It simply means that we have more demand than supply at the current price.

When you have this situation the price shifts to the right on the classic supply/demand curve until either demand is suppressed or supply comes online.

But what if supply can't come online? Then the only equilibrium force is demand destruction, and until it takes hold, prices continue to rise.

Now let's think - does the circumstance exist where supply can't (as in physical impossibility) come online? NO.

We have oil off the coast of Florida, we have oil off the coast of California, we have oil in shale on federal land out west and we have oil in Alaska (and not just in ANWR; there is also a second large field, completely untapped, outside Prudhoe) and we refuse to go get any of it. The cheapest and easiest method to get the shale oil is strip-mining, but we refuse. We can also convert coal to oil but its very expensive.

Back in the early part of 2006 I penned an article at my primary blog of the time called "Musings" in which I talked about the coming oil panics, in which I saw the potential for Iran to cause a rocket shot higher in oil prices. Iran didn't act at that time, but the facts remain. We have, in the interim two years, squandered two years worth of drilling effort, nuke plant construction effort and biomass (specifically, construction of the blue-green algae aquaculture on non-arable lands out west, utilizing that nuclear power to pipe the water, from the sea if necessary) of course.

Note that the path forward advocated requires burying all the "Greenies" that stand in the way.

These very same "Greenies" have not only stood in the way of oil exploration in the United States, they have also blocked all nuclear deployment for the last 30 years, have blocked large-scale reflective solar plants, and have blocked the installation of large-scale wind generation capacity, most notably and recently off Nantucket.

They have also blocked the use of compression-ignition engines until their "ecology standards" were met, and kept moving the goalposts to guarantee that (until this coming model year) they couldn't be in enough states to severely discourage their sale to the public. In the process they also guaranteed that flex-fuel diesels would not be deployed, never mind that the military had them in the 1960s and they would run on nearly any commercial liquid hydrocarbon, including gasoline, diesel fuel, JP9 and Jet-A.

There is no solution to be found in hydrogen or land-crop-based biofuel. Hydrogen is not an energy source, it is a chemical energy storage mechanism and is inferior to hydrocarbons in energy density. Land-crop based biofuels cannot provide more than 5% of our road-based fuel needs; this is a matter of mathematics.

If we are serious about energy independence and security we build breeder reactors until we have 100% of our electricity covered by nuclear power, we electrify our rail system so we can get the diesel engine out of our locomotives (which is being used to generate electricity anyway), we use that electricity to power both extraction of existing hydrocarbons and the production of biofuel from aquaculture and we drill for all the petroleum resources we have to run this nation until the transition can be completed.

As a consequence if you are in the "don't drill/mine/refine/blow/nuke HERE" camp then you have absolutely no right to complain about the current price of gasoline, heating oil and natural gas; YOU EXPLICITLY ADVOCATED FOR EXACTLY THIS OUTCOME AND NOW YOU ARE GETTING IT.

It is time for you to either change your point of view or shut the hell up and enjoy the outcome you advocated for.

Now let's look at home prices.

They have declined. They will decline further until balance is restored. The Home Equity ATM machine is and will remain closed. Consumers have an all-time high in debt service requirements .vs. disposable income.

We have played "ugly American" and "as long as my credit card has room on it I can buy it" for too long. Now the check has to be paid, and its not going to be pretty. There is no escaping this reality, whether we want to or not.

There are no classes of assets that are both unpledged and large enough to support another round of debt bubble creation. The end result is that this debt must either be paid down or default - there is no other outcome possible. At the same time, consumer spending must and will contract as this occurs.

Those who think there will be a "mid-cycle slowdown" are either intentionally spewing falsehoods, delusional, have the brain power of a flea or all of the above.

We are in a recession now and it will be both longer and nastier than is being expected by virtually everyone. This is reality and it is most certainly NOT "priced in."

My expectation is that despite the crooner's call for the "election cycle" to work its magic its too late, just like it was in 2000. We are going to go into that deep and nasty recession as we are coming into the election, and it will lead to tremendous losses for The Republicans in November. The Republicans will get tagged for this irrespective of whether its their fault or not - this is just how politics works.

In the end everyone votes their wallet.

I see no evidence whatsoever that the Republican Party even recognizes this; they are literally whistling past their own graves in the coming election in terms of representation. I fully expect a monstrous Democratic sweep in all three branches of Government, despite the fact that such is inherently contrary to the interests of the American People (you want a divided government to keep them out of our hair to the maximum possible extent!)

Finally, this is a weekend for thanks to those who have put their lives on the line so we are able to maintain the freedoms we enjoy in this nation. Whether you agree with the war or not, the fact remains that without the hundreds of thousands of Americans who have, over the last 225 years, been willing to support our nation in the most personal and final of ways, we would be speaking German or Japanese right now.

Something to think about......