I agree with almost everything you have said. The educated wealthy leading the charge towards alternatives... absolutely. I have a number of friends who fit that bill, putting solar panels on their roofs and buying hybrids, they are often hippies at heart but with plenty of money.
While natural gas may be the answer in the near future, the infrastructure necessary to make this a reality doesn't quite exist yet. Pushing electric cars too prematurely might just be putting the cart before the horse. In the decade (or possibly longer) or so that this will take, more time can be spent on R&D improving battery and capacitor technology. I know that a university in my city is studying capacitors and apparently the latest research is in experimental capacitors with 200 times the capacitance of current, commercially available capacitors. This, along with all the other developments we can look forward to, will eventually make electric cars a viable alternative, even with oil back near its long-run average price.
Back to the oil price, I agree that spikes are bad for the economy. Volatility in energy markets is never a good thing, although it is a fact of life that we cannot do much about. Talking about AD you sound like a Keynesian, I am closer to the Austrian school myself. I agree that there is too much "dumb money" on the bid side in the oil market, along with the trading banks manipulating the market buying the physical and selling futures a few months out - banking the contango until delivering against the futures contract. Again, probably not the bankers fault, idiotic buying in the futures market allows such a disproportionately large contango to exist that can be arbitraged.
In terms of China however, they are plain wrong. China cannot continue on this trajectory, period. The interesting thing is that after this period of sustained expensive energy, all of the investments in alternatives that only made sense with $100 oil and government subsidies, will still be a part of the energy mix when oil falls. The capex is already spent and I would not thing running and maintenance costs of solar panels or wind farms are anything more than negligible. This all points to an exacerbated fall in oil prices once the world works out there is far too much productive output, or "stuff" in layman's terms, than the current "real" wealth of the world can afford. It will just culminate in a huge hangover from bringing forward productive capacity before it was needed, and we will just have to sit tight and wait until real demand can catch up.
In terms of the US economy, I agree that having a manufacturing base is critical to economic strength. My bet is that we are only seeing the beginning of these currency wars. The US was first to the punch and has been rewarded handsomely. Europe is handcuffed in this respect, as you mentioned, but it will not be long before every nation in the world is debasing to try and "stay ahead". Of course there can be no winner to this game, so the next move is to start "trade wars". Embargoes and tariffs will be rife, decades of work by the WTO will be undone, a breakdown of globalisation will ensue.
Just my 2c
P.S. Are you an economist, Perfectlap? I am a financial markets guy myself, but I consider armchair economics a hobby that goes well with friends and wine.
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Originally Posted by Perfectlap
I would agree that the eco and cost savings claims of hybrid and EV cars are inflated. But the benefits will improve over time. The thing is people want to disrupt the status quo. People who appreciate technology and engineering (often the the educated wealthy) think it ridiculous that we are still filling up cars with gasoline and diesel while so many other things in their daily lives can be plugged in. Obviously this creates more strain on our dilapidated power grid and has the potential to explode electrical costs but that too highlights the urgency to address infrastructure and to find new ways to produce electric power. In my book we should be importing engineers by the truckload every day to do nothing but developing ways to capitalize on natural gas to produce cheap electricity, nat gas is a commodity we have no short supply. T. Boone Pickens is going to have his work cut out for him in taking on the coal lobby and the Koch brothers who spend billions to keep it a coal or nuclear only choice.
As far as the price of oil, I would agree that these cyclical spikes force us to reconsider the way we produce and spend energy, but the harm far outweighs the benefits. Only a few see a net benefit from high oil prices while its effect on aggregate demand spill over to every single consumer in what became a consumer economy long ago. But at the same time I don't blame the professional traders, they go short like yourself just as often as they go long. The problem is with these outside investors that play the market in only one direction, up. Much like the minuscule number of retail investors who will ever short a stock, they provide the market with a never-ending supply of capital with each paycheck's 401K contribution. Blind money that pushes price action and volume higher. The market for oil seems to have gotten in their heads that even though this economy is consuming less oil than ever before, that other economies will deliver on the peak oil theory. And few are betting against the Chinas of the world. Even if China has their long over due hard landing, the long-term picture is obvious, they have become the world's factory -- that title is going to demand more of every type of commodity and technology. As long as that's the case speculation in oil and other industrial and agricultural commodities will continue to push prices higher. You would in essence have to prove absolutely that China, India, and the rest are all farce to convince speculators to trade these commodities with a mindset that there will always be enough for all. How do you prove an unknown, the future level of demand? impossible.
As far as the U.S. with regards to our current woes. These were decades in the making and long pre-date spikes in oil. The U.S. worker has become less vital to U.S. commerce. Back in the early 20th century Henry Ford doubled the average worker's pay and declared that he would share a mind-boggling dividend with these very workers. His competitors thought he lost his mind and declared that he would single-handedly ruin the economy. And today most CEO's would laugh at ever contemplating such ideas of "sharing the wealth". The important thing is that factory jobs is what allowed Henry Ford to double worker pay with a single phone call, those factory jobs have left our shores and have been replaced with low paying service jobs. Unless we can claw those back this decades in the making decline, first from automation and now from outsourcing, will only collide with higher and higher costs of living. We created a short term solution to falling wages and a drastic gap income inequality with a securitization bonanza of all forms of borrowing, but this alchemy met its predictable demise and we were back to square one of falling middle class wages. U.S. corporations and banks are not overly concerned with the gap in incomes and the weak domestic demand domestic it creates since these U.S. multi-nationals, as well as major banks have untapped foreign markets for their goods and project financing that now account for half of more of total revenues. Even during a protracted U.S. recession, they can have their best years ever. The one bright side is that we still have the most liquid and transparent financial markets, which will always be China's downfall, which means we have good odds at continuing to be the place to park money safely for global investors. No matter how bad things here may get, investors will see other markets as worse. Europe is trying to sustain an inherently flawed Euro that bars weak states from devaluing their currency to get back to even after austerity, Latin America will always be an unpredictable bubble to bust cycle pegged to Chinese demand, China will have have three sets of cooked books, and few other economies are large enough to handle what our financial institutions can easily accomodate. In essence we will become a giant Switzerland with over-priced healthcare, much lower quality of life and a huge military.
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