End of Cheap Oil
The American economy—and indeed, the entire
economy of "Globalism"—depends on cheap oil. But the era of cheap oil is
coming to an end. The pressures of rising oil prices are posed to force a very
painful and perhaps catastrophic adjustment on all of us.
When it comes to the issue of oil and oil prices,
two facts force themselves on our attention: (1) the rising demand for oil
world-wide; and (2) the limited supply of easily extractable oil. These two
facts all but guarantee that oil prices will continue to rise. And the farther
they rise, the less tenable the current economic arrangement
becomes.
The U.S. is particularly
vulnerable to the rise in oil prices. In the first place, the U.S. financial
system is so dysfunctional and out of tune with economic fundamentals that it
has put our economy in a position where it can't really withstand the shock of
rising energy prices too much longer. The current account deficit, which
continues to rise to new record-setting highs, has weakened the dollar, thus
making more difficult for the U.S. to compete with the rest of the world in
buying oil. And then we have the problem of who owns most of the readily
available oil. Mostly, the oil is owned by countries who don't like us: Saudi
Arabia, Iran, Venezuela and Russia. It is not good for us to be dependent on
these nations, some of whom would gladly do us in if the opportunity arose.
What, then, can we expect to happen?
From an economic point of view, it would appear we are headed for a rough
stretch. In the short term, we have to worry about either stagflation (inflation
+ unemployment) or deflation (debt crisis leading to widespread financial
collapse). But the longer term outlook is not much better, as the economy
attempts to transition from an oil-based economy to an economy of great energy
scarcity. This will involve an immense economic regression the likes of which we
have not seen since the decline of the Roman Empire.
Posted: Tue - September 6, 2005 at 04:21 PM