Stocks seem to be edging down. And the price of gold has dropped below $1,700.
Commentators still talk about the ‘fiscal cliff’. Pay no attention to it; it’s only noise. As we’ve seen over the last few days, the fiscal cliff is barely a pimple. Nobody talks about the real problem -- federal unfunded debt and liabilities of $86 trillion... growing 21 times faster than the economy.
Cutting a little here. Trimming a little there. Sequestering a bit of the defence budget. It’s not going to make much difference.
But what about energy? Many people think cheap energy will save us. We’ve got it. Others don’t. Cheap energy, they say, will give us growth, which will increase the feds’ revenues and decrease their deficits. “Growth”, they argue, reduced America’s debts after WWII, and again in the 90s. It will do it again. Lawrence B Siegel:
Recent fossil fuel discoveries have been a pleasant and unforeseen surprise (though we’d be foolish to rely on more such good fortune). People have been finding cheaper substitutes for existing resources since the beginning of human history, and there is no sign that we will stop any time soon.
Many people think that shale oil, fracking and new gas discoveries are going to bring back the good times, when the US economy was growing at 5% and more! They’re even planning to put Clinton back in the White House – Hilary Clinton. No kidding. They’re probably already planning some high-profile diplomatic adventure to put her in the public eye two years from now.
This is not noise. It is not insignificant. It is just wrong.
If the new discoveries really do substantially lower the price of energy for a sustained period of time, and if this cheaper energy really does create a robust and durable boom, then we would have a real “game changer” on our hands.
Oh happy day! Maybe we could score in this new game. Maybe we wouldn’t be like dwarfs in the NBA or slobs in the 100 yard dash. Maybe the deck wouldn’t be loaded against us. And maybe the ref wouldn’t be blind!
But wait. Is it true? Will energy really be significantly cheaper as a result of these new discoveries? We can’t say. All we have is questions:
• As production increases, aren’t costs going up too?
• Aren’t more and more people trying to stop fracking?
• Some people are also trying to limit export of the new energy in order to keep prices lower at home; won’t this discourage further output?
• Aren’t world markets able to absorb substantially more US production without lowering prices?
• The world anticipates increased US energy output... how come prices haven’t come down more already?
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And here are some more fundamental questions. If cheap energy were the cause of prosperity how come Venezuela is so poor? For that matter, what about Saudi Arabia? Or Iraq? Or almost any of the big producers?
On the other hand, if high energy prices were the cause of poverty, how come the three richest places on the planet have no energy at all? As far as we know, there is no word in Japanese for ‘fracking’, and Switzerland is not exactly covered in oil rigs. As for Singapore, the country doesn’t produce even enough fuel for a cigarette lighter.
The point is, energy availability and energy production have relatively little to do, in themselves, with prosperity (except for those who own it). What matters is what you do with energy, not how much you have. So, here’s the main reason why the ‘energy boom’ forecast is probably wrong:
When you’re headed for a brick wall, don’t speed up.
Yes, dear reader, you may quote us on this. America, bless its heart, is a fool for fuel. It uses its energy to rush to disaster. The last thing it needs is more horsepower.
The zombies are in charge now. They suck up resources – including fuel – and give nothing back. They regulate. They redistribute. They control. They consume. Every airport is full of them. So is the Pentagon. And the universities. And the healthcare industry. And the banking industry.
Our old friend Grover Norquist is right. It’s better to cut them off. Feed them, and they grow stronger. They spend more money. And go deeper into debt.
Cheaper energy may give the US economy a slight boost. But it will only give more resources to the zombies, allowing them to go further, faster - until we all smash into the wall ahead.
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