Donate Bitcoin

Donate Paypal


PeakOil is You

PeakOil is You

Why The US Will Be Least Affected By Peak Oil

Discussions about the economic and financial ramifications of PEAK OIL

Why The US Will Be Least Affected By Peak Oil

Unread postby Markos101 » Thu 09 Jun 2005, 18:14:50

Hi,

Some people may be aware that the reason for the US's empire status has got much to be owed for the fact that foreign countries service the US's national debt via investments in US securities, due to the fact that they must have a dollar reserve (hence the US dollar being called the 'reserve currency') in order to purchase oil imports.

Peak oil will not result in less money going into the economy, it will simply mean a huge redirection and concentration of cash flows into the major oil companies ($150-$250 a barrel).

That's great for the US. What this means is that increases in the cost of a barrel will mean that foreign countries must obtain more and more dollars - and hence yield greater investment in US securities.

In this way, in all irony, as the price of oil goes up post peak, it will mean that the US can go into more and more debt to be serviced by foreign countries. It also means, that in order to obtain more dollars, foreign countries will have to provide more and more goods and services to the US in order to obtain dollars.

In essence then, foreign countries will 'hedge' the whole of the US against rising oil prices. That means bad news, of course, for any country who's base currency is not the dollar.

Interested in discussing this.

Mark
User avatar
Markos101
Lignite
Lignite
 
Posts: 381
Joined: Tue 24 Aug 2004, 03:00:00
Location: United Kingdom, Various

Unread postby Bandidoz » Thu 09 Jun 2005, 18:25:22

What if there's a switch to selling oil in Euros, or some other currency?
Last edited by Bandidoz on Thu 09 Jun 2005, 18:28:55, edited 2 times in total.
The Olduvai Theory is thinkable http://www.dieoff.com/page224.pdf
Easter Island - a warning from history : http://www.dieoff.org/page145.htm
User avatar
Bandidoz
Peat
Peat
 
Posts: 147
Joined: Wed 02 Mar 2005, 04:00:00
Location: UK

Unread postby Markos101 » Thu 09 Jun 2005, 18:27:13

After the convient appearance of 9/11, the Bush administration has secured a large number of US air bases within the Middle East region. It is unlikely therefore that Syria and Iran will be tempted to switch to Euros, despite their wishes to.
User avatar
Markos101
Lignite
Lignite
 
Posts: 381
Joined: Tue 24 Aug 2004, 03:00:00
Location: United Kingdom, Various

Unread postby Bandidoz » Thu 09 Jun 2005, 18:29:11

Surely it's going to upset the flow of cash in the general economy around lay-persons? A recession is a recession, surely?
The Olduvai Theory is thinkable http://www.dieoff.com/page224.pdf
Easter Island - a warning from history : http://www.dieoff.org/page145.htm
User avatar
Bandidoz
Peat
Peat
 
Posts: 147
Joined: Wed 02 Mar 2005, 04:00:00
Location: UK

Unread postby Markos101 » Thu 09 Jun 2005, 18:33:15

A recession would be caused by high oil prices making goods and services within the economy unaffordable to most, and the creation of high unemployment whilst the economy readapts to a life without so much oil.

However, if the US is able to service more debt, and greater cashflows are directed at America directly proportional to changes in oil price, it suggests that the US will be able to hack the cost of a barrel of oil at the expense of all other countries in the world.

Mark
User avatar
Markos101
Lignite
Lignite
 
Posts: 381
Joined: Tue 24 Aug 2004, 03:00:00
Location: United Kingdom, Various

Unread postby MD » Thu 09 Jun 2005, 18:51:16

Economic analysis is about as clear cut as theology or philosophy. Reality tends to defy all predictive attempts.
Stop filling dumpsters, as much as you possibly can, and everything will get better.

Just think it through.
It's not hard to do.
User avatar
MD
COB
COB
 
Posts: 4953
Joined: Mon 02 May 2005, 03:00:00
Location: On the ball

Unread postby Markos101 » Thu 09 Jun 2005, 19:00:28

Perhaps, but economic analysis is better than no analysis. The fact is, any physical manifestation of the effects of peak oil will be expressed in terms of price. I can't see any glaring errors in the analysis.

