Note: To follow is an excerpt of an interview with Dr. Jim Gillespie, Ph.D., who has over 25 years of experience in commercial real estate serving as a successful agent, manager, and President of three different commercial real estate companies and is known as America's premier commercial real estate coach. To listen to the show archive or download an MP3, go to www.IncomePropertyInvestmentTalk.com/061009.

Mosca: This financial collapse for most of us has been unlike anything we've experienced in our lifetimes. Stock values and real estate values have plummeted, banks have been closing and are being bailed out, and difficult times continue. In December of 2007 we talked about a subject that is near and dear to my heart – energy. What have you been observing in and around real estate since we last spoke?

Gillespie: At that time we talked in detail about energy and a term known as 'Peak Oil' and where things would be heading. If you look at the map of everything that happened in the last 18 months since the interview, things have pretty much played out the way that I said they would -- the collapse of the stock market, the collapse of the banking industry -- and there's no mistake in terms of the correlation between the high price of gasoline and energy. Where I live here in Southern California, premium gas went up to $4.79 and that put such a squeeze on American families and on businesses to make profits. Families were getting squeezed, they couldn't spend as much, so everything corrected in a major way because of the energy prices, which fortunately began coming down after the summer of last year.

Essa: How do you see oil this summer?

Mosca: If we really wanted to keep oil at a lower level or drive the price down, it's all about consumption. Maybe, as a country, we should stop buying it on certain days and then the prices would remain the same or go down. Am I crazy or what?

Gillespie: Here's the problem with that. Number one, even if you bought on Tuesdays and Thursdays, the question is when people change their overall driving habits or would they just orchestrate driving the same distances around filling up on Tuesdays and Thursdays? Here's the other problem: If people actually do cut back on the consumption of energy, that's going to reduce gross domestic product even more because there's a direct correlation between increasing gross domestic product and consuming more energy. You can't increase output with manufacturing, distribution, the service industry, or consumer spending without increasing the consumption of energy and that's why we are in a wild paradigm right now because for the last couple of years we've only been able to extract less and less petroleum out of the ground worldwide and no major oil fields have been discovered since the 1960s. So, to pull out of this recession and turn it around, we have got to find new sources of energy because we have to consume more energy in order for the economy to expand.

Mosca: Is transportation and infrastructure development equally important to energy in helping recovery?

Gillespie: The problem is we don't have the money to take care of that so it's being funded by basically the creating of more dollars from nothing, which is going to lead to long-term inflation. Inflation over the long term is just a supply/demand issue of how much currency have we added to the economy and when you keep adding more and more over time, that's going to cause prices to rise. Also, the infrastructure itself in terms of rehabilitating and rebuilding it is going to consume high levels of energy.

Mosca: You did a great job talking about energy and its impact on real estate and the economy. What I want to do now is focus on lending and finance and banking. Are there any other underlying causes outside of greed to those institutions failing so miserably?

Gillespie: Sure. Let me give you a brief synopsis of the banking industry. When you get a loan the banking industry creates the money out of thin air. If you go to the bank and you say I need a million-dollar loan and you qualify, what they do is basically give you $1 million in a checking account that never existed before because they can. The banks basically make a computer entry of $1 million and they are able to charge interest on that because that's the cartel and the monopoly we've given them. They now can create $9 to $10 million dollars of new loans that they again create in the computer out of nothing because that's just the way the banking system works. With this in mind, in terms of the collapse, you can see that when basically all of this credit is based on nothing and all of a sudden these loans come due and there's nobody to pay the money, everything starts collapsing. A resource for anybody that's interested in learning more about our banking system and I highly recommend that you listen to this is The Creature from Jekyll Island.

Mosca: I think we need a 'call to action.' Usually when Americans are asked to do something, they will do it if it's in the best interest of them and the country as a whole. Is there something that we as an American society can be doing right now to help us recover from this particular situation?

