Life After the Oil Crash

Deal With Reality or Reality Will Deal With You


















closer to $6.5 billion before write-downs and that the red ink will continue for the next year and a half. "The industry is moving into survival mode and has entered uncharted territory with fuel costs well above $140 a barrel," he said. Neidl said the best thing that could happen would be having one or two big carriers fail, shrinking the supply of seats and letting the survivors raise prices.

The Economist: Detroit's Big Three are in Big Trouble

This week shares in General Motors, America’s biggest carmaker, fell below
$10, valuing the giant firm at little more than $5.6 billion. The last time
GM’s share price was this low, the Cadillac Eldorado had yet to grow fins
and Volkswagen’s Beetle was a funny-looking novelty on American roads.
That was in 1954. Things are just as gloomy elsewhere in Detroit. Ford has
abandoned all hope of returning to profit, as promised, in 2009 and appears
to be bracing itself for a loss in 2008 even bigger than last year’s $2.7
billion. And on June 26th Chrysler was led to deny rumours that it was
preparing to file for bankruptcy, after drawing down a $2 billion credit line
from its owners, Cerberus Capital Management, a private-equity firm . . .

CS Monitor: Big Three Automakers in Unprecedented Free-Fall

America's automobile industry may be facing the biggest challenge in its
history, a problem punctuated Tuesday as the carmakers released monthly
sales results. Times were tough enough in Detroit before gasoline hit $4 per
gallon, but in the past two months the outlook has taken a turn for the
worse. Shares of General Motors are trading at prices last seen in the
1950s, their value cut in half in just eight weeks. Ford and Chrysler are in
even worse shape. The sobering implication: The Big Three may have to
become the Big Two, and even survivors will have a tough road ahead.

The Economist: Everything that Could Go Wrong is Going Wrong

Share prices are suffering because of the outlook for four forces that impel
stockmarkets: economic growth, profits growth, interest rates and
inflation. At the moment, the first two seem to be slowing while the last
two are rising. That is the worst possible combination. Soaring oil and food
prices are stoking inflation. Oil closed at another peak of $144.14 a barrel
on July 2nd, because of disappointing data on American crude reserves,
and lingering fears that sabre-rattling between Israel and Iran might lead
to conflict in the Persian Gulf. High commodity prices have also acted as a
terms-of-trade shock for consuming countries — the things they buy from
abroad cost more compared with the things they export . . .

Washington Post: Words Fail to Describe How Bad the Economy Is

Think you're worried about the economy? Phillip Swagel is a wreck. The
assistant Treasury secretary for economic policy, Swagel came out for his
economic briefing yesterday, 90 minutes after the Labor Department
reported that the country had shed jobs in June for the sixth straight
month. It was a hopeless spin assignment -- but Swagel, the sacrificial
lamb for the day, had to try. And so Swagel, bookish and bespectacled,
entered the Treasury Department's briefing room with evident trepidation.
He nodded and offered smiles every which way. His heavy breathing, picked
up by the microphone, could be heard in the back of the room . . .

SF Chronicle: States Face Dwindling Unemployment Insurance Funds

The funds states use to pay unemployment benefits are running low,
raising fears of higher taxes on businesses and less money to help out-of
-work employees during tight economic times. Thirty-three states have
funds below recommended levels, meaning they're at risk of running out in
less than a year unless they're replenished as required under federal law.
Nearly half the states could run out in less than six months.

The Economist: Growing Threats Challenging Global Institutions

But in an age when people, money and goods move around as never
before, this little group no longer commands the heights of the global
economy and the world’s financial system as the core G7 used to do when
their small, purposeful gatherings of the democratic world’s consenting
capitalists first got going in the 1970s. Nowadays summits produce mostly
lengthy communiqués and photo-ops. And Russia’s slide from democracy
into state-directed capitalism has lowered the club’s political tone.

Los Angeles Times: Paulson Says New Rules Needed for Failing Banks

U.S. Treasury Secretary Henry M. Paulson Jr. on Wednesday called for
regulatory changes that would allow financial firms to fail without
threatening broader market stability. The Treasury chief also proposed
steps providing for the president to approve of any use of taxpayer funds
to aid a financial company. In a speech in London on Wednesday, Paulson
identified a legal gap that leaves unspecified how to deal with failures of
companies that don't take deposits, such as investment banks.

Vanity Fair Special Report on the Collapse of Bear Stearns

Editor's Note: this is a great article, I really can't recommend it highly enough. I particularly liked the following part which recounted the moment the CEO of Bear Stearns found out Bear was about to be taken down and sheared to the bone:

Around six Schwartz slipped into the back of a black town car for the drive
home to Greenwich. Somehow Bear was still alive, if barely. Thanks to the
Morgan credit line, they could probably open on Monday. Now he had 28
days — 28 days to raise new capital, find a merger partner, or sell Bear
outright. It wouldn’t be easy, he knew, but it was doable. Then, as the car
cruised northeast, Schwartz’s phone rang. It was Tim Geithner of the Fed,
with the Treasury secretary, Hank Paulson. Paulson came right to the
point. "You’ll recall I told you when we cut this facility [that] your fate was
no longer in your hands," he told Schwartz. “Well, we don’t plan on being
here on Sunday night like we were last night. You’ve got the weekend to do
a deal with J. P. Morgan or anyone else you can find. But if you’re not done
by Monday, we’re pulling the plug." And, like that, Bear’s 28-day cushion
evaporated. The Fed’s credit line was good only till Sunday night. Schwartz
hung up the phone, stunned. He telephoned Molinaro, who was also on his
way home, at that moment buying a cup of coffee at a rest stop on the
Merritt Parkway. "You’ve got to be kidding me," Molinaro said.

