Here’s Whitney Tilson divining the National Association of Realtors propaganda (from Automatic Earth):

Apparently, the number of houses sold last month was lower than the month before, while the NAB insisted that house sales “bounced back strongly”.

More support for the financial/house- price bubble, what can it all mean? Why not let real estate seek a price level that is supported by the purchasers’ incomes?

The answer of course is that doing so would not make the homeowners ‘wealthy’. Increased housing asset worth would be collateral enabling purchases of more ‘stuff’. These purchases would be good for retailers, banks, shippers and China.

Wealth is a evanescent ‘good’ offset against increased petroleum prices. That increase is the hard nut that society is having greater and greater difficulties getting around. That oil costs more overall production both in absolute energy terms as well as in the efforts and imagination required to utilize the platform. Increasing oil price narrows the arena within which production itself takes place. At some point oil becomes too expensive to use for ‘the general welfare’ (entertainment/waste). It becomes an asset, like gold.

Would anyone waste gold?

Jay Hanson published an interesting article at The Oil Drum which has sparked the usual discussions:

Very interesting subject: How to reorder society so it works better, so simple yet so … unachievable. Those pesky humans never do the right thing! There is a balance of useful and not here, the best being the acknowledgment of how much waste is embedded in the petroleum production/use platform. With oil, the distance between worthless (in the ground) and worthless (in the atmosphere) is very short. Why not waste it?

The “bad news” is that “peak oil” marks the beginning of the end of capitalism and market politics because many decades of declining “net energy” [1] will result in many decades of declining economic activity. And since capitalism can’t run backwards, a new method of distributing goods and services must be found. The “good news” is that our “market system” is fantastically inefficient! Americans could be wasting something like two billion tonnes of oil equivalent per year!!

… and …

Just how much energy did the American “market system” actually consume? In 2006, Americans consumed an average of 231,008 calories per day, so 231,008 minus 36,000 equals 195,008 calories wasted each day. This simple calculation suggests that Americans could be wasting something like 2 billion tonnes of oil equivalent per year! [5]That’s FAR more oil wasted than all the oil produced in the Middle East!

If we change a few of our founding beliefs and assumptions—and reorganize politically—more than enough energy remains to mitigate the worst.

Mr. Hanson confuses financialism with capitalism. Capitalism is the ongoing refinement of trade and management of surpluses. Granted, when surpluses disappear, there is nothing for capitalism to manage but that won’t keep it from loitering around and refining trade while it waits for something to turn up.

Financialism, however, is a dying man’s grasp at substituting credit for energy and the outcome is a foregone conclusion. It is money making money and little else, there is no product, only claims, people take them seriously because they have claims of their own and on account of tradition. So what? Times change, the old financial claimants are as relevant to our onrushing future as are the Hapsburgs.

All the debt/indentures/leases/debentures/derivatives … etc. are falling valueless, like Confederate dollars. This is the great struggle of the banks with their ruined balance sheets. Right now, finance – and this includes that overseas failure- in- the- making China – is rushing around the world making new claims … waving their money, acting as if their claims made from a vast distance will have meaning for anytime longer than it takes for the ink to dry on the pages of the Wall Street Journal! This is the very same thing as the Americans have done, and what the British did before them, and the Spanish and the Portuguese and Dutch before them. The Romans arrived in Gaul and Britain and Asia Minor with legions, they left farmers, baths and theaters in their wake, the money crowd leaves behind bankruptcy and tax exiles.

As for exploiting waste, if one system could not enable this, another would. Waste is the purpose of energy! Energy is priced as something almost without worth even now; bits of cash- value are added at each level of use; lower prices leave more aggregate returns to the oil investment. Oil without the users/wasters all in a chain is valueless black goo. ‘Users’ translates into autos, ships, planes and tractors … plus all the other stuff created out of the natural world as an habitat for these machines. Oil has to be cheap so that the accumulated residuals across all the different uses can pay for the entire habitat as well as for the energy required to run it.

Our present method of distributing goods and services works something like this:

• Our government loans money to banks, so bankers can operate businesses (which require buildings, computers, furniture, lights, air conditioning, employees, commuting, etc.)

• The bankers then lend money to other businesses, like restaurants, real estate developers, etc. (which also require buildings, computers, commuters, advertising, accountants, etc.)

• So the employees of these restaurants, real estate developers, etc. can buy a car and drive to the store (with even more buildings, computers, commuters, etc.)

• Just to buy a loaf of bread!

This is an example of the decline in energy productivity. Productivity is a relationship; output/man- hours, for example. Here it is output/btu. Less btus means higher energy productivity, just like less man- hours means higher labor productivity.

Machines powered by petroleum energy have been substituted for human labor powered by food energy. There is a tug- of- war: substituting more machines for people increases labor productivity while shrinking energy productivity. This shrinking energy productivity is the heart of our current crisis. In other words, what Jon Hanson proposes as a solution, the dis- employment of the workforce, has already been taking place and is destroying the world’s economies, both of them; physical and financial.

Finance exists as a hedge against falling energy productivity. Finance costs nothing to produce, unlike goods in the energy economy. Nevertheless, the accumulating debts must be serviced. We’ve been in trouble for a long while; no customers means no business. This in turn means, no debt service. I don’t know how others interpret what has been happening over the past ten or fifteen years but it would appear that finance has been attempting to service itself – its own debts, that is. The result has been a colossal bubble in assets. The instability has led to a Minsky Moment. followed by a collapse of commerce.

