Oil has been trading below $50 for a while now and gas prices have plunged across the United States to levels we haven’t seen in five years. Even as OPEC continues to cut production in an effort to prop up falling oil prices, the bottom line still has not been found. OPEC nations built their fiscal year revenue models on $70+ per barrel prices. With the market price set much lower than that, their governments are having to dig deep into their coffers of cash to sustain their economy… it’s not like they are left wanting with the billions they have made in the last few years.

So, what we have right now is a massive global decline in demand for oil. Consumer demand for goods and services have eroded and many of the global economies have been in a state of freefall. Not only are the average people not spending money, but the wealthy are holding back on their investments and spending only on proven or guaranteed opportunities… the purse strings are tight everywhere. A continuing erosion of demand will lead to even softer prices for oil, no matter what OPEC does until they near the rock bottom oil production which is necessary to sustain the world’s most basic economic functions.

Are we close to that level? I don’t know, we may never find out. But, we could be finding out in our near future that we are entering into a much more horrific future regarding gas and oil prices than what we saw this summer. What will we see happen when the global recession begins to end and the demand for oil returns? What will we see happen when the cuts OPEC has made impacts the volatile and fledging economic upswings? Will the diminished production coupled with a reappearing demand for oil throw the market into upheaval?

How fast do you think OPEC will turn their spigots back on when the economies begin demanding more oil? Do you think they will be satisfied with a measly $70 per barrel or do you think they are like an animal after that once tasted sweet blood of $150 per barrel? If $150 was seen without OPEC reducing their supply, what do you think we’ll see with their levels cut and demand returning? Will we see $200, $250, or even $300? I’ve read reports from some lifelong oil traders who are throwing around the term super spike. I’m not all about doom and gloom, but the reality is that our global recession will end at some point and OPEC has cut millions of barrels of production already. They will likely cut more in the next year if things do not turn around sooner than later.

The only rational future is that of horrific oil and gas prices once again. We are living in what I equate to an oil remission. The future is not the present… the future is more of our past summer. Is that a horror show? I believe so.

You may say that the economies will succumb to the extreme costs and immediately withdraw into a minor recession and thus avert a super spike of oil and gas prices. That may well be true. The impending oil costs of our future could in fact destroy any gains we make as nations in an effort to dig ourselves out of our growing recession. If that day comes, the recession will be even worse than what we are experiencing now because it will be like a sledgehammer (oil prices) hitting a watermelon (weak economies on brittle standing). As nations reverse recessions, the economies must gain momentum and sustain consumer demand. If oil and gas immediately spike, any gains will be immediately killed and the economies could back away much further than necessary in a violent reactionary adjustment.

We want and are in dire need of an economic turnaround, but we must be prepared for the impending costs of oil and gas. If we fail to recognize a potential super spike on the way, we are destined to repeat our errors of the last few years and end up in a worse boat than now. Millions of jobs lost now? Tens of millions of jobs lost later. Be wary and watchful.

Our economy has shed over 2 million jobs this year… with more to come. Unemployment has increased by nearly 2% this year alone and there are over 10 million people registered as unemployed. The national unemployment figure is currently at 6.7%. Since December 2007, the beginning of our current recession, over 2.7 million people have been added to the unemployment line.

As always the unemployment statistic does not include people who are working part time who need full time work and it also ignores people who have just totally given up on looking for work. This could potentially add millions to the 10 million who are counted as unemployed. As jobs are being cut and the unemployed workforce grows, competition increases for the jobs that do become available. Workers will fight amongst themselves giving up perks, hourly wage requirements, health insurance, retirement plans, and many other costly employer funded benefits… to just have a job.

This means that the worker is dropping his required price due to the competition for the available job. Of course the employers know this and will drop their pay scales for the jobs opening up. It only makes fiscal sense doesn’t it? It’s a function of the business world and supply and demand.

Even if all of this makes perfect economical sense, is it right and what ramifications do you get when you pay experienced workers less than they believe they are worth? Sure, the workers who “win” the new job will be happy that they are earning money again, but are they happy and will they be efficient? Yes, they have to be at least efficient enough to keep their job and thus they must do a certain amount of work which ensures their continued employment. But, can you expect someone to give full effort for less money? Can you expect someone to put in extra hours and give their job everything they have when they have sacrificed all of their perks they were being given before?

The situation exists today. Let’s look at a hypothetical example. Person A is an experienced worker and has a credible resume. He has performed his job with excellence year to year but his job has been cut due to the horrid economic times. Let’s say he was making $20 an hour with full benefits (vacation, health insurance, retirement, etc). Now, he’s out of work and fighting against similar people and resumes. However, the prices have dropped to reflect the oversupply of workers.

