- In one of the most outrageous examples of price gouging
ever witnessed, fuel prices have risen almost 10 cents per gallon per week
now for more than a month. The American consumer is being held hostage
to an economic and personal lifestyle that was established a century ago
based upon an abundance of cheap oil and is now locked into our economic
infrastructure. Most people have no ability to escape what is now upon
us and getting worse. All of our cities are developed around the commuting
lifestyle, allowing Americans to live in rural or suburban openness to
escape pollution and city overcrowding. We travel long distances on fast
freeways to get to work and none of that can be changed quickly. We never
did like the European style of city living, with millions crammed into
high rise city apartments, with gas prices so high that only the wealthy
could afford a personal vehicle. But now it appears the Powers That Be
are forcing that urban lifestyle upon us: mass transportation, high density
urban dwellings, water rationing, zero-scape yards, and runaway inflation.
We have a duty to both resist and adapt. This week, I'll give some practical
tips on how to adapt to avoid some of the pain.
-
- First, let's look at the big picture on the economy and
how fuel costs are affecting everything. Obviously, anything in the economy
that must be transported is rising in price to reflect the cost of shipping.
Every business that can is passing along their higher fuel prices to the
consumers--plus a little extra. When prices become unstable or rise too
rapidly, consumers lose their ability to judge what is fair. A lot of wholesalers
and retailers are taking advantage of that by increasing prices more than
necessary. The result is going to be galloping inflation on many fronts,
not just gasoline.
-
- Business Week put out a warning this week that defaults
on loans and credit cards are not stabilizing. Rather, the crisis is deepening.
I think the fuel cost component in people's budget is causing many people
who are living on the margin of solvency to default on payments. A lot
of that default is showing up on credit cards as people charge their fuel
purchases and then can't pay off the mounting debt.
-
- Ben Steverman reports that, "Nobody was expecting
an easy year for U.S. banks, but many observers thought the bulk of the
industry's credit troubles would come in the first quarter. Now, it seems
the rest of the year may be even worse. Case in point: A May 28 announcement
from KeyCorp (Key Bank). Mounting loan losses at the regional bank company
suggest the banking industry's troubles with bad loans are just beginning.
The main culprit is the bank's portfolio of loans to residential homebuilders,
KeyCorp said in a Securities & Exchange Commission filing. Losses have
also increased on education loans and home-improvement loans."
-
- There are also a lot of businesses that cannot simply
adapt by raising their own prices quickly enough to keep pace with fuel
costs. Take the airlines, for example. There is a lot of competition out
there, and in an atmosphere of rising fuel costs, the airlines are looking
for ways to raise revenue without raising fares (directly). One of the
first big enticements to boost market share was the promotion of frequent
flyer miles. All airlines have oversold this benefit such that now you
can hardly find one of the limited "free seats" even if you have
thousands of frequent flyer miles. Delta and others played fast and loose
with the fine print. Technically, you could get a free trip with as little
as 25,000 miles per ticket--but there were so few of those seats available
that everyone was essentially locked out by lack of availability. Then
Delta tells you that, if you were willing to turn in 50,000 of your air
miles for a seat you might get a seat. Thus, in effect, they just eliminated
half of your miles. This whole racket is a Ponzi scheme. They'd go bankrupt
if all the frequent flyers redeemed their accrued free miles. So, I don't
play this game anymore. I don't use credit cards that offer free miles.
I only use cards that offer a 1% cash back, and use the cash to shop the
internet for the cheap flights (which are no longer so cheap). If you fly
for business and get the free miles anyway, don't save them up. Use them
up in any way you can, as soon as you can. Someday, the airlines won't
be able to honor them.
-
- Rising fares are inevitable, but no airline can afford
to get out there ahead of the others in price. To raise fares would put
them out in front as a "high priced" airline which could be deadly
to business. To lose market share is fatal when you have many competitors
and are billions in debt. What the airlines do is raise fares for selected
unadvertised markets, like business travelers who typically book flights
on short notice, and get stuck with high prices. For the price conscious
occasional traveler, airlines keep offering the cheap fares, but only for
booking in advance and flying during midweek when demand is lower. Watch
out for the increased fees when you try and change these tickets. That's
why the airlines long ago stopped making tickets non-transferrable--so
those that couldn't make a flight would not have any recourse. It wasn't
a security problem, just a way to make a certain percentage of tickets
worthless. Using a different tactic, American Airlines started charging
for checking even the first bag. So far other carriers haven't followed
suit and American is suffering from the perception of being a leader in
higher pricing, which they can little afford. We're going to see more and
more shake outs as airlines continue to merge or go bankrupt. Six went
belly up last month. But even the mega mergers like Delta and Northwest
don't offer much economy of scale anymore--especially when there are so
many union fiefdoms to protect in each airline.
