The 18 Cent Solution
MAY 2008
Robert McElroy's proposition of positive solutions to the wars in the Middle East over Oil, and how we can conserve our own natural gas and oil resources.
It has not been said enough – ‘To support the troops, use less energy’.
Many Americans believed the US invaded Iraq to remove a threat from Saddam Hussein, but it is not an acceptable conclusion in light of 1997 United Oil of California testimony before a US House subcommittee on the need for and challenges to a proposed oil and gas pipeline through Afghanistan (now being proposed without US participation by Iran). Prior to that, Richard Nixon drew a clear conclusion in his 1994 book, Beyond Peace that the US must continue to control, even if it involves military action, access to Middle East oil in order to protect the US domestic economy.
That is why we are in Iraq and have been in the region for at least five decades. It is about oil and it is about our individual energy consuming habits. We have been feeding at the cheap energy trough for nearly 100 years and now find we can’t afford to continue that lifestyle. High gas prices may help wean us away from impulsive and unnecessary energy use and that won’t hurt us, perhaps strengthen us personally, but it is an election year and Americans are complaining about the price of gas and candidates naturally want to solve the problem.
To ease our pain Senators Clinton and McCain propose a three-month moratorium on the 18 cent per gallon federal gas tax. Such a savings when the price of gas is still going to be around $4.00 per gallon raises the question if those candidates are telling us that there is simply no other solution to high gas prices or consider us to be energy addicts who will scramble gratefully when thrown a bone.
Perhaps because energy policy is a convoluted mesh of foreign policy, domestic economic policy, political ideology, and catering to special interests, the 18 cent solution is easy to peddle but it is not a solution and it is offered when there are immediate and effective solutions available.
In her recent testimony before the House Select Committee on Energy Independence and Global Warming Massachusetts Institute of Technology energy expert Melanie A. Kenderdine, who was a former official at the Department of Energy, explained that there are things government can do and can do immediately.
The Strategic Petroleum Reserve is nearly full at 700 million gallons but President Bush continues to purchase millions of gallons of crude thereby increasing demand and rising prices, Ms Kenderdine explained and added that simply releasing millions of gallons from the Reserve on the market would immediately increase supply and drive prices down. She supported her conclusion by contrasting President Bush’s actions to those taken by Bill Richardson when he was Secretary of Energy in the Clinton Administration. Richardson dumped 30 million gallons of crude on the market. “The results were immediate, in spite of the fact that oil had not yet moved into the market--demonstrating the psychological impacts on the market when the U.S. signals its intention to act. . . By the end of the year, actual oil prices had dropped from $30.94 to $20.38 per barrel, a 34% decrease.” She testified.
A more nuanced approach Ms. Kenderdine described would be swapping out the light crude in the Reserve for less expensive dark crude, capturing an immediate profit without lowering the Reserve content. Her suggestions showed saving or profits upwards towards $9 billion.
What seems to be overlooked in the President’s and Congress’ wean-away-from-foreign-oil strategies is 2005 information from the US Energy Information Administration calculating that North America has 100 years of oil resources. Canada is the largest supplier of crude to the US now that the price has made it profitable to extract from Canadian sand. Mexico is an OPEC aligned country but does not have to function under OPEC price controls and the US itself has untapped oil reserves in which investments were justified when oil passed the $40 per barrel price. Where would we be now if the $600 billion we have spent in Iraq had been directed to nurture an energy relationship with our neighbors?
If we used our own oil we would have nearly 100 years to figure out how to meet our energy needs with the estimated 300 trillion cubic feet of natural gas on the continent, solar and bio-energy solutions.
To be sure we would not have lost over 4,000 troops.
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Dollar's Slide Gives Rise to Calls for New Reserve
Wednesday, October 7, 2009
The U.S. dollar continued its six-month slide Tuesday amid a growing international chorus that wants the dollar replaced -- or at least supplemented -- as the world's reserve currency, a move that would end the greenback's six decades of global dominance.
The dollar has come under attack from abroad as the economic crisis has played out, thanks to the Federal Reserve's decision to flood a seized-up financial system with liquidity last fall. The central bank's moves likely staved off deflation, but the massive influx of new dollars has devalued existing ones. Foreign nations are worried that the massive U.S. national debt and rising deficits are not being addressed. And though inflation is not yet a concern in the United States, a prolonged slide in the dollar's value could lead to higher prices for consumers.
Further, large emerging economies -- such as China, Russia, Brazil and India -- are tired of kow-towing to the American buck, and sense an opportunity to knock a weakened dollar off its imperial perch.
"The U.S. dollar is headed for also-ran status, and it will continue to lose its value against many other currencies and assets," Miller Tabak equity strategist Peter Boockvar said. "The rest of the world wants the U.S. dollar to lose influence, but no one wants it to be abrupt, as it's in no one's interest. An evolutionary process is what is wanted."
The question is: When will that happen?
"In the next two to three years, it is highly unlikely to see the dollar replaced," said Eswar Prasad, an economics professor at Cornell University and a senior fellow at the Brookings Institution in Washington. "Over the next decade, though, we would expect to see other currencies play a much more significant role."
The dollar fell to nearly its lowest point of the year against the yen and euro on Tuesday, which sent the price of gold surging to a record intraday high above $1,045 per ounce, as investors sought a hedge against inflation and foreign nations continued to stockpile the precious metal.
