Many Americans Want Cheaper Oil But Don't Want To Stop Sabre Rattling

There are two propaganda points used by our rulers to fool us about oil. One is, China is using oil ergo, prices are going up. The other one is, sudden oil price hikes have nothing to do with recessions, they are caused by "inflation." Both are false.

WP:

By Robert J. Samuelson
Wednesday, May 3, 2006; Page A23

The United States has the energy policy it deserves, although not the one it needs. Having been told for years that their addiction to cheap gasoline was on a collision course with increasingly insecure supplies of foreign oil, Americans are horrified to discover that this is actually the case. But for all the public outcry and political hysteria, high gasoline prices haven't significantly hurt the economy -- and may not do so. Since 2003 the economy has grown about 3.6 percent annually. It's still advancing briskly. That may be the real news.

But first, how did we get to $3 a gallon? The basic story is simple enough. Oil was cheap in the 1990s. From 1993 to 1999, crude prices averaged about $17 a barrel. Low prices discouraged exploration and encouraged consumption. China emerged as a big user. In 1995 global demand was about 70 million barrels daily; now it's almost 84 million barrels daily.

This little story leaves out a lot of information. First, our "economy" is growing only because of the false yen/yuan/dollar triangle. We are building virtually no factories nor anything worth exporting, we are simply consuming like mad and this is due 100% to the fact that Asian importers are bankrolling every penny we spend. This is very bad on many, way too many, levels.

Secondly, the rise in "demand" has been fueled to a great degree by the USA. This happened in two ways. One is, our output has dropped dramatically especially in the last year. Namely, we are not pumping as much oil as before and we are importing much more than before. So our impact on world markets is double since we also consume more oil than ten years ago. Our population is rapidly rising due to illegal immigration on top of this so there are many more oil consumers and they all drive cars just like all Americans.

And gas guzzling isn't only bad, we live much further from work than a mere ten years ago! So commuting use of oil is way up over the previous several decades!

Of course, ignoring reality has a downside. Congress, Bush, everyone is anxious to drop the price of oil. But at the very same time, they are all sabre rattling like mad! At Iran! It is louder than ever! Bang that oil drum!

The Iranians are openly laughing at us as we run in circles here, shrieking like demented children being sprayed by a hose, "Why is oil so expensive?" The WP story above is just as clueless.

Spare production capacity slowly vanished, meaning that now any supply interruption -- or rumor of interruption -- sends prices up sharply. An Iraqi pipeline is attacked; prices jump. Nigerian rebels menace oil fields; prices jump.

Note how the reporter very carefully leaves out any mention about Congress, Bush and the media's sabre rattling! It just doesn't bear mentioning.

It is like a man hammering on his thumb screaming, "Someone stop the pain!"

It's conventional wisdom that big increases in oil prices usually trigger a recession -- or at least a sharp slowdown. Why haven't they? One oft-cited reason is that the economy has become more energy-efficient. True. Compared with 1973, Americans use 57 percent less oil and natural gas per dollar of output; compared with 1990, the decline is 24 percent. Cars and trucks have gotten more efficient, though not much more so since 1990. New industries (software programming, health clubs) use less energy than the old (steelmaking, farming). But there's a larger reason: The conventional wisdom is wrong .

Comparing 1973 with 1990 is false. I have lived a long time, on my own. Since 1967, when I was just 16. So, having paid bills, fought for raises, lived the horrors of more than one economic downturn, I have a lot of built-in knowledge.

During my long life, nearly every bad recession had two shadows: war and oil. War and oil, over and over again. The Vietnam war plus the Arab/Israeli wars caused not only oil prices to shoot up, they caused inflation because ALL GOVERNMENTS DEBASE CURRENCIES DURING WARS!

This is a rock hard, iron-clad rule.

During the Iran/Iraq war, the same problems here thanks to the fact that we started to heavily arm again to fight Russia and to side with Saddam in an oil war! Interest rates had to go up to stop the raging inflation caused by the oil wars and eventually, we righted our ship by going into the Bretton Woods II agreement with Japan which started the Japanese sucking up all our excess dollars for us to hide inflation.

Yet when Bush went to war with Saddam over Kuwaiti oil, again! War+oil=recession! Duh! Now here we are again, the same stupid formula. Pretending inflation comes out of nowhere is insane. We have inflated our buying ability by exporting our inflation to China which uses cheap human labor to wring wealth out of resources. But the rising cost of oil caused by this process coupled with wars we launched has created the classic war+oil=inflation nexus. Pretending there will be no inflation and the Japanese people will do without energy or comfort and billions will be worked and starved to death across the planet just so we can have no inflation is insanity because workers around the world are getting very violent about this. Unlike American workers, they don't intend to bear all the costs of this oily war stuff themselves.

