Miles Driven Off 3.7% in May
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CalculatedRisk on Sun, 07/27/2008 - 10:05pm (75 comments)
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I'll take a first if I can get one!!
It's so subtle as to make me question whether it's actually happening -- or just my imagination -- but there does seem to be a little less traffic on my commute (along LA's 210) these days.
I'll see your demand destruction and raise you... China.
Car ownership in China is exploding, and it's not only cars but also sport-utility vehicles, pickup trucks and other gas-guzzling rides. Elsewhere in the world, the popularity of these vehicles has tumbled as the cost of oil has soared. But in China, the number of SUVs sold rose 43 percent in May compared with the previous year, and full-size sedans were up 15 percent. Indeed, China's demand for gas is much of the reason for the dramatic run-up in global oil prices.
China alone accounts for about 40 percent of the world's recent increase in demand for oil, burning through twice as much now as it did a decade ago. Fifteen years ago, there were almost no private cars in the country. By the end of last year, the number had reached 15.2 million.
There are now more Buicks -- the venerable, boat-like American luxury car of years past -- sold in China than in the United States. Demand for Hummers has been so strong that starting this year, Chinese consumers can buy a similar military-style vehicle called the Predator at more than 25 new dealerships.
China's Cars, Accelerating A Global Demand for Fuel - washingtonpost.com
I would like to see 5 bucks a gallon as a floor for gas prices - increasing gradually to 10.
It would devastate our enemies - and the revenues could be partly rebated directly to consumers, plowed into public transportation, and used to subsidize renewables.
We could pull millions of tons of carbon out of the atmosphere. Would be nice for our grandkids to have an ecosphere capable of sustaining life.
But how long can/will China continue to subsidise the price of oil/gas? Same can be said of India, although have cut a bit....still well below market price.
old trader (who's overweight energy)
This is basically a reverberation of the numbers we've already observed both in the Mastercard/Visa numbers and the EIA TWIP numbers. Old hat, no news here.
Good! Less air pollution!!
Seriously, CR, do you ever sleep?
UnEasyOne
"It would devastate our enemies"
The Saudis are our friends. By enemies you must have meant George, Condi and Dick.
Maybe it was just all those people that don't have jobs anymore, they just don't have any place to drive. Or maybe realtors don't have clients just aren't driving their leased Mercedes Benz to impress their clients.
This country can't sustain anything near the status quo on $4.50/gallon gas. It is grinding slowly to a halt.
Big deal, miles driven down 3.7%. Hell, if consumers make even a modest effort at frugality, we can cut 15%.
But even a 15% reduction won't save the economy. Airlines, trucking, service deliveries, mass transit--there is virtually no slack in these sectors. They can't conserve. So their prices will keep rising even as their demand drops. Which strangles the economy.
And why isn't anyone but me warning about what will happen come winter? Propane and heating oil are headed toward $5/gallon! What percent of households in the colder climes can afford winter heating bills of $1500/month?
We had a wood stove installed today, and have 6 cords of firewood in the backyard. But the lives of many others will be in jeopardy.
ASPEN Condoleezza Rice, the U.S. Secretary of State, and a former student at the Aspen Music Festival and School, will return to Aspen to perform at this summers Music Festival.
Rice will be featured, as a pianist and speaker, at a Words & Music event at 3 p.m. on Aug. 2, at the Benedict Music Tent, and will perform a Dvorák piano quintet with students from the Music Festival. The event is co-presented by the Music Festival and the Aspen Institute.
Also see: It has been suggested that Ms McCain has been preserved in oil and that she is thought to be a vampire, and there is a new rumor that she loves to listen to Condi!
Is nothing sacred!? That oily vampiress playing Dvorak! Anton, permit me to humbly apologize.
In case there was really the slightest doubt:
I meant our sworn enemies in the Middle East (I'm assuming that ["The Saudis are our friends."] remark was snark) our dangerous "friends" in Russia and our traitorous enemies in the White House.
If we develop energy saving technologies, China and India will adopt them quickly to maintain their competitive edge. They (the Chinese - don't know if India subsidizes it) won't continue to subsidize fuel as time goes by. Not practical.
