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High Oil Price = Faster Economic Decline For America

Most Americans have no idea how important oil prices are to the overall health of the U.S. economy.  Whenever oil prices have pressed toward record levels in recent decades, it has always resulted in an economic downturn.  A high oil price does not just mean that consumers will have to pay a little more at the pump.  The truth is that oil is the very lifeblood of our economic system.  We have built our entire country around the concept that we can transport lots of stuff very long distances for a very, very cheap price.  When that paradigm beings to change, it fundamentally alters the dynamics of the U.S. economy.  A high oil price will mean an even faster economic decline for America.  The cost of oil factors into everything.  A high oil price means that transportation of products and services costs more, travel costs more and energy costs more.  It means that consumers will have less disposable income.  When the price of oil goes up it benefits the big oil producers and a few others, but for everyone else it is very painful.  But perhaps even more importantly, because the U.S. has to import such massive quantities of oil, whenever the price of oil goes up it means that we are becoming poorer as a nation because even more of our money flows out of the country and into the hands of the oil barons.

According to the U.S. Energy Information Administration, the United States consumed a grand total of 6.9 billion barrels of oil during 2009.  That represented approximately 27 percent of the total oil consumption of the entire globe.

Unfortunately, the U.S. imports over half of the oil it consumes, and this represents a massive transfer of wealth out of the United States.

Just think about it.

Every month America imports massive quantities of oil which we rapidly consume.  At the end of the month we are left with nothing.

The foreigners that sell us all the oil end up with a big pile of our dollars.  Yes, eventually those dollars are going to be worth a whole lot less.  But for now they are using them to build gigantic palaces, they are constructing some of the most outlandish shopping malls and hotels imaginable, and they are even setting up “indoor ski resorts” in places such as Dubai.

Meanwhile, many formerly great American cities are being transformed into rotting hellholes.

Every single month we send the giant oil producers of the world billions of our dollars in exchange for the oil that we are deeply addicted to.

It is kind of like a rich young man that is rapidly going broke by blowing all of his money on a drug habit.

We’ve just always got to have more, more, more and it is draining more of our national wealth out of us every single month.

Sadly, the truth is that the United States has absolutely huge untapped reserves of oil that the “powers that be” will not let us touch.  It turns out that certain interests are making insanely huge profits by keeping America addicted to foreign oil.  The ultra-wealthy and ultra-powerful people that are involved in doing this to us are destroying our nation economically just so that they can profit.

It is absolutely sickening.

So does any of this money that we ship off to foreign oil producers ever come back to the United States?

Well, yes, there are a couple main ways that it comes back to us.

One way that it comes back is that it gets loaned back to our government.  The U.S. government has now borrowed hundreds of billions of dollars from the top oil producing nations around the globe.

Remember, the borrower is always the servant of the lender, and we are rapidly becoming servants of the big oil producing nations.

Another way it comes back to us is when sovereign wealth funds from nations such as Saudi Arabia, Kuwait, the United Arab Emirates and other major oil producing nations buy up huge chunks of our infrastructure.  These giant sovereign wealth funds are buying up highways, ports, toll roads and even parking meters from coast to coast.

So the next time you pay a toll, that money might be heading straight to the pockets of some fatcats in the Middle East.

Doesn’t that just make you feel warm and fuzzy?

In a recent piece for Rolling Stone, Matt Taibbi described some of the U.S. infrastructure assets that these sovereign wealth funds are buying up….

A toll highway in Indiana. The Chicago Skyway. A stretch of highway in Florida. Parking meters in Nashville, Pittsburgh, Los Angeles, and other cities. A port in Virginia. And a whole bevy of Californian public infrastructure projects, all either already leased or set to be leased for fifty or seventy-five years or more in exchange for one-off lump sum payments of a few billion bucks at best, usually just to help patch a hole or two in a single budget year.

America is literally being sold off piece by piece.

