As imports grow and world prices rise, the amount of money we send to foreign nations every year is soaring. At current oil prices, we will send $700 billion dollars out of the country this year alone — that's four times the annual cost of the Iraq war.
Projected over the next 10 years the cost will be $10 trillion — it will be the greatest transfer of wealth in the history of mankind.
Now let's see here. Foreign oil producers like Canada, Saudi Arabia, Mexico (top three countries for U.S. imports) send us their oil, and we send them "green pieces of paper with dead presidents' pictures," aka as USDs. That imported oil helps to fuel our economy, cars and factories, raising our standard of living.
Oil producers in Canada, Saudi Arabia and Mexico now have US dollars, which must be spent back in the U.S. on American goods and services, or invested in the U.S. financial markets, either by the oil producers, or by those who buy the USDs from them.
Importing oil certainly involves a transfer, but it's not a transfer of wealth, it's a market transaction involving the exchange of oil for currency.
If it IS a transfer of wealth, it seems like we got the better end of the deal: Their valuable natural resources get transferred to the U.S., in exchange for paper currency, which gets spent back here eventually.
In T. Boone Pickens' version, it seems like wealth gets transferred overseas with out any benefit to the U.S. But oil imports, like all trade, involves mutually beneficial exchange. Remember trade is win-win, not win-lose (like T. Boone Pickens suggests), or lose-lose (the way the Soviets supposedly described a market exchange - buyers lose their money, and sellers lose their goods).
Update: One dictionary definition of "wealth" is "an abundance of valuable resources." In that case, wouldn't T. Boone Pickens' "greatest transfer of wealth in the history of mankind" be a transfer of wealth in the form of valuable natural resources (oil) TO the United States, and not a transfer of wealth FROM the United States in the form of paper currency?
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This article has 37 comments:
Of course, those foreign oil producers just get green paper in exchange. btw, you get the same green paper as your salaries, don't you? So, by your logic, do you make a good deal? But anyway, those green papers are coming home too roost in ever rising quantities. And they start buying up U.S. REAL, HARD ASSETS big time. banks, real estate, companies, large chunks in Anerica's largest and best corporations. They end up being owned by the Scheikhs. They buy raw materials and manufactured goods by the billions to improve THEIR infrastructure, build THEIR economies, develop THEIR future technologies and build THEIR countries for a time when the big oil boom finally comes to an end.
Then, they will own an ever larger amount of US treasuries. That may seem dumb (and it is, imho) but still that doesn't mean that the u.s. citizens get the better deal! In fact, the US is by now dependent not only on foreign oil supply but also -increasingly so!- on foreign money to finance the u.s. govt's expenditures and bridge the huge deficits. When the foreigners realize that they cannot get any more of value (i.e. when they have bought up a lot more of real estate, corporations and technological know-how) they will simply stop lending at low rates and instead demand much higher ones. it's simple as that. when there are less assets to support yopur liabilities you get diwngraded and pay even more interest - to others.
end of story: foreigners will own most of the assets in the u.s. while the u.s. taxpayer gets beaten every year a birt more for payibng more taxes to finance all the interest expenses, oil imports etc.
final act: oil exporters and most everybody else will simply stop accepting dollars as payment for oil, gas, raw materials. (btw., Iraq was invaded precisely because Saddam had announced to accept only Euros for his oil!). Now, what will YOU do with your wothless green crap then? Exchange it into euros or yen? at rates double or triple todays? good luck and watch out how much your dollars will buy then.
Warren Buffet, though focussing not on macroeconomics in his investments, has displayed an much better understanding of the subject than you. (Read his squanderville - thriftville analogy www.freerepublic.com/f... ).
But then again, even Ben bernanke as recently as 3 years ago told the public that a falling us-dollar was not to affect US citizen. yeah right.
07---Your comments are are those of a socialist who has no understanding of how capitalism works. Our great assets (overpriced real estate etc.) should be sold to those who love to buy at the top. (Japan in the 1980s) Go back to school 07 and learn how capitalism works. Thank god we have at least one Prof who isnt a Marxist.
the saudis are raking in 1 BILLION $ a week now from oil exports. And the gulf countries hey spend it HUGE. And not just on overpriced u.s. real estate - rather, they buy up valuable assets, raw materials, technological know how, build their own financial centre in dubai. what both of you fail to understand is that the usa diggs itself deeper intop its own debt-hole by the hour.
of course, trade is good - but what do you think how long will it take till the u.s. economy goes down the closet? with oil at 140$+, financial system in implosion mode and a zero savings rate in the u.s. the odds are extremely high for a severe recession latest by next year. ever bothered to look at the unfounded healtcare, pension and medicare liabilities? in a recent speech dallas fed chairman fisher (link: www.dallasfed.org/news...)
just showed that an additional 86 trillion $ would be needed to cover these liabilities. Do you really believe the foreigners will pay it?
