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Energy, solar/biofuels, aphorisms, real estate industry, public anger at crooked banks, avian flu and more   (week of Feb. 5, 2009)

For more stimulating ideas, please visit the Of Two Minds blog.

Dan O.

I don't mind that you are getting away from real estate issues, but I do find your big-picture essays less cogent. It seems that some of the trends are slipping by you.

Your recent posts concerning nuclear power addressed neither the question of uranium supplies and extraction costs, nor the inherent inefficiencies of centralized power production.

There is something like Moore's Law when it comes to solar cell costs. Soon, there will be no reason not to plaster solar cells onto everything that stands still.

But it is not necessary to wait for technical innovation. We already have low-tech means to meet all of our energy needs. As William Gibson quipped, "The future is already here--it's just not evenly distributed." It is already possible to produce 10,000 gallons of ehtanol, per acre, by growing cattails in sewage. (This is compared with 30 per acre with corn and 5000 for sugar cane.) We do have enough sewage to meet all or our fuel needs. There are no unresolved technical hurdles--only educational and politcal ones. And the increasing usability of social networking services like Twitter are making it more and more likely that the right information will reach the right people. Here is an audio interview with a notable permaculturist.

Similarly, I felt that your take on global warming is kind of a moot point. As far as I know, there is no debate over whether ocean acidification is occuring and what the cause is--it's caused by rising CO2 levels, whatever the source. The death of the oceans and the release of hygrogen sulfide is reason enough to act. Whether global warming is occuring or not, CO2 needs to be removed from the atmosphere. And again, the solutions are decentralized and low-tech. By making biochar we can not only sequester carbon, but bring our soils to a state far exceeding their previous levels of fertility. peter ward on mass extinctions.

You seem to see humanity floundering cluelessly for a decade or more. I think changes in the ways that information travels and changes in the ways we monitor and influence public servants make this dark senario unlikely.

Thanks for many great reads.

Joe H.

One of the findings of the Columbia shuttle disaster was the heuristic that people, even people who are intellectually very sophisticated at statistics, are completely inept at intuitively applying Bayes' theorem. Base risk was forgotten because Columbia had a history of successful missions.

One can roll six dice 10,000 times. The chance of rolling all sixes on the next roll is still 1-in-46,656; just like the very first roll. But even a PhD in Statistics will expect, at an emotional level, the chances to be less. After all, we have 10,000 pieces of 'evidence' that it won't happen. Ten thousand pieces of 'evidence' proving that it cannot happen.

The avian flu epidemic has not happened, yet. This is interpreted as 'evidence' of impossibility rather than as a predictable manifestation of an event with a very low probability.

My paternal grandfather died of TB in 1936. He contracted it in the early 1930s, during the first grips of the Great Depression. My father told me that they ate corn meal based foods three times a day on most days. Corn-meal mush for breakfast. Corn-bread for lunch. Fried corn-meal mush (and molasses if lucky) for dinner.

I had an email conversation with an epidemiologist regarding TB. The epidemiologist claimed that historical evidence from Ipswich, England (and a few other places with less thorough documentation) strongly suggested that TB is extremely opportunistic.

The TB rate in Ipswich was strongly, negatively correlated with the importation of citrus fruits. That is, each bump upward in the importation/consumption of fresh citrus (Vitamin C?) was matched by a bump downward in the registration of new TB cases.

The positive note is that vitamins are easily purchased today. And even if China cuts us off, we know that greens are reliable and easily grown sources of many of those critical vitamins.

Don't have a garden? Cannot find any dandelions? Sprouts are a form of "greens". ANYBODY can grow sprouts! You and your loved ones do not need to die! One person avoiding a needless death would be a fine monument to my grandfather's untimely demise.


I came upon your site via the ML-Implode site. I'm guessing a lot of people came via the same route as the mortgage business--and all things real estate--became a collection of displaced souls looking for salvation and inspiration. For what they're worth, here are some random thoughts on why they may be departing your site, if that's even the case:

* Like all other professions/trades/guilds/industries, people in real estate related industries tend to be myopic. The economy and even life itself are viewed through the narrow lense of "how will this affect me (or my industry)". You've identified the human tendency toward narrow focus in the past, and it's playing out here as well. So when you start talking about issues beyond real estate to people who work in real estate, you'll lose them, or at least some.

* Due to the relentless decline in any business related to real estate, many people have left the business, voluntarily or otherwise. Some have moved on to other industries, some are just muddling along. Either way, they may have also abandoned referring to real estate related sites. Yours may be considered as such because you did write on it so often in the past.

