[Markos101]

Hi,

Some people may be aware that the reason for the US's empire status has got much to be owed for the fact that foreign countries service the US's national debt via investments in US securities, due to the fact that they must have a dollar reserve (hence the US dollar being called the 'reserve currency') in order to purchase oil imports.

Peak oil will not result in less money going into the economy, it will simply mean a huge redirection and concentration of cash flows into the major oil companies ($150-$250 a barrel).

That's great for the US. What this means is that increases in the cost of a barrel will mean that foreign countries must obtain more and more dollars - and hence yield greater investment in US securities.

In this way, in all irony, as the price of oil goes up post peak, it will mean that the US can go into more and more debt to be serviced by foreign countries. It also means, that in order to obtain more dollars, foreign countries will have to provide more and more goods and services to the US in order to obtain dollars.

In essence then, foreign countries will 'hedge' the whole of the US against rising oil prices. That means bad news, of course, for any country who's base currency is not the dollar.

Interested in discussing this.

Mark

[Bandidoz]

What if there's a switch to selling oil in Euros, or some other currency?

[Markos101]

After the convient appearance of 9/11, the Bush administration has secured a large number of US air bases within the Middle East region. It is unlikely therefore that Syria and Iran will be tempted to switch to Euros, despite their wishes to.

[Bandidoz]

Surely it's going to upset the flow of cash in the general economy around lay-persons? A recession is a recession, surely?

[Markos101]

A recession would be caused by high oil prices making goods and services within the economy unaffordable to most, and the creation of high unemployment whilst the economy readapts to a life without so much oil.

However, if the US is able to service more debt, and greater cashflows are directed at America directly proportional to changes in oil price, it suggests that the US will be able to hack the cost of a barrel of oil at the expense of all other countries in the world.

Mark

[MD]

Economic analysis is about as clear cut as theology or philosophy. Reality tends to defy all predictive attempts.

[Markos101]

Perhaps, but economic analysis is better than no analysis. The fact is, any physical manifestation of the effects of peak oil will be expressed in terms of price. I can't see any glaring errors in the analysis.

US debt will be increasingly hedged directly in response to any changes in oil price. Greater investment in the US will help minimise the effects of raising oil price on the US economy - the brunt will be felt by non-US countries, because it is they that will have to obtain more dollars to maintain the same levels of oil imports.

Of course, that is if foreign countries continue to use oil at the same trend.

Interested in discussing further.

Mark

[MicroHydro]

Markos101, you have to realize that there is no such thing as "the US".

The uberwealthy elite (really global capitalists who keep one of their many homes in the US) might do fine on their US assets if recycled petrodollars prop up the dollar based capital markets.

US working people will be screwed as they are entirely dependent on their wages, living paycheck to pacheck. Many of their jobs will be destroyed as consumers have to spend more on energy and have less disposable income.

[Markos101]

Micro,

You've got to understand though that ultimately, Marx (although I disagree entirely with his thesis) was half-right; all value (the value of money therefore) is derived from labour. If employees are spending more on energy, it simply means a transfer of jobs from other parts of the economy into the energy sector.

If there aren't labourers to feed, house, make tennis rackets and croquet sets, build their cars, heat their homes, then their assets will crash overnight too. I will assume that firstly there will be a huge pull back from the stock market as confidence decreases, back into savings. Then inflation will ensue but not much, because people lose the confidence to borrow (creating the money).

So both 'rich' and 'poor' will be effected - you need poor to have rich, you need rich to have poor. If people aren't working the rich's money, their money isn't worth anything.

Mark

[lawnchair]

$this->bbcode_second_pass_quote('Markos101', '
')Greater investment in the US will help minimise the effects of raising oil price on the US economy.

[jaws]

America gets a lot of wealth transferred from seigniorage on US dollars, but remember that this is always relative to the value of dollars. If the value of dollars on the international markets plummets because of the poor state of the oil-dependent US economy, the net transfer of wealth from foreigners is not that great.