We are slowly becoming owned by foreigners.  We are slowly being transformed into paupers in the land our forefathers conquered.

Not only that, but a high price for oil will only cause this incredible transfer of wealth to accelerate and it will likely crash the entire global economy once again.

Already the U.S. economy is teetering on the brink of disaster.  If the price of oil hits $100 or $120 a barrel it could be enough to set off another huge economic slide.

According to Sabine Schels, a commodity analyst at Merrill Lynch, whenever the size of the energy sector reaches 9 percent of the global economy it spells big trouble….

“It was in the 1980s and it was the same in 2008. Right now we are at about 7.8 percent and if you go above $100 per barrel to $120 per barrel, you get to that 9 percent level.”

But it isn’t just the rising price of oil that is causing the cost of gasoline to go up.  All over the country, states that are facing massive budget shortfalls are raising gas taxes.  Many state officials believe that since consumers don’t actually “see” the higher gas tax on their receipts that they won’t be as angry as if state income taxes were raised.

Well, that may be true, but what they are failing to realize is that a hike in gasoline taxes is one of the most economically damaging tax increases that can possibly be imposed on their citizens.

Another consequence of a high oil price is that it means that the price of food all over the world will be very high.  In some areas of the globe, even a minor increase in the price of food is enough to threaten the survival of millions.  If the price of oil gets up around $140 or $150 a barrel, it is likely to set off food riots that will make what is currently going on in Tunisia and Algeria look like a Sunday picnic.

But right now, many of the big oil producing nations of the world are openly welcoming the arrival of $100 oil.  Iran, Venezuela and Libya all say that there is no reason for OPEC to act even if oil hits $120 a barrel.

And guess who says that they now have the biggest crude oil reserves in the entire world?

Venezuela.

That’s right – Venezuela now says that they had certified deposits of 297 billion barrels of oil at the end of 2010.

That certainly puts a larger target on their back, doesn’t it?

In the years ahead, the demand for natural resources is going to continue to intensify.  It is going to be one of the dominant economic trends during the coming decade and beyond.

The United States should be much further along in developing alternative energy sources, but up to this point big business and the U.S. government have been openly repressing many promising technologies.  Whenever anyone comes along that could seriously upset the status quo they are bought out or squelched.

So because of all of this corruption we are all going to pay the price.  There are plenty of untapped oil reserves inside the United States.  There are plenty of alternative energy sources that we could be developing.  But we have been kept completely and totally dependent on foreign oil and now rising oil prices are absolutely going to devastate our dying economy.

Things did not have to turn out this way.

But guess what?

They did.

  • Poppy

    The reason gas prices are going up is because we’ve hit the peak of a finite resource, oil. It’s called peak oil. Our civilization runs on cheap oil and the cheap oil is gone. The stuff that’s left is miles under the ocean, etc., or what was BP doing? That makes it far more expensive to get out and therefore the price is going up. It’s not being made public because there is no replacement for oil.

    Wind, solar, biomass will replace a fraction of a fraction of what oil gives us, and only in the form of electricity. The tar sands aren’t pumping oil, it’s mining for oil, which takes oil to run the trucks, etc. and delivers a small amount of oil in return.

    Liquid fuel for transportation is going away, not just for the U.S., but for the world. That’s why it’s getting expensive, and will only way up in the near future.

  • hognutz

    Inflation…Thank thee Fed!

  • Helen Highwater

    Huge untapped reserves of oil that the powers that be won’t let us touch? Well thank goodness we can’t touch them because there are in the most dangerous to drill and inaccessible places. I thought these guys “got it” but obviously not.

  • Aurelius 7

    Peak oil is a myth taught by the Communists and environmentalists alike. Meanwhile, just a few days ago Hugo Chavez just came out and said Venezuela has more reserves than Saudi Arabia. The peak oil falsehood serves only as a means to an end for the U.S. competitiveness in the world. While we continue to dither and say we have nothing, Russia is slant drilling on our reserves in Florida in Alaska. China wouldn’t have bought up a US oil company in Texas if there were no oil.