Or has it? The long- term decline of low priced fuel has resulted in more of a Minsky Decade.

Labor working at good wages is necessary so that there are customers for business and capital for ‘adjustments’. Here, business is at odds with itself! It fires its customers with one hand while booking the increased labor productivity as profit with the other! This cannot last; there must be some top- line earning growth or the business fails. The ‘solution’ has been for businesses to borrow ever more from finance to ‘tide themselves over’ until something magical brings back the customers that have been laid off by the one hand!

Since the only way to provide for those without work is to extend some form of ‘dole’ or welfare, the next step is for the dole- provider to borrow the money from finance, since finance is the only entity that can magically create the required ‘funds’. The government cannot ‘make’ its own dole funds out of thin air; it’s trying to do that now and people who know better are laughing at it. Finance is a form of fraud, lending to itself is something that no respectable government could do and remain credible.

The modification that I am proposing could reduce natural resource consumption by something like 90% and greatly reduce, or possibly eliminate, civil violence caused by the inevitable post-peak-oil-economic collapse.

Since government is a debtor to finance, it can only act on its own when the claims against it dissolve. Since waste is the desired end product of our physical economy, eliminating waste would mean not the economy’s reform but its annihilation. Government here can ‘depower’ itself, but that would concede to the individuals – or more localized civic units – authority it is loathe to surrender. Authority that is accumulating by the unwinding of the economies, btw.

To recap: putting labor ‘on the dole’ is already taking place; an outcome is the destruction of commerce. The decline in commerce is centralizing authority. According to Mr. Hanson’s model, we are already ‘there’. Nevertheless, resource consumption is inexorably increasing, there is no sign of any meaningful reduction in it.

With modern technology, probably less than 5% of the population could produce all the goods we really “need.” A certain number of qualified “producers” could be selected by a peer group to produce for five years. The rest can stay home and sleep, sing, dance, paint, read, write, pray, play, do minor repairs, work in the garden, and practice birth control.

Try selling that to a farmer! He would never be able to leave the 5% category. A better idea is to turn away from mass- production and automation and return to a craft regime. More hands, more employment, increasing skill base, better and more diverse education, better health – no autos or factory farms – and more business. More human inputs substituted for energy in the workshop would leave energy and other inputs in the ground. More hands might give the populace something useful and pleasant for them to experience besides more highway interchanges. The idea is to increase energy productivity and decrease labor productivity. Eliminate income tax, increase gasoline tax.

Nate Hagens sez:

Finance brought more consumption forward, not nearly enough resources. This has been another aspect of the ‘economic paradigm’ of which the current crisis is a part. This is the paradox of cheap crude in the 1990’s but not nearly cheap enough. It was certainly not as cheap in real terms within most of the developing world in 1998 as it was in the hey- day of American industrial growth thirty years earlier. Bringing demand forward accelerated the long increase in fuel prices beginning in 2000; and embedded that demand in previously undeveloped nations; a perfect example of unintended circumstances.

Chris Cook sez:

Already happening, the dis- intermediation of finance players; we are all the Fed, now …

Energy consuming nations, for their part, would gradually raise carbon fuel prices through a carbon levy, to maybe $10 per gallon of gasoline or equivalent, and they too would compensate consumers with units redeemable in energy. Part of the levy would fund a Carbon Pool, which would be used to invest directly – through interest-free “energy loans” – in renewable energy (megawatts), and in energy savings (megawatts). Such a Carbon Pool would soon be the source of an energy dividend to all.

Why not require the consumer @ $10 per gallon to invest in that production as a pre- requisite? Then price to maintain availability over time rather than squander at once. This would not require government action, but a change in price schedule by a producer! Exxon could do this on their own. or a national producer such as Mexico. They could demand $50,000 investments from consumers with the promise of oil over fifty (or a hundred) years. (Fractional shares could be sold along with fractional consumption rights.) Production would be priced to guarantee that outcome. If one producer did this, the others would have to follow, otherwise they would deplete themselves out of business. Here, the ‘commons tragedy’ is turned upside down. Just like fishermen with bigger boats deplete a fishery, investors with ‘bigger stakes’ and the means to enforce them drive out those who have no incentive to conserve; the ‘consumer- investors’ in oil production priced in this manner would ‘get rich’ by conserving rather than by consuming.

More here …

At this time, pricing energy for some other use but waste is risky for the producer, but what choice does he have? Energy only has value when it is destroyed… there is little other use for it but waste. This knowledge is what is driving the anxiety of Saudi sheikhs. Oil that is expensive enough to insure a level of production has a small/shrinking customer base because of the disconnect between investment (in production) and end use. Simply pricing oil to what the market would bear would indeed make crude gold- like … and useless as gold is now as a currency. Like gold it would not circulate and unlike gold, one could never take possession of enough of it to become ‘rich’ the cost of managing such a valuable surplus would be far more costly than what the ‘black gold’ would be worth. The sheikhs would be stuck with their valuable/worthless oil and the rest of the world would lament the loss of … convenience.

Unbelievable, all the world sacrificed for convenience. Convenience and higher real estate prices.

Good grief!