Inflation is Baked in the Cake

"Its Number(s) Time!!" is the name of my 15 month old son's favorite TV show, so, in solidarity with my toddler let us work a few numbers:

Oil for delivery out in future years is now HIGHER in price than the spot and "front month" oil, and the front month is $135 per barrel (give or take a $), all the way out to 2016. So, for our puposes here, let us assume that:

the $135 price extends out to 2018, an additional 2 years, and;

that the U.S. is (somehow) able to continue to import 13 million net barrels of oil per day.

$135 x 13,000,000 x 365 days = $640,575,000,000

At today's price the annual trade deficit for oil would be $640.6 BILLION!!!!! JUST FOR OIL!! Multiply that by 10 years = $6.4 TRILLION in accumulated trade defict JUST FOR OIL!!

Look, maybe you are a philosophical or spiritual sort and you "believe" all things are possible... and maybe the above scenaria IS possible (though I would be willing to stake certain important anatomical parts of my body that this WILL NEVER HAPPEN)... but only if the U.S. issues that much, plus interest, in IOU's (that the U.S. will never make good on) in ADDITION to the deficits we run with China, Japan, etc...

This is the proverbial rock and a hard place. If the U.S. were able to get the imported oil we would demolish our currency through an over supply of (worthless) dollars created to pay for it, and; if we are unable to get the imported oil our economy tanks and takes the U.S. $ down with it.

There are some things that COULD be done to amelierate these outcomes, and at some point, a time that is far too late, these things will be forced upon us. Don't think for 1 SECOND that it matters who is in the White House. Whoever it is, their presidency is doomed. You should root for whoever you like the least, in my humble opinion.

Oh, and BTW, maybe you don't like my math. Next time pug $200 or $ 300 oil in and see how it works out. Or better yet, remove the imported oil from the equation, and work through the myriad implications of that. That, good people, is where we are.

This does not mean that Oil could not sell down to $100 - it certianly could. It does mean that for my money, Oil has become a "buy the dips", and the $ and bonds and stocks have become a "sell the rallies", strategy.

The adjustments will be painful, but the effect on the U.S. economy over the next decade is certain to be catastrophic. Still, there is much you can do to prosper as this unfolds - but insisting that this is all a bad dream and everything will be made right just as soon as (fill in the blank) stops/starts (fill in the blank) is not conducive to said prospering.

Good luck.

Yours for a better world,


mentatt (at) yahoo (d0t) com