    Peak oil schmoil… An entire nation is being played for fools.

  • Mr Carpenter

    All of this has got to be intentional on the part of “someone” or more likely “someones”.

    Because we have had access to three viable methods of making synthetic fuel right here in the United States for decades.

    First; we can turn coal into gasoline and diesel fuel. The process was invented by the Germans during WWII when the Americans and Brits pushed the Germans out of North Africa (which Germany needed for its oil). After WWII, America took this process away as war reparations. The only place on planet earth where these patents are being used are in South Africa, where fully 50% of their motor fuels come from SASOL (South African Synthetic Oil Limited), from South African produced coal. We have plenty of coal in the US to run our nation on for hundreds of years.

    Second; an American group of scientists http://www.changingworldtech.com/ on Long Island invented a method to turn offal, sewage, garbage, etc. into thin, real oil. With little energy needed to do it. The resulting liquid is nearly identical to home heating oil or diesel fuel, and can obviously be cracked to make gasoline, if necessary. Which it’s not, because…

    Third; another American working in Ohio at a University has developed an inexpensive method of making Bio-Butanol. Butanol is a 4-carbon alcohol (Ethanol is 2-carbon). Butanol is poison. Butanol is also quite literally a drop-in replacement for GASOLINE and doesn’t even give engines the problems that E10 (10% ethanol mixed with 90% gasoline) does, and may be produced in converted ethanol plants from the same materials going into ethanol. Ethanol provides far fewer BTU’s (think: energy per gallon) than gasoline or Butanol, so the fact that Jimmy Carter’s scientists “chose” a winner (and picked the wrong horse because they didn’t think technology would prove them wrong) simply proves once again that free market forces should be used – rather than Soviet-like “selection” of market winners and losers.

    http://www.butanol.com/

  • Mr Carpenter

    I forgot to mention, that during George W. Bush’s first term (even prior to 9/11/2001) I wrote to him and mentioned all three of these possibilities – thinking (foolishly, it turned out) that an oil man such as himself would realize the benefits of adopting these new methods of energy for our country (while still using the current infrastructure, which is well established and inexpensive to keep going – compared to highly expensive infrastructure, such as doing hydrogen filling stations or adding E85 to current filling stations). Or, for that matter, having to essentially double our electrical grid output (without using coal – “which is the enemy” according to BO) due to impending electric car booms (or will it happen? I seriously doubt it will).

    I think the Untied Status of Amerika will collapse into several countries before long, as a matter of fact, and that’ll happen before the grid is rebuilt.

  • de Malfosse

    “The reason gas prices are going up is because” the purchasing power of the dollar is in decline.

  • mondobeyondo

    Imagine today’s modern American society without oil. Can you imagine it?

    No, you can’t.

    You can’t run your Chevy Tahoe SUV on coal. Well, maybe you can. Just be sure to copyright that patent as soon as you invent it. You will be the richest man/woman on earth.

    What other alternatives do we have? Weeelll…

    Buy a horse. They have their own emissions and byproducts though (which are equivalent to most members of our government, and the laws they pass.) But for the most part, it’s “clean” energy.

    Natural gas? Much of it is a derivative of petroleum. That won’t help much.

    Nuclear power? Risky. Visions of Three Mile Island, Chernobyl… Hiroshima…

    Hydroelectric power? Hee hee! It may work to generate electricity for us faithful consumers to heat our homes and watch TV for 2 extra hours. But for transport, agricultural and other purposes, it’s useless. Can’t hurt to try though. Build a dam on a river in Nebraska, to provide energy for the family farm. A better idea would be to hire some beavers to build their own dams and install their own equipment.

