Day after slumping day, we continue to receive horrid reports of just how bad the jobs sector, housing market, and world financial system really is. Any thread of optimism is crushed by the daunting weight of reality. Not only has the American economy slipped into a wild tailspin, the entire world’s economy has. That is to be expected given the globalized economy and America being the world’s number one economic engine. It’s simple trickle down… or waterfall down at this point.

Everyone wants things to turn around, and turn around quickly. But, that is equal to asking to win the lottery of all lotteries. It just isn’t going to happen. There is one major reason why we will not experience a quick turnaround at the level of you and me, let alone at the corporate level. That reason is the fact that the credit market has seized with little to no hope of it releasing in the near term. A harsh reality may be that it will never return to what it once was.

Since the credit card market boomed and basically gave credit to anyone who could show any sort of income (and many who didn’t have any income), consumers began using this “free” money to fund their lifestyles. This so-called “credit wealth” allowed us to live beyond our weekly, monthly, or even yearly means. Many of us have extended ourselves past the year timeframe into many years. We never really think about it when the going is good, but now that the economy has hit the skids, the bills are coming due as our take home pay is raked across the coals by increased costs of living without adequate raises to make up the difference.

The credit lines have shrunk, but the bills are increasing… it’s a no win situation. I believe several things have all hit the “sweet” spot and the catalyst was the price of gas. Consumer credit boomed and raged out of control as banks tried everything to gain customer count and increase their “assets.” The housing market was an inferno out of control and everyone knew the bubble would pop, but nobody expected it to simply implode in a few short months. And then there was the price of gas… the summer of $4 per gallon gas. We borrowed, and borrowed some more, until our wallet was stretched as far as it could go. Our theoretical budgets could not withstand the doubling and tripling costs of gas to drive back and forth to work, let alone the increased costs of goods and services passing along the costs of higher oil and manufacturing costs.

Gas prices were the catalyst that pushed our economic boat over the edge. We were maintaining our credit wealth as best we could until the real monthly bills became so overly exaggerated, we couldn’t push the costs of living out into the future. Initially, the savings (what little of it there was) we had, were used to augment our income to take care of the “temporary” costs increases. As these increases were seen as less than temporary, our savings were burned through and then the credit lines were strained even worse. The bad situation was turning into a horror show.

Now, after more than 15 months into this recession, there still appears to be no end to the downturn. Billions, and even trillions, of dollars have been injected into the system in an effort to save what little confidence we have left. These people are hoping for a return to how things used to be. I don’t think we’ll ever see things return to that stage. If we do, this recession will have solved nothing and will have only served the purpose of extorting houses from many families and dashing the retirement for untold thousands of hardworking American citizens. We all need a return to normalcy. We cannot fund wealth with credit. Credit is necessary, but to an extent to augment our daily lives, not finance them. Until we realize that as a nation, we will continue this road to nowhere. The consumer must change and most of all, we must realize that the government is not going to save us. We must save ourselves by spending more appropriately.

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.

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.

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/

The article reports some interesting facts. Texas alone found that last year, there were nearly 2,000 pumps cheating consumers. The industry counters with an estimate that 90% of pumps are accurate and some even give consumers more gas. Other information provided reports there are only about 600 inspectors nationwide. 50 states and 600 inspectors provide us with 12 inspectors per state. How many gas pumps are there in each state? I dug up a report pre-year 2000 which reported that about 187,000 retail locations existed. That is stations, not pumps. It would be safe to assume that for every station, there are a minimum of 2 pumps. At the very minimum, we can safely assume there are over 400,000 pumps in our nation and that is about as safe a minimum that can exist in this equation.