The real winners from oil depletion will be whoever has the most profitable sources of oil left. Another word for this is Saudi Arabia. As other world producers bring non-conventional oil to the market at razor-thin profit margins, Saudi will pump out the rest of their reserves at ever increasing prices with more profit going into their pockets. What they will do with that money is what they've always done, except more of it. Since there are no profitable investment opportunities in Saudi Arabia outside oil, they will use their petro dollars or petro euros or petro yuans to buy up assets in rich countries. Picture how Exxon right now is soaking in cash but looking at a drought of profitable oil investments, now put this at the scale of Saudi Arabia. Since the rest of the world will be in economic depression, assets will be cheap. And since they will be making record cash, they could buy more of it than ever before. Just like the Hapsburg were once, the House of Saud is the international imperial family of the 21st century.

[NEOPO]

From seashells to the petrol dollar - the following article is very relevant.
A brief history of money

[Leanan]

If you're trying to argue that U.S. debt is a good thing...I think you're nuts.

When TSHTF, the global economy may well collapse. If oil is traded, I wouldn't be surprised if those selling refused to accept currency of any kind, and instead insisted on gold, silver...or food.

[RdSnt]

Actually I agree, the US will be less affected. However, that's because there will be less Americans to be affected. They are going to start killing each other in much larger proportions as they fight over the last Calvin Kline t-shirts and Nike shoes. It will probably start with the rappers shooting each other for the gas to drive their bling-bling Escalades.

[Sparaxis]

I don't think you're following the money right.

Retails sales of oil in the US are dominated by the major oil companies. So your money goes to them. The major oil companies, however, are only small players in international oil production. Most of that is in the hands of national oil companies. So the majors then pass your money onto the national oil companies to buy their crude oil. The profit that the majors make is only partly from their own crude, and lately, much from the higher refining margins. So it is not the case that all this money will be concentrated in the US majors--it will instead be concentrated in the oil producing countries.

Then the oil producing countries take in this revenue and part of it goes to their Central Banks. The Central Banks make investments with it through the global financial system. Just because it is a US dollar doesn't mean it flows back to the US. It can just as easily go to a German, UK or Japanese bank as the oil producers choose to hedge their currency risks. Remember, you can buy yen, euro or whatever with dollars, which means those countries now have the dollar buying power without having to "provide more goods and services to the US in order to obtain dollars". There is such a huge volume of US dollars outside the US that buying them has nothing to do with selling us goods and services.

Their choice of buying US debt instruments is up to them. If they choose not to, and we can't service our trade deficit, then we are screwed. Interest rates soar, the economy declines, and all higher oil prices do is make us poorer.

[jimmydean]

Interesting reading including the money history link.

I do agree that the U.S. is in an excellent position to survive the initial economic impacts of rising oil costs triggering inflation followed by peak oil realization if the confidence in the dollar remains. Recycled petrodollar, trade surplus treasury purchases, large military presence in key oil region and the fact that many nations have U.S. currency reserves are the keys imho.

Also another point to add is that the U.S. wealth per capita is the highest of possibly any country in the world. Therefore rising oil costs are more of an annoyance to the U.S. where as in poorer countries rationing or extreme conservation will be in ncessary.

[Sparaxis]

$this->bbcode_second_pass_quote('', 't')rade surplus treasury purchases

[bobcousins]

Economics is a classic catastrophic system. Positive feedback pushes the system until an unstable state, at some point it flips to a more stable state.
Economic cycles such as Kondriateff can be viewed in this context.

So while going deeper into debt is intrinscally bad, the victim thinks it is working. In reality they are moving further into the unstable zone. When one creditor seeks to foreclose, the rest all join in.

[spot5050]

$this->bbcode_second_pass_quote('NEOPO', 'F')rom seashells to the petrol dollar - the following article is very relevant.
A brief history of money

[bobcousins]

$this->bbcode_second_pass_quote('RdSnt', 'A')ctually I agree, the US will be less affected. However, that's because there will be less Americans to be affected. They are going to start killing each other in much larger proportions as they fight over the last Calvin Kline t-shirts and Nike shoes. It will probably start with the rappers shooting each other for the gas to drive their bling-bling Escalades.