Comment 43232

By Anatoli Ostapenko (anonymous) | Posted July 13, 2010 at 15:08:41

With all due respect to the author and his professional expertize in the economics of the energy sector I have to conclude, that his critique of the American energy policy (although quite an eye-opener) is rather single-sided. I suppose the FED chairman might know quite well how the higher oil price would affect the US economy. I am not even talking of higher costs of production, transportation and about everything else. Nor I am mentioning would be rising interest rates - usual consequence of price inflation.
I feel there is something hidden, unspoken in connection to this "$100 dollar oil" limitation, something that goes beyond the US economy and has global implications. In my opinion (I am an engineer, not a financial guru) the US dollar depreciation alone would cause adjustment rather then catastrophic collapse of the international monetary system based on the US dollar. There is something that we don't know about. Something that is nearing the breaking point. American rating agencies back-stabbing the EU - what other evidence one needs to look at? Wars begin for lesser reasons.
As an engineer I could only guess the following:
Wealth of the American nation is at stake with rising oil price. Not the paper dollar wealth, but the real one. The one that is determined by real things like housing, roads, bridges, power stations, pipelines, industrial plants, arable land, fruit trees, clean water, etc, etc. This may include healthy, young and educated people, schools, hospitals and other stuff.
America has lost trillions of dollars in the financial crisis. A brand new 1000MWatt nuclear power plant, complete with lifetime fuel supply, maintenance and decommissioning costs is only worth $5 billion. Its service life is about 35 years. If the country had lost these trillions in real assets as opposed to paper wealth, Bangladesh would be the richer one. This is why there is so much outcry for that "little and insignificant" spill in the gulf "thing"- damage to the real assets is the key to understanding the situation.
On the other hand, if these newly created trillions will ever surface in the real economy, the whole price structure will crumble and contract law will seize to exist. These are the funny money for the financial crooks and nothing more.
Getting back to the question of $100 oil threshold, I can only say that the country has build WRONG kind of infrastructure for that. It needs insane 20 million barrels a day just to function. With difficult to extract oil, significant part of the American wealth tuns into liability. How is possible to painlessly rebuild the country, change it's lifestyle and culture and keep the international power play going on at the same time? There is no way on earth this can be done. Well, we could save a bit here and a bit there, like stop burning diesel fuel for heating purposes (the so-called heating oil) and switch to natural gas instead. But "cunning" Chinese will never stop upgrading that brand new, clever infrastructure of theirs. They want to drive own cars and be rich too. Plus, that crazy Chinese economy just keeps on growing no matter what.
This all wouldn't be too bad if we lived in the ancient times, like in the Roman Empire. Everything was build forever there: roads, bridges, houses, aqueducts, etc. In our world of techno-miracles all the assets are so short-lived that any "advanced" economy can lose its competitive edge in a couple of decades: communication satellite - 10 years, chemical processing plant - 40 years, nuclear power plant - 35 years, pipeline - 30 years, power substation - 25 years, fighter jet - 20 years (9000 hours), aircraft carrier - 30 years, highway (without repairs) - 10 years, etc.
Given the circumstances I can only say that whatever was and is happening will progress faster and faster spiraling out of control. Those with political power will escape by converting this power into personal wealth so they can regain the power after the dust settles.

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