Now, he has agreed to work for say $12.50 an hour with limited benefits (very few vacation days, horrible insurance coverage if any at all, no retirement, etc). Will this worker show up at work and give the same effort he gave while at his last job? Some will, most won’t… how would you react in this situation? As prices/salary drops for workers, effort and efficiency will decline. As effort and efficiency decline, so will the profit and product quality of the places they work for. People need a job, but they also believe they should get paid what they are worth. If they are being undercut, you will not receive full effort.

Same thing goes for companies who pull the plug on bonuses and hourly raises for current employees. If an employee has excelled in their position even during bad economic times, they will expect a subsequent acknowledgement of their work and dedication. For the people who do not excel, removals of monetary rewards are justified even without economic downturns. However, even during an economic crisis, if the company is making money and staying in the black, rewarding deserving employees is still a must. It cannot be completely removed or the workforce will feel unappreciated and effort and quality will decrease.

Is there a happy medium? In the end yes, but during volatile times, we see things get worse and the workforce mental status declines. This all feeds upon itself until enough good news turns the tide and the workforce begins to believe things are heading back in the right direction. Until that time happens, jobs will continue to be lost, salaries will continue to be cut, raises and bonuses will be nonexistent, and worker efficiency will decrease. Employers must find ways to motivate their workers in the dire times we are in to help deter the effects of workforce resentment. Is there a way to motivate you without money? I think the answer is yes and it’s up to employer’s to find the answer.

After settling down and coming back to reality, I began to mentally wonder about how this newfound “affordability” is going to impact our goods and services… products whose prices were raised to account for massive transportation and manufacturing costs incurred by the exponential energy price increases. Will I see the price of food go down? Will I see the price of our trash service go down which has increased by almost 25% because of “fuel surcharges?” Will I see a direct benefit by the drop in energy costs due to the drop in oil other than cheaper prices at the pump?

Highly unlikely is my guess. I’ve already seen price estimates coming from the food sector which said that food prices will remain “sticky” even with lower oil prices. What that means is that you and I will continue to pay for the increased costs associated with previously high “energy” costs incurred by manufacturing and production. Why is that so? Shouldn’t we see a drop in costs because the sellers can effectively remove all of the recently added surcharges due to oil price increases?

If the American people altered their buying habits, yes, the prices would drop. However, everything is relative. When prices first started increasing, the public was shocked and appalled at paying more money for the many staples of life. But, there was nothing we could do about it. We either pay the price or we do without. So, as a whole, we chose to pay the price. After months of “paying the price,” we have now formed a habit and a baseline of perception as to the “new” cost of products in our lives. Food costs x amount of dollars now to survive and that’s just the way it is.

It doesn’t matter that in that x amount, there is an overcharge now for the energy costs of our recent past. That x amount is not going to change according to the industry reports. Will the American public be just as shocked and appalled at not receiving the new “discounts?” Or, will we continue paying the overly inflated prices and deal with it because we are so “happy” that our fuel costs have declined so greatly? The safe bet is that we will continue to pay the higher prices because we have been trained to do so. The price of gas, for whatever reason, hordes all of the attention when things are out of control and when they return to normal, it still hordes the attention and people have a sense of relief both in their wallet and psychologically.

What we should be clamoring for is a retreat in all goods and services which have increased because of the oil prices. We should not be satisfied with gas alone dropping and thus soothing our overextended budgets temporarily. We should alter our buying habits and buy products that allow us to reclaim our “stolen” wealth and force the manufacturers who are unwilling to lower their prices on their own accord, to lower them by our purchasing habits.

That is the way it “should” be but I know it’s not the way it’s “going” to be. We will pay more or do without while enjoying our “affordable” gasoline. However, I look at it this way (with a bit of conspiracy theory thrown in). The reasons why we will not see a price decrease in most goods and services is because the manufacturers “know” that energy will be going back up in price… either due to OPEC cutting production or by the returning growth and boom of currently sluggish global economies. They “know” that oil will be heading back up the price charts and they are banking on that being soon.

Rather than “lose” some of the profits in the middle while oil has declined in value, they are going to keep their prices frozen and make a little extra and when the oil prices do return to exorbitant amounts, they will raise their “cheap” prices and make even more in the future. If you don’t believe it, you’ll believe it when oil returns to $100+ per barrel and the manufacturers once again start tacking on “energy surcharges” to compensate them for their newly increased costs of operation.

What are some of the most important aspects of living you value and place the priceless tag upon? Life itself, children, love, happiness, achieving your dreams, respect of your parents… the list could go on forever because we all determine our own lists of unsellable “things.” There are those among us, and it seems to be an ever growing segment, that kneel to the almighty power of wealth and proceed to trade or sell their perceived priceless items. Wealth is easily attainable for people willing to sell their most important objects of self because the market is scarce of this product. It’s a simple supply and demand issue. Low, or rare, supply will equal higher prices given any perceived demand.

