Posts Tagged ‘Oil’

Oil Price Slippage Constitutes Warning

Sunday, May 6th, 2012

Producing Our Economic Life-blood

Over the life of this blog, one of the subjects that has arisen repeatedly is our energy problem, and the effects Obama’s policies are having on our nation’s economic condition.  I have offered you charts, graphs, economic theory, and an understanding of why we remain in the economic trouble we’re in, and much of our troubles originate with energy concerns.  Again validating what I’ve previously reported, global oil prices are now falling in response to the economic outlook in the US and in Europe.  The reason I again bring this to your attention is not to thump my chest, since there’s nothing revolutionary in what I’ve argued, but instead to reinforce the point, because in the broader media, there are too many sources interested in obfuscating and otherwise muddling the matter.  To have a growing, vital economy, the US has relied historically on inexpensive energy.

The American economy is a vehicle of vast capacity for growth, and the American people remain its vital engine, both as consumers and producers.  What the Obama policies have done is to choke down this engine, and the result is an economy that is bottom-bouncing at an idle, struggling for air that a reckless government policy forbids it to consume.  Every time the American people start to accelerate, the market effects of the regressive policies of our government govern the capacity of our economy like a vast engine choke. You could rightly call the policies of Barack Obama the “stuck choke” of American economics.

An engine makes a great analog for the state of our economy, because an engine must both consume energy, and convert it into motive power.  In a healthy state, that’s what the US economy does, and it’s why we must not ignore the grave costs of the current Obama policies.  Consider what happens when you step on the gas in your car:  The throttle opens up, allowing the engine to draw more of the air-fuel mixture, permitting the engine to accelerate, reciprocating more rapidly, and those converting the energy to the horsepower needed to make the vehicle go.  This is how our economy functions: It’s demand for consumption increases, and we have traditionally answered it by permitting more air-fuel mix(energy and capital) into the engine, and it accelerates(grows) providing output some of which is reintroduced back into the stream going in.  It’s a marvelous thing, and the prosperity of every American increases on average.

The situation we’ve been placed in by the Obama policies, combined with the inflationary policies of the Federal Reserve is that the air-fuel mix becomes prohibitively expensive.  Imagine driving down the road at 30mph in order to conserve fuel.  You could come up to speed, but because fuel is so expensive, you really can’t afford to put your foot in it, so instead, you patiently move along at a snail’s pace because you’re trying to do the minimum consumption you can manage and still get to your destination.  This is what happens each and every time the economic engine gets going these last several years:  The price of fuel begins to tick rapidly upward, we get a price spike, and everybody goes into conservation mode, and as a result, the economy slows down.  Naturally, as soon as the economy slows, the prices for fuel begin to fall again, and one can expect that at around the time they hit the bottom of the trough, people will begin to feel safe accelerating their cars back up to highway speeds, and the process begins once more.

The slippage in oil prices this week constitute a warning, because what it implies is that you’ve already hit that point of conservation.  Of course, it’s not merely consumers, but businesses and every form of productive endeavor that uses energy, which is of course all of them.  In that environment of rationing, what occurs is that people necessarily become more frugal, but so do businesses.  It’s unavoidable.  You can only afford to spend so much of your capital on energy, because you must still pay for all of the other necessities of living, and the United States has been operating very close to this line for several years.  A rational Federal policy would realize that this is a supply-side problem, and that to alleviate the problem, what we must do is increase the supply of energy available to the market, but our government has instead answered with tepid notions about conservation, and highly speculative and fanciful programs for “green energy” while it chokes off the supply of real energy to the market.

This is our situation, and the current drop in oil prices is a result of the fact that our economy is again on the downside, and that is further substantiated by the poor numbers of jobs being created.  At this point, it should be so obvious to every living person with two brain cells remaining to clack together that there ought to be a national movement to remove any politician who isn’t focused on this problem.  Instead, we have an administration that is dithering, and is actually making things substantially worse through its regulatory paradigm that insists America simply do more with less.  This insane, nearly maniacal policy is impossible to sustain, because it is driving us to the poor-house, and yet the radical left is fine with that outcome.  They want to make us poorer, and the reason is clear:  Poor people who must choose between groceries and gasoline are easily managed by a central authority, and they are only too willing to do the “managing.”

Let us place this in context:  Imagine that you have a home that is all electric.  Many Americans do.  Imagine that the power grid that supplies electricity to your home generates that power with coal, oil, and nuclear processes.  You might also have a little hydroelectric power, or a little wind and solar, but on average, those supply only a small fraction of our power generation.  Remembering that oil derivatives are one of the primary fuels used in power generation, what happens if we take away one of the others, like coal?  Coal currently provides half of our electric generation, nationwide.  What happens to the price of oil and all its derivatives, including the gasoline or diesel for your vehicle when coal is taken away from power generation?  The answer is obvious, and so is the result, because we’re living it.

Understanding the relationship between energy and our economic prospects is key to understanding our current economic malaise, and the impending disaster we face if our policy is not soon changed to promote more energy production, and to unshackle energy producers from the chains that prevent them from providing to the market the energy that a growing economy requires in order to sustain itself in that state.   This is why Newt Gingrich’s idea of $2.50/gallon gasoline was important, and it’s also one more reason so many of us had hoped that  we would see a Sarah Palin candidacy, because she understands, perhaps better than any other politician in the country, how thorough is our reliance upon energy, but also how to best develop the resources we already have at our disposal.  We desperately need an “energy President,” who understands that growth and prosperity are only possible with abundant and inexpensive energy, permitting the American people to do what they already know how to do, and want to do: Build, grow, and prosper.

