Energy: America's Single, Biggest Problem
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If any of you have been watching television these past few weeks, tucked in the coverage of the lipstick/pig wars, you may have noticed that the government has taken control of Freddie Mac and Fannie Mae. These quasi governmental corporations are set up to promote and help finance the nation’s mortgage markets. As in all things governmental, things have gone south, and the United States is now guaranteeing about ½ of all US mortgages that have been packaged by Freddie and Fannie in the form of bonds and sold to, I don’t know, pension funds, foreign governments, other financial institutions, and you.
The Department of Treasury and The Federal Reserve have spent a lot of time plugging up the holes in the dikes to prevent a financial meltdown. They have done a good job in difficult circumstances. But many of their efforts have been for naught as they have lost control of the economy. The sole factor that is affecting every aspect of our life, including the financial markets, is energy. All other issues radiate like the spokes of a wheel with energy as the center: delinquent mortgages, the slow down in consumer spending, unemployment, the federal deficit, the weak, albeit improving, dollar, and most importantly, our foreign policy and national security.
Here is your Economics 101 lesson. The Federal Reserve was set up to even out the swings of our capitalist economy. The economy will always have ups and downs. The trick is to temper them. This is done by the Federal Reserve by either raising or lowering interest rates respectively as the economy heats up or slows down. In addition, it injects cash in the economy to increase liquidity (easy money) or take cash out of the economy when to much is sloshing around (tight money). Finally, it can influence banks’ lending practices by cutting the rates that banks pay to the Fed or each other, as well as raise or lower bank reserve requirements. That is the proportion of cash on hand the bank must have in relation to its outstanding loans.
It has been a learning process for the Fed. Its first big failure was the Great Depression when it reacted to the 1929 stock market crash by RAISING the reserve cash requirements for banks in an effort to keep banks from going under. It acted intuitively when it should have acted counter-intuitively, thus aggravating the situation by taking money out of the system. By the beginning of WWII, more than 90% of US currency was being held in reserve by the banks. It took the war for that currency to flood back into the system, and the Fed learned how to handle slow-downs. The Fed continues to learn, and has done a credible job in smoothing out the extremes of our economy….until now.
Energy now trumps the Fed as two forces hold the American economy hostage. In the far corner is OPEC. It artificially controls the oil market not based on true market forces, but on politics and greed. If you look at its history, OPEC has been mostly unsuccessful in its bid to control oil prices. Cheating on quotas is historically the norm instead of the rule. And it got body slammed when it tried to control prices in the 1970’s and took it years to recover. But the rise of China and India as economic powers has increased OPEC’s leverage, and demand is now growing by leaps and bounds. OPEC is becoming more adept at controlling the oil supply at whatever price it wants.
In the near corner are the environmental whackos in the United States who have totally hindered the safety valve to OPEC here at home, more energy production. There is none, although we have more oil reserves here than Saudi Arabia, and are at the top of the list in natural gas reserves. The extremist environmental lobby is squelching not only oil and gas drilling, but nuclear, solar, and any other kind of energy development.
I am sure that there are many sincere environmentalists who are concerned about some very serious issues. It appears to me, however, that environmental concerns are disguising more sinister political goals that have nothing to do with the environment, but rather re-distribution of wealth not only in the United States, but in the world. Witness the hue and cry about horrible American corporations spewing pollution, while the NOTHING is ever said about the worst environmental offenders: China, India, and Russia. Not only air pollution and carbon emissions, but water, sewage, chemicals, just about every other kind of pollution there is.
The result of the Nancy Pelosi’s and the Harry Reid’s of the world is an impotent Federal Reserve, and the taxpayers, you and me, picking up the pieces of broken banks and businesses. The Fed can barely keep up as you watch our entire economic system react to the price of oil rather than to Federal Reserve economic decisions. Do you want Greenpeace and OPEC determining your future? This is a real problem, folks. Unless we wake up, we will be hostages forever to owls, bears, and Islamic fundamentalists.
