Wednesday, June 13, 2007

From Independent to Dependent

I don't have to make this stuff up. There are way too many people paying attention. Tony Allison writing at Financial Sense, comments on our dependence on credit and foreign oil, laying out the implications:

With increasing energy dependence and a shrinking industrial base, we are not the self -sufficient nation of 30 years ago. We are creating trillions of dollars to pay for entitlement programs that are mushrooming with an aging population and an expanding government sector. We are financing an incredibly expensive war (off-budget of course) by simply printing the money.

Every government needs checks and balances to survive. Without a gold standard to force spending restraint, government spending has accelerated well beyond the means to pay for it. The government must borrow roughly 2.5 billion dollars every day from foreign sources to keep the lights on, and that figure has been steadily rising for years.

Unfortunately, the checks and balances our government faces now come from overseas. We are increasingly dependent on foreign sources of capital. If foreign central banks determine that their trillions of US dollar reserves are at risk of significant devaluation, the money may flow elsewhere, even if it damages their exports temporarily. This is already beginning to happen as China and Middle Eastern countries look to diversify.


This isn't great news given that Russia is chasing Arctic oil just as fast as it can.

One must wonder what karmic forces are at work when Russia, once our worst nightmare as leader of the Soviet Union, is now a leading source of oil and gas on a global basis. Imagine the irony of being at their mercy for more imported oil and gas!

1 comment:

The North Coast said...

The ugliest part of the irony is that the new Russia may turn into as big a menace as the old USSR, as the Russians start to wield the Oil Sword.

On the home front, median incomes are down 1% while housing is more unaffordable than ever, and the cost of absolutely everything else has hiked. How interesting that inflation figures leave out housing, food, and energy, the three things 90% of our population spends all of its money on. The situation is brutal for the bottom 25% in income, but it isn't sweet for anyone else in the lower 98% of the population, as even relatively affluent people are paying out half their incomes for housing and are typically swimming in debt.

All joking aside, I really DON'T want to see gas at $5 a gallon because I don't want to freeze all winter, and I hope there is considerable demand destruction before it gets to that level, because it appears that our people are just digging themselves deeper into debt to keep their cars running at all costs.

From where I sit at this time, it looks as though we are in deep trouble and digging ourselves in deeper every minute.