    Batteries? Maybe there’s some hope. I remember putting in some AA batteries in the kids’ RC cars this past Christmas, and they ran really well. Upgrade that to a Toyota Prius (could have been a Chevy Volt, but that’s another story!! Chevy’s a little late in the game) – and you can plug in and just “charge it” across the country. Until the electricity (powered by petroleum) runs out. Sigh.

    We have a “strategic petroleum reserve” here in the U.S. It’s intended for emergencies. But we won’t use it. It’s domestic, right here at home. No Arab oil barons in sight. Ready to use. And there’s this place called Alaska, which happens to be a U.S. state. They have a pipeline, too. We spent lots of money to build it. Prudhoe Bay (I think it’s the name) is brimming with oil. But oh noooo, the environmentalists will complain. Helpless deer, eagles and owls will die!! *sigh* Kill the people, to save the environment, which will die anyway because of what the people are doing to it.

    It makes perfect sense, if you’re a lunatic. Down is up, and up is all around you.

  • Helen Highwater

    mondobeyondo, you are wrong. If we kill the environment the people will die. It’s sad that so many people just don’t get it. Prudhoe Bay is in decline just like all the other oil fields.

  • http://www.planorperish.com Gutter Economist

    Electric bicycles are starting to look attractive.

    http://www.electrickbike.com/

  • A Dodgy Bloke

    It amazes me neither energy or food are counted in the inflation numbers put out by DC, and few people in the lame stream media raise an eyebrow. Then again a lot of stuff amazes me.

  • http://www.mortgageresistanceofamerica.com FrankyFreelance

    Myself and many economists take the stance that the fundamental cause of the current decline in the American economy is the transition away from production and into consumption. At this point we are primarily consuming energy instead of producing it as well.

    The solution to this problem is, of course, to harness alternative means of energy production.

    At this point I find it hard to believe that with the miraculous advances in medicine, biology, computer science – and technology in general – we have not developed sustainable alternative forms of energy.

    The other likely possibility is that the core problem is a political one. That is, either the plutocracy which is now running America is benefiting from the higher oil price – or – the political process is not efficient enough at this point to follow through with initiating the transition to alternative energy.

    Both of these above senarios are “cracks in the dam” which are accelerating the decline of America.

    The military innovation (and accompanying technology) produced during WWII dug us out of the Depression era. The computer/internet revolution (which incidentally was an outgrowth of WWII) was the technological boost (in the last quarter of the 20th century) which has stalled the current decline we are experiencing. However, now that the productive computer/internet infrastructure has been spread throughout the globe we are no longer the main beneficiaries of its fruit.

    If we do not find a new technological revolution (in the energy sector) to replace the now spent computer/internet one there will be nothing to revive the U.S. economy – and our dependence on oil will destroy us.

    JOIN THE RESISTANCE!
    http://www.mortgageresistanceofamerica.com

  • http://prattleonboyo.wordpress.com Peyton Farquhar

    The “plenty” of untapped resources to which the writer is referring to is piddly. It will cost billions to suck it out of the ground, years to process, and, in the process, will completely turn the Alaskan wilderness into a shit hole. And all for a couple hundred barrels of oil. Get your facts straight before you write an irresponsible piece about “plenty” of oil in the U.S.

  • Poppy

    Electricity is only minimally powered by petroleum. The vast majority of electricity is made by coal, gas and hydro. Like oil, coal is in decline. Most of the high grade stuff is gone and we’re working on the lesser quality stuff, which is in decline as well. Gas is only “plentiful” because of new horizontal drilling technologies such as fraking, and you have to choose between having water or gas, because fraking is very water intensive. Hydropower is in decline as well. Lake Meade is 8 feet away from rationing level. Can we imagine the U.S. without power? No, of course not, but that’s the point, major changes are coming that we are not only not prepared for but in denial about. Clueless is the word.

  • Aurelius 7

    Helen Highwater,

    They environment is well taken care of on its own with minimal invasive help. Stop hugging the trees and worshiping the animals. Movies like Bambi should’ve never come out as people like you block progress. And, no, progres doesn’t always have to come at the expense of the environment.