Recently, one 22 year old female has taken this knowledge of the market and is offering her virginity to the highest bidder. She is planning on “auctioning” off her “product” in an effort to create a financially secure start for her life. Student loans, among other things, are piling up on her and she is in hopes that her “wares” will generate up to a million dollar windfall. This isn’t a novel idea, but it is one that generates a lot of media attention. In the end, she is nothing more than a prostitute. Prostitution is an age-old “profession” even though it is against most ideas of moral and ethical correctness.

Integrity, once revered, now shows up regularly on the auction block. Whether it comes in the form of this young lady, or in the form of steroid use, or lawyers twisting facts to free a criminal, or even the average “white lie” being told amongst co-workers, integrity is for sale. Everyone wonders why it’s so hard to trust anyone, or be honest with people without fear of retribution, it’s because there is a price tag on even the most basic core principles that make us who we are.

We are always looking for the true motives around us rather than take people’s actions at face value. We have to. It’s just the current state of the world. Integrity is readily sold and rarely protected. In a free market, why not sell a valuable asset when given the chance? Doing the right thing “costs” money…

What surprises me about the state of our world is that the mere mention of this young woman auctioning off her virginity hasn’t resulted in an old fashioned media lynching. Instead, we are given sensationalistic reporting with some even trying to support her decision. Is this something that we want to see reoccur? What will we see next time, an 18 year old selling herself? There of course are many worse incarnations of this action if we continue to support its “legal correctness.”

Our society must return back to one where integrity means something. We must truly believe there are priceless “things” which cannot be sold or valued. Until that happens, we will see auctions such as this litter our news and more than likely, at an increasing rate. Money comes and goes, but who you are stays with you forever.

Citation: http://www.foxnews.com/

Coming from an engineering past, new technology is always slated to outperform current levels of requirements. Another goal of new products is to offer more features for comparable cost which effectively lowers the price. Ideals such as these create barriers in our technology revolving around our energy crisis. We want exactly what we have now replaced with the ability to do more. We want a car that can drive 300+ miles on a single “tank,” we want “gas stations” to be ubiquitous the day we purchase the car, we want every amenity known to man to be included in the vehicle, and we also want it to be priced comparably to our current vehicle market. Apply these same theories to other energy issues and that is where the majority of our problems are.

MIT recently released a report stating that they believe US fuel consumption could decrease by 30-50% over the next 25-30 years. They also studied green house gas emissions and focused on the likelihood of new technology being ready to create a large enough impact. Now, that sounds great to me. If we can decrease our consumption by 50%, let’s just say that cuts our oil demand in half for simplicity’s sake. In 30 years, we will “only” be demanding 10 million barrels per day rather than the 20 million we are at right now. The study, performed by one of the most reputable colleges in the country, isn’t all that groundbreaking. If we can’t reach these goals in 30 years, then our country will have more than just an energy crisis to worry about, we will likely be in an economic freefall or depression.

We MUST decrease our fuel consumption by at LEAST 50% in 30 years to have any economic future whatsoever. Chevrolet is currently marketing their electric/gas hybrid vehicle named the Volt. They are planning on retail sales being available in late 2010. Current information projects the vehicle’s gas mileage will be the equivalent of 150 miles per gallon. If Chevrolet has the technology to create such a drastic increase in effective gas mileage, the other car manufacturers will surely follow suit. Projections for the Chevy Volt are about 2 years off, not 5, 10, or 15. If we have the ability to create a fleet of cars in the next 2-10 years with such drastic fuel consumption effects, we BETTER see a 50% decline in fuel consumption in 3 times that length of time.

As I said before, our wants are surpassing our needs. We are not ready to sacrifice much of anything in our current situation for a better future. So what if an electric/gas hybrid doesn’t go as far as the gas only counterpart of today. Don’t we all stop multiple times on long trips anyway? If we have a car that can get us to work on a single charge, that’s all we need. Drive to work then plug it up and then drive back home. Everyone wants the “end all, be all” solution day 1 plus 25% more. We want too much and are willing to sacrifice nothing. We saw that as gas prices shot up at the pump. It took $4 per gallon of gas to impact us enough to begin altering our driving habits. Seriously? Shouldn’t $2 gas have been enough to create change?

Until we can accept that things HAVE to change across our society, projections like MIT’s will continue to be put forth. Sure, things will change 30 years from now, they absolutely must. But, these changes can begin now with some sacrifice. Thinking in terms of 30 years decreases the “scare factor” of where we are at. 30 years is forever in most people’s lives. We lose the urgency when we hear such projections. However, our last major oil and energy crisis occurred in the 70’s, exactly 30 years ago. Shouldn’t we be using more cost effective technology now? You get the idea. We always talk about change when things are bad but when things get better, we lose the sense to fix things. That is until the next time things get bad and on a much larger scale.