Is nothing sacred!? That oily vampiress playing Dvorak! Anton, permit me to humbly apologize.
(a) Cottonwoods don't grow that well in Aspen; its elevation is too high. There are a few along the river.
If you ever have the chance to go to Aspen, the Institute's a great place to wander. Its grounds are basically open, and there are a few hidden trails that let you sneak down to the river. There's a bridge there that affords awesome views up- and downstream at dusk.
(b) Anything east of Germany isn't sacred. If she were playing Brahms, I'd be pissed.
It's worth noting as well that, as oil is critical for transport and economic activity, we've never had a decline in miles driven remotely this big that didn't cause a nasty recession.
The Oil Drum | Miles Data Predicts Big Economic Slowdown
Thank goodness we have "better" statistics now.
Finally some good news.
Unirealist,
there is still enough time before winter comes to add some insulation in the US houses. When I lived in Boston, I notice that it would be trivial to cut down heating by 75%.
Just add two or three paned windows, some insulation, thermostats, and keep temperature at 20C at most.
Anything east of Germany isn't sacred. If she were playing Brahms, I'd be pissed.
ndk! Vienna is east of Germany. And Prague is west of Vienna. Get a grip on Dvorak and you won't regret it, especially if you like Brahms (with sour cream and paprika).
Since oil production world wide is not increasing, China's, and others, demand would have to be accomodated by a commensurate decrease in our demand to keep prices steady. I doubt we can cut enough to accomdate China and others.
And why isn't anyone but me warning about what will happen come winter? Propane and heating oil are headed toward $5/gallon! What percent of households in the colder climes can afford winter heating bills of $1500/month?
Plenty of people are warning on it, it's just not "done" to repeat the obvious in the MSM: The American consumer is buying gasoline on a credit card right now. There's not gonna be a Christmas, and it's gonna be snowing CC default notices this holiday season.
Call it a hangover from the post 9/11 collusion between the major media owners and the White House to support a "math is hard, let's go shopping" economic policy. Call it group denial about the size of this crisis. Call it country that's just so institutionally ignorant of political economy it doesn't even know how to frame and parse these critical data points. Individually, lots of people know what's up, as a group, the decision has been made to deliberately hide our heads in the sand about it. The Republicans aren't willing to admit they sent the country on an unsustainable spending bender, the Democrats can't admit they want the same spending bender on different programs.
I have to differ with CR in that I don't think that demand destruction is going to provide anything but short-term relief from this. In even the medium term, discounted petroleum prices are going to lead to consumption growth to take advantage of a relative windfall.
Not that that I don't think that oil prices may get down as low as 65/bbl (80 dollar "real" price plus 15 dollars of post-bubble market punishment) but any stay at that price level will be brief indeed. Between dollar dilution and increasing demand, I think we will see various size trading premiums on top of the "real" price of oil.
Actually world oil production has been DECREASING since 2005. Here are the total figures in millions of barrels per day:
2004....72.51
2005....73.81
2006....73.54
2007....73.27
When I lived in Boston, I notice that it would be trivial to cut down heating by 75%.
As I've said before (not that you should know this, Matti, I'm just apologizing for sawing on this old dry horse bone) -- it's not the absolute degree of cost, it's the delta over time that's the killer.
You are talking about a major cash investment in these "trivial" changes. Modern windows, insulation installation, all that stuff costs money, at the same time fuel bills are spiking, inflation is spiralling at 12+% by 1980 measures, consumer credit is being pinched and people have to buy cars that are actually efficient, all while confronting the fact that in a few months, the banking crisis is going to finish off the banking system and get started on the real economy.
House upgrades for the last decade have not been physical plant improvements but flipper sell points like the now-infamous granite countertops. You are seeing a lot of this stuff taking place now, but there will be some serious immediate hardship during the transitional period, and that comprises the bulk of the "crisis".
Using wood stoves will be a palliative only and will likely come under air pollution regulations ( they already are in the SF Bay Area).
The real problem is the use of natural gas for electricity generation. Utilities have opted for these power plants because they are cheap, quick to build and they can get permits for them. Thus instead of being able to stockpile gas in the summer we now have 'summer' demand season for natural gas. Prices for gas have slipped back in recent days but a Gulf Hurricane or some heat waves in the east could push gas prices right back up to $13-14 and that would be devastating going into the winter.