* Probably even more than most people, the real estate crowd desperately wants and chooses to believe that salvation will come in a quarter or two, or with the next stimulus package. If you're in real estate, your an optimist by nature and have a deep seated need to believe the positive spin. Anyone who is staying in the business at this point is vested in the sun coming up very soon. You aren't promising that. No one should.

* Everyone still in the business is clamoring for a bailout--down payment assistance, lower rates, subsidized rates, foreclosure moratoriums, whatever--you've identified (correctly I'll add) that such bailouts are the problem. No one in real estate wants to hear that. What I commonly hear in the business is "they need to do this" or "they need to do that" in order "to get the industry moving again". "They" of course, are the government. And why shouldn't they think that way--it's how things have been done since the New Deal. FNMA, FHLMC, FHA, VA, down payment assistance, looser lending standards, tax deductions for mortgage interest and real estate taxes--all courtesy of the good folks in Washington. They could fix this with a policy decision, can't they?

* For the better part of the past two years, the government, economists and media have been holding to the party line that the country's economic and financial ills are a mortgage problem--early on it was even more limited to a sub-prime mortgage problem. Both were and are false assumptions. The mortgage collapse was merely the tripwire that got the other dominos falling--heck, it had to start somewhere. As your article today outlines with such precision, we're in the early stages of a systemic breakdown of the economy we've known and loved for decades. Likely due, as you often point out, to the high cost structure (and the attempts to defend it) more than anything else. NO ONE wants to believe that! We'd rather think that it is "only" a mortgage problem. You've clearly moved beyond that thinking, and when you did, a few readers departed, probably not just the ones in real estate.

* Even though the economy is in clear decline, attitudes and expectations are still floating somewhere back in the 1990s. Our definitions of financial and economic "normal" hark back to that decade. Both price levels and expected/projected living standards continue to hover somewhere well above reality. Until both come down to earth, few people will accept the reality of what we're facing, or even have the capacity to deal with it. That's most of the population, real estate types included. They may sense that what you write is accurate, but some don't want to hear it anyway, at least not as succinctly as you put it.

Keep writing what you're writing; the "problem" is no longer a mortgage or real estate problem, so yes some in that camp might move away.

The Titanic is an appropriate metaphor for our current situation: the ship (the economy) has already hit and been damaged by the iceberg, but it's still floating! As long as it is, denial will rule the hearts and minds of the passengers (the citizenry) who will continue to assume that both the ship and it's passengers (by extension) will make it safely to port (back to the 1990s) if it can just be kept afloat (bailed out/stimulated) a little bit longer.

That's the reality that dominates the collective mindset even now. But as the reality of the crisis begins to hit home and take root, you'll gain more readers from other places than you might lose from the real estate crowd. Right now, you're a bit ahead of the curve. That may be something of a dissadvantage at this moment, but when the tidal wave of reality hits, you'll be on the other side waiting for the throngs who will "suddenly" need answers, and won't find them where they've been looking.


I've been contemplating what others have observed in that debt-deflation cycles seem to correlate pretty closely with human lifespans. That is, it takes an entirely new generation who have no living memory of previous inflationary periods to repeat the very same mistakes. This leads me to conclude that if one could live around 120-140 years, and be armed with the type of financial knowledge gleaned from experience, one could literally become as rich as King Croesus. (Of course, if everyone else lived similar life spans, the cycles would merely be elongated.)

So here I unveil to you the King Croesus investing strategy. It takes only 1-3 minutes of your time every 3-6 months, allowing the practitioner(s) to pursue whatever interests them, be it chasing tail, observing chimps in the wild, surfing, excavating ancient cities, etc.

1. Go long in every asset class once employment numbers for Wall St & City of London register an uptick. (Remember, there is insufficient margin to support financial engineering operations unless risk is underpriced ie assets are appreciating in excess of sustainable value [GDP].)

Most cycles last 5-7 years, so for the next 5 years, don't even bother reading anything financially related; just let the bubble run its course. At about year 6, check it to observe the following:

2. Go short in every asset class after the first interest rate cut. (Since there is insufficient margin to support financial engineering operations unless risk is underpriced, assets need to appreciate greater than their sustainable value [GDP], so the first interest rate cut indicates that central banks are attempting to re-inflate asset prices.)

Most cycles last 5-7 years, so for the next 5 years, don't even bother reading anything financially related; just let the debt-deflation cycle run its course. At about year 6, check it to observe the following:

3. Go long in every asset class once employment numbers for Wall St & City of London register an uptick...

Rinse, wash & repeat.

