you’ll have to give me a couple of bunches of carrots.

    Perhaps every four households will jointly own and care for a milk cow or two, and if they have any milk or butter left over, they’ll trade it for somebody’s carrots or sweet corn. It’s going to be like 1820 all over again.

    The problem is what all those millions of people jammed into the city centers will do. I think what’s going on now in London is just a small sample.

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  67. By rrapier on August 10, 2011 at 4:56 pm

    cheryl said:

    Robert –

    Do you think China is undergoing a slowdown? If so, how will it affect the amount of oil used?


     

    Growth in China has slowed slightly as measured by their GDP, but relatively speaking it is still very strong. So all this will do is slightly slow down the growth rate for how fast they use oil. But their oil consumption will continue to grow. When you have an economy that has such a low dependence on oil, it can grow even in the face of high oil prices.

    RR

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  68. By rufus on August 10, 2011 at 5:44 pm

    I think it’s interesting that the Government is releasing about 4 Million Barrels/day from the SPR,

    and, yet no one said “where’d it all go?” when the drawdown from commercial inventories came in at 8.2 Million Barrels.

    [link]      
  69. By rufus on August 10, 2011 at 5:46 pm

    D’uh, that should be “4 Million Barrels/Week” from the SPR

    [link]      
  70. By savro on August 10, 2011 at 5:52 pm

    Rufus said:

    So you’ll have the “Option,” Sam.


     

    The option to drive 50-200 miles in order to fill up with more expensive e85? I think I’ll have to pass.

    Prices are subject to change, you know. :)

    You’re reaching, Rufus. Flexfuel vehicles, from the standpoint of the automakers, are nothing more than a loophole to meet their CAFE targets. Robert Bryce explains it very well in his book, Gusher of Lies, and it’s pretty hard to argue with him on that.

    [link]      
  71. By rufus on August 10, 2011 at 6:52 pm

    Robert Bryce? Really? Come on, Sam.

    Half the Detroit cars built this year will be flexfuel, Sam. The DOE, and the USDA are working hard to get more stations added.

    There could, easily, be a station close to your home selling E85 for, say, $1.95 by the end of this year, and the best gasoline price you see might be in the $3.95 range.

    It’s a fluid situation, and a flexfuel car costs no more than a non-flexfuel.

    It only makes sense to tell the salesman, “I’ll take the Flexfuel model.”

    [link]      
  72. By savro on August 10, 2011 at 7:06 pm

    Rufus, you can knock Bryce all you want, but he’s got a very valid point. I get a kick out of it when people buy FFV’s thinking that it comes with some kind of built-in fuel saving device that doubles their MPG.

    Do me a favor. Read 3 pages from this link (Page 195, from “So why are Detroit’s …”) and tell me why you think he’s wrong about the automakers and FFV’s.

    [link]      
  73. By biocrude on August 10, 2011 at 8:09 pm

    Samuel R. Avro said:

     

    You’re reaching, Rufus. Flexfuel vehicles, from the standpoint of the automakers, are nothing more than a loophole to meet their CAFE targets. 


    Sam,

     

     

    Don’t be ridiculous, no one is asking you to drive 50-100 miles to fill up with E85.  That would be terribly inefficient and stupid.  What Rufus is saying is that with a Flex Fuel vehicle, you can decrease the 96% stranglehold petroleum has on our transportation sector through using alcohol fuels.  (If they are available, which they will be soon.)  Furthermore, FFVs are reporting far better mileage on average than EPA estimates, especially the newer ones.  Typically, FFVs on E85 see about an 18% loss of mpg on average, and loss of mpg on E85 is very driver and vehicle specific.  Remember, you can increase your mpg 30% by simply using better driving habits.  Everyone always talks about pumping up your tires, but the way we drive is probably equally as important.  ie, not flooring it towards stop signs, driving 55mph, coasting, etc…

     

     

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  74. By rufus on August 10, 2011 at 8:19 pm

    Sam, I wouldn’t click on something written by that (this space contained my personal opinion of Robert Bryce, but I pulled it) if you paid me. Anyone that would sell his country down the drain for a couple of pieces of eight is Not someone I will support with a “click.”

