The E-3 triumvirate of Economy, Energy and Environment is becoming a victim of the exponential growth of the money supply beyond our economic carrying capacity.
Catch the Fish and Drown in the Process
Every problem has a solution but every predicament has an inevitable outcome. Try to find a solution for a predicament and you’re wasting your time. Last night the four of us at SearchAmelia had a birthday dinner at Arte’s Pizza in downtown Fernandina Beach. We love the place and when the Ritz Carlton, Amelia Island’s Executive Chef Thomas Tolxdorf and his family sit at the next table for pizza, you know you’re at the right place for some real exceptional Italian food.
During our table conversation that covered everything under the sun from local politics, to grandchildren and the economy (of course) Lawrence made an observation that I have heard quite a lot lately; the one that says: “At least the price of gas is slightly coming down, instead of going up.” And he is right: fueled by all media announcements the public expected the gas price to be $4 or more by now, so $3.50 seems like a deal. It also underscores that public sentiment is easily manipulated considering that exactly a year ago the barrel price was in the same $78 range as today, but the gas prices at the pump were a national average of $2.80. Today’s national average is $3.50 per gallon. Is it profit taking, or is it a way to make us aware that energy inflation in one year has reached a 25% level?
Energy, Economy and Environment
Energy, oil if you will, has been the cornerstone of our explosive economic growth over the last century. Without oil we’d probably still be a civilization of farm communities and homegrown tooling industries. The triumvirate of Economy, Energy and Environment creates a very interdependent balancing act. If the economy is bad and energy prices too high, choices may shift and people will heat their homesteads with wood from massive tree cutting and the economy fall into a depression. So, big oil is not going to let that happen. They know that there is a delicate balance point where people will seek to limit their expenses on energy with alternative options. Bicycles, scooters, mopeds, e-bikes are looking at sales of 500 million units in the next 5 years, hybrid and electric cars are getting public approval and attention and even walking to the supermarket or cornerstone is becoming more popular. Shopping becomes a once a week concentrated effort, the thermostat goes up or down a bit more depending on the season, GI showers become popular again. Life in general becomes a little less wasteful for a while, until things look up again.
These fluctuations hurt the oil industry and energy companies down the pipe because, just like governments, they operate on a perpetual growth model. So when demand falls, prices slowly come down a little, at least for a while.
A keen observer of the markets however knows that oil is a highly speculative commodity, so if oil prices today have fallen to near $78 a barrel, claiming Europe’s debt crisis roiling markets and falling personal incomes in the U.S. are suggesting slack demand for fuel, further embellished by the perceived “strength” of the dollar, the price of oil comes down, but only a bit. Because other factor muddle with supply and demand such as October is usually a slow month in the oil business. The North American summer driving season is over, and it will be a couple of months before heating demand perks up and travelers set out for winter holidays.
SO….don’t be surprised that gas prices at the pump are still $0.70 per gallon higher than a year ago when the barrel price ranged in the same $78 arena. Public sentiment is taken into consideration, so if the public expected the gas price to be $4 or more by now, $3.45 seems like a deal.
Coming back to the interdependency of economy, energy and environment, The first E, the economy, has been getting a lot of attention because our modern financial system is dependent on perpetual growth. As all money is loaned into existence it carries with it the critical obligation to pay back both principal and interest. As long as an economy grows at a 2% rate, servicing the debt isn’t much of a problem. But it’s a different story if the growth of the economy slows or goes negative into a recession.
Perpetual growth requires Energy and there are limits to the rates of energy consumption growth and resource replacement.
The predicament is that the money supply has been growing exponentially, requiring the economy to grow rapidly to service the debt, and consequently has forced our use of energy to grow exponentially as well. Since this situation cannot be sustained beyond depleting reserves (reserves that can be extracted economically), both Economy and Energy have landed in the category of predicament, rather than problem.
And if we don’t solve the problem of exponential debt-based money growth, we will have to suffer through the inevitable outcomes. Since the government is still focused on seeking solutions to predicaments, inevitable outcome scenarios are only waiting for one of the many triggers to be pulled.