-
- Trucking has been hit especially hard by the excessive
rise in diesel prices. A lot of independent truckers get their hauls through
brokers and are being squeezed by rigid freight contracts which cannot
be adjusted upward as fast as diesel prices. When fuel costs eat deeply
into profits, many can't make their truck mortgage payments and go bust.
The auto industry is particularly in a bind. It takes years to develop
new vehicles. While all the manufacturers have a few small economy cars
in their lineup, including hybrids, these vehicles have never constituted
a large percentage of sales or profits. Pickup trucks have been the profit
leaders for car companies for years. Now those days are gone, and companies
have excess factory capacity and inventory, which can't be easily changed.
The demand for heavy hauling vehicles will always be there. Certain people
still need heavy hauling vehicles for business or towing trailers. But
a lot of people bought pickups for recreational or occasional use. These
are the buyers (almost half) that are looking for other alternatives. Tip:
put a trailer hitch on your car and use a light trailer for occasional
hauling rather than a pickup.
-
- Ford was just beginning to turn around its losing business
when high fuel prices killed its high profit truck and SUV sales. Now it
will be forced to lay off 12,000 salaried personnel to stave off more red
ink. Even Toyota had been gearing up for years with bigger and bigger trucks,
which isn't profitable any more. Fortunately, they are the hybrid leaders
and are selling the Prius as fast as they can make them.
-
- Will low prices ever return? I don't think so, though
people are suckers for thinking they are getting a good deal if price come
down from $ to $3. George Soros warned this week that the oil bubble, built
upon a new base of significant speculation, could burst. But, he says,
that "wouldn't burst until both the US and British economies slipped
into recession, after which oil prices could fall dramatically... You can
also anticipate that the bubble will eventually correct, but that is unlikely
to happen before the recession actually reduces the demand. The rise in
the price of oil and food is going to weigh and aggravate the recession."
I think there will be a correction since speculators can't keep bidding
up the price indefinitely. But I think the retreat in price will only be
temporary.
-
- Long-term, as transportation costs become very expensive
I see the economic model of far away production coupled with cheap shipping
diminishing in favor of more local production. It will take a while for
that pendulum to swing back in this direction, but with increasing instability
in the world, it is inevitable. Ultimately, the world will be better off
with a better balance in national and regional self-sufficiency rather
than going for the world-wide low price only. Just-in-time inventories,
as another example, are certainly more efficient than keeping large inventories,
but utterly useless in a crisis when only stockpiling in advance will save
a company. Keep that in mind if you own a business that has a fragile supply
line.
-
- SOME PRACTICAL SUGGESTIONS
-
- Cars and trucks: Take stock of what you own right now.
If you have any gas guzzling cars or trucks that you are making payments
on, consider selling them now. Bad as the market is for used vehicles with
poor gas mileage, it's not going to get better, so try to sell now. Keep
in mind that there are people out there who still need cars or trucks with
power and good towing capacity. If your vehicle qualifies, consider installing
a heavy duty trailer hitch so you can target the towing or construction
market.
-
- If you have older vehicles that aren't fuel efficient
but are paid for, they may not have much market value, so you'll have to
consider the trade off in keeping them around (and using them only when
needed) vs. selling. Even at today's fuel prices, it takes several years
to see any economic gains from buying a new vehicle compared to the reduced
expense of keeping an older vehicle that you own outright. The down side
of that strategy are the costs for keeping it maintained, insured (remove
collision and comprehensive but always keep liability and uninsured motorist
insurance), and finding a place to park it. Learning to do your own maintenance
is highly recommended to save costs on older vehicles.
-
- If you are stuck with a non-fuel efficient vehicle, here
are some things to consider: All of these vehicles were designed to put
out more power than they need for cruising down the highway. That excess
power can be put to use by adding an after-market overdrive unit to your
transmission or changing the top gear to a higher gear ratio. Gear Vendors,
Inc is the largest manufacture of overdrive units. There are many dealers
around the nation. Do an internet search for "overdrive units."
