Increased Energy Prices Slowing Global Economy

…There is an embedded energy cost in everything you use (or eat) in the world. When goods start reflecting that increased cost of energy, they will get more expensive. “The only way to curb it and to fairly balance it is really the marketplace and the marketplace will cost energy much (higher). I don’t think it’s beyond the realms of possibility that it could go to five times the current level or even more. I think we’re looking at the five to 10-year timeframe.”

Is this good news for anyone? It’s certainly not goods news for consumers. The oil producers? Here’s a newsflash: the big, greedy, publicly traded oil companies don’t control most of the world’s oil reserves (making it hard for share market investors to profit from the increase in the underlying price.) National oil companies in Mexico, Venezuela, Russia, and the Middle East own the world’s oil reserves. You can’t buy a share in Vladimir Putin, Inc.


This is why we reckon the market for oil and gas alternatives is potentially lucrative. You can conserve your energy use. You can improve the efficiency of energy using appliances. But ultimately, the world is going to have to diversify its sources of energy, or face much leaner times ahead due to higher energy prices.

Yet lean times may be head even if we do get an explosion in energy innovation. For two hundred years food and energy prices have tended to go down. That’s a pretty powerful long-term trend. But the world’s population started the 20th century and about one and a half billion. It finished the century at six billion. Since 1961 alone the population has doubled.

Huge increases in the productivity of farmland (the Green Revolution) and the relative stability of a fiat money global dollar standard, plus a healthy supply of cheap energy, made this global expansion possible. Now, money and energy are both becoming more expensive. The shockwaves resulting from their increased cost are spreading. And one of the first sectors to get hit (as the rice story above demonstrates) is agriculture.

Daily Reckoning