They will gobble up every hard asset they can get their hands on - and the only ones left with green toilet paper will be the ordinary u.s. citizen. it's called hyperinflation and it will hit the u.s. over the coming decades (after a severe recession where deflationary forces from the massive de-leveraging will dominate)
btw, the u.s. does not end up with the oil. the oil gets consumed away every day, financed by borrowings.
you have no idea about capitalism - and that#s why you will get eaten by it alive
Meanwhile the expenditures in the US just to sustain the current energy usage are increasing, which necessarily decreases the available capital for other things; like making GDP.
Dr. Perry, I really wish you could explain how you don't see this as a problem. You have stated that our "energy efficient economy can handle $1XX oil", and I hope that it can. However, we have not made the efficiency gains you claim, particularly in the automotive sector, where the market share of SUV/light trucks has continually decreased the fleet MPG from its peak in 1988. Yup, we've been in 20 years of decline in total automotive efficiency. Its going to take time to change that, and we've just now received that magic 'price signal'.
One major part of T-boone's proposal that is good is that wind farms represent infrastructure. Even without the tax breaks, they make economic sense. Yes, they can't provide firm power, so wind alone won't meet the energy needs, but it could provide a substantial boost that after an initial expenditure, generates energy for essentially free.
Simple economics suggests that if I can get say 30% of my power for free after an initial investment, versus say having to pay an initial investment for a coal plant PLUS continual fuel costs, its a good idea. And T-boone ain't the only one who thinks so: go take a drive through west TX and see the 4GW of wind farms that are already up and running out there. Of check out Germany, who despite being only about the size of Montana, managed to generate twice as much wind power as the US last year.
In the energy business, your hydro units are your holy grails. Wind units are basically like mini-hydro, and now they are cost-effective. Soon solar will be the next 'mini-hydro'. Its all power that's there for the taking, if we figure out the right ways to get it, and distribute it appropriately.
An increase in the price of oil (imported goods) relative to the price of domestic products (export goods) causes a change in relative income of US citizens vis a vis citizens of oil exporters and the rest of the world. This is what has happened in America today. The relative income of Americans has fallen.
Since America is the biggest consumer of oil, its price increase has had the largest effect on the relative incomes of Americans relative to ROW. This decline in relative income has caused the depreciation of the US currency with one of the biggest moves coming against the largest exporter of oil to the US, Canada. Not surprising some of the biggest devaluations has come against commodity exporting countries.
If one wants to check the trade figures the US has run a trade deficit since 1976. During this time the US dollar has appreciated and depreciated. The trade deficit has not caused the dollar to depreciate. In fact the trade deficit is governed by aggregate US savings behavior and investment opportunities that result in higher expected future incomes relative to the rest of the world.
gordon
> jack
ng
currency devaluations means poverty and political unstability
in the issuer, look zimbawe, they print trillions and dont get
any additional oil, if you issue debt you need to pay with your assets
Cheap for whom? If some moron, like say, a friend of yours builds a coal plant upwind of my house, your friend might get rich. The local grid might get "cheap" power. But the streams will be full of mercury-- ending up in the fish on your table. And the planet gets warmer-- meaning diseases like malaria and dengue move north. Not a great bargain. Nukes are, perhaps, more workable, but why NOT use wind? It blows. It's not owned by terrorists or other undesirables.
So you think the planet's getting warmer, do you? Well, historically, that's not an altogether dismal prospect. But the benefits aside, the worldwide organizations that measure climate temperatures tell us we've cooled 1 degree C during the past ten years, wiping out the 1 degree gain over the past 100.
I'd suggest you go back to the Sierra Club and the Wilderness Society for some better talking points. Of course, they're probably too busy suing every proposed new energy project in sight (...including your precious windfarms) to be of much help to you right now.
The president has decided to end the long standing Executive Order banning offshore drilling.
I knew if I waited long enough he might do something productive!