We must focus on the solutions now. We must place urgency on fixing things in the next 5-10 years and change our habits and sacrifice to make things happen. Sitting on our projections that things will be better in the future only creates situations like we are in now. If we would have began fixing things 10 years ago, 5 years ago, or even 2, where would we be now? The future is today… the time to sacrifice is now… our future depends on it. We must stop living in an illusion and believe the future will work itself out without any of our help.

Citation: http://web.mit.edu/

I’m optimistic though. Eventually, with enough time, money, and breakthroughs in technology, we will find an alternative source for a major portion of our demand for oil. Until then, we are going to have to find a way to decrease our daily utilization of oil by becoming more efficient, finding short term solutions, and basically, deal with a little bit of heartache which will allow us to climb out of the grand canyon sized hole we have dug ourselves into. One of these short term solutions has turned up in the form of retrofitting vehicles with electric “engines.” I ran across an article focusing on a man who turned his gas guzzling vehicle into a battery powered green machine. Let’s take a look at his story and then I’m going to run through some numbers which will illustrate some of our short term pains in the hopes of easing the future.

Larry Horsley, a self described do-it-yourselfer, converted his 1995 Chevy S-10 pickup truck into a battery powered truck. Yes, he did it himself and he says you can do it too if you have any mechanical proficiency at all. However, it did take him about 3 months to complete the conversion with most of the time spent waiting on parts arrival (leads me to believe this is not a one stop shop kit). The conversion involved removing the entire gas powered engine, radiator, fuel injection system, and yes, the exhaust system. As we all know, a battery powered vehicle doesn’t have any emissions to worry about. Great, it saves on gas and also helps out our environment. Everything up until this point sounds perfect. Assuming we have some tools and know how to use them, any of us can convert our car/truck given enough time and effort.

But is it really a cost savings? It hurts each and every time you go to the pump and put upward of $50 in your tank when it used to be $25. It sure would feel good if you had something you could drive which would put an end to that wouldn’t it? The vehicle Horsley has made allows him to do that. He never has to purchase gas for his truck ever again. Horsley states that he has about $12,000 in the truck, including the cost of the truck. Dealers say this is about standard cost. Well, that doesn’t sound too bad considering all of the newer vehicles coming out on the market with high mileage ratings and hybrid technology are well above that. Used vehicles running on battery power aren’t all that big of a deal since the engine wear and tear associated with older used vehicles is non-existent. Basically, go buy any vehicle in good shape structurally and convert it, you’re good to go.

This is where my numbers machine kicks in. I see the costs and the savings and I began to think are we really saving any money? We are all looking for ways to save money right? Since the price at the pump is the primary issue here (we really don’t care how much oil we use, just the price of it), we should be looking at the actual cost of the conversion. Information was not given on the complete cost of the conversion to battery power, so let’s utilize some basic guesstimates. Horsley says the $12,000 includes the cost of the truck. It’s a 1995 S-10 so the cost of that should be fairly minimal considering this is 2008. We’ll give him a generous figure of $6,000 for the truck. That leaves us $6,000 as the cost of conversion, including batteries.

Statistics for his vehicle shows that he can go a total of 40 miles between charges (there are 20 batteries in the system). He can travel up to 60 miles per hour and there is no air conditioning installed. He mentions that people only drive about 20 miles per day on average so the 40 total miles is good enough on average (I don’t know where he got that number but we’ll go with it). Now, we have enough data to find out our savings. Let’s say on average, a gallon of gas costs $3.75 (national average is right there at the moment). $6,000 in cost of conversion divided by $3.75 yields us 1,600 gallons of gas in immediate costs. If we use his 20 miles per day number, an average American will drive only 7,300 miles per year (much lower than the 12,000 I’ve normally heard). Using an average of 21 miles per gallon, at 1,600 gallons, that totals 33,600 miles that can be traveled on the costs of conversion. 33,600 miles divided by 7,300 yearly miles gives us 4.6 years of travel.

The cost savings aren’t really there according to the numbers given. If we utilized 12,000 miles per year, we are still close to 3 years of travel time paid for up front. Horsley mentions that he estimates that he has “saved” about $700 in gas costs in 4 months while driving his converted truck. Working the numbers out, that equates to him driving about 12,000 miles per year given $3.75 per gallon gas and 21 mpg. Even at that rate, he still spent 3 years worth of gas costs up front to “save.” He also mentions that he no longer has to pay for oil changes or tune-ups which would add to the total savings. Agreed, so over 3 years, that saves about $400. However, in all of this, he has left out the cost of electricity to charge the vehicle. Energy costs are high so that must be accounted for.