US debt will be increasingly hedged directly in response to any changes in oil price. Greater investment in the US will help minimise the effects of raising oil price on the US economy - the brunt will be felt by non-US countries, because it is they that will have to obtain more dollars to maintain the same levels of oil imports.

Of course, that is if foreign countries continue to use oil at the same trend.

Interested in discussing further.

Mark
User avatar
Markos101
Lignite
Lignite
 
Posts: 381
Joined: Tue 24 Aug 2004, 03:00:00
Location: United Kingdom, Various

Unread postby MicroHydro » Thu 09 Jun 2005, 19:21:03

Markos101, you have to realize that there is no such thing as "the US".

The uberwealthy elite (really global capitalists who keep one of their many homes in the US) might do fine on their US assets if recycled petrodollars prop up the dollar based capital markets.

US working people will be screwed as they are entirely dependent on their wages, living paycheck to pacheck. Many of their jobs will be destroyed as consumers have to spend more on energy and have less disposable income.
"The world is changed... I feel it in the water... I feel it in the earth... I smell it in the air... Much that once was, is lost..." - Galadriel
User avatar
MicroHydro
Heavy Crude
Heavy Crude
 
Posts: 1242
Joined: Sun 10 Apr 2005, 03:00:00

Unread postby Markos101 » Thu 09 Jun 2005, 19:34:00

Micro,

You've got to understand though that ultimately, Marx (although I disagree entirely with his thesis) was half-right; all value (the value of money therefore) is derived from labour. If employees are spending more on energy, it simply means a transfer of jobs from other parts of the economy into the energy sector.

If there aren't labourers to feed, house, make tennis rackets and croquet sets, build their cars, heat their homes, then their assets will crash overnight too. I will assume that firstly there will be a huge pull back from the stock market as confidence decreases, back into savings. Then inflation will ensue but not much, because people lose the confidence to borrow (creating the money).

So both 'rich' and 'poor' will be effected - you need poor to have rich, you need rich to have poor. If people aren't working the rich's money, their money isn't worth anything.

Mark
User avatar
Markos101
Lignite
Lignite
 
Posts: 381
Joined: Tue 24 Aug 2004, 03:00:00
Location: United Kingdom, Various

Unread postby lawnchair » Thu 09 Jun 2005, 19:39:53

Markos101 wrote:Greater investment in the US will help minimise the effects of raising oil price on the US economy.



Yes, money is being invested in the US. Japan and China are buying government bonds, the oil sheiks are (indirectly) floating no-money-down interest-only mortgages in suburbs everywhere. So, the greenbacks flow back in... but the investors will want it back plus their pound of interest-flesh when they're in economic trouble (Peak Oil worldwide recession).

So, are we spending their money for improving infrastructure and creating post-peak industry in order to make enough money to pay off our debts? That's what a small businessman in debt would do. Or is the US using the money to buy Saudi oil (burning it up spinning tank-sized doughnuts in the Iraqi sand) and to buy millions of plastic christmas trees from China? Is this the act of a nation that plans to pay off the debts?

The only way the US would come out ahead on this game is if we buy oil now at $50 a barrel, on credit from OPEC nations, then we dropped the bottom out of the economy (repudiate foreign debts or hyperinflationary "throwing $1000 bills out of helicopters"), and could pay our foreign debt with change from Starbucks. This would be an act of war against every other nation on Earth, and pretty awful for the US people as well, but it's the only conclusion when you keep throwing away money that others have invested in you, expecting to get more back.

And, the Euro isn't a whole lot prettier either. I expect that the Saudis and Kuwaitis will want something real for their oil soon enough (gold is traditional, but wheat or an iceberg of fresh water delivered to the Red Sea might work). Can we make them accept funny looking green pieces of rag-linen at the barrel of a gun? That's the question that sets up our end-game.
User avatar
lawnchair
Tar Sands
Tar Sands
 
Posts: 866
Joined: Wed 20 Oct 2004, 03:00:00

Unread postby jaws » Thu 09 Jun 2005, 21:19:59

America gets a lot of wealth transferred from seigniorage on US dollars, but remember that this is always relative to the value of dollars. If the value of dollars on the international markets plummets because of the poor state of the oil-dependent US economy, the net transfer of wealth from foreigners is not that great.