Anybody try the new search engine "cuil"?
Not quite got all the bugs out yet. Search "calculated risk" and you get a bunch of entries about Jimmy Doolittle, although for no apparent reason one of them has one of CR's graphs as an illustration.
Byzantine_ruin,
I know well what you mean.
The most trivial solution is to leave some part (rooms, floors) of the house unheated (or heat it just over 0C to preserve piping). Many US houses have unnecessary rooms.
Vacating some rooms does not cost that much.
oh no, granite countertops are worse toxic rubbish than posters here thought heretofore
What's Lurking in Your Countertop? - NY Times
While world oil production has been declining since 2005 world oil demand has been increasing.
Demand:
2004.......82,330 million bpd
2005.......83,650
2006.......84,617
Obviously the rise in price is basically and supply and demand question. And I doubt US demand will fall sufficiently to bring the two back into balance.
Now if we could only reduce driving and other oil use at the rate production declines relentlessly, year after year - look at US or North Sea numbers so as to be clear that 'technology' and the 'market' are just other ways to say 'oil fairy'.
And then the same next year.
And the year after.
The future is now - that 10 or 20 years to prepare for declining oil production was 10 or 20 years ago.
Nothing like being flat broke as a nation, with an economy reliant on the kindness of strangers to keep accepting money shrinking in value to keep paying the interest on the debts we keep incurring so as to stay on the treadmill.
Somehow, I don't see a nation in hock to its oil suppliers and manufacturing rivals being in a strong position to develop the industries that will shape future development.
What's impressive about the number of vehicles hitting China's roads daily is the fact that the majority of them (some say higher than 80%) are bought with cash. Rationale is anybody clever enough to have that kind of money finds paying interest an anathema. You get comments like anybody who can afford a car can afford to pay cash, pay for parking in BJ, and apparently, pay to keep it filled w/ gas. The recent withdrawal of part of the subsidy took the local price up over USD 4 per gallon, less than half of what we're paying in Hong Kong, but still not as cheap as many think. In the face of no increase in supply, a lot of consumers around the world are simply outbidding Americans. I suggest we get used to it.
OT
A report on the Trump Tower in Chicago from Crain's Chicago Business:
"Mr. Glatz has listed a one-bedroom hotel suite on the 25th floor for $1 million, well below the $1.5 million a buyer would pay Trump for a comparable unit.
He's also trying to sell a two-bedroom suite on the 23rd floor for $2.6 million, vs. $3.2 million for a Trump unit."
Condo buyers flip off Trump | Crain's Chicago Business
Mr Trump certainly does seem to have a knack.
kiewi writes:
oh no, granite countertops are worse toxic rubbish than posters here thought heretofore.
Ahh, but in the winter the radioactive granite actually gives off heat. Big kitchens, less gas.
OT.
Lehman Hardest Hit by Biggest Rise in Borrowing Cost Since 2000
Lehman Hit by Biggest Rise in Debt Yields Since 2000 (Update1) - Bloomberg.com
Lehman Brothers Holdings Inc. has seen borrowing costs for its five-year bonds rise to 7.7 percent, up from 5.2 percent six months ago, the biggest jump of the four largest U.S. securities firms, data compiled by Bloomberg show. The yield offered on Lehman's $1.5 billion of bonds maturing in January 2012 is 4.3 percentage points more than the yield for five-year U.S. Treasury notes, a premium almost double what it was in late January.
This is going to have a positive impact on sexual activity of polar bears, and a negative impact on those who sell "carbon indulgences".
CR,
Can we please have a bash Krugman post? He actually wrote in <a href="http://www.nytimes.com/2008/07/28/opinion/28krugman.html?_r=1&hp&oref=slogin>today's NYT op-ed Fannie and Freddie had to be rescued, and the bills other main provision a special loan program to head off foreclosures will help some hard-pressed families. Its much better to have this bill than not.
I couldn't make it past the first paragraph after such drivel. Of course there are people with more uninformed/idiotic views than his; however, for some unknown reason this guy's given respect amongst the blogs correctly identifying the recent Giveaway Act as docious-ali-expi-listic-fragi-cali-repus. WHAT GIVES?!
