Wednesday, May 16, 2007

There is a big difference between Europe and America

People often remark to me that Europe has been paying $6 (give or take a $) a gallon for gasoline and diesel and it hasn’t caused them much harm, so why do I think higher prices are going to be so damaging here?

I must answer that in 2 parts:

I am not nearly as concerned by the price of fuel as I am about the total AVAILABILITY of fuel. That said, I am still VERY concerned about the price, and;

Europe pays the same for a barrel of oil as we do. The difference in the retail cost of fuel is the increased sales tax. If Europeans pay $6 per gallon for fuel, only about $1.50 of the $6 goes to oil exporting countries. The balance of the $6 funds roads, healthcare, social programs… while giving great incentive to conserve. (Spare me the politics, I am a hardcore libertarian and I HATE big government, we are just talking energy policy and economics.) One of the effects of which is that Europe, for the most part, has no trade deficit, and one heck of a rail system (only to be outdone by Japan’s rail system).

The U.S., on the other hand, BORROWS OVER $1 BILLION PER DAY TO FUND ITS OIL IMPORTS. U.S. motorists have little, when compared to Europeans or the Japanese, incentive to conserve energy in our tax environment, as long as the rest of the world is willing to fund our trade deficit. If that should come to an end the price of oil in dollar terms would quickly put our retail price of fuel very near our European counterparts without the benefit of keeping 75% of the retail price in the U.S. economy in the form of government receipts, nearly all of which would wind up in the coffers of some Petro-dictatorship.

I see these outcomes as inevitable, the timing of which is much sooner than most of us are willing to make contingencies for. Energy prices, Oil, Natural Gas, and Coal, are heading up and the availability of BTU’s from hydrocarbons for the U.S. economy, and the world’s, is heading down.

I see hints of what is to come in the commodity markets. The world has very low inventory of wheat, corn, rice, and now dairy products. Our agricultural system takes oil and turns it into foodstuffs. Less oil, less foodstuffs. Pretty simple, really. The rate of world oil production has declined for 21 months, and motor gasoline usage is up, it follows then that some other consuming sector’s usage is down. It appears that sector is food production.

Who needs food when the economy and the stock market are sooooo gooooood?

Mentatt (at) yahoo (dot) com

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