-
- Even high efficiency cars can benefit from higher final
gear ratios. Many specialty automotive shops have access to higher gears
for VW diesels, Hondas and Toyotas. Typically, you can increase your mileage
by 10-20% with a higher final gear ratio. These are not add-ons to your
transmissions like overdrive units, but replace the actual gear ratio inside
a manual transmission. If you have an automatic transmission, you'll need
an overdrive unit. Auto performance shops also sell aftermarket performance-enhancing
ignition computers that can be programmed for higher mileage.
-
- Here are two other big tips for getting much better mileage
on the highway if you have to stay with your non-fuel efficient vehicle.
Most of the drag on the car comes from 2 sources: wind resistance and engine/drive
train friction. Take note of this next time you drive. If you are driving
along the highway with a downward incline, take your car out of gear and
let it coast. Most cars, depending on the slope will only slow down very
gradually, demonstrating that most of your fuel is being used just to keep
your engine up to speed with the coasting. If you are following a truck
or big SUV within a safe distance (2-3 car lengths) when you begin to coast,
the wind resistance is reduced so much that you will sometimes gain on
the vehicle in front. Coasting out of gear may be technically illegal in
some states but it is quite safe as long as you keep alert to any closure
with the vehicle in front. When you coast down a hill rather than keep
your car and engine engaged, you mileage will increase to over 100 mpg
gallon for that portion. In fact, using this coasting technique, a driver
can actually get better mileage in mountainous terrain than driving across
flat land at highway speeds. That's because it takes a less extra gas to
take your car up the hill compared to the amount of gas saved coasting
down the other side. Test it yourself.
-
- Driving on flat land takes a different technique to save
fuel. The best mileage on flat land is obtained either by slowing down
to agonizing 45-55 miles per hour (mostly reducing wind friction) or by
following larger vehicles within 2-3 car lengths (called "drafting")
and taking advantage of the suction zone behind them. Technically, you
get the full benefit of this drafting vacuum only by following within one
car length. That's what professional drivers do on the racing circuit.
But that is dangerous, irritating to the driver ahead of you and often
illegal. You can still get 80% of the draft effect by staying at a safer
2-3 car length distance. In addition, the more vehicles you follow in a
row, the better the overall drafting result as air is accelerated forward
with each passing vehicle.
-
- Caution: Do not use this in bad weather or when road
conditions are poor. This technique is also not for drivers who have slow
reactions. It is also a bit more stressful to drive like this as your eyes
have to stay more focused on the vehicle in front to be alert for any sudden
stop. Most people I know who use drafting prefer to follow larger trucks
since they don't slow down as fast as a car and give more time to react
in braking. Is it worth it? I've seen highway mileage go up by 30% so on
a long trip the savings can be significant. Drafting another vehicle is
much more effective than slowing down, but you must do this very carefully.
-
- New cars: For those of you who have the funds to buy
a new fuel efficient vehicle, a new breed of super efficient cars is now
entering the market. Trade in your current vehicle and let the dealer worry
about marketing it to others. Despite all the positive hype, I still do
not recommend getting a hybrid car, unless you have the money to do the
standard American thing: Buy new and trade in on another car before the
warranty is up. These are very complex vehicles, and are not suitable for
do-it-yourself maintenance after the warranty period. They work very well
when they work, and so far the maintenance history is very good, but keep
in mind that if you buy a used one, you will certainly have to pay in excess
of $10,000 for a new battery pack at some time in the future. The one main
reason why Toyota has resisted allowing the Prius to run only on its battery
(turning it into a plug-in electric vehicle) is that the life of the battery
pack diminishes rapidly with deep cycle use. They keep it going throughout
the warranty period by forcing the engine to recharge the battery pack
every time it gets below 80-90% capacity.
-
- Someday, however, we will have a major crisis of war
and destruction that will not permit you to trade in your overly-complex
hybrid for a more maintainable car. You'll be stuck with what you have.