Bart D.

Here is Chad's commentary on electricity/oil: This essay is regarding your post Innovation Comes in Many Forms.

I think you are missing the mark on you concern over electricity generation. Here are the statistics on the sources of electric generation in the US:

As you can see, Petroleum is a small fraction. Even though the problems caused by Peak Oil will be numerous and severe, I believe the impact on electricity generation will be minimal based on these numbers.

In other words, you are misleading when you confuse the issues of Peak Oil with the future of electricity generation in the US.

I don't think there has been any missing of the mark with regard to the need to be concerned about electric power in oil deficient world.

Whilst power generation from oil may not be too significant if it were lost in todays economy…. Where is the extra generating capacity going to come from to power the transport and farming industry in tomorrows oil deficient economy? Coal? No … the good stuff is gone and whats left is getting less and less energy dense and way more polluting. I believe Matt Simmons on his site says coal reserves in a peak oil world won't sustain us for long. That leaves Gas? Guess What …. Matt says it could run out faster than the oil. Even if it doesn't, there are more effective ways to use it such as for heating and cooking.

To keep things ticking over in some semblance of order we will be needing a lot more electricity I'd imagine. But the argument may yet be pointless as the time and money required to roll out a boosted electric system are likely now to be severely lacking.

I'd challenge anyone to find an example of any country in economic crisis that has NOT suffered from big issues keeping the lights on. Argentina, South Africa, ex USSR, eastern Europe … Even here in Australia we are having rolling brown-outs because our ageing system can't handle the load in hot weather!

I'm so confident of power shortages here in Australia, I've just set up a wood fired hot water system I got from a farm clearing sale.

As the economy falters and power becomes an issue, initially, due to lack of maintenance: Would we want nuclear power facilities being under-maintained? Maybe its just too late now to entertain the idea of new nuclear facilities to power an oil shortfall. Lead time too long and cost too high. Yet there seems to be no credible source, using proven technology, capable of making up the predicted oil energy shortfall at current usage levels.

I see a future transition period of maybe a decade, with lots of small motorcycles for personal transport and extensive rail system for freight, (not unlike SE Asia today) using existing fuels more efficiently. Time for GM and Chrysler to start making small motorbikes if they are serious about being viable motor companies of the future. How ironic will it be when America adopts the ways of the Vietnamese?

As always ... a way forward is never simple.

I guess the inefficiency in our current system is so large at present it will enable some major energy savings to keep the essentials running properly in the future, without too much hardship.

Bart D.

From your feb 2 piece.

Some readers tell me once this happens, then we'll face shortages of goods. I am skeptical of this happening soon because cars, computers, snowboards, bicycles and even shoes and clothing last a long time if cared for. My car (Honda Civic) is 10 years old and will easily last another 10. My good clothing is years old and still like new. My bicycle (Mongoose) has logged thousands of miles and it still good for thousands more (never mind the sticky derailleur). Ditto my wife's Specialized bike (both bought used). Our cheap Compaq PCs may well last for years longer. Our Mac is 10 years old and still works fine for most computer tasks. All of these are typical name-brand items millions own.

I beg to differ a little based on my own experience listed below.

I bought a fridge/freezer and a stove from westinghouse in 2007. Both showed defective function within 6 months! Our previous fridge freezer and stove were 15 years old and never missed a beat. We have had similar problems with JVC TV, and Sony VCR and CD player in recent times. I assume its because the factories cut their engineering SO fine to be cost cometetive in the age of easy money where items are 'replaced' every few years that anyone wanting (or expecting) their goods to function much beyond the warrantee period may strike issues.

Never the less, I agree demand will still be damped compared with recent years as the money just wont be there to buy replacements en masse.

I hope the up-side is that manufactureres will again build things to LAST as consumers follow brands with higher reliability and easier repairs.

I am now looking to go retro and buy a second hand 15+ YO fridge to have in the shed as a spare as I expect my expensive new one (now one year old) not to last another year.

My grandparents have a thorne fridge that is still working fine after 35 years. They also have a stereo, stove and other genuine 'durables' to match of the same age.

I'm glad I kept my first car, a 1973 ford, in good condition in one of my farm sheds as I suspect that in a contracted economy I'll be able to keep it running long after my 2006 mitsubishi fails for lack of some obscure electric component that is no longer being made and exported from china!

Kevin M.

