The Bottom Line: Energy, food and the new world economy

I think it was a little of both. Goverment paying farmers not to farm. But now wanting corn-produced ethanol. I think it is coming back on them.

The war isn't helping matters. It is taking away money we need to use else where. maybe America will wake up and realize we need to start helping our own from going hungry. Instead of turning a blind eye.

The war and the oilman president's willingness to let oil profiteers reign

There were so many reasons.

However, the unfunding of the war in Iraq , and the selling of US Bonds to China, brought the value of the dollar down, as the more one sells bonds the cheaper they look to the ones buying them as they seem to just be shoveled out the door by the truck-load.

The going over-board in selling houses with nothing down, caused many speculators to come into that market as hopes of the house prices going up and up just to make a buck by selling the house at a higher dollar, which is a good idea when the dollar is going down by the way. However, into that bubble all that went, as the housing in many areas more than doubled in price, as the value of the dollar was going down at the same time, making it look like making money hand over fist, however, most didn't understand that as the value of the dollar was going down at the same time that caused the value to look a lot better than is was.

Many investment banks were running at a rate of investments around 20 to 1 or higher which was an unsustainable rate, Bear Stearns was at 50 to 1 or higher margin, causing the short selling that brought them into bankruptcy in one afternoon.

The value of money was simply not understood, and bad decisions were ramped, also bring the cost of oil into the picture with those cheaper dollars.

Therefore, many stupid decisions, were the cause, I feel

Very scary! We've been talking about what steps we will/can take to prepare for the future.

The newspaper told us this morning to stock up on washer detergent and disposable diapers as these items would be going up as early as Sunday, June 1st.

I think it's a whole host of factors. Iraq is one. The burst of the housing bubble is another. Using corn as fuel instead of food is definitely one as well. I also think that our complacency in a hand-to-mouth existence is coming to haunt us as well. Suddenly, when the cost of fuel rises sharply, we must choose between a gallon of gas and a gallon of milk. We should have saved during the fatter times just a decade ago.

Great point on the sub-prime mortgage and Bear Stearns-trading-style contributions Richard. That makes a lot of sense.

Well said Sandy.

Mary M., the future is indeed sustainable. You're on the right path by thinking about that now.

LaRue, now that's a new nugget I hadn't heard. My new favorite detergent, All Mighty 3x concentrate, was just on sale at Safeway for $3.99, but I missed it. I had wanted to stock up. Bummer, I should have.

Rachel D., eloquently said. My favorites are the line about "our complacency in a hand-to-mouth existence" and your comparison of choosing between a gallon of gas and a gallon of milk." Your bottom line, that we should have saved during the fatter times, is right on -- but not unsurmountable. I've found that I don't miss the extra coin when I pay my savings or retirement account first; the rest of my lifestyle just adjusts.

Wilma, I can tell you've thought about this matter. Thank you for stopping by to leave a comment. I'd nice to see you here.

and as someone said above, the mortgage industry fallout - which affected many other lending practices - if one can't afford their homes, how can one afford food? ~j

Inflation, in reality the only problem for the US now, as there is enough oil in the ground in the US for quite awhile. The only problem is that we can't drill for it.

But if we did and taxed it properly and didn't send our dollars out the door to others with lossy energy policies all would be better, however the reset that inflation is causing will also be necessary.

The necessary time that it will take to move into other modes of transportation and to install a few hundred atomic energy plants could be done, as all we really need is to be able to drill for the oil that we already know we have.

Everything is so intertwined. Which makes the simplistic declarations by talking heads so scary. They tend to focus people's attention too narrowly and they demand a change that ends up throwing more things out of whack. (Like the stupid calls for price controls on gas.) I think those scare me more than the general impact of the U.S. economy. We'll be back.

The positive news in the mix is that the dollar is seeing a small rebound against the euro (okay, there's still a long way to go before it gets back to its original 1:1 ratio, if ever). Here's crossing my fingers that whatever we're doing right (perhaps it's finding and fixing the bad business) will keep on keeping on....