Given an average of 12 inspectors per state and an average of 8,000 pumps per state, each inspector is responsible for at least 667 pumps (I would guess it’s over 1,000 if we knew the exact amount of pumps). It’s safe to assume that we need more inspectors. The article reports inspection standards vary “wildly” from state to state. My question is why is gas pump standardization different across our state lines? There should be a single, uniform code for each pump to conform to. Minnesota reports that they are not able to inspect every pump in their state, there are not enough inspectors. But, for the pumps they did inspect last year, 11% were faulty. After a pump is found to be in error, the station is required to fix them. However, only 25% of them are repeat inspected for compliance. Yes, you read that correctly.

Another issue with our gas pump maintenance involves the actual testing requirements for each state. As reported, “Michigan inspects only after complaints. New Hampshire and Arkansas allow gas stations to hire their own testers, while Tennessee and Florida rely on statistical sampling.” Going further, they found 17 states allow pumps to go over a year and a half between inspections. Quoting from the article, “…Arizona, at every three years. Maine’s inspections are up to every four years. Same with Texas. One pump CBS News found in Fort Worth, Texas, was last inspected in 2003, when gas was $1.56 a gallon.” At this point, do you really believe you are getting what you pay for at the pump?

Information from California shows “94 percent of pumps pass inspection. But consumers can still be cheated. That’s because pumps can pass even when they dispense a little less than what the pump says. It’s a margin of error the law allows.” What exactly is the agreeable margin of error here? Sure, California has 94% passing inspection, but what does it take to fail? High volume pumps that pass the test but still do not provide a full gallon “could rake in around $50,000 a year extra” according to the article. Each individual driver receives just a bit less than what they paid for. Not enough of a change to make an effort to scream displeasure over for the individual, but the volume over time cheats all of us.

When does the “cheat” become enough for an individual to speak up? Shouldn’t we say something if anything is being cheated from us no matter what the cost? No, it’s not being petty. As a consumer, we should get what we pay for each and every time no matter what it is. Gas is just one of the hot topic issues and is an easy target. We all know in the back of our minds that we are getting ripped off at the pump a little here and a little there be it a little watered down gas or not full gallons. How come your car runs better when filled up at certain gas stations and worse at others? No, they didn’t forget and put premium octane gas in the regular tank. So yes, we go throughout our lives being nickel and dimed to death because we don’t want to “waste our time” confronting an issue.

Industry knows this and they rely upon it. Just as the “passed inspection pumps” above show us, they are raking money in that does not belong to them. Consumers are prey to businesses. Consumers must understand that. We are not their friend, we are their target. Many other industries are applying these same techniques to their products. I’m sure there are hundreds of examples where volume cheating has been applied which to the individual seems petty. However, when spread over society, it results in thousands, if not millions, of dollars in “lost” wealth.

Take this to another level. Look at how you perform your job. Do you give 100% to your task or do you do just enough to complete it? Do you cut corners? Do you leave simple things out to get things done faster? I could go on but I’m sure you get the point. We all use the same volume cheating technique in our lives in many aspects of our life, our jobs being one of them. In the end, the primary reason why we do not confront the issue of volume cheating at such a miniscule level is because we do it ourselves. Only if the impact is great enough, or the cheat blatant enough, will we question whether we got our money’s worth. If we let the small stuff go, so will the other people in our lives who we are volume cheating.

I’m not condoning volume cheating. I’m stating the general attitude regarding the issue. We should all give everyone what they deserve and pay for. In so doing, we should honestly expect that in return. If we cheat others, then we should expect to be cheated. The gas pump issue can be measured in dollars, but there are many issues that can only be measured in time and possibly feelings and emotion. Volume cheating hurts everyone but we can begin to make things better by fixing it at the personal level.

Citation: http://www.cbsnews.com/

The war in Iraq was his “bring it home” issue until recently. When the media continually played car bombings and civilian deaths as their lead story each day, the Iraq war was in our collective face creating a breaking point issue. President Bush determined, along with his advisors, that a troop surge was required to quell the increase in civil violence. Obama opposed the troop surge and supported setting a firm timetable of return for American troops. Almost a year later, the surge has worked, along with various other factors, to bring down the violence level in Iraq. No longer is the morning news led by disaster reporting of Iraq’s bloodshed. No longer is Iraq the quagmire the Democrats were using as fuel to rally their political machine. Recent concrete information has been reported that an agreement on troop withdrawal is imminent. That was the exact change Obama was promising he would bring with his Presidency.