    If the question is, did Detroit get behind FF’s because of a break on CAFE standards? Of course they did. As someone said earlier, about something else, it’s a fact, but it’s irrelevant. As for tha AAA conversion, it doesn’t mean anything. It’s taken straight off btu content, and it doesn’t consider ethanol’s higher Octane Rating.

    I give up about 21% in my flexfuel Impala. Some vehicles get better than that; some get worse. In my case, with Gasoline at $3.70/gal I need to buy E85 for about $2.92/gal to break even. If corn is closer to $5.00/bu this winter than the $7.00/bu it’s selling for today, we could be looking at $2.42 for E85, which would give me a very nice discount for using the high ethanol blend.

    Of course, it doesn’t have to happen that way, but if it does the flexfuel owner will be able to take advantage of it. And, since a, for example, flexfuel Impala sells for the same price as a non-flexfuel Impala I would have been a nutcase, or oblivious, not to have given myself the “free” option, right?

    [link]      
  75. By savro on August 10, 2011 at 8:46 pm

    Rufus, suit yourself. I can’t say I like everything he says either (I’d have a tough time being more controversial if someone paid me to be), but he’s spot on about the FFV loophole for the automakers, which you seem to agree on.

    But that’s getting off topic from our original discussion… so back to the main point…

    If I had the choice between a flexfuel and a non-flexfuel, at the same cost, of course I’d take the flexfuel. All I’m saying is that it’s not as rosy as you’re trying to make it.

    My first, and main point is that e85 blends are not available in my area, and I highly doubt too many will be popping up that quickly. Second, e85 is not cheaper right now. Will it ever be? Possibly, but I’m not going to get all excited about purchasing an FFV just in case e85 pumps begin to pop up here AND prices drop lower than gasoline while factoring in the loss of mileage.

    One last thing on the loss of mileage. You stated that you calculated a loss of just 21%. But according to the DoE “FFVs typically get about 25-30% fewer miles per gallon when fueled with E85.”

    [link]      
  76. By mac on August 10, 2011 at 8:51 pm

    Good old Robert Bryce…………

    Fact check: Bryce out to lunch with latest anti-wind broadside
    Posted: 2011-08-03 Peter L. Kelley, AWEA VP-Public Affairs

    Here’s just a start on the inaccuracies in Robert Bryce’s latest diatribe about wind energy, this time in the Huffington Post of all places, where his column was misleadingly titled, “If Gov. Jerry Brown Wants to “Crush” Opponents of Wind Energy, He’d Better Pack a Lunch.”

    Gov. Brown (D-CA) was talking about solar opponents at the time, not wind opponents. And he did not say he would crush them — he was referring to unnamed local opponents on other issues, earlier in his career, in Oakland.

    Here is what Brown actually said, as quoted by Greenwire and picked up by The New York Times:

    “When local communities try to block installation of solar like they did in San Luis Obispo, we act to overcome the opposition,” Brown said…”In Oakland I learned that some kind of opposition you have to crush,” the former Oakland mayor said. “You can talk, but you have to move forward.”

    In fact, the original story about Brown’s remarks does not mention wind anywhere.

    Bryce, meanwhile, links to a list of so-called anti-wind groups all over the world — but only about 127 of those on the list are in the U.S., not 170, and some of those are not anti-wind groups, but just local nature groups. In fact, wind is supported by many nature lovers, including the World Wildlife Fund, the National Wildlife Federation, and the National Audubon Society, because it has by far the lowest impacts on wildlife of any energy source.

    Even Bryce can’t claim that Brown was talking about wind energy; instead, he claims the governor was threatening opponents of “energy sprawl.” Yet, wind energy is ahead of schedule to make 20% of America’s electricity by 2030 in a footprint the size of Anchorage, Alaska. That’s hardly sprawling, when other energy developers lop off mountaintops and cut down forests in pursuit of fossil fuels.

    Bryce, of course, is paid to say all these things by the libertarian Manhattan Institute’s oil and coal funding from ExxonMobil and the Koch brothers.

    But even Bryce would have a hard time responding to the recent poll results in Iowa, the state that knows wind energy the best. Since 1983 Iowa has had a statewide standard for renewable energy, and from January to April 2011, got 19.7 percent of its electricity from wind.