OK, maybe I'm not understanding this, but I guess the gasoline tax is on gallons rather than sales? Because a sales tax would presumably show increased revenues?
Also, it may happen that the NEED for highway money begins to decline as well. Particularly if people begin to park their heavy vehicles and drive much lighter cars, the road maintenance needs will begin to decline.
I believe local governments could start raising SIGNIFICANT revenue if they started enforcing weight restrictions on local roads. A fine on all those pickups and SUVs over 4 tons on each restricted bridge they cross would be a good income source!
And, local taxpayers would save money on bridge maintenance.
Anonymouse writes:
He actually wrote in today's NYT op-ed Fannie and Freddie had to be rescued
Krugman is a politician first and an economist second.
BB, that's called "liberal economist".
Just completed the WSJ article and marvel how consistently the subject of maintaining rail infrastructure arises only when the country sees falling highway maintenance budgets.
Alternative transport comes to mind when the more profligate means become expensive and, of course, only when the funding available is impaired.
Joseph Heller was pretty smart.
Ad hominen attacks on Krugman in CR are not very convincing. In fact, they are misplaced.
By the way, I cannot understand why being a politician would be bad as such. Unless one is an anarchist, one must admit that society cannot work with politicians.
Well, it's only natural to bash Krugman.
After all, the conservatives have been right about everything these past eight years. Just LOOK at all the prosperity those supply side tax cuts have brought us! And the fiscal discipline exercised by conservative control of all three branches of government has brought peace to the world, unparalleled prosperity to all, strength to the Dollar, protection of the Bill of Rights, huge surpluses and 89% of the public believe we are on the right track.
In Bizarro world, that is.
Freudian slip Matti?
"society cannot work with politians"
Matti Kinnunen writes: Unless one is an anarchist, one must admit that society cannot work with politicians.
Ah, Matti, I perceive that Mr. Freud may have just bitten you in the posterior; however, I must agree. "Society cannot work with politicians"!
Oh my. Mr. Freud made my day.
Maybe I call it a day and ride my bicycle back home from the office.
I was about to comment that there are not a few anarchists on these pages, but Investment Banker beat me to it....
How about bashing Gretchen Morgenson? We haven't done that in a while.
Krugman's New York Times blog is clearly entitled "Conscience of a Liberal." Since he's a liberal, graduated from Yale and MIT, and works for The Times that gives him immunity from all criticism for anything he says, very much approaching the "holy man" status accorded the current Democratic candidate for President. But that doesn't change the fact that he's a Keynesian eager to make excuses for any ambitious, well-meaning government intervention in the economy, no matter how messy the consequences.
CR - I'm sure you've written about this (several times?) in the past, but what is your estimate of an equilibrium housing starts number for the US (ie. what's required for population growth and demographics in a "normal" market). I'm guessing maybe 1.1 mio annually, including rental and replacement construction? Thanks and regards.
Fuel Subsidies Overseas Take A Toll on U.S. - NY Times
The oil company BP, known for thorough statistical analysis of energy markets, estimates that countries with subsidies accounted for 96 percent of the worlds increase in oil use last year growth that has helped drive prices to record levels.
In most countries that do not subsidize fuel, high prices have caused oil demand to stagnate or fall, as economic theory says they should. But in countries with subsidies, demand is still rising steeply, threatening to outstrip the growth in global supplies.
In Asia, subsidies have been particularly prevalent for diesel, although many countries subsidize gasoline as well. The subsidies have been an important reason diesel prices have climbed almost twice as quickly as gasoline prices have over the last year in the United States.
Many governments see diesel as more important because truckers and ship captains need it to distribute goods; if diesel prices rise, consumer prices often follow. Diesel is essentially the same fuel as heating oil, so high diesel prices mean high prices for heating oil. Spiraling prices already have some in the Northeast United States worried about how families will afford to heat their homes this winter.
The cheapest fuel per gallon in many Asian countries is not diesel but kerosene, commonly used for cooking by the very poor. In India, for example, the government subsidizes kerosene so heavily that it sells for just 97 cents a gallon, compared with $5 a gallon in the United States.
