Thus Believeth New-Think

Today I will tie together the last 3 posts and tell you what to expect from the future, economically speaking.

How does all of this fit together? Yesterday's series of if-then statements are a useful tool, BUT, it will not be that black and white. Right before oil demand began being destroyed by the tanking economy, demand had been slightly exceeding supply. Customers (mainly very poor ones) were priced out of the oil consumption business and those who could afford to buy what they could not (us) bought it. That is why oil was so expensive. As a consequence of the high prices, though, we were able to fund a LOT of projects to find new oil and get it out of the ground (or sand or shale) as quickly as possible. People like T. Boone Pickens began rolling out multi-billion dollar alternative energy projects like thousands of giant wind-mills. People naturally used less because they could not afford it.

Now people are losing jobs and having trouble getting new credit cards....the cost of oil has drastically decreased. The government has shown it will do whatever it takes (including change the rules in the middle of the game and ignore the constitution) to prop the economy up for as long as it can. Actually, they are surprisingly good at it. It is amazing how, when the money stops flowing, you see who is really loyal to who…that is, if you are paying attention.

Anyway, it appears to New-Think that a full collapse of the U.S. economic system is still a very real possibility within the next year. If you are rolling your eyes at that, please think back and remember how you rolled your eyes when we told you oil was going over $100 and the dow was going below 10,000. Turns out those were very conservative predictions. If a systemic collapse happens, all of the following predictions go out the window.

If, however, the system holds up.....

The price of oil will continue to fall for the very short term and cause numerous project cancellations in the oil and gas industry and it will bring the “alternative” energy industry to a near stand still. Especially after 6 months when everyone forgets what $4 gas was like. The economy might not get much better, but eventually, demand will increase (either from very low prices or a more stable world economy) and we will find ourselves worse off than before because we were still, after all, using millions of barrels or oil every day while cancelling the energy projects we needed to sustain the practice. The price of oil will once again skyrocket…until something else breaks. Then we’ll do it all again. Only every time it will be more painful. Welcome to the long emergency. Don’t borrow any more money. Get out of debt now. Don’t borrow any more money. Get out of debt now.

I mentioned politics in the original post title but didn’t say much about it at all. No, your candidate, whoever he or she is, cannot fix this. They will keep telling you/us they can, though. We’ll hear a lot about a lot of things, and I’ll keep getting e-mails about the stupid things politicians say to win votes…but won’t actually work, asking me if it is true. I won’t say most politicians don’t care BUT I will unequivocally declare that most politicians (especially in the legislative and executive branches of the current administration and the next) do not yet fully understand these issues. If I have to hear about the Bakken formation or Utah oil shale one more time from one of these folks I’m gonna…….It doesn't matter who you voted for in regard to energy and the economic issues.....in these regards democrats and republicans are one large monolithic, idiotic party. By the time the ballot gets to you the choice is primarily an illusion.


Later.

No One Could Have Seen This Coming

This is the second post in a multi-post series on macro-economics, oil, politics, and the near future.

No one could have seen this coming (in reference to current economic downturn).

I have heard some very smart people say this. They are wrong. It was very easy to see the crisis coming, and a lot of people did. When people say things like this it tells me they have not formed their worldview (economic worldview anyway) on understanding the facts and then thinking critically about them.

No in-depth analysis is needed. In the main stream media you will hear a lot of technical talk about how we have to free up credit….so people can borrow…so they can keep consuming…so the economy can keep growing. When the economy is truly “fixed” this type of reasoning will be dead. More credit is not the solution. Living within our means, as individuals, as a society, and as a world is the solution. The economy cannot grow infinitely. We can make it grow for a longer period of time if we do stuff like make it easier for people to borrow money (people who shouldn’t), and borrow and steal from the future ($700,000,000,000 bailout ring a bell?) to prop up the present…in the end though, the higher we prop it up…the harder it will fall. It is not hard to predict. It is easy to see the train coming down the tracks right at us.

Some of you may not yet be drinking the kool-aid I am serving, so let me put it another way. If you make $100,000 a year and spend $50,000 a year on your house and $50,000 a year on other stuff and still need $30,000 a year for your 3 cars….would planning to borrow $30,000 a year, every year, be a good solution? If you cut back and rent an apartment you can afford, eat at home a few nights a week, and pay cash for a Chevy Cavalier that would be a disaster. Why? Because if everyone did it what would happen to the mortgage company? How could they increase profits if everyone decided they didn’t need a McMansion? How would the Lexus dealer survive if he didn’t have a bunch of 30 year olds making $80,000 a year taking out six year loans to buy a car?

If that happened organizations like Freddie Mac and Fannie Mae and lots of other mortgage banks would be in serious trouble AND auto company CEOs would have to beg the government for money…because…NO ONE COULD HAVE SEEN THIS COMING. Give me a break.

By the way…if you didn’t get the sarcasm (I hope it was only one or two of you)….a bunch of mortgage firms did fail and auto company CEOs are on capital hill begging for money as I type this.

Tune in tomorrow for more in this mult-post series about the future.

Economics, Oil, Politics, and the Future

Regular New-Think readers know that we enjoy prognostication. Please allow us to clear up a few things for you regarding the next decade or so.

First, let’s get our credentials out of the way. Way back before oil was above $40 per barrel we predicted that oil prices were set to skyrocket on the basic principles of supply and demand. Way back when the Dow was up in the 14,000-15,000 range New-Think told you it would fall below 10,000 (and probably much further) within the next year. Since we are going to spend the next few posts talking about macro-economics and energy (in the most interesting way possible) it is important that you keep these things in mind. We have not been wrong about calling the shots before they happen in the past.

Now, here is a disclaimer. This is NOT investment advice. My only investment advice to you is to get out of debt. The world economic situation has entered a VERY volatile phase and my prognostication is going to be full of “if-then” type statements. New-Think clearly sees the dominoes, set up and ready to fall, but seeing which domino will fall first is a bit of a guessing game at this point.

These posts are written in response to two sentiments I have heard expressed by ordinary citizens (non-New-Thinkers) in the past few weeks.

1. No one could have seen this coming (in reference to current economic downturn).
2. Gas is under $2 a gallon! We’re all saved!

Tune back in daily for the next few days to get a taste of the future.

Giving it up to New-Think / Giving it up to Ashlea

Back in June New-Think officially documented the following outrageous (in June it was anyway) prediction:

Dow Jones Industrial Average under 10,000 by June 2009 (probably before 2008 is over).

The dow dipped below 10,000 for the first time in 4 years at about 9 this morning.

Also, we went to the Oklahoma State / Texas A&M game this weekend. Great fun. Ashlea was admitted to the University while we were there...so she'll officially be a 3rd generation poke next fall.

Predictions

I often make predictions about the future based upon what I currently see going on in the world. In the past few years some things have become evident:

1. I have usually been correct in my predictions.

2. Even though this is the case some folks act like I am crazy for saying some of the things I say.

So, I am going to go on the record, right here on New-Think with some predictions that you may consider crazy. If you consider them to be stupid, please leave me a comment so we can revisit your comment when my predictions come true. Also, if I am wrong, this post will be my eternal reminder to quit making predictions.

I made most of the predictions a few years ago...but this is the first time I've posted them in a public forum.

3 PREDICTIONS

1. Dow Jones Industrial Average under 10,000 by June 2009 (probably before 2008 is over).

2. Oil at $170 per barrel by Dec 31, 2008. (caveat: this is assuming no major economic collapse...which may not be a good assumption).

3. Total collapse of the U.S. economy by Dec 2012. And I do mean worse than the Great Depression.

I'll give you my reasoning another time. I am on the record now. What do you think will happen?