The real winners from oil depletion will be whoever has the most profitable sources of oil left. Another word for this is Saudi Arabia. As other world producers bring non-conventional oil to the market at razor-thin profit margins, Saudi will pump out the rest of their reserves at ever increasing prices with more profit going into their pockets. What they will do with that money is what they've always done, except more of it. Since there are no profitable investment opportunities in Saudi Arabia outside oil, they will use their petro dollars or petro euros or petro yuans to buy up assets in rich countries. Picture how Exxon right now is soaking in cash but looking at a drought of profitable oil investments, now put this at the scale of Saudi Arabia. Since the rest of the world will be in economic depression, assets will be cheap. And since they will be making record cash, they could buy more of it than ever before. Just like the Hapsburg were once, the House of Saud is the international imperial family of the 21st century.
User avatar
jaws
Heavy Crude
Heavy Crude
 
Posts: 1228
Joined: Sun 24 Apr 2005, 03:00:00

Unread postby NEOPO » Thu 09 Jun 2005, 23:15:20

From seashells to the petrol dollar - the following article is very relevant.
A brief history of money
User avatar
NEOPO
Permanently Banned
 
Posts: 3588
Joined: Sun 15 May 2005, 03:00:00
Location: THE MATRIX

Unread postby Leanan » Fri 10 Jun 2005, 09:54:07

If you're trying to argue that U.S. debt is a good thing...I think you're nuts.

When TSHTF, the global economy may well collapse. If oil is traded, I wouldn't be surprised if those selling refused to accept currency of any kind, and instead insisted on gold, silver...or food.
User avatar
Leanan
News Editor
News Editor
 
Posts: 4582
Joined: Thu 20 May 2004, 03:00:00

Unread postby RdSnt » Fri 10 Jun 2005, 12:20:44

Actually I agree, the US will be less affected. However, that's because there will be less Americans to be affected. They are going to start killing each other in much larger proportions as they fight over the last Calvin Kline t-shirts and Nike shoes. It will probably start with the rappers shooting each other for the gas to drive their bling-bling Escalades.
Gravity is not a force, it is a boundary layer.
Everything is coincident.
Love: the state of suspended anticipation.
To get any appreciable distance from the Earth in
a sensible amount of time, you must lie.
User avatar
RdSnt
Heavy Crude
Heavy Crude
 
Posts: 1461
Joined: Wed 02 Feb 2005, 04:00:00
Location: Canada

Unread postby Sparaxis » Fri 10 Jun 2005, 12:38:04

I don't think you're following the money right.

Retails sales of oil in the US are dominated by the major oil companies. So your money goes to them. The major oil companies, however, are only small players in international oil production. Most of that is in the hands of national oil companies. So the majors then pass your money onto the national oil companies to buy their crude oil. The profit that the majors make is only partly from their own crude, and lately, much from the higher refining margins. So it is not the case that all this money will be concentrated in the US majors--it will instead be concentrated in the oil producing countries.

Then the oil producing countries take in this revenue and part of it goes to their Central Banks. The Central Banks make investments with it through the global financial system. Just because it is a US dollar doesn't mean it flows back to the US. It can just as easily go to a German, UK or Japanese bank as the oil producers choose to hedge their currency risks. Remember, you can buy yen, euro or whatever with dollars, which means those countries now have the dollar buying power without having to "provide more goods and services to the US in order to obtain dollars". There is such a huge volume of US dollars outside the US that buying them has nothing to do with selling us goods and services.