Wind is cheaper than IGCC w/ CCS, by far. Solar is close already. Both suffer from being non-firm. Nuclear is cheaper than all of them, but the initial outlay in capital, along with the process of construction is intensive. The power utilities haven't build any nukes or coal plants of any significance since ~1990. Instead, they've built all peakers and combined cycle NG units which are less capital intensive, and less polluting than coal units.
Coal generates 50% of the power in the US, but more than 85% of the emissions. If Big Coal is serious about their future (and they are probably so happy given Friday's DC ruling on CAIR), you'd think they'd be building IGCC and CSS. Instead on Friday they managed to basically nullify the limits on SO2 emissions, which everyone can agree are bad (aside from the carbon debate). How pathetic.
Wizard
Thank you. Please tell me more about last week's "CAIR ruling," and why coal liquification and gasification couldn't work again in the U.S. as well as they once did. I'd appreciate the insights....
As long as the value of your assets and income rises to cover the debt and debt service you can borrow forever.
That is the point of America. It's investment opportunities provide for higher rates of return that lead to higher income growth. The European countries, such as Germany, that are running surpluses have poor investment opportunities and low income growth.
That is why a deregulatory environment with low capital and income taxes is critical for improving investment opportunities in the US that lead to higher GDP growth.
Brian 27: Let me give you a hypothetical choice: do you want open heart surgery or a big helping of tasty spinach?
I'm guessing you chose the spinach. As would most people, unless they really hate spinach. You know, we had people dieing from tainted spinach a few years ago. Do you know WHY people were dieing? Not enough health inspectors.
Brain, do you ever fly in an airplane? How much do you want the govt. to trim back on the FAA-- these guys are regulators, too. Do you have asthma? Do you have a friend with asthma? Do you want the EPA to look the other way? I mean, even more than they HAVE been, under "Shrub". Maybe I'm giving you a headache. STOP-- before you take that Motrin-- how do you know it's manufactured in a safe, hygenic manner. Why, it's those nasty regulators again! Fancy that!
Oh-- and the regulators were all ASLEEP during the whole run-up to the subprime disaster-- how much is THAT going to cost America? You had no-doc customers walking away with jumbo mortgages.
We indeed did coal gasification quite well, way before electricity, and called it 'town gas'. As for liquification, the Nazi's made the Fischer-Tropsch process actually work quite well for them, but ultimately, its net energy is not so good, and it has the carbon problem.
There are really no practical problems with gasification. There was one very forward-looking CEO of a major midwest utility that owned much coal-fired generation. He decided that instead of being regulated into changes, it would be better to lead the way, and spend some R&D on a commercial-sized IGCC, which is still running 13 years later, and is still the ONLY IGCC in the US. Of course, that same utility was merged with a larger and much more conservative utility and has since abandoned any sort of forward-looking coal strategies.
Right now, utilities LOVE wind. Its cheap to plop down, its quick to site and build, and its got very low running costs. And they love peakers (jet engines + generator in a box), and NG-fired combined cycles. Most of our coal plants are old designs that are 30+ years old. Besides just being inefficient (only a few are super-critical designs), only about 25% have emissions controls on them.
CAIR was an EPA regulation that was widely agreed upon by both the Bush administration and environmentalists, to help reduce NOx and SOx emissions further. After appeals from numerous utilities, it was struck down in its entirety by the Appellate court (using logic that was rather spurious). So the net effect is that if this is not appealed, a number of utilities will continue to defer putting emissions controls on their units, and continue to burn high-sulfur coal.
People make bad investments, too. And there are unscrupulous businessmen, as well. Putting them in prison always has the effect of slowing the others down-- at least for awhile.
It seems to me that it would be much better to reserve oil for the most crucial petrol needs, aka not refinement into gasoline, particularly if you hold the view that crude will continue to increase in value.
Ultimately, yes, those domestic reserves will have to be tapped, but the focus needs to be on getting out of the petrol-->gasoline cycle for our personal transportation.
Finally, if you have an oil spill off say, Panama Beach, do the economic consequences out-weigh the economic benefits of the relatively small amount of oil there? Florida's economy is primarily driven by tourism, and I doubt very much that oil-slick sands will be a great attraction.
For sure. But this is the 21st century. People shouldn't die due to inadequate inspections. At least not very OFTEN-- there is a law of dimishing returns with any kind of regulation.
"People make bad investments, too. And there are unscrupulous businessmen, as well. Putting them in prison always has the effect of slowing the others down-- at least for awhile."