Is he really saving any money? Sure, after about 3-5 years he will, but is that what we need when we are looking for an actual costs savings immediately to help our budget and wallet? As I said before, our intermediate issues are going to “cost” us more than what we are trying to replace. But, the future will be cheaper. Think of it as “biting the bullet.” Horsley chose to bite the bullet and lay down money up front rather than be nitpicked on a weekly basis at the pump. As we migrate away from foreign oil, we will most likely ALL face similar choices. Pay upfront costs for a better future or continue to be held down by the thumb of bubbling crude. One thing to keep in mind, as more and more people switch to battery power, our electric demands will go up and how does electric get produced? We must be careful on switching demands onto something that will increase its costs to a similar state of peril. We might save ourselves gas money, but end up spending that savings on electric bills.

Citation: http://www.cnn.com/

Of course, I start out skeptical when I hear most “facts” spoken by experts. Rarely is the day I take a report seriously until I can prove the validity of the information. This is one of those cases. I heard these expert backed facts and I put on my internet research hat and decided to find out if this hot air balloon was actually air worthy. So let’s get into some numbers.

Obama’s camp cites several “efficiency” experts regarding car maintenance. They propose that if American’s kept their tire pressures at the optimal level, car mileage would increase by 3%. On top of that, they state regular car maintenance will improve mileage by another 4%. This results in a 7% increase in American car mileage. 7% sure does sound like enough of an increase to create an impact. Based on some recent data, the average American car mileage is estimated to be 21 miles per gallon (mpg). If we tack on an additional 7%, we are now at 22.5 mpg. Now if we put it that way, it doesn’t sound like much. Wow, an extra 1.5 miles per gallon? Well, how about rolling that increase across the millions of miles Americans drive.

Based on some additional simple math, Americans average about 250 billion miles driven per month (3 trillion miles driven per year). This equals out to 11.9 billion gallons of gas per day at 21 mpg, 11.1 billion at 22.5 mpg. WOW! That is a lot of gas… and oil. Reports also state America utilizes 20 million barrels of oil per day. Each barrel of oil can produce about 19.5 gallons of gas. Simple math puts us at 20.3 million barrels of oil per day at 21 mpg, 19 million barrels at 22.5 mpg. Can it be? So far, we are right on the money with our estimates and math. Experts say we are at 20 million barrels of oil per day and our math above is right at it! As a note since we are using variable data here, if the average mpg per vehicle is lower (which I imagine could be true), the oil savings are actually better with any efficiency increase.

In those numbers above, it shows that based on a simple 7% increase in overall gas mileage, we can lower our oil utilization by 1.3 million barrels of oil per day. That equates to roughly a 6% decline in oil utilization (demand). After this trek through number crunching, we can safely say the experts are correct based on their “facts.” However, even though the numbers come through and support their stance, is it logical to truly believe the American automobile is in such a state across the board that will yield such an increase? Is it feasible?

I’m not so sure. So, I went searching for more statistics. I found the median age of the American vehicle fleet ranges from 7-9 years old. Half older, half newer, so let’s cut it in the middle and say all vehicles are on average, 8 years old. That means that in 2008, your average vehicle on the road is a model 2000. Based on these facts, the American highways are not littered with vehicles in terrible shape or running inefficient engine and vehicle designs. What the reports are missing is a major factor in these calculations. Where does the diesel, or tractor trailer, fit into the equation? Statistics show on average, the semi gets about 6-10 mpg. Do the efficiency experts include semi trucks in their equation? What about the total mileage driven by Americans, does it include tractor trailer mileage? I don’t know the answer to either.

I am highly skeptical as to the “facts” stated by the efficiency experts suggesting we would see an increase of 7% in mpg across our vehicle fleet. They are assuming a pretty sad state of vehicle maintenance and tire pressures. I just think we are aiming a bit too high here. In 2006, there were about 250 million registered vehicles in the country, 40% of them 6 years old or less (data supports the 8 year median age). If the experts are half right, we can potentially save about 700,000 barrels per day. Even at a measly 1% increase in mpg across our vehicle fleet yields a savings of 200,000 barrels per day.

Ok, I will settle and believe the efficiency experts that we could at least gain a measly 1% in mpg if we corrected our tire pressures and maintained our cars better. Does 200,000 barrels per day have any significance? Yes, it does actually. Current efforts to open up offshore drilling will supposedly lead to an increase in US oil production of 200,000 barrels per day… by the year 2030. So, if we were to be more efficient today, we could save the equivalent of what our offshore capabilities are 22 years from now. What about that oil field in Alaska we hear about called ANWR? Several estimates put production from the ANWR fields anywhere from 800,000 – 1.5 million barrels per day… in 2023.