Government will be rent limb from limb by enraged populations.

Big oil price increases in the past (1973-74, 1979-80 and 1990-91) did not cause recessions, though recessions occurred at roughly the same time. The connection has been repeated so often that most people probably accept it as gospel. But much economic research has concluded that it's a myth. These recessions resulted mainly from rising inflation -- inflation that preceded higher oil prices -- and the Federal Reserve's efforts to suppress it. Higher oil prices merely made matters slightly worse. In 1980, for example, consumer prices rose 12.5 percent; excluding energy prices, they increased 11.7 percent.

The Washington Post deliberately leaves out all mention of wars so they can pretend it is pure coincidence that oil prices go up and inflation is already up so it is just another manifestation of inflation.

On this blog, I keep track of many seemingly odd matters. Bees, for example. Yet bees are part of the energy system, the economy, the ecosystem and world events. Everything is tied intimately into everything else. Our abuse of oil has not only accelerated the run up the Hubbert Oil Peak, it is causing terrible problems for all of nature due to greenhouse gasses! The paving of America thanks to cheap oil has destroyed millions of acres of prime farmlands while using oil to farm is destroying even more acreage. Our lifestyle is very destructive for this planet. If all humans lived like us, it would take six planet earths.

We are the engine of world inflation. Our expectations of consuming all the planet is being bankrolled by nations that consume far less than we, they not only make everything for us, they do it while living in miserable squalor. Even the Japanese. They have been the number 2 economy for years and they live terribly restricted lives.

This may explain the economy's resilience. One hopeful sign: most nonenergy companies aren't yet passing along higher energy costs to their customers. "Businesses have had wide profit margins," says Mark Zandi of Moody's Economy.com. "They may be willing to eat the higher costs." In 2006, he expects the economy to grow 3.5 percent, with average unemployment of 4.7 percent.

Indeed, he thinks oil prices may retreat to about $50 a barrel, from today's levels of about $70, later this year. Higher prices will slightly dampen demand, and added supplies will create some spare production capacity. Naturally, he could be wrong. Energy economist Philip K. Verleger Jr. thinks oil could be headed for $100 a barrel, with inflation going to 5 percent and inducing a recession. Continuing strong oil demand will collide with rigid supply (both production and refining). The conventional wisdom -- wrong in the past -- could be right in the future.

Almost never are manufacturers or businesses selling discressionary items able to pass on inflation easily. This is because consumers simply cut back, too! But as in all previous inflationary cycles, the hard necessities shoot up in price. The pretense we have low inflation is laughable. I live on a fixed income and it hurts! It hurts badly! I see personal inflation of over 10%.

As for the silly prediction oil will be going for less than $50 a barrel: hahaha. If we impeach Bush, maybe, but then the Democrats are sabre rattling as furiously as the Republicans! This is because they want to scare Iran and protect the Israelis as they steal Palestinian lands. So I see no end to price hikes. As Iran laughs at us, we rattle harder and harder. We bluster and snarl and they laugh at us again. They tease us by poking at Israel and Israel then bristles and talks nuclear war.

And if oil+war+inflation, oil+nuclear bombing= WWIII. And I dare not put a price tag on that. It is too many trillions of dollars. Uninflated dollars.

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Comments

[D. F. Facti]

"The paving of America thanks to cheap oil has destroyed millions of acres of prime farmlands while using oil to farm is destroying even more acreage."

Suicidal. Oh, wait, but there's hydroponic farming and space rations. Sorry. Didn't want to depress anyone.

[richt]

03-MAY-2006 15:26:35 -20.03 -174.23 8.0 16.1 TONGA ISLANDS

An 8.0!

rt

[Sarah, San Antonio, TX]

See Wall Street Journal front page article 18 Apr 2006. Headline states "US oil reserves are at an 8 year high". Graph shows it increasing for past years.

The US dollar is dropping in value. That is the only reason why oil costs what it does.

Is there now also gold shortage? Gold is going up in dollars.

Lie to the masses the same lie 1,000 times and the masses will believe it to be true.

[Big Al]

Have you read the article on Peak oil, In "From The Wilderness" ? Makes you sound optimistic!

[judah]

I expect oil to hit $100 a barrel by year's end. What this will do to my lifestyle, I'm not sure. Jim Howard Knustler calls the coming dip over Hubbard's peak 'The Long Emergency.' He may be right.

[Elaine Meinel Supkis]

Well, as we reach the Peak, the worst thing we can do is sabre rattle!

From the Wilderness never talked about the Hubbert Oil Peak until Ruppert called me one day back in 1998 and wanted to talk to my dad about the CIA. I persuaded him to read some stuff about the Peak Oil future wars and he completely changed course.