Their choice of buying US debt instruments is up to them. If they choose not to, and we can't service our trade deficit, then we are screwed. Interest rates soar, the economy declines, and all higher oil prices do is make us poorer.
User avatar
Sparaxis
Peat
Peat
 
Posts: 106
Joined: Wed 27 Apr 2005, 03:00:00
Location: California

Unread postby jimmydean » Fri 10 Jun 2005, 23:22:56

Interesting reading including the money history link.

I do agree that the U.S. is in an excellent position to survive the initial economic impacts of rising oil costs triggering inflation followed by peak oil realization if the confidence in the dollar remains. Recycled petrodollar, trade surplus treasury purchases, large military presence in key oil region and the fact that many nations have U.S. currency reserves are the keys imho.

Also another point to add is that the U.S. wealth per capita is the highest of possibly any country in the world. Therefore rising oil costs are more of an annoyance to the U.S. where as in poorer countries rationing or extreme conservation will be in ncessary.
User avatar
jimmydean
Lignite
Lignite
 
Posts: 223
Joined: Thu 05 May 2005, 03:00:00

Unread postby Sparaxis » Sat 11 Jun 2005, 03:30:52

trade surplus treasury purchases


Where do you get such ideas? We have no trade surplus. We have the largest trade deficit and largest foreign debt of any country in the world. We OWE foreign countries over $1.75 trillion (before this year's $800 billion deficit is included) or more than 25% of our GDP. These are claims on our goods and services to others. Other countries can call in these debts as they will (i.e. spend the money, so they can pay higher oil prices, if oil remains dollar-priced) and that is a direct route to a US economic depression.

I just don't understand such sanguine attitudes. Exactly where did you study your economics and finance?
User avatar
Sparaxis
Peat
Peat
 
Posts: 106
Joined: Wed 27 Apr 2005, 03:00:00
Location: California

Unread postby bobcousins » Sat 11 Jun 2005, 05:33:30

Economics is a classic catastrophic system. Positive feedback pushes the system until an unstable state, at some point it flips to a more stable state.
Economic cycles such as Kondriateff can be viewed in this context.

So while going deeper into debt is intrinscally bad, the victim thinks it is working. In reality they are moving further into the unstable zone. When one creditor seeks to foreclose, the rest all join in.
It's all downhill from here
User avatar
bobcousins
Heavy Crude
Heavy Crude
 
Posts: 1164
Joined: Thu 14 Oct 2004, 03:00:00
Location: Left the cult

Unread postby spot5050 » Sat 11 Jun 2005, 06:47:43

NEOPO wrote:From seashells to the petrol dollar - the following article is very relevant.
A brief history of money


That article is pure masturbation. It has no basis is reality. It's some idiot with an idea, a web page and too much time on their hands.

Richard Heinberg wrote:Richard Heinberg is a journalist, educator, editor, lecturer, and musician. He has lectured widely, appearing on national radio and television in five countries. His essays have appeared in The Futurist, Intuition, The Sun, Brain/Mind Bulletin, Magical Blend, New Dawn, and elsewhere.


Web pages like that make me want to bang my head against the nearest wall. Utter tripe.

For a rather more realistic analyis of the history of wealth, try this...
http://www.galmarley.com/framesets/fs_m ... y_faqs.htm

Or better still, read a history book.
spot5050
Tar Sands
Tar Sands
 
Posts: 518
Joined: Tue 07 Dec 2004, 04:00:00
Location: Cheshire, England

Unread postby bobcousins » Sat 11 Jun 2005, 15:21:41

RdSnt wrote:Actually I agree, the US will be less affected. However, that's because there will be less Americans to be affected. They are going to start killing each other in much larger proportions as they fight over the last Calvin Kline t-shirts and Nike shoes. It will probably start with the rappers shooting each other for the gas to drive their bling-bling Escalades.


That's a good point. Hypothetically speaking, if all the Republicans and Democratics killed each other on a one for one basis, how many people would be left?
It's all downhill from here
User avatar
bobcousins
Heavy Crude
Heavy Crude
 
Posts: 1164
Joined: Thu 14 Oct 2004, 03:00:00
Location: Left the cult

Next

Return to Economics & Finance

Who is online

Users browsing this forum: No registered users and 59 guests