So from a survival perspective I still recommend you buy one of the new
super high mileage diesels. The common-rail diesel technology has beat
out all the competition and represents the current pinnacle of diesel fuel
efficiency. All the major foreign car companies are now producing a common
rail diesel engine option--for Japan and Europe, but few are importing
them to America. That is changing now. Here's the latest lineup of cars
destined for the US later this year or in 2009 (from Wikipedia.com)
-
- BMW's D-engines (also used in the Land Rover Freelander
TD4),
-
- Mercedes (Daimler's) CDI (and on Chrysler's Jeep vehicles
simply as CRD),
-
- Ford Motor Company's TDCi Duratorq and Powerstroke,
-
- General Motors Opel/Vauxhall CDTi (manufactured by Fiat
and GM Daewoo) and DTi (Isuzu) Daewoo/Chevrolet VCDi (licensed from VM
Motori; also branded as Ecotec CDTi)
-
- Honda's i-CTDi
-
- Hyundai-Kia's CRDi
-
- Mazda's CiTD
-
- Mitsubishi's DI-D
-
- Nissan's dCi
-
- Subaru's Legacy TD (as of Jan 2008)
-
- Toyota's D-4D
-
- Volkswagen/Audi: The 4.2 TDI (V8) and the latest 2.7
and 3.0 TDI (V6) engines featured on current Audi models use common rail,
as opposed to the earlier unit injector engines. The 2.0 TDI in the VW
Tiguan SUV uses common-rail, as does the 2008 model Audi A4. VW has announced
that the 2.0 TDI (common-rail) engine will be available for VW Passat as
well as the 2009 Jetta. [Only the Jetta will come with a manual transmission,
however]
-
- Volvo D5-engines are common rail diesels.
-
- Diesel is the current wave of the future. The extra efficiency
of the diesel engine technology easily overcomes the current premium you
pay for diesel fuel-which will come back down on par with gasoline sometime
in the future. Unfortunately, many of these auto manufacturers are offering
diesel engines only with automatic transmissions. For best mileage, performance
and versatility, always choose a manual transmission. Automatic transmission
have slippage built into the torque converter at low speeds to aid in smooth
shifting. The big savings, however, doesn't come from just evading slippage,
but in being able to shift at lower RPMs than an automatic does. I can
get near highway mileage in town by accelerating very slowly (not exceeding
1800-2000 RPM) by shifting up to the next gear earlier than normal. You
can do this without lugging the engine (harmfully) as long as you accelerate
slowly and don't put much pressure on the engine. Don't accelerate too
slowly as you want to avoid spending too much time at the higher RPM shift
point. When in 5th gear I can roll along at 40 mph in town and be getting
over 30 mpg.
-
- Another benefit of having a manual transmission, is that
you can always pop-start a car if your battery runs low--just roll the
car down a slight incline and engage the clutch in 2nd gear with the ignition
on. I use this feature at least once every year it seems--saving myself
an expensive tow.
-
- Electric vehicles have a great deal of promise, but the
battery technology is still currently too expensive to allow the electric
vehicle to come down in price for ordinary consumers. If we have enough
time for the technology to mature (a big if, given the wars looming in
the future), I'm guardedly optimistic that this will become a reality.
So, we'll be careful not to overstock on conventional technology which
could quickly become obsolete.
-
- A note on fuel storage: Fuel storage is important not
only to guard against shortages in supply or long lines at the pump, but
to ensure that you have enough reserve fuel to get out of town to a retreat
when needed. Diesel is the best fuel to store. It can last for decades
underground, whereas gasoline goes bad within a year or two (you can still
use it when old if you mix it with fresh gas, but it needs octane and anti-gum
additives to help it run right). There are storage additives for both fuel
types (see <http://www.joelskousen.com/Secure/recommended.html>http://www.joelskousen.com/Secure/recommended.html
for a listing of products from the appendix of The Secure Home --my magnum
opus on preparedness, security and self-sufficiency). Even with the problems
of storing gasoline, you need to store the type of fuel you use. As a minimum
you ought to keep at least a few empty barrels around so you have the capacity
to buy more when prices dip lower (if they do). I'm still driving on $2/gal
gas that I purchased last year when prices dipped briefly. There are small
30 gallon barrels available in PVC plastic that are safe for fuel and easier
to load and unload than the 55 gallon drums. But, you can get 4 gallon
plastic gas jugs anywhere. A hand truck is helpful to move around the barrels.
If you store fuel around your home, keep it in a separate shed. If all
you have is a garage for storage, keep the fuel containers near the garage
door on a rolling dolly so you can remove them from the garage quickly
in case of fire. Housing and Lifestyle changes: As many of you know from
my book Strategic Relocation, I am very much in favor of establishing a
rural life or at least a rural retreat for times of crisis when social
unrest will overwhelm the major metropolitan areas. This will be especially
important in an epidemic where you need to isolate yourself and family
far away from high density population centers. That ideal hasn't changed,
but what has changed is the severe price you will have to pay to keep a
primary residence in a rural area right now if you have to commute into
the city for a job. That is why I spent so much time outline contingency
planning in the book--because so few are in a position to live full time
in an ideal area. Even the ideal rural place has major compromises in terms
of distance to the amenities only offered in major metropolitan areas-and
the cost of getting there.