    According to a May 2011 survey by Neil Newhouse, the Republican pollster for Mitt Romney among others, 85% of Iowa voters have a favorable view of wind energy companies, with most of those strongly favorable. And by a 3:1 margin, they would choose wind energy over all other forms of energy for Iowa’s future power needs. That is a better reflection of public attitudes on wind energy than anything Robert Bryce has to say.

    I read the Bryce link. The only thing that Bryce said that is incontestable and commonly agreed upon is the fact that renewable energy from wind, solar, geothermal, etc. does not produce motor fuel per se, but instead “electricity.”

    Unfortunately electric vehicles do not run on crude oil derivatives such as gasoline or diesel.

    So, even that “brilliant insight” on the part of Bryce is suspect.

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  77. By rufus on August 10, 2011 at 9:18 pm

    I don’t know, Sam. An undated statement, by an unnamed writer, using a squish word like “typically.” WTH?

    Anyone who has followed renewables as much as you, and I, and most of the readers of this blog know that last months “typically” could be badly out of date, today.

    evidently, the auto companies are within a hair’s breadth of getting E85 mileage virtually equal to gasoline, but it turns out, it seems, that when ethanol is optimized it’s impossible to get a “Rich” CEL (that EPA insists on with present sensors.

    These things take time, and gov agencies are involved, but we have a fuel with great burn characteristics (just ask all the racing organizations that now use ethanol, or E85,) High Octane Rating, and that we can produce in huge quantities, in our local counties.

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  78. By mac on August 10, 2011 at 10:12 pm

    RR

    If high oil prices/oil price spikes are the cause of the recent recession/depression in the U.S. (and Europe), then don’t you think we should abandon oil as our only and sole resource for for the transportation sector of our economy ?

    Of course the recent recession/depression was not caused by oil price hikes but fundamental violation of sound fiscal policy (spending more than we have coming in), monetary policy (printing “fiat” money to make up the difference) and absurd trade policies (coddling the Chinese Yuan because we are too stupid or so much in debt to the Chinese that we can’t do anything else)

    “The borrower is slave to the lender”

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  79. By savro on August 10, 2011 at 10:21 pm

    Rufus said:

    I don’t know, Sam. An undated statement, by an unnamed writer, using a squish word like “typically.” WTH?

    Anyone who has followed renewables as much as you, and I, and most of the readers of this blog know that last months “typically” could be badly out of date, today.


     

    The study is from 2007, and it’s quoted prominently on the DoE’s Fueleconomy.gov website, right now. So if the data is outdated then the DoE should be held liable for a misrepresentation of facts.

    The following is from a 2007 study by the Oak Ridge National Lab, which seems to be basing it on the same study quoted by fueleconomy.gov: “Power output for current FFVs on E85 fuel is typically on par with the gasoline rating, and the vehicles suffer a considerable 25-30% loss in driving range when running on E85 due to its lower energy density. Despite equivalent or slightly improved fuel efficiency (distance per unit energy), this range shortfall is considered a significant obstacle to wide-spread consumer acceptance of FFVs.”

    Are you saying this is false, today?

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  80. By Kit P on August 10, 2011 at 10:25 pm

    “Sam, I wouldn’t click on something written by that (this space contained my personal opinion of Robert Bryce, but I pulled it) if you paid me. ”

     

    Good call Rufus, I read the pages because Sam asked but it was a waste of time.

     

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  81. By mac on August 10, 2011 at 10:31 pm

    Kit said.

    “Good call Rufus, I read the pages because Sam asked but it was a waste of time”

    I agree ——Mac

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  82. By savro on August 10, 2011 at 10:38 pm

    @Kit & Mac

    You say you read those pages that I linked to. Do you care to share why you think the FFV for the automakers is not just a loophole to beat the CAFE standards, or is it a waste of time because you hate Bryce?

    P.S. Even Rufus agrees that the automakers are using the FFV to beat the CAFE standards.

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  83. By rrapier on August 10, 2011 at 10:45 pm

    mac said:

    RR

    If high oil prices/oil price spikes are the cause of the recent recession/depression in the U.S. (and Europe), then don’t you think we should abandon oil as our only and sole resource for for the transportation sector of our economy ?


     

    Of course. Don’t you read this blog? Seriously, I can’t figure you out. It is like you have this image in your head of me that has no relation to the things I actually write. You make conclusions that aren’t supported by anything I have ever written or said.