The only way to bust out of this ever downward spiral is to break the hold of the environmental whack jobs here at home. Drill here. Drill now. Build wind farms here, build them now. Move our cars to electric and compressed natural gas. Do it now. Build nuclear power plants. Do it NOW…before it is too late.
If any of you have been watching television these past few weeks, tucked in the coverage of the lipstick/pig wars, you may have noticed that the government has taken control of Freddie Mac and Fannie Mae. These quasi governmental corporations are set up to promote and help finance the nation’s mortgage markets. As in all things governmental, things have gone south, and the United States is now guaranteeing about ½ of all US mortgages that have been packaged by Freddie and Fannie in the form of bonds and sold to, I don’t know, pension funds, foreign governments, other financial institutions, and you.The Department of Treasury and The Federal Reserve have spent a lot of time plugging up the holes in the dikes to prevent a financial meltdown. They have done a good job in difficult circumstances. But many of their efforts have been for naught as they have lost control of the economy. The sole factor that is affecting every aspect of our life, including the financial markets, is energy. All other issues radiate like the spokes of a wheel with energy as the center: delinquent mortgages, the slow down in consumer spending, unemployment, the federal deficit, the weak, albeit improving, dollar, and most importantly, our foreign policy and national security.
Here is your Economics 101 lesson. The Federal Reserve was set up to even out the swings of our capitalist economy. The economy will always have ups and downs. The trick is to temper them. This is done by the Federal Reserve by either raising or lowering interest rates respectively as the economy heats up or slows down. In addition, it injects cash in the economy to increase liquidity (easy money) or take cash out of the economy when to much is sloshing around (tight money). Finally, it can influence banks’ lending practices by cutting the rates that banks pay to the Fed or each other, as well as raise or lower bank reserve requirements. That is the proportion of cash on hand the bank must have in relation to its outstanding loans.
It has been a learning process for the Fed. Its first big failure was the Great Depression when it reacted to the 1929 stock market crash by RAISING the reserve cash requirements for banks in an effort to keep banks from going under. It acted intuitively when it should have acted counter-intuitively, thus aggravating the situation by taking money out of the system. By the beginning of WWII, more than 90% of US currency was being held in reserve by the banks. It took the war for that currency to flood back into the system, and the Fed learned how to handle slow-downs. The Fed continues to learn, and has done a credible job in smoothing out the extremes of our economy….until now.
Energy now trumps the Fed as two forces hold the American economy hostage. In the far corner is OPEC. It artificially controls the oil market not based on true market forces, but on politics and greed. If you look at its history, OPEC has been mostly unsuccessful in its bid to control oil prices. Cheating on quotas is historically the norm instead of the rule. And it got body slammed when it tried to control prices in the 1970’s and took it years to recover. But the rise of China and India as economic powers has increased OPEC’s leverage, and demand is now growing by leaps and bounds. OPEC is becoming more adept at controlling the oil supply at whatever price it wants.
In the near corner are the environmental whackos in the United States who have totally hindered the safety valve to OPEC here at home, more energy production. There is none, although we have more oil reserves here than Saudi Arabia, and are at the top of the list in natural gas reserves. The extremist environmental lobby is squelching not only oil and gas drilling, but nuclear, solar, and any other kind of energy development.
I am sure that there are many sincere environmentalists who are concerned about some very serious issues. It appears to me, however, that environmental concerns are disguising more sinister political goals that have nothing to do with the environment, but rather re-distribution of wealth not only in the United States, but in the world. Witness the hue and cry about horrible American corporations spewing pollution, while the NOTHING is ever said about the worst environmental offenders: China, India, and Russia. Not only air pollution and carbon emissions, but water, sewage, chemicals, just about every other kind of pollution there is.
The result of the Nancy Pelosi’s and the Harry Reid’s of the world is an impotent Federal Reserve, and the taxpayers, you and me, picking up the pieces of broken banks and businesses. The Fed can barely keep up as you watch our entire economic system react to the price of oil rather than to Federal Reserve economic decisions. Do you want Greenpeace and OPEC determining your future? This is a real problem, folks. Unless we wake up, we will be hostages forever to owls, bears, and Islamic fundamentalists.
The only way to bust out of this ever