For the American consumer, a falling dollar means U.S. exports sell better overseas, which can lead to more jobs here. But it also means imports costs more, which means higher prices at U.S. stores.
"For the average Joe, the implications of a crisis of confidence in the dollar could end up in higher borrowing costs, lower government expenditures -- so that means reduced services -- and higher taxes," Prasad said. "Most likely, some combination of all of the above."
Stocks, which typically move opposite of the dollar, staged a strong rally on Tuesday, continuing their fast Monday start. The Dow Jones industrial average and the broader Standard & Poor's 500-stock index both gained 1.4 percent, while the tech-heavy Nasdaq surged 1.7 percent.
The U.S. dollar has been the world's reserve currency since World War II. Central banks and financial institutions in other nations hold dollars to pay off foreign obligations, or to influence their currency's exchange rate. Commodities, such as oil, are priced in dollars, which spreads the dollar's influence around the world.
But the dollar's dominance is being challenged, thanks to the crisis.
China was the first major power to attack the greenback, calling in March for the dollar to be replaced as the world's reserve currency. China holds more U.S. debt than any other country -- about $800 billion -- and the further the dollar drops, the less the value of the U.S. debt owed to China.
Other nations have followed China's criticism. In March, Kazakhstan criticized the dollar and called for the creation of a new currency it calls the "acmetal" (a coinage combining "acme" and "capital"). Last month, Iran shifted its reserve currency from the dollar to the euro, a move that is likely more political than economic and a response to harsh U.S. criticism of Iran's nuclear moves.
But major powers have spoken against the dollar, as well. In September, Russia said it remains satisfied with the dollar as a reserve currency but said others are also needed. At an international investment summit last month, Russian Prime Minister Vladimir Putin criticized the United States -- and implicitly, Federal Reserve Chairman Ben S. Bernanke, who controls the money supply -- for "uncontrolled issue of dollars."
Both China and Russia have called for a new "global supercurrency," similar but larger in scale to the euro, that would replace the dollar.
Even the world's big financial institutions are piling on.
"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," World Bank President Robert Zoellick said in a speech last week.
Further, large emerging economies -- such as China, Russia, Brazil and India -- are tired of kow-towing to the American buck, and sense an opportunity to knock a weakened dollar off its imperial perch.
"The U.S. dollar is headed for also-ran status, and it will continue to lose its value against many other currencies and assets," Miller Tabak equity strategist Peter Boockvar said. "The rest of the world wants the U.S. dollar to lose influence, but no one wants it to be abrupt, as it's in no one's interest. An evolutionary process is what is wanted."
The question is: When will that happen?
"In the next two to three years, it is highly unlikely to see the dollar replaced," said Eswar Prasad, an economics professor at Cornell University and a senior fellow at the Brookings Institution in Washington. "Over the next decade, though, we would expect to see other currencies play a much more significant role."
The dollar fell to nearly its lowest point of the year against the yen and euro on Tuesday, which sent the price of gold surging to a record intraday high above $1,045 per ounce, as investors sought a hedge against inflation and foreign nations continued to stockpile the precious metal.
For the American consumer, a falling dollar means U.S. exports sell better overseas, which can lead to more jobs here. But it also means imports costs more, which means higher prices at U.S. stores.
"For the average Joe, the implications of a crisis of confidence in the dollar could end up in higher borrowing costs, lower government expenditures -- so that means reduced services -- and higher taxes," Prasad said. "Most likely, some combination of all of the above."
Stocks, which typically move opposite of the dollar, staged a strong rally on Tuesday, continuing their fast Monday start. The Dow Jones industrial average and the broader Standard & Poor's 500-stock index both gained 1.4 percent, while the tech-heavy Nasdaq surged 1.7 percent.
The U.S. dollar has been the world's reserve currency since World War II. Central banks and financial institutions in other nations hold dollars to pay off foreign obligations, or to influence their currency's exchange rate. Commodities, such as oil, are priced in dollars, which spreads the dollar's influence around the world.
But the dollar's dominance is being challenged, thanks to the crisis.
China was the first major power to attack the greenback, calling in March for the dollar to be replaced as the world's reserve currency. China holds more U.S. debt than any other country -- about $800 billion -- and the further the dollar drops, the less the value of the U.S. debt owed to China.
Other nations have followed China's criticism. In March, Kazakhstan criticized the dollar and called for the creation of a new currency it calls the "acmetal" (a coinage combining "acme" and "capital"). Last month, Iran shifted its reserve currency from the dollar to the euro, a move that is likely more political than economic and a response to harsh U.S. criticism of Iran's nuclear moves.
But major powers have spoken against the dollar, as well. In September, Russia said it remains satisfied with the dollar as a reserve currency but said others are also needed. At an international investment summit last month, Russian Prime Minister Vladimir Putin criticized the United States -- and implicitly, Federal Reserve Chairman Ben S. Bernanke, who controls the money supply -- for "uncontrolled issue of dollars."
Both China and Russia have called for a new "global supercurrency," similar but larger in scale to the euro, that would replace the dollar.
Even the world's big financial institutions are piling on.
"The United States would be mistaken to take for granted the dollar's place as the world's predominant reserve currency," World Bank President Robert Zoellick said in a speech last week.