So...I'd say--yes--put them in prison. But, I find it hard to believe the Govt. couldn't have headed of the subprime debacle sooner.
But I do recall a coal gasification plant near where I lived once (...in PA), that operated well into my lifetime (...until the 1980's). It's possible it closed during one of the oil bust cycles.
Actually, the reason I inquired was I believe it's possible our economy could get MUCH WORSE in coming years due to skyrocketing energy prices. While this may result in a return to more affordable energy, it's also conceivable it won't.
I's like to know what's out there, then, just in case EVERYTHING in the energy sector is put back on the table someday. Thanks again!
Yes. Very possible. I hope we can innovate our way out of this; I think much of our current energy use is still in the category of "waste". But, I'm pretty much expecting $5 gas by next summer.
"Well, Tom, let's see. The R Senators were taking contributions from them for their campaigns, and the D Senators were getting cut rate mortgages. Does that about sum it up for you? "
Unfortunately, our forefathers erred by pretty much enshrining two-party politics in the Constitution. The "D's" are much better then the "R's", particularly at staying out of your private life, but even the "D's" give me indigestion.
Assuming we can make EV work practically, it may at least be a partial answer. There are lots of prospective costs and benefits, though, so I hope we don't end up with an unintended consequence like we did with corn ethanol.
Some of the risks are very likely exorbitant entry costs, the expense of stranding our existing vehicle fleet, and finding satisfactory ways to upgrade and expand our existing electric grid.
Potential benefits abound, as well, not the least of which are cleaner air and lower operating costs, not to mention the possible salutary effect of the future viability of domestic automakers.
So, we'll see. Being a conservative, I'm still in the oil camp for now. The internal combustion engine is tried and true, and too much could go wrong on our way to nirvana.
So you think Picken's idea of windfarms to take NG off the electric grid and use it in automobiles is only half right? I don't know, at least it would be much cleaner than present and operate our existing vehicle fleet.
Wizard
Wizard
Wizard
Second is the day-trip, the long drive. Call this around 500mi. This gets beyond the range of batteries we have now, and I don't see that fact changing with any 'breakthru'. Batteries just don't have break-thru's. So you could either have fast-charge technology, say a 15 or 30 min charge while you eat lunch; that's reasonable. Or swappable battery packs, but that might not be. Or you have a tiny ICE engine to help out on the long trip.
As for what to run the ICE on, I'm not a huge fan of biofuels, but given the choice, I like them more than petrol. The ICE can switch fuels relatively easily. Look at IRL; they run racing engines on pure methanol (previously) and now on pure ethanol. Less power density, but it still works. You just have to use a good process to get your biofuel; ie. not corn. The benefit of the biofuels though? You can run a turbo and very high compression ratios to really boost the efficiency of the engine without detonation.
Hydrogen, and NG cars, they've both been running around in limited scales. In fact, Mazda has duel fuel RX-8's that can directly burn hydrogen in Japan; a special property of the rotary engine. But ultimately, you need massive infrastructure, and that's more and more energy in transporting things.
That natural gas, instead that's going to be increasingly important to the power grid as coal goes away. There are TON's of nukes in the NRC pipeline right now, but its at least 2015 in the best case for the first one, more like 2020.
France manages to get 80% of their grid as nuke. Germany manages to generate more solar power than anyone else in the world, despite having an average 'sunniness' equivalent to Seattle.
A utility recently tested 90 miles of superconducting transmission lines. These lines are thin, and have virtually no losses, wrapped in a jacket of liquid nitrogen and insulation. If we upgraded our 1950's transmission grid, we would probably get another 15% free power just by cutting losses.
Natural gas isn't an inexhaustible resource either, we just have a ton of it right now. Someday, it too will indeed run out, and peak natural gas actually is worse than peak oil, due to the way gas fields are depleted; they crash.
EV's are close to market right now. The EV1 was out in 1996 and I'd bet if GM could put one in the showroom right now, they'd be selling them. Toyota has hit the 1 million mark on the Prius. The high-end Tesla roadster is sold-out through 2009, and their hoping to bring a lower cost high-end sedan at around 75k to market with similar range.
I'd bet that just making those changes to an F150, along with some aero tweaks to get its CD down, would double the MPG of that beast, while only adding maybe 10k to the cost. That would pay for itself in 5 years of $4 gas at 12kmi per year.
Alsaadi
Regards,
Nawar