    Of course the recent recession/depression was not caused by oil price hikes but fundamental violation of sound fiscal policy (spending more than we have coming in)…

    We have been doing that for years. There were many factors, but I have documented the amount of money that came out of a typical family’s budget due to higher energy prices. It was on the order of the amount most people had to pay due to the changes in their sub-prime mortgage payments when the high interest rates kicked in, and the latter has often been cited as a major factor in the recession.

    Check this out: 10 of the Last 11 Recessions Were Preceded by Oil Price Spikes

    Hamilton is not arguing that oil price shocks are the sole cause of recessions, but that they tip an already vulnerable economy into contraction. A  2010 study by economists at the St. Louis Federal Reserve Bank agrees: “For most countries, oil shocks do affect the likelihood of entering a recession. In particular, an average-sized shock to WTI [West Texas Intermediate crude] oil prices increases the probability of recession in the U.S. by nearly 50 percentage points after one year and nearly 90 percentage points after two years.” On the other hand, a  2005 study by the Stanford Energy Modeling Forum found that “when oil prices move gradually higher (perhaps somewhat erratically), as they have done over the last several years, they do not directly result in economic recessions, even though the economy may grow modestly slower.”  Gradual price increases do not derail economic growth because consumers and entrepreneurs are able to adjust smoothly to them.

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  84. By mac on August 10, 2011 at 10:48 pm

    When someone arbitrarilaly attributes  remarks made by Gov. Brown on solar to the Wind energy sector,

    “Then,  that is one sick, “paid off puppy…………”

     

     

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  85. By rrapier on August 10, 2011 at 10:49 pm

    mac said:

    Kit said.

    “Good call Rufus, I read the pages because Sam asked but it was a waste of time”

    I agree ——Mac


     

    Bryce is an excellent writer. I have read two of his books, and I say with no reservations that his stuff is very captivating. It is never boring. However, he can be very caustic, and if you support a position that he opposes you are likely to dislike him very much. But if you think he writes garbage, I guarantee that you have’t read any of his books.

    As to the quoted section, I don’t know any background on that. But I have read enough of his stuff not to write him off as a hack over something like that.

    RR

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  86. By mac on August 10, 2011 at 11:06 pm

    RR
    I think it’s a question of who’s paying Bryce’s salary.

    It’s certainly not AWEA or the solar industry……….

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  87. By mac on August 10, 2011 at 11:19 pm

    Bryce works for the “Manhattan Institite” and  he doesn’t get a salary from them ?

     

    Hmmmmm…..Very interesting………………………

     

     

     

     

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  88. By Wendell Mercantile on August 10, 2011 at 11:46 pm

    Samuel is right. The only reason the American automakers make flex-fuel cars is because of the E85 loophole in the CAFE computation algorithm. Flex-fuel cars help them avoid paying millions in penalties for not making the CAFE targets. Once that FFV is out the dealer’s door, those automakers could care less whether anyone actually puts E85 in the tank — they get the credit as soon as the car is sold, no matter what kind of fuel the owner burns. In fact, there may not be an E85 station within 100 miles of where the car will be based, but GM, Ford, or Chrysler still gets the mileage credit.

    Here’s how the E85 loophole works: A Chevy Tahoe has an EPA highway rating of 15 mpg burning gasoline. Using the E85 loophole, a Tahoe’s mpg rating for ACFE purposes jumps to 32 mpg, even though the actual mileage the owner sees when burning E85 will drop to ~12 mpg.

    All the carmakers have to do to get that credit is spend an extra $150 when they build the car. That’s a pretty good investment for the carmakers — courtesy of friendly lawmakers and their lobbyists.

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  89. By mac on August 10, 2011 at 11:58 pm

    “We have been doing that for years. There were many factors, but I have documented the amount of money that came out of a typical family’s budget due to higher energy prices. It was on the order of the amount most people had to pay due to the changes in their sub-prime mortgage payments when the high interest rates kicked in, and the latter has often been cited as a major factor in the recession.”
    ———————————————————————————————
    The people that signed up for sub-prime mortgage notes could never have afforded the payments in the first place, It was the greedy Mortgage and Banking Industries that spawned this garbage,

    No oil price spikes involved……….None whatsoever…….

    Period..