  • Jeff

    I don’t know but I was told that we were in a recovery. Also that rising gas prices are a good sign. Don’t be fooled, look at the numbers

  • http://www.pathtoasia.com rhea

    Economy recovers, demand for energy goes up, price of oil goes up, economy stumbles, demand for energy goes down, price of oil goes down.

    Welcome to the new normal. And google “Peak Oil”.

    There is not going to be any return to the old normal, just deeper and deeper recessions until we have an economy equivalent to that of 1850.

    We help Americans find jobs and prosperity in Asia. For details, visit http://www.pathtoasia.com/jobs/

  • Guido

    Actually, you can run a car on coal. We had steam powered cars in America before oil.
    You can run a car on wood gas, too.
    And you can run a car on homemade alcohol or biodiesel.
    But note-cracking coal for oil is very wasteful and creates a lot of pollution. Look at Canada’s oil industry for that story.

    According to Secrets of the Kingdom, the Saudis realized they could only gouge the West to a certain extent before the West, specifically the US, would invade and take the oil. This lead to a doomsday plan to set up explosives all over the Saudi oil infrastructure. They got a special Czech semtex that is difficult to detect, radioactive materials, and combined them into hard-to-detect dirty bombs planted in strategic locations, including oil pipelines, refineries, and pumping stations. The only problem is these explosives have a limited shelflife and are hard to conceal from inspectors. So within 10 years the explosives will decay to uselessness. No one knows what will replace them.
    Venezuela? I wonder if they’re similarly prepared? Robert Kaplan predicts we’re on the cusp of resource wars. Will we be at war for oil soon???

    You would have to be nuts to think Bush would go against traditional oil. The Bush family has been tied to the Saudis since the 1950s!!!
    The powers that be aren’t interested in cheap US oil when they can make tons off US purchases of foriegn oil. They even keep supertankers out at sea doing donuts until the price goes up, insuring higher profits.

  • Guido

    Seen on a sign,
    “Who cares about oil? I ride the bus!”

    Energy independence won’t happen in the US as long as big fuel interests can buy influence here. When I see a coal producer advertising coal as an environmental alternative on TV, I just want to laugh. Nuclear power is the best option, but the fearmongers will never permit THAT option, even though France and our Nuclear Navy has proven it can be done safely for decades.

    Fuel wouldn’t have to be so painful if they lowered some of the many taxes levied on it, but there isn’t a chance in Hell they’ll cut tax income in a rece-depression.

  • Jack Nichols

    I’m ready…bring it on

  • Wolvercote

    While I recognize Peak Oil’s shadow looming over everything, the 2008 rise in oil prices had nothing to do with Peak Oil. Was there ever a time when you couldn’t actually get gas? Did anyone see rationing or lines of cars at your local gas station like the early 70s? No, you didn’t. That’s because the rise in prices was created by commodities traders on Wall Street. Read “Griftopia” and your eyes will be opened and hopefully you’ll recognize that both political parties are ****ing us.

  • alex

    How about screw oil and we start riding bikes…

  • edgeman.au

    “the United States has absolutely huge untapped reserves of oil”

    this line is an outright distortion of reality

    unless the USA has a secret Garwar field hidden somewhere none of the known modest reserves can slake the incredible thirst America has for oil all day everyday. take a look at the projected recoverable reserves in ANWAR and compare them to daily usage.

    oil is also a fungible commodity so any new and exciting discoveries inside American borders are subject to international price movements.

  • http://melanieslifeonline.wordpress.com/2010/12/20/my-church-experience/ Vaughn Johnston

    A 2008 report from the IEA predicted that although drops in petroleum demand due to high prices have been observed in developed countries and are expected to continue a 3.7 percent rise in demand by 2013 is predicted in developing countries. This is projected to cause a net rise in global petroleum demand during that period.