Wednesday, April 26, 2006

The Cost of Oil and Gasoline

A lot of folks are writing about why the prices of oil and gasoline are so high.

bush has explained that supply and demand is driving this price increase, citing increasing demand from China and India.

And that's certianly a factor. But there is another.

There are simply a lot more dollars in circulation now, then when gasoline was selling for a $1.00/gallon. So it's no wonder that the price of oil is inflating.

The US government has spent six years inflating the money supply to drive it's own debt as the bush administration goes on the fastest paced spending spree ever. Money has also been created to finance home loans to drive home values into the stratosphere. On top of that we have cashout refinancing which was used to cover credit card debt. Then the credit card debt was run back up.

All of this money, flooding the market, going to Walmart, Halliburton and God knows where else, is in circulation in the international markets. Other countries, awash with dollars, are bidding against us and each other for a finite supply of oil. They are using our inflating dollar supply to buy oil. So the price of oil keeps going up.

Since the Iraq war started, the monthly price of the war has tripled from about $20 billion a month, to over $60 billion a month. Is it no wonder then that the price of oil has more than doubled?

All of the money saved by buying chinese goods has gone to making China a nation flush with US dollars. They can bid as high as they need to, to keep buying all the oil they want. In effect, the money saved by shopping at Walmart, ends up driving prices higher at the pump.

So while we are borrowing our way to prosperity, the money we create from thin air goes to create foreign jobs and drive up the price of oil. In the mean time, back in the US, it's time for belt tightening as we begin to pay the price for living on debt.

The US government will continue to inflate it's way deeper into debt. If current trends continue, the cost of the war in Iraq in three years will be $180 billion a month. Gasoline will sell for $9.00/gal and oil on the international market will be $210/barrel. Pay for the average American worker will decline some, to cover costs.

But on the International front, other nations will continue to increase their share of consumption as the inflating dollars will go to them first. They can then use them to out bid us for oil.

Before bush gave us this new level of globalization, the US drove the price of oil and US demand helped determine how much a barrel of oil goes for. If prices got high, American consumers would buy less, go bankrupt, conserve, and the price would go down. Now, demand is also driven by China and India. So unless these nations also see a recession, demand will stay high if the US backs off. In fact, any weakening of demand by the US will probably be replaced permanently by other nations.

Americans are just going to have to earn less and spend more. It;s the price of trying to externalize costs by inflating the dollar supply to make the rich, richer.

But its not all bad news. The bush family and friends are in the oil industry. They are selling us oil and gasoline at rising prices. It's good times for them.

"We need an energy policy that encourages consumption." - President George Bush II


At 2:43 PM, Anonymous Anonymous said...

That pretty much sums it up, wease. Excellent post. Congrats, by the way, on your new birds.

At 3:30 PM, Anonymous douglass said...

Ah yes, the fresh air of truth. (douglass deeply inhales) refreshing.

excellent post.

At 9:43 AM, Anonymous Anonymous said...

I'm surprised you don't have a horse and donkey in your yard. Being a peak oil cultist shouldn't just be all talk and a case of peanut butter in the basement. Just as the left mocks the right wing bloggers for not fighting in Iraq I think when we see what a piss poor job you've done preparing for y2k oops, sorry I mean peak oil we can discount your opinions.

At 12:31 PM, Blogger Weaseldog said...

I don't see much use in a horse.

A horse doesn't have as much use on a farm as most folks think. It's a luxury, but not a necessity.

Now, some folks made their living working horses, but that's a slightly different matter.

On farms, mules and donkeys had more uses and were more reliable animals. Compared to horses, they are more durable, harder working and ornery. It's common to pasture them with horses and sheep, as they'll attack coyotes and large cats that may kill other livestock.

As to your criticism that I'm not going full monty on the preparedness, well, I'm not a millionaire. I can't afford a farm. Maybe you're a multi-millionaire and you are living life to it's extremes, but that option isn't open to me.

By your argument, anyone that cares about safety in an auto, is a hypocrite if they drive anything less than an APC. Otherwise, you're making half measures and should drive with no seat belts and the airbag disabled.

I'm not sure what Peak Oil has to do with being in a cult. The Peak Oil theory simply argues that...,

1. Oil is in finite supply.
2. As production ramps up it will rise until a year of maximum production is reached.
3. After that year, every year oil will be harder to extract, so production will decline.

I'm not sure where in all of the this, religious sects come into play. But it's cute to call it a cult.

I was thinking today that science and math are becoming voodoo/cultist disciplines in the eyes of amny Americans. The education that I had in the 60s and 70s was the tail end of the peak in education quality left from the 1950s. Since then, I've watched with dismay as education has been dumbed down to the least common denominator.