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  90. By rrapier on August 11, 2011 at 12:06 am

    mac said:

    “We have been doing that for years. There were many factors, but I have documented the amount of money that came out of a typical family’s budget due to higher energy prices. It was on the order of the amount most people had to pay due to the changes in their sub-prime mortgage payments when the high interest rates kicked in, and the latter has often been cited as a major factor in the recession.”

    ———————————————————————————————

    The people that signed up for sub-prime mortgage notes could never have afforded the payments in the first place, It was the greedy Mortgage and Banking Industries that spawned this garbage,

    No oil price spikes involved……….None whatsoever…….

    Period..


     

    If you are saying that the oil price spike played no part in the recession, then I disagree 100%. It wasn’t the subprime mortgage problem that caused airlines to start going bankrupt. High oil prices played a major role in the automakers problems as well, as demand for the high-profit margin SUVs suddenly evaporated.

    So we can debate the extent of the role oil played, but there is no question that it played a role.

    RR

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  91. By mac on August 11, 2011 at 12:32 am

    RR

     

    Well, the goverment bailed out the banks and insurance companies…… but wanted to put “windfall” profits taxes on the oil companies.

     

    Just goes to show who really controls things………

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  92. By thomas398 on August 11, 2011 at 12:37 am

    Rufus said:

     If corn is closer to $5.00/bu this winter than the $7.00/bu it’s selling for today, we could be looking at $2.42 for E85, which would give me a very nice discount for using the high ethanol blend.

    Of course, it doesn’t have to happen that way, but if it does the flexfuel owner will be able to take advantage of it. And, since a, for example, flexfuel Impala sells for the same price as a non-flexfuel Impala I would have been a nutcase, or oblivious, not to have given myself the “free” option, right?

    Rufus you are assuming that the price of ethanol tracks the price of corn. Everyone in the ethanol industry–any industry, wants to sell at the highest price the market will bear. Which is right around that break even point you referred to.  Go get a chart of ethanol prices vs gasoline prices over the last 5-10 years.  Ethanol is reliably 15%-20% cheaper than gasoline.  I’ve shown you this before.  There will never be a sustained period where ethanol is 50% cheaper than petroleum based fuels.  Oil is indispensable to producing industrial quantities of corn.  The USDA champions ethanol because it helps their constituents–farmers. There’s nothing wrong with that but don’t tell me its about energy.

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  93. By rrapier on August 11, 2011 at 12:44 am

    mac said:

    RR

     

    Well, the goverment bailed out the banks and insurance companies…… but wanted to put “windfall” profits taxes on the oil companies.

     

    Just goes to show who really controls things………


     

    I don’t really understand what you are saying. During the crisis, banks had to be bailed out and oil companies continued to generate profits, paying taxes that essentially enable the government to bail out other industries.

    On the other hand, I don think that when oil prices sky-rocket, the government should be able to take a larger piece of that. The key is in structuring it such that it isn’t a disincentive to production — which most of the windfall profit schemes are. I could structure it quite easily to accomplish both goals.

    RR

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  94. By mac on August 11, 2011 at 1:17 am

    For  goodness sakes.  no one is blaming the oil companies for this recession.  It was caused by the banks/mortgage compamies, Freddy Mac and Fanny Mae. and most importantly by bogus Wall Sreet derivatives  (of derivatives of derivatives of derivatives, and so on)

     

    Some banks are actually now forging mortgage documents in order to foreclose on propertiies for which they have no legal mortgage papers.  Why ?  Because the orginal documents were put up as so-called “collateral” in derivative schemes and are now in a bank in Switzerland or the Cayman Islands or in New Guinea. No one seems to know where the missing mortgage papers are…………… Amazing…………

    A number of savy people have sued the banks over this.

     

    Blaming this latest financial crisis on the oil companies ?……………  No way  !!!!!!……………

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  95. By paul-n on August 11, 2011 at 1:22 am

    Sam, Rufus is right in that for the next car you buy, if it can’t be a diesel, it should be a flex fuel – just not for the ethanol related reasons he says.

    The real reason to buy a flexfuel is that it will be able to run on the real alternative to gasoline – methanol.  

    If NG prices stay as cheap as they are, and oil (Brent oil, not West Texas Irrelevant) stays over $100/bbl, it is only a matter of time before it happens.