Lots of numbers and lots of so-called facts from a variety of “experts,” but where does it leave us? Is it true we can save oil by being more efficient? Sure, but I believe Obama’s campaign is stating the absolute best case scenario known to man to achieve their 7% mpg increase. On the other hand, even 1% increase in efficiency creates the same effect today the opening of our offshore drilling sites would create by 2030 (when demand for oil is unknown). ANWR drilling is the only currently available option that could greatly impact our demand for oil. But, even then, that is 15 years away.

The efficiency experts are correct in their pursuits to have Americans keep their cars in optimal shape. It will help definitely our oil demands. But, unless there is a much larger than 1% overall increase, the impact will be negligible. What I am saying is that I don’t think an overall change in efficiency is going to impact our oil demands, today. It’s nice to think we will be more efficient, but how many people leave the lights on at home when it would be more efficient to turn them off when you leave the room? How many people leave the tv, computer, dvd player, or stereo on? Getting American people, all 300 some odd million of us, to be more efficient is a change that will take place along the same lines as the drilling programs above. I.E. it will take Americans 15-20 years to adopt new habits of efficiency. The simple answer to our problems day one is to not drive so much in our gas guzzling vehicles. That is the single, largest impact on our oil utilization we can achieve TODAY!

Citation: US Department of Transportation & http://www.time.com/

What exactly is $15.5 Billion? How can we possibly contemplate that amount of money? Sure, we hear the government talking about Billions here, Billions there, but really, how can we put any significance to how much money that really is? Currently, according the census clock, our country is around 300 million people. That accounts for every man, woman, and child in this country. $15.5 Billion is the equivalent of EVERY SINGLE ONE of us having $50 in our pocket. That is an absolute ton of money. It ventures into the Monopoly money realm actually. GM LOST that amount in 3 MONTHS! How can this be remotely possible? To be fair and I say this pretty facetiously, GM actually only lost $6.3 Billion on operations during the 3 month period. The other $9 Billion includes onetime charges and losses due to restructuring/etc.

Still, absolutely insane. This report comes on the heels of Exxon reporting a PROFIT of almost $11.7 Billion for the second quarter of 2008. To put that in perspective, that equates to about $40 in every single person’s pocket. Again, how is that possible! In one single three month span, GM lost the equivalent of a top 100 country’s Gross Domestic Product (GDP) for an ENTIRE YEAR! It simply boggles my mind. I can’t even fathom such numbers. It’s almost equivalent to pondering the existence of eternity. Our human mind just cannot function with rational limitations about such limitless thoughts. How can you explain forever, eternity, or never ending? Our minds cannot fully solve that question because we are finite beings living with finite limitations.

This limitless problem exists for me when thinking about the true ineptness displayed by some of our businesses. If a company can “afford” to LOSE $15 Billion, what exactly are they worth? Where is the wealth behind these companies that can sustain such losses? Are they real? Or, are they Monopoly companies? I just took a quick look at the stock market and GM’s Market Value is around $6 Billion. Simply put, they lost more than twice what they were worth in three months based upon today’s stock value. How are you doing on that end rationalizing these facts? I can imagine you are in the same situation I am, staring at the numbers and facts in disbelief.

Paper money, paper companies, and paper notes. What exactly is keeping these companies operating? Sure, they are of utmost importance to our economies that they do stay afloat and produce, but at what cost? Who are the losers here? You may say the stockholders. Yes, they are the predominant losers in this situation, but every single consumer is also. Eventually, the car makers will have to reverse their losses and begin making money again. Who is going to foot that bill? Right, the consumer will. We all know there is a ton of markup in new vehicle sales as it is, do you think the new and improved car manufacturers of the future are going to pass along the savings to Joe Schmoe public? That is highly unlikely when their boards have felt the intense pain of losing billions of dollars.

Somewhere along the line, GM will need to earn back the $15 Billion in losses or their business plan doesn’t make much sense. That may just be the case though. Their business plan doesn’t make sense. That is the exact reason they and the other car manufacturers are in such dire straits. They misread the markets and failed to make the appropriate changes as the economic times changed. They continued to produce low MPG vehicles with little effort to expanding the gas saving vehicle lines. Toyota was basically the only company focused upon moving forward with energy saving cars NOW, not 5-10 years from now. Even Toyota is feeling the pressures from the market though. Money is fast becoming scarce. People cannot afford a $20,000 vehicle rolled off the lot which immediately becomes worth $10,000 in your driveway. Leases don’t even make much sense anymore.

Can it be fixed? Sure. But the hard times are here and they are going to be for some time. There will likely be more layoffs and plant closings for every manufacturer aimed at putting an immediate stop to the bloodletting. After things stabilize, then, and only then, car manufacturers can return to profitability. There is no short term fix here. There will be more pain and more numbers reported like those above. It seems incomprehensible, to the point where we are working with Monopoly money. However, the dice they are rolling seems to continually land them on a Hotel on Boardwalk.

