November 28, 2005
Observers are already writing off 2005 as if it had shown us everything it has to show. I think the holiday frenzy will be as instructive as the hurricanes of late summer.
A mild late-autumn combined with extra imports of European oil and refined fuels, and withdrawals from our own strategic reserve, have held the gasoline prices down here in the US. But the northeast got a four-day cold blast over Thanksgiving, along with a substantial snowfall, and the furnaces are now cranking away, even as the WalMart shoppers commenced their first mad tramplings of the season.
Natural gas, methane, which powers half the home furnaces in America, is a separate story from oil, of course. We can't import it like oil because it requires special pressurized tanker ships and dedicated port facilities -- of which there are currently only two in America -- and getting it here by those means even if the facilities were in place would be very un-cheap. We are way past all-time peak natural gas production in the US, meanwhile, and desperately making up for it by importing all we can from Canada, which is compelled to sell us as much as we demand under the NAFTA rules, despite the fact that they are way past their own all-time gas production peak and desperately need the stuff to process the tar sands of Alberta into oil (which China has contracted to buy a great deal of). You may have noticed, too, that Canada is a northerly nation with significant home heating needs of its own.
The price of natural gas is back to where it was just after Katrina-and-Rita : about $11.50, which is roughly 400 percent higher than it was as recently as 2002. Even so, we've barely seen the effects of that yet and the prospects are that it will go much higher before this winter is over. The longstanding assumption that home heating comes cheap will go down hard in this country. The homebuilding industry is going to get crushed. They will be stuck with tens of thousands of already-built spec houses in the larger-than-3000 square foot range, with great rooms, lawyer foyers, and other heat-sucking features, and they will have tens of thousands more of them under construction or tagging close behind in the permitting process. Practically all of them will be located in the remotest suburban asteroid belts, since the closer-in ones have already been built on.
Add to this predicament the number of people already living in houses like this who may be desperately looking to get out of an increasingly ominous trap, perhaps compounded by additional problems with "creative" mortgages that have left them leveraged above their eyeballs. Some of them will be looking at heating bills as high as their monthly mortgage payments around Christmas time. If enough of them panic this winter, the housing bubble, which is already deflating, will simply fly to tatters and shreds. The high cost of home heating is the IED of the housing bubble.
American economists will be shocked to discover that the housing bubble had virtually become the US economy, and that all their bullshit about "productivity," and the "consumer sector," and the idiotic metrics that they employed to rationalize their errors, will no longer conceal the fundamental unhealth of our collective behavior. The lack of new mortgages alone will throw the financial world into a fugue of affliction, and the experience will be especially severe for the pension groups who tossed their capital into the black hole of derivatives trading.
The tragic part of all this is that we have become such a foolish and craven people, so lost in our endless victory laps, incessant self-awards, and failures of attention, that we will deserve everything that reality throws at us. We are past the point of being unworthy of our own history, so maybe we ought to stop pretending to celebrate it.