-
- More and more, the cost of fuel is going to require that
you find a job or position that allows you to work from home at least a
portion of the time, or find a cheap place in town to live during the work
week where you don't have to commute very far. The best situation would
allow you to live close to work during the good times and have a well-prepared
retreat in a rural area for the times when you need to leave the city,
even temporarily. That presupposes, of course, that you prepare carefully
your transportation and security options to get to your retreat when you
need it. Ultimately, you will need a retreat large enough to have a place
where you can grow your own food. This can be done (with high intensity
gardening) on a half acre to an acre of good quality land. It is best if
you practice gardening skills before your life depends on it. But if you
can't due to work pressures or lack of space, do stockpile the tools, the
books and the heritage (non-hybrid) seeds to ensure you can start the process
when needed.
-
- Summary: There are a lot of threats out there as the
world deteriorates and as evil men conspire to create conflict to take
away our liberty. We can't do a lot about the really big threats that are
beyond our control, but we can prepare to survive them and build a network
of like minded people to assist us. That's one of the main reasons why
I put out this weekly news analysis--to build the movement and help people
see far enough in advance of what is coming to prepare for it.
-
- But preparedness is not cheap and self-sufficiency is
darn right expensive. More than one of my clients has had to come back
to the city because they ran out of money trying to live off of their savings
in a rural paradise--where they had no work. Most of us are going to have
to stay in the job market most of our lives in order to survive financially--inflation
is going to take its toll on each of us. So, be prepared to start cutting
back now to economize while you learn to adapt. Here are 10 basic suggestions
for adapting to our deteriorating economic situation:
-
- 1. As an inflation hedge, try to secure work where one
can more easily increase salary or income to keep pace with inflation.
If you have rental income, negotiate an inflation clause (I recommend 1.5
times the annual CPI as a minimum).
-
- 2. Prepare for alternative skills that will be useful
in a crisis of shortages and unrest (repairing existing technology is always
a good bet--both mechanic and electronic skills are needed.)
-
- 3. Prepare for an alternative profession if yours is
one that is subject to fragile financial markets (mortgage brokers found
this out too late, and were suddenly without a viable market).
-
- 4. With commuting costs now rivaling monthly rental costs
in some areas, consider moving closer to work if it will reduce those costs.
Under some conditions it could even pay for a small apartment and leave
you free to still keep your house in the suburbs or the country as a retreat.
-
- 5. Buy a fuel efficient vehicle, even if small, and use
it for most of your commuting or running around. If you can't afford the
new ones, good deals can still be had on older VW diesels (TDI)-1996 and
newer. These engines last a lot longer than gasoline engines and can be
overhauled for less than a couple of thousand. They can get between 40
and 50 mpg.
-
- 6. Consider riding a bicycle for short trips. The fuel
savings will add up. It's great for your health and surprisingly comfortable
with the variety of mountain bikes available.
-
- 7. Start eating more basic foods (wheat, rice, and beans)
that provide lots of energy for very little money. You can cut your food
bill in half by not buying prepared foods at the grocery store (nor eating
out so often).
-
- 8. If you are heating with oil or propane (which have
tripled in price) get a new furnace system this summer before the winter
rush. Consider the new ground source heat pumps. They are more costly to
install but can save money in the long term. Electricity is relatively
cheap now compared to other energy sources.
-
- 9. Add a solar water heating system. They save money
in most climates. I have a water jacket on my wood stove that takes over
in the winter when the solar doesn't produce enough heat to preheat the
water.
-
- 10. Add a high efficiency wood stove to your home. It
will save on energy even if you don't run it all the time. Best of all,
it will provide you emergency backup heat during a winter power outage.
-
- This has been a slow week for substantive news stories.
I hope you've enjoyed this break in my normal commentary to concentrate
on some things you can put into practice right now.
-
-
- We highly recommend subscribing to World Affairs Brief.
- rense.com
-
- World Affairs Brief, May 30, 2008.
-
-
- Commentary and Insights on a Troubled World.
-
- Copyright Joel Skousen. Partial quotations with attribution
permitted.
-
- Cite source as Joel Skousen's World Affairs Brief http://www.worldaffairsbrief.com
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