Citation: http://money.cnn.com

Not too long ago, I wrote an article detailing that the only effective way to alter our energy costs in our immediate future was to find a way to lower our demand for oil. If you would like to read it, click here: Oil Demand & Supply. In reality, the demand for oil is weakening and market forecasters are beginning to push predictions forth affecting the price of oil. If less people are driving and if there is less “extra cash” in the economy, people tend to stay home and conserve their earnings. As we all know, our economy is riding on a dangerous path right now. We have indicators in terrible shape and we have some in ok shape. However, the overall public sentiment is that we are heading for an economic downturn. It’s a fairly predictable outcome due to the fact that any monetary gains we have in wage increases are quickly overtaken by energy, food, insurance, and a variety of other costs. We cannot keep up with the costs of living in our current economic state.

Things must change and they are. A few weeks ago, President Bush gave a speech with emphasis on our economic situation. During the 1 full hour of his speech, the price per barrel of oil dropped about $10. One hour, $10 dollars. Did Bush put forth a new energy plan? Did he announce an increase in oil production? Did he announce anything related to oil production? No. He only spoke about the dire straits our economy was in. These dire straits translated into projected lower demand for oil. It’s a very simple flow chart. Less money equals less demand for “stuff.” A major component of that “stuff” is the use of oil to get or build it. The markets immediately recognized this and the future prices of oil began to drop.

Great, it is very simple economics, but how does this have anything to do with McCain you may ask? Actually, there was another announcement by President Bush that resulted in another decrease of the price of oil. He removed the Presidential ban on offshore drilling in our country. It wasn’t just a ceremonial act as some would have you believe (there is a law that still bans offshore drilling which would need to be repealed). It was a significant statement because it opens the path to future drilling for our own oil, thus lowering the demand on foreign oil. Well, guess what, the future markets for oil immediately dropped again. At the beginning of July, price per barrel of oil was at $145, as of writing, it is at $123. $22 is a 15% drop in a few weeks. There has been nothing to change the price of oil other than potential economic indicators (and simple statements) expecting lower demand. McCain has supported this theory and he has been attacked because of it.

If you go back and read the article I linked above, you would know that several energy consultants stated that if you remove speculation from the price per barrel of oil, it would be roughly half of the current cost. What exactly is speculation? Markets speculate the price of oil includes many various factors of economic conditions (including weather). If the market begins “speculating” that people will not have the same demand for something in the future, the price will drop. The market is correctly speculating that with the economic crisis we are entering into, along with the potential for drilling for our own oil in the future, our demand for oil will decrease. Price has receded appropriately.

Has our actual price per gallon of gas decreased by 15%? Of course it hasn’t. In the last month, the national average of a gallon of gas has fallen about 2-3%. Well, we shouldn’t expect an immediate drop considering the current inventory includes the higher prices oil costs. Or should we? My question to you then is why does gas immediately go up when a hurricane enters our gulf coast which threatens our refineries? The future of gas yes, could be impacted, but the current inventory costs are still lower. It’s all about speculation and preying upon the fear of the public masses. If something bad is “potentially” going to happen, have the media play the part and drive the fear home. People will be scared, run to the station and fill up on the “cheap” gas. Businesses accordingly raise their prices to curtail this short increase in demand and profit greatly on a potential issue.

However, it doesn’t turn around that fast when things are going good. We are fed the laundry list of costs involved in gas and oil production and inventory costs, etc. The media of course is in the middle of all this making sure most people don’t understand what is going on. The public is the puppet, while media, government, and oil companies are the puppeteers. McCain is right in his support that recent statements made by our President have affected oil costs. He may not give an economic dissertation as to why, but the fact of the matter is it’s true. There are people and media sites attacking McCain because they have missed the link between speculation and cost of oil. It makes for a great attack ad or blog/media post, but they are the ones who are wrong.

Demand and supply are always critical, but speculation throws a wrench into pricing. We have allowed our media to “control” our senses and thus, we are paying a 50% “future tax” on the price of oil because we have allowed them to fuel our fears. In reality, the power exists in the hands of consumers. If we truly re-evaluate our lifestyles and choose to focus on demanding less oil, we can change the costs now and in the future. The markets will heed the new forecasts and the price of oil would return to its true cost, much lower than currently with rampant speculation included. As the energy analysts stated, the true costs of oil right now is at about $60-$70 per barrel. That is a 50% drop in cost today. Theoretically, gas would return to something closer to $2.00 per gallon than $4.00.

Most people will never take the effort to examine an attack ad on a Presidential candidate because they are easily led by our media. As people attack either candidate, try and find your own position on the matter. The media cannot be trusted. The attacks leveled at McCain for believing statements made by our President can affect oil are ludicrous. Of course a simple statement by the President can affect the price when speculation is such an important part of the market!