...
Kerosene is similar to jet fuel, so strong Asian demand has helped push up costs for airlines.
Driving reductions is definitely good news. Thanks CR!
Bad things happen when a country purposely debases it currency. Enough said.
SEC finds voice with investment bank plan
Page Not Found | Reuters.com
Did someone just fart? I smell shit.
New York Post
BANKS ARE STILL ON THE SHORT LIST
BANKS ARE STILL ON THE SHORT LIST - NYPOST.com
Sue,
Yes: per gallon is typical, at least in states I know about.
The US system of roads and cities and marketing was built on the idea of limitless and inexpensive fuel in years when the end of that fuel was not envisioned. Whether or not one believes in 'peak oil' or the viability of other energy sources, it would seem that China is making a huge mistake to allow industrialization and development there to be similarly structured. In this era, they should see the writing on the wall. Their subsidies will quickly lead to an untenable structure.
kiewi writes:
oh no, granite countertops are worse toxic rubbish than posters here thought heretofore.
Just to confuse matters, a little bit of posion is good for you.
A Little Poison Can Be Good For You The received wisdom about toxins and radiation may be all wet. - June 9, 2003
burnside writes:
Just completed the WSJ article and marvel how consistently the subject of maintaining rail infrastructure arises only when the country sees falling highway maintenance budgets.
Yes, I think that is the biggest mistake of our transportation policy. Of course, calling what happens here a result of a policy is a bit charitable.
The problem here is there is no viable alternative between travel by air or by car. Passenger rail might not make sense in the Rockies, but the fact that their isn't a high speed rail line between San Francisco and San Diego is ridiculous.
Don't forget that China has taken 2 million cars off the road for the Olympics due to air pollution concerns. They have also stopped using 300,000 trucks that were mostly used for night deliveries. Not only that, but some cities' industries must reduce their polluion by 30%, and the best way to do that is to decrease energy use by 30%. Just wait a month or two.....until after the Olympics. The lower prices aren't here to stay.
Krugman is a politician first and an economist second.
Absolutely. Furthermore most economists are just thinly disguised salesmen or have some other agenda.
There's not a lot of people you can trust for an honest economic assessment.
Oil prices will hit $100 at least by the time this intermediate decline is over. And it could likely go down much further because it was such a parabolic run over the past several years. I mean ridiculously low levels - $50 or below is possible.
But even if you disagree with the above, seriously consider the following: what would that do to the oil/gas industry and people's current expectations for three-digit oil prices for the next decade? It would likely crush the energy industry as in the mid-80s and create another false illusion that oil/gas will remain cheap for the foreseeable future. That could be worse than a spike up to $200.
Oil prices will hit $100 at least by the time this intermediate decline is over. And it could likely go down much further because it was such a parabolic run over the past several years. I mean ridiculously low levels - $50 or below is possible.
If there's a flood of supply above ground, futures contracts could basically become worthless for a time.
People need to remember that futures contracts are not oil.
You can't hold on to them and wait out a momentary supply glut.
"There's not a lot of people you can trust for an honest economic assessment.
ac"
There's not a lot of people you can trust. Period. Everyone has an agenda. Your mother, your spouse, your boss, your employee, your government representative, your scientific authority, and, yes, even your favorite friendly blogger. Everyone.
Trust no one but yourself (and a lot of folks shouldn't even trust that).
That said, this global economy is going down the shithole.
wally,
Perfectly right. And as valid for USA as for any other country.
We'd be well-served to reevaluate transportation infrastructure ourselves. The country wants reinventing in a number of ways. Change happens anyway - why not indulge in a bit of planning?
So, when's the retard-in-chief gonna have his proud moment signing ceremony ? Maybe krugman can cheerlead. No shortage of imbeciles.
"There's not a lot of people you can trust for an honest economic assessment."
You miss Sebastian, don't you?
"Whether or not one believes in 'peak oil' or the viability of other energy sources, it would seem that China is making a huge mistake to allow industrialization and development there to be similarly structured."
-wally
Yes. One would think that if you are a growing developing economy and you are building infrastructure that you would be starting out with alternatives on the drawing board instead of mimicking the old model. If they successfully built out a cellular telecom infrastructure to avoid stringing wire everywhere, why can't they do the same with alt. energy?