    As of today, the methanol price is $1.38/gal.  Corrected for BTU content, this would be equivalent $2.67/gal for premium gasoline

    Not that you are likely to do this, but the high compression flex fuel engine is also a better candidate for an NG conversion/addition at a later date.  I once owned a dual fuel propane/gasoline car in Australia and it was great. Use the propane for normal driving, and for a loaded up road trip where you want the extra power (and your trip buddies are paying for the gas), then you run on gas.

    And the 230mi range on propane wasn’t a big deal – on a road trip, 3 1/2 hrs of driving is more than long enough between breaks.  If you were a travelling salesman and drove for a living, might be different story, but then you’d be driving a VW diesel anyway.

    So there are good reasons to buy a flex fuel, if you are expecting to own the car for a while,  it’s just that ethanol isn’t really one of them.

     

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  96. By rufus on August 11, 2011 at 1:24 am

    It depends on where you are, and who you deal with, Thomas. Kum and Go E85 prices track the cost of corn virtually to the penny. They are, also, just about the fastest growing gas station chain in America.

    Other retailers, in other places gouge horribly. Some just set the price of E85 $0.30 below the price of E10, no matter what. You often see this in a city that has one E85 station that is situated right down the street from a large Post Office, or other Federal Bldg. where the employees are required to fill up with the ethanol blend.

    Pricing will get better as more stations open, and competition starts to take hold.

    One sign of the coming times is the announcement by Valero that instead of trying to mess with E15 they’ll just start adding an E85 pump to all their new stores.

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  97. By rufus on August 11, 2011 at 2:06 am

    One reason you will start seeing quite a few new E85 pumps is, fairly soon the obligated blenders won’t be able to meet their RFS standards by just putting 10% ethanol in their standard gasoline. With gasoline sales running somewhere in the 135 Billion Gal/Yr level, and the RFS requiring the use of considerably more than 13.5 Billion Gallons/Yr, just selling E10 won’t be enough.

    E15 has the problem that, at present, it can’t be used in cars built before 2001, so a station owner can’t just convert all of his existing pumps to E15. He would still have to have E10 pumps for his customers with older cars.

    Rather than mess with that, it’s easier to just install an E85 in, say, 1/5 of his stations, and go on down the road. Especially, with 3 Million, or so, Flexfuels hitting the road, now.

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  98. By Wendell Mercantile on August 11, 2011 at 9:41 am

    The real reason to buy a flexfuel is that it will be able to run on the real alternative to gasoline – methanol.

    Hear, hear!

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  99. By Wendell Mercantile on August 11, 2011 at 9:40 am

    Which is right around that break even point you referred to. Go get a chart of ethanol prices vs gasoline prices over the last 5-10 years. Ethanol is reliably 15%-20% cheaper than gasoline. There will never be an sustained period where ethanol is 50% cheaper than petroleum based fuels.

    I’m sure the corn ethanol people price their product based on the price of oil and gasoline. Big Ethanol closely watches the price of gasoline and if gasoline goes up, the price of ethanol follows, whether the fundamentals of production say it should or not. They probably won’t admit it, but following that policy is like free money for the ethanol producers.

    Oil is indispensable to producing industrial quantities of corn.

    Hear, hear!

    The USDA champions ethanol because it helps their constituents–farmers.

    Hear, hear!

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  100. By thomas398 on August 11, 2011 at 9:42 am

    Rufus–

    Remember this too–lets just say ethanol prices drop 50% below gasoline.  People will blow the dust off their FFV sticker and head for the E85 pump.  Demand will rise bringing prices back in line.  You don’t decrease oil dependency unless people don’t have the “Option”.  Don’t hold your breath for an ethanol price “breakthrough”.
     

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  101. By draiman on August 25, 2011 at 9:36 am

    Americas financial sustainability begins with Made in America

    Americans must wake up and take action to protect our liberty and way of life.

    America must rejuvenate itself and become the huge industrial power it once was.

    It starts by re-inventing the wheel and building manufacturing facilities in the United States that employ Americans who produce quality goods at a competitive price with space age technology and modernization.

    Organized workforce and benefits has to be revamped to meet today’s economic conditions.

    Government and its bureaucracy must be reduced and streamlined. Rules and regulations must be revamped to be conducive to business growth and development.

    “Good leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion”

    “It is Cheaper to Save Energy than Make Energy”

    YJ Draiman for Mayor of Los Angeles

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