With the Iraq War change spiel losing its luster, Obama has had to move on to the next topic in American angst, the economy. This topic is mired together with our current energy crisis. The tangled mess of our economy has more than the cost of oil to blame. Obama and his Democratic brethren have been on the path to roll back the tax cuts initiated by Bush during his Presidency. Democrats feel the burden of tax has been unduly lightened for the “rich.” In a sluggish economy, increasing taxation upon the economic money creators is completely opposite of what should be done. Taxing the people creating wealth is one way to increase the governmental windfall, but it dampens job creating, business building, and economic growth. The term “taxed to death” can be applied here. It becomes simple math here, American taxes will become too high and more jobs and business will leave our borders because of governmental penalties upon their revenue. Higher taxes do in fact equal fewer jobs and less money for the economy. If the Democratic Party economic analysts and leaders cannot see this, they are blind. We live in an international economy, not a singular economy behind our borders.

We are to our third “hot topic” which is the current energy crisis. Obama has promised change once again. The latest speeches from Obama focus upon efficiency and increased development of alternative fuel sources. Is that change? Aren’t we already spending millions, even billions, of dollars on research of alternative fuel sources? Efficiency isn’t a change, it’s a “solution” that has been around long before Al Gore began his Inconvenient Truth tour. Everyone wants change here, including Republicans. The offshore drilling issue has come up and Obama opposes any new drilling. Obama claims that drilling for more oil is the wrong direction. We should be spending our money moving forward. I agree, in a perfect world that would be correct. However, our world and country is constantly growing and so will the world’s demand for oil. Oil is not the metaphorical band aid that can just be ripped off. We must move away from our dependence on oil but we must move in a manner which does not destroy our economy in the meantime. If we cannot find new oil, be more efficient, and have OPEC release more oil in our future, $4 gas may be a steal in the next 5-10 years.

Obama has promised change which we can believe in. I’m not seeing it. His promise to get our troops out of Iraq seemingly is on the way to being solved by the very people he opposes. He promises a better economy but his policies will create further disruption and job loss. He promises solutions to our energy crisis. Technology is coming in the way of alternative fuel sources and they have been on the way for many years. If they happen to come to fruition during the next 5-10 years, that has nothing to do with an Obama Presidency. Money, when thrown at technology, does not necessarily speed up creation. We will make advancements in alternative fuel, but if Obama believes his Presidency is the spark plug required for it to happen, he is self delusional.

Change, it’s not a new message. It’s what all politicians cry when looking for votes. If you’re not promising change, then what makes you any different from the guy who is in office? Obama has promised great changes but as a rational American voter, the changes Obama promises are empty. This weekend, Obama announced Joe Biden as his Vice President choice. Biden is a 30 year veteran of our Washington government. Is a 30 year veteran of politics change? Obama prides himself that he never voted for the Iraq war, yet he chooses a running mate who did? How can a man adamantly opposed to one of the major issues of the last 40 years in American life choose a running mate opposite to his number one critical litmus test? Votes. Biden is a veteran of Washington politics and he brings with him a wealth of experience in foreign relations. Those two very important aspects of being President are the two major drawbacks facing Obama. He lacks experience and he has no foreign relations experience. Problem solved.

Americans have long been thrown the bone of change by our political parties but we never truly see any change. Changes that need to be made never are. To name a few, let’s solve the health care issues, let’s solve social security, let’s solve our immigration issue, let’s solve the issue of jobs leaving our borders, and let’s solve the taxation issues facing our country. I want to hear real policy, not political rhetoric. Until we hear real change from Obama, he is more of the same. The same old political hot air balloon we have placed in front of us as the next great savior of America. Barack Obama is not change at this point. He is just the best the Democratic Party has to offer.

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!