North Bay Bohemian: Was the Bear Stearns' Collapse an Economic Hit?

Editor's Note: relinked in light of the Vanity Fair expose:

Since their demise, I have heard from more than one credible source that
the bankruptcy of Bear Stearns was a highly sophisticated pump-and-dump
scheme. While the Bear Stearns bailout probably cost the U.S. taxpayer
something like $35 billion, Bear Stearns held credit default contracts
carrying an outstanding value of $2.5 trillion. Gulp. Regardless of the $35
billion price tag, the rescue at Bear Stearns did nothing but buy time. The
rescue did nothing to protect the broader economic system. One could
even argue that the federal government's intervention will ultimately
encourage riskier, more speculative behavior on Wall Street.

Der Spiegel: Secret Report Says Biofuels May Be Even Worse than Thought

With soaring food prices high on the agenda for next week's G-8 Summit in
Japan, World Bank President Robert Zoellick has been clear that action
needs to be taken. "What we are witnessing is not a natural disaster -- a
silent tsunami or a perfect storm," he wrote in a Tuesday letter to major
Western leaders. "It is a man-made catastrophe, and as such must be
fixed by people." According to a confidential World Bank report leaked to
the Guardian on Thursday, Zoellick's organization may have a pretty good
idea what that fix might look like: stop producing biofuels. The report
claims that biofuels have driven up global food prices by 75 percent,
according to the Guardian report, accounting for more than half of the 140
percent jump in price since 2002 of the food examined by the study. The
paper claims that the report, completed in April, was not made public in
order to avoid embarrassing US President George W. Bush.

Reuters: Global Food Panic Could be Approaching

In five years' time, we could be living in a world where millions are dying in
famines with no food aid to hand, regular storms and droughts wipe out
acres of crops, and skyrocketing food prices have created global political
panic, food experts say. Food costs have shot upwards so quickly that
even a consumer in a rich country who doesn't usually keep track of the
price of bread will have noticed it. And anyone who counts the pennies has
been feeling the pinch, as global food prices have risen 83% since 2005.

___________________________________________________________________


Preparation and Relocalization:

The Economist: Small Family Farmers in the New Era of Agriculture

More successful, or at least more sustainable, have been government
efforts to boost young farmers. In 2004 about 27% of farm operators were
65 or older, compared with 17% in 1969. High entry costs, such as land
and equipment, keep many younger farmers away. More than 20 states
have programmes to attract them, according to the Council of State
Governments (CSG), a non-partisan policy group. Nebraska has tax credits
for landowners who rent to young farmers. The new farm bill also offers
help through loans and grants — one programme would prioritise loans for
beginners who practise organic farming.

High-Quality Mountain House Food Reserves at Great Prices Available from LATOC Affiliate Nitro-Pak:


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Pictured Above: Paul James, 85, standing beside some 200 cases of Mountain House freeze dried food. Purchased and trucked all the way cross country from Oregon in 1975, this "mountain" of food was recently pulled down from where it was stored for 37 years. This photo was taken July 29, 2007, moments before the mountain was loaded into a moving van headed back across the country to Idaho

The year was 1975. At that time many Americans were concerned that the Cold War with Russia could turn hot. People all over the country were building bomb shelters in their backyards and storing large quantities of food.

I was one of them. I didn’t build a shelter, but I did order $10,000 worth of Mountain House freeze dried food to be delivered to my home in Virginia Beach, Virginia. When the shipment arrived from Oregon, my family sampled some blueberries which we all liked. After that the food was stored in the attics of our house and garage. There it rested until August, 2007.

My wife and I are in our 80s and our daughters, who live in Idaho, felt it was time we joined them. In August, 2007, we moved with all of our belongings and 227 cases of 37- year-old Mountain House freeze dried food.

First we opened a can of peas. The moment I heard the swish air flowing into the can and felt their pellet-like hardness, I was convinced no air had entered the can for 37 years. The peas were fine. We checked the blueberries and found them to taste exactly as we remembered them in 1975; the strawberries also kept perfectly. Since then we have twice served the scrambled egg mix. The added flavor of butter and salt were perfect to our taste.

Are we again approaching uncertain times that could affect the food supply? Will my decision to "stock up" during the Cold War 37 years ago soon be transformed from folly to fortune?

In any event, it is an honor to be in a position where I can safely say that freeze-dried food packed by Mountain House in 1975 (#10 cans, six cans per case), is still perfectly preserved after all these years. Source: Idaho Observer

Freeze Dried & Dehydrated Food Reserve Units:
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Associated Press: Airline Industry on Life-Support

Airlines are raising fares and special fees to raise cash. Late Wednesday, United boosted the fuel surcharge on U.S. travel by $20, it is now up to $170 per round trip. American and Continental matched the increase on Thursday. But those steps won't offset fuel prices that are at record levels and still rising. Ray Neidl, an analyst with Calyon Securities, said Thursday he expects the 2008 losses to be


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