While from a global warming/peak oil point of view I don't like China subsidizing oil prices there, I can certianly understand why they are doing it. The biggest economic problem China has right now is inflation, and removing subsidies would cause consumer prices to increase. China has massive fiorex reserves and is still running a big trade surplus, even with high oil prices. China's massive savings are concentrated at the gov't/central bank level. The need to move away from dependence on exports to US/EU and move more of the aggragate demand interal. The oil subsidy acts as a fairly broad based tax cut, which whild it does not reach the poorest of the poor there, still affects a very broad spectrum of Chinese people, say 400 million of the middle class/near middle class. They are also concentrated in the major cities, and the govt wants stability in the population centers. The chinese leaders fear chaos above all else, esp in the cities. Subsidized energy helps keep the job machine running. Frankly I was surprised when they partially removed the subsidies, if I were running china I would not have. I would have written a check to the refiners which were hurting due to the price controls on fuel. China can afford to subsidize. One other thing to note, China car market is prob 10 million cars/trucks this year, more than Japan or Germany, but less than even depressed US levels. The difference is that almost all of the Chines new cars are incremntal cars on the road, vs here where it is almost entirely a replacement market. Here new car sales can actually lower oil demand (i.e. buy Prius, scrap Tahoe), there new car sales will raise oil demand both short and long term. Keep in mind that China uses half of the worlds concrete, which indicates lots of new roads for those cars to drive on.
Just add two or three paned windows, some insulation, thermostats, and keep temperature at 20F at most.
Corrected that for ya..
Oh. The housing rescue.
John Hussman has a suggestion for subsequent legislation in his weekly essay. And more of interest besides:
Bagehot's name has surfaced in a few editorials in recent weeks, but they have invariably focused on the "lend freely" portion of his advice, while overlooking Bagehot's admonition to impose costs, capital requirements and other safeguards where public funds are concerned. In short, liquidity should be available to Fannie Mae and Freddie Mac, but the interest rates charged should be very high. This would create natural disincentive against further bad lending practices. Though it's too late to save the current housing bill, subsequent legislation should explicitly include provisions to charge high interest rates on the government-provided liquidity. It is in the public interest for Fannie and Freddy to continue to operate, but they shouldn't stand to earn a private profit at taxpayer expense. High interest rates on government provided liquidity would also encourage these institutions to rely on private capital rather than taxpayer support wherever possible.
Hussman Funds - Weekly Market Comment
There's not a lot of people you can trust for an honest economic assessment.
Or to admit how little economists (or anyone else) actually understand about the economy.
Any profession whose most heralded young member produces a book entitled "freakonomics" deserves what it gets, and more.
Cheers,
prat
My spending on beer at the beach is down, too!
Ever wonder why European automobile are emission standards are dirtier than US'?
Their plan was use the individual auto far less and public transit more.
How come they are so smart?
So why haven't the prices changed much?
Answer: Because the high prices have more to do with the weak dollar (mortgage mess) than any other factor.
ilsm: It's because Europeans understand that in order to get better mileage, they need to pollute a little more. In the US, the emissions standards are so high that more gasoline must be burned to meet them. This is the dirty little secret of the Government-Oil complex.
Any tree-hugging liberal would have you believe that the US is the dirtiest country in the world, but the truth is that we are the cleanest users of fossil fuels in the world.
In the early 80s, it was commonplace to find a car that got 40+ mpg highway. My 1996 Nissan 200SX easily got over 40 mpg, but my 2002 Honda Civic EX got only about 35 mpg, tops. Thanks to fuel injection and computer controllers, they can dump in exactly the right amount of gasoline to supply your catalytic converter with the extra incompletely-burned fuel (CO) in order to make it run more efficiently.
The technology has been around for decades to make 50 mpg engines that run every bit as fast as today's cars. The concepts in many cased are brutally simple- simply warming the gas before it's injected can improve mileage 10% alone. The exhaust can be bubbled through reservoir of gasoline in order to vaporize it and recycle heat, CO, and other products of incomplete combustion in order to achieve a more complete burn.