I’m sure if you’ve watched the news over the last 2-3 years, you know that the world’s poor nations are growing and the nations that were behind the technology curve are moving forward. Couple that with the increased demands of consumers in all nations and you have a serious supply and demand issue for one of the most important ingredients of commerce, oil. At least that is what we are led to believe. I can’t even keep a mental count of how many times I heard analysts stating that the world is at oil capacity. Every barrel created is being used. We are at the edge of supply versus demand. Being that we are at such a crossroads, this leads to the supply of oil costing more and more. Eventually, the cost of the product will become so high, that demand will have to revert to a more normal level. Assuming we are talking about rational people.

So demand will fall if we continue this pace? I would hope so, or we aren’t a rational society. If we consistently empty our wallets for fuel and other products impacted by high oil prices, then I would hope that we would be bright enough to look for an alternative solution. By replacing the demand of oil with the demand for an alternative, the demand for oil will in turn decrease and with it, the cost of oil will begin to follow suit. But that doesn’t really help us does it? We really don’t have an alternative at this time. We don’t have an alternative lined up for the next 5-10 years even if something were started today. Car manufacturers have hybrid cars coming out, we have E85 gasoline, and we have some battery powered vehicles. But none of that is readily available to the masses. Hybrid cars are still depending on gasoline, they just get more MPG using more effective methods of saving gas. E85, while made of ethanol for the most part, still utilizes gas. Battery driven cars don’t have the distance capabilities we desire at this point.

We are only talking about the vehicles at this point. What about all of the products that are utilizing oil in the manufacturing process? What about all the tools that require oil and oil products? What about the transportation of goods back and forth through our country? There are many, many issues facing the demands of oil and associated replacement with an alternative product. Even if we had an alternative product, would it save us money? The major problem with oil supply is that it is “limited.” It is a natural resource that is very expensive to find, refine, and disseminate to the world. Would our alternative be any different? What resource do we have that is so abundant that the impact of our extreme demand would not immediately price the new replacement similar to that of oil?

If we switch our demand to E85, the price of corn will increase. It already has. If we replace our demand with battery operated cars, our price of materials to build batteries will drive up the manufacturing costs to levels similar to our current gas crisis. How do we achieve a cheaper alternative? We have to focus on a resource that is readily renewable and not expensive to acquire. Water is a simple answer. How can water be an alternative to oil? I don’t have a clue. It’s an example of a resource that is readily renewable, easy to acquire, and is available in mass quantities for a very cheap cost. Are there other resources like this available to us? I’m sure there are. There could even be some man-made products. However, even man-made products will suffer a price increase from increased demand and limited supply over time.

Is there any hope? Sure. But we have to fund the engineers and scientists working on potential solutions now more than ever. We cannot be in this same position of unknown in the upcoming years or our economies will hit more than a recession. Every consumer product has felt the impact of our oil crisis. Increased transportation costs, increased manufacturing costs, and increased energy costs are affecting every single product in our life. Food has begun a steady increase in price. Energy costs for electricity and heating fuel have gone up by great percentages. Our basis costs of living are far outpacing our income growth. We cannot continue this path. Eventually, demand will have to subside without a replacement or not. People will be forced to make decisions that will not only hurt their families, but the communities they live in, and also our country. Our economy is dependent upon people spending money. If people begin to stop spending money on anything but the core products that sustain life, our market economy will implode.

After all that, we are back to our market. The article stated that the analysts believe that the United States could alter the futures market by instituting a law keeping speculation to a minimum in the energy markets. Is that fair? Not really. The market and capitalism is based upon free trade and earning what the market will allow. If the US changes the field and puts limits on the market, they are creating a different type of market. The speculators will of course leave the US markets and enter another market where their money will return the largest profit in return for their risk. What will this do to the US markets? You got it, the US market will undergo a serious correction with millions (billions) of dollars leaving our investment facilities and begin entering other foreign markets. Money has no loyalty. While the analysts are correct in that the price of oil will drop because of the restraints put into place, they are also missing the impact of doing such a thing to the rest of the market.

People invest money to make money. If you remove the ability to make money, the investors will leave and find a new market for their money. Our society keeps focusing on the wrong end of the issue. We need to focus on the demand side of the issue and not the supply issue. If we add supply, demand will eat the new supply in an instant with nothing but a small respite of lower prices. We MUST focus on the demand side and find an alternative to oil. That is the only TRUE way of returning our energy crisis to normalcy. Anything we do will take time to integrate and produce, more than likely, 5-10 years worth of time. Do we have that kind of time with the state our economy and world is in? I don’t know. Demand will only continue to increase and unless someone finds an ocean of oil that can be tapped easily in the near future, we are on pace for $6 per gallon gas in the next 2 years.

Citation: http://www.marketwatch.com/