The proof of this thesis is contained in our cycle of boom-spike-conserve-bottom. When energy prices fall, the economy (and the American people who drive it) respond with jobs, growth, and productivity.  The problem is that in our current environment of government regulation and governmentally-induced inflation, when the growth begins, the price of energy begins to immediately climb upward, eventually spiking to unsustainable costs.  This places the entire economy into conservation mode, and very rapidly, we slide to the bottom again.  It’s no longer a matter of proving the theory.  It’s proven, and the evidence is all around us, but until we make the conscious decision to end the misery, we’re stuck.

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Putting Us Over a Barrel…of Oil

Saturday, September 17th, 2011

America to Capitulate?

In a story that will in one manner or another have a terrible potential cost to the US, President Obama’s naive foreign policy is leading us to another potential disaster.  We are being offered a choice in not-so-veiled terms by our Saudi allies in the Middle East: Veto the Palestinean State in support of Israel, and potentially lose an ally, or withhold that veto and promote our alliance with Saudi Arabia while effectively abandoning Israel.  What all of this is doing is to set the stage to excuse Obama for withholding the veto in the name of our oil purchases from the Kingdom.  This gives the “blood-for-oil” narrative of the left a whole new meaning.  The question is this, since Obama is no friend either to Israel or to the American people:  Which does he care about less? The security of the people of Israel, or the energy consumers in this country?

There are two important things to be taken from this story, and they are that the dependence of the United States on so much foreign oil subjects us to this sort of economic blackmail, and that we have an administration which has led us to this position either by design or through wretched incompetence.

The Obama administration has done a great deal of long-term damage to the ability of oil producers in the US to develop new oil resources here.  Its reliance on “green energy” programs has left us in a condition in which we have put far too much good money in pursuit of an ineffective technology, seemingly for the sake of crony-capitalist motives, while acting to destroy our ability to power our own nation.  Coal-fired power plants are being shut down on the basis of almost entirely phony environmental concerns, no nuclear plants are being built due to the catastrophe at Fukashima, Japan, and our own oil and gas resources are being left untapped in the Earth, once again due to environmental regulations that make it impossible or nearly so to reclaim those assets from our own ground.  Meanwhile, foolish ventures like wind-farms, where people like T. Boone Pickens has lost billions thus far, are subsidized by tax-payers.  Solar energy companies like Solyndra are bankrolled, and what we have at the end of it all is a more indebted, less secure, less energy-independent nation. This makes us ripe for whatever the thugs and tyrants in the Middle East or Central America may wish to do to us with respect to the oil supply.

At the same time, Barack Obama and his team of foreign policy amateurs continue to place us in a dangerous position with respect to the Middle Eastern nations that supply a healthy proportion of the oil we consume daily.  Israel is now the trunnion around which all of our concerns must turn, because they are now the only ally we have in the region, and we’ve been put into a devil of a position.  The Obama administration’s role in fomenting the “Arab Spring” is still being documented, but it seems certain there was a role, and it was not insignificant.  This alleged democracy movement seems now destined to further radicalize a region already volatile.  Now, we have the Saudi Ambassador, Prince Turki al-Faisal, warning us that we must choose between a Saudi ally and Israeli security.  In an article titled: “Veto a State, Lose an Ally,” he writes, in part:

“The ‘special relationship’ between Saudi Arabia and the United States would increasingly be seen as toxic by the vast majority of Arabs and Muslims, who demand justice for the Palestinian people…”

This is the nature of our predicament.  Too many years of ignoring our reliance on oil from OPEC members in the Middle East has left us in the position that we must now seemingly choose between a threat of having the energy rug pulled from beneath our feet, or abandoning Israeli security.  This amounts to a threat of war, and we are now being left to choose between supporting Israel or paying higher oil prices.  It is small wonder that OPEC has spent lobbying dollars in Washington to purchase the opposition to production of our own resources.  Dependent upon them as we now are, they can effectively force our hand in this matter.  At this late date, even if the Obama administration would be willing to cast aside all regulations, there is no way in which we can increase our available resources sufficiently to be independent of Middle Eastern oil.  In short, we’re now over a barrel in a way that seems to have been designed to ruin us.

We can all hope this is somehow delayed until we’ve had a chance for another election, to get a President and Congress willing to address our critical position, but the rapid advance of these events seems designed to make this choice too late.  We stand upon a precipice, and Barack Obama and his crew of “intellects” at the State Department are clearly making things worse.  They are intentionally offering us the choice between a crippling economic collapse and deprivation of energy that will spawn it, and the existence of our good friend and ally Israel.  What you are being offered is little different from the deal brokered by Neville Chamberlain with Hitler in his day, except that rather than abandoning the Sudetenland, this time, we’ll be abandoning the cradle of Western civilization.  The other difference is only that whereas Chamberlain’s proposition seemed to have been born of a rigid naivete, what we’re now facing from Obama’s foreign policy seems to have been designed to achieve this crippling end. While all of this goes on overseas, we now see the rise of the “Days of Rage” here at home by forces of the left.  Our nation’s over a barrel, and our enemies at home and abroad are savoring it.