Your list of 12 items the couple in the WSJ article will no longer need reads like a list of many of the growth industries of the past 20-30 years. Notice that nearly everything that you list, far from being necessities, are mostly related to making us feel better about ourselves. There's a message in there that I'm not capable of acticulating, but I sense it's significant. I'll take an educated guess that it's intimately related to our collective modern disconnect from historical norms of society, community, faith, family, self-reliance, personal responsibility and even any sense of decency. In our drive for things, and in our commitment to that drive, we've lost reverence and respect for all of the non-tangible qualities that are the essential foundations of civilization.

May I say, your talent is in your ability not only to see, but to comprehend the big picture. Not only do you see the many dots out there, but you have the ability, and dare I say, the courage, to connect them. The patterns which emerge from those connections are, I believe, too much for the average person to bear.


I have a question that is silly, but maybe not that silly. My question relates to global warming, CO2 emissions, carbon footprints, green house gases, et cetera. Why is it that people who are worried about global warming – like Al Gore – never propose things like:

1. Reducing CAFÉ standards (average fuel economy) on passenger vehicles to no more than 2 miles to the gallon. We should change the law so that no car in America can get more than 2 miles to the gallon. If cars got only 2 miles per gallon – and we tacked on a $1 gallon gas tax on top of that – CO2 emissions in the USA would fall abruptly as the cost of driving would skyrocket. People would drive their cars only when necessary.

2. Limit population growth (e.g., one child per couple) via laws, tax structures, sterilization, etc. Fewer people on the earth would reduce CO2 emissions and other pollutions (ceteris paribus)

3. Levy CO2 taxes on activities that increase metabolism (things that may cause 6 billion earthlings to breath more) such as exercise, sporting events, bicycling, lamaze class, etc. If society slept more and meditated more, CO2 emissions should fall a little bit … right?

4. Limit single family residences to no more than 1,200 square feet (or pick a small number)

5. Limiting the amount of electricity or energy provided to any one household in a given month/year.

6. Limit the amount of airline flights a person can take in a given year

7. Pursue policies that reduce life expectancy. (lower life expectancy would solve quite a few problems we face today)

It seems to me that many green people are not really interested in reducing greenhouse gases and saving the planet; rather, they are only interested in advocating a certain lifestyle.

Robert Waldrop

I liked your aphorism about the revolutionary nature of home cooked meals and gardens. Here are four aphorisms I use frequently, of my own authorship. . .

The time to build the cellar is before the tornado hits.

The time to grow a local food system is before the food shortages hit.

The time to support your local economy is before the Depression starts.

The time to create your own personal bailout is before the economic tsunami takes out your job.

Robert Waldrop, president
Oklahoma Food Cooperative

Albert T. story: "Feb. 3 (Bloomberg) -- A man said to have sent 65 threatening letters, 64 of them containing white powder, to JPMorgan Chase & Co. and two U.S. regulatory agencies was arrested in Albuquerque, New Mexico, a prosecutor said."

"The 65th letter to JPMorgan Chase & Co. did not contain any white powder but included a threat of the 'McVeighing of your corporate headquarter within six months,'" Jacks said in the statement.

Authorities say Goyette sent e-mails to the OTS on Sept. 26 and Sept. 28, complaining in one that he'd lost $63,265 through his ownership of Washington Mutual stock. He accused the agency and the Federal Deposit Insurance Corp. of being "corrupt," Jacks said.

"Since legal means are apparently useless, I will have to consider any viable method applicable to rightfully reclaim my stolen funds," the letter writer said in a Sept. 29 e-mail to OTS, according to prosecutors."

Several things stand out, 1) a guy actually peeved at a major bank threatening bodily harm in retribution 2) this guy wasn't serious since he had plenty of time from Sep to February to well do what he said. 3) Lots of people are angry some for the right reasons some for the wrong reasons at the heads of major banks and fin gov't agencies.

I will fathom there is at least a few other guys like this one out there whom are more damage oriented. The outpour of public anger that got swept under the rug and then manipulated with fake outpourings of support for the Tarp and other measures makes people feel impotent and insignificant, powerless, and helpless. Some aren't going to take it lying down, especially if they have been hurt either real or perceived by the system in question.

The oddest thing in my mind is Timothy Geithner becoming Treasury secretary whom is the head of the IRS which will perhaps voice concern over falling gov't receipts in the future months and vow to go after any and all tax evaders. It won't be ironic, it will be tragic when that happens.

Thank you, readers, for such thoughtful contributions.

For more on this subject and a wide array of other topics, please visit my weblog.


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