Susan, you make a valid point about demanding change in a knowledge vacuum. Look at the ethanol mandate. It was done for a legitimate environmental reason, but little thought was put into the impact that would have on all of the corn-derived foods and feeds that make up America's food sources.

RE: all we really need is to be able to drill for the oil that we already know we have.

Richard, this is indeed a hotly contested issue, from the standpoint of environmental concerns with drilling and destroying natural habitats and the valid point that consumers should lesson their dependence upon fossil fuels across the board -- as fossil fuels are finite while energy sources like wind (arguably an inefficient source of reliable power at this point) are not.

I would hope that some sort of agreement to allow economical drilling in the millions of acres of untapped oil fields spread across the United States is just around the corner. The challenge arises in that some of those fields are very difficult to get to with conventional equipment, so there are industry-wide changes that would need to be made.

RE: if one can't afford their homes, how can one afford food? ~j

Well said Jean!

I am so worried about the direction things have gone, I regret buying tickets for Disney and Amtrak. Wow, if only I could seen the prices when I booked.

I can't wait to read all your articles. I'm writing related articles but many of them aren't here. Odd thing about this economy. As it gets worse, people want to pay for info about saving money. Your articles are always "must reads" for me. IF you check out my latest, you'll discover that a tornado has kept me away...but even a tornado can't keep me from checking out your articles,even if I'm a bit behind today.

I do hope people maintain some perspective. Yes, I think things are grim and I am very, very concerned. At the same time, we have made it through major recessions and even a Great Depression before.

As bad as things are, I realize that the economy is not yet at its worst stage. Also, I'd appreciate input about this: a home on our street sold at a very low price, relative to its value five years ago. Even so, that home sold for 50K more than we paid for our home originally. So we'd still be able to sell at a profit...TODAY. Somehow I find this a bit comforting. But should I?

I forgot to note that the home is very similar to ours. If anything, ours is in better shape and might get a bit more than that other one.

All good points Jo C., especially the one about not letting tornados tear you away from my money blog.... ; ) XOXOXO

I agree with you that too few people recognize the amount of growth we have seen in the value of everthing from stocks to real estate over the past two decades. A loss now, as you so appropriately note, still leaves the value at much more than what it was at those two decades ago.

Some call this a simple "market correction." Certainly some of the drops have been shocking and, when so many people are counting on their real estate and stock assets to retire, can put a huge strain on the generation of Baby Boomers especially who--up until the market falls-- were so near that age of work freedom.

Try to forget your troubles at Disney donna. That's what it's there for. ; ) I understand it now offers family cafeteria plans, to help shave in-park food expenses. Just an FYI to try to gain back some of that extra cost. Meanwhile, consider pitching a family entertainment piece to a paying magazine market to try to monetize the trip.

Amtrak was running a deal for extra bonus points through last month, so if you're on its frequent traveler plan than you'll at least be able to use those later for discounts on other trips. In the meantime, I'll be taking the train down to CA in August myself, so let me know how it goes.

Oh, and HAVE FUN!!! I went to Disney Land at Christmas time when I was 10 or 12. It was drizzling, and Christmas Eve, so there were so few people in the park that we could ride almost any ride over and over again without waiting. I remember getting a coconut at the bottom of my stocking that year. Good times.

Domino effect indeed, it will be tough for any of the remaining middle class to hold on to what they have. It is so easy to slip and for many there is no return.

in regards to those who piled on if one cant afford their homes how can they afford food. the simple answer is to live in what you can afford and buy food rather than stay where you can not afford food.

It is getting scary......today in the car, we were listening to the news, and they were talking about ALL the starving people throughout the world.......and of how donations are down tremendously........that the "rich" countries must double, and maybe triple, their efforts in order to help even more.
I know, for a fact, that food banks are really hurting in our area......more and more people are needing/using them.....and they just can't keep up with the demand.