Gillespie: Become aware and make better or sounder financial and family decisions as a result of it. The other thing is to hold our politicians accountable for being loyal to us as a people instead of to the special interests. It's loyalty to the inside special interest that got us into this financial debacle. Unfortunately until we solve the energy problem, it's not going to go away.

Mosca: So it all comes back to energy.

Gillespie: It's all about energy. Everything that's going on right now with the contraction of the economy, businesses going out of business, car dealerships going out, and the big three having trouble, it's all about energy being less abundant and the price of gas being three times what it was six to seven years ago. That is hurting everybody: businesses and consumers alike.

Mosca: As a real estate investor, how do I make wise investment decisions in this market?

Gillespie: Be wary of owning properties in areas where a huge amount of the population commutes a great distance. As the price of gasoline continues to rise, people who live in the far out areas are not going to be able to afford the commutes to the central business district, an hour or two hours away. As the price of gas gets more expensive more and more pressure will be put on people to find a place to live closer into the central business district. Owning property in areas farther out is going to be more expensive just because of the transportation costs of shipping your goods and products to places that are farther away. Properties that are located around the downtown areas of the major cities are going to do better because the demand is going to be increased for people to live there very close to where they're going to be working. Let me mention one more thing. Until now, energy has been cheap and abundant. We really should have been out in front of this decades ahead of time and now we are behind the eight ball in terms of really developing that technology in a way that could really work very well.

Mosca: Earlier, you mentioned a term, 'Peak Oil.' President Carter warned of this back in the 1970's. Can you tell us a bit about Peak Oil, and comment on those folks who think 'drill baby drill' is the way to go?

Gillespie: If you're ever listening to somebody giving their forecast of what they expect to happen and when the recovery is going to happen, ask them how does Peak oil figure into your predictions. If they look at you and sort of say 'what Peak oil?' take their forecast and throw it in the garbage. They don't understand the underlying cause of everything that's going on right now. Peak Oil refers to the fact that when you're extracting petroleum out of the ground, the extraction process follows a bell curve, the classic Bell type curve on a graph where as more and more years go by you are able to get more and more oil out of the oil well and then it reaches a peak of high production and then after that it falls down on the right side of the bell curve. We're now only able to extract less and less petroleum out of the oil for the duration of the life of the oil well. Globally, worldwide, right now it appears that we have peaked in the production of all of the oil wells together worldwide that have been discovered. Again, no new major wells have been discovered since the 1960s so this means that every calendar year less and less petroleum will be extracted out of the ground. The worldwide demand for petroleum has been expanding and growing especially with China's needs going up 20 percent a year alone. That is what causes the price to rise: sheer supply and demand. This is one of the big reasons why food prices have risen so high. It takes about 10 calories of energy to grow and package and process and ship the food to your house before you even consume it and burn it or refrigerate it at home. 10 calories for every 1-calorie consumed. That's what we are up against right now. Let me talk about alternative energies.

Mosca: Hold it a minute on that food comment. This is something that hits home with me because I changed my eating habits partly because of energy. Isn't that something that people could consider as well?

Gillespie: Yes. Consider, Cuba has gone through this problem through a much greater degree than we have because after the breakup of the Soviet Union had no energy sources coming to them. And, they are not an oil-producing country. People have been growing their own vegetable gardens in the middle of the city, on their rooftops, and they've actually been losing quite a bit of weight because their diet has necessitated it. With respect to alternative energies, as much as I would love to be painting a wonderful, positive picture here, pretty much anything that you look at with alternative energy requires more energy to go into creating the alternative energy than what comes out of it in terms of burnable energy. Mosca: What is your golden nugget?

Gillespie: With what's going on with the economy, you're going to ideally want to own the buildings that are the most desirable ones to lease because with vacancies rising, people are going to be able to compare. You want to have the most desirable buildings. Secondly, development is going to go in the central business districts because the demand for people to live there and have shopping and recreation and entertainment close by is going to be expanding. That's where people will want to focus their energy on doing developments to meet this economic shift and people wanting to live closer to the central business district.