Granted, many in my generation didn't get a quality science education, but now I find myself flabbergasted by what young people tell me they learned in science and math. I had one young person insist that when you burn something in air that the oxygen doesn't give up energy in the reaction. He was convinced that releasing oxygen from CO2 or H2O required no energy. That only releasing the hydrogen required energy.

And on the Y2K note, if you knew me prior, you'd know I argued all along it was a non-event. It's fundamentally different in nature than Peak Oil. The Y2K problem could be demonstrated to any CEO by simply changing the dates on computers. It's harder to explain to Permian Man that oil can run out and that you can't just burn rocks or sand, or scoop hydrogen out of Jupiter's atmosphere to replace it.

Economics tells us that we can substitute things of equal monetary value in endless substitution. But it breaks down when you get into specifics. You can't pour $20 worth of sand into your gas tank to replace $20 worth of gasoline.

Our scientists understood thermodynamics in the 19th century. Carnot applied it to provide the basis for all of the technological advancement we've seen since. And what we knew in the 19th century is still black magic to our inumerate and anti-science citizenry.

Mathematics, Carnot, Thermodynamics and Technology is becoming a cultist's domain. The common man believes, has faith, but does not understand.

Science has become black magic, in the 21st century.

At 1:42 PM, Anonymous Anonymous said...

Good points all, I just know way to many people who have been looking forward to nightmare like it's going to be x-mas morning.I have a ranch near the mexican border with a spring,a barn ,a couple donkeys and a good horse and I think I'll be lucky to last 6 months. I give you city guys 6 weeks before you start killing each other.A suicide kit next to the first aid kit might be a prudent investment.

At 7:38 AM, Blogger Weaseldog said...

I don't know anyone looking forward to the decline after Peak Oil.

there is a camp that believes that if you talk about it, it's because you want it to happen.

But people talk about cancer and they don't do it because they want cancer. It's because cancer is a part of our lives.

If Peak Oil were broadcast on television, it would be okay for the public to discuss it. In the mean time, many folks want it to stay in the closet. Perhaps in hopes that if it isn't dicsussed, it won't happen.

At 8:58 AM, Blogger Russel said...

On the topic of horses and donkeys...

When my girl and I were in Jerusalem one weekend we found ourselves in a small shop in the market haggling over a ring with the Arab proprietor. "So how's business?" we asked.

"It's OK; but we can see its going to get worse."

"What? Another intefada?" we exclaimed.

"La! [No] Gasoline. I tell you it is too expensive. No one can compete because the price of transporting goods is so high.

"I promise you, by 2010 we'll all be riding donkeys! I'm serious!

"And the donkey is a wonderful animal. It's very inexpensive. Jesus had one.

"When I was in Bagdad everyone uses them. But they have so much oil. It's the wave of the future."

At 9:09 AM, Blogger Russel said...

in 2002 on the Eve of the 2nd Gulf War, Peter S. Green, International Herald Tribune, wrote about the impact the war could have on the price of oil...

... "In the current build-up to whatever diplomatic denouement is created in Washington, New York or Baghdad, analysts say they see three potential scenarios for a Middle East war and how it would affect oil prices:

A diplomatic solution that results in a lifting of the embargo on Iraqi oil. In this case, economists and analysts say, oil prices could quickly tumble in anticipation of new production coming onstream.

A quick, decisive war that brings down the Iraqi leader, Saddam Hussein. Under this scenario, oil prices rise in anticipation of supply disruption from the Middle East but then settle back to the current "near-equilibrium" level of $20 to $22

An inconclusive war that leaves Saddam in power. Under the resulting uncertainty, analysts say, the price of oil could go above $40 a barrel and stay there for the duration.

No wonder Bush was quick to announce victory. Still, I bet his family and friends are rich beyond their wildest imaginations now.

At 8:34 AM, Anonymous Donna said...


Pfffft! Ignore what rude Anonymous #1 said. Your opinions are incredibly cogent and the poster's misapprehension that you're not doing enough to prepare for PO is ridiculous. You're doing more than most of us as far as I can see. You don't need big livestock to prove you're taking PO seriously.

It's that weird idea, again, that if you =talk= about a problem that means you have to be some kind of superperson and change your life totally, right now, or else you're a hypocrite. Like you say, big changes take time, and usually money and opportunity. And planning. Lots and lots of planning.

Keep it coming, Wease, your dissertations are clear, well nuanced, and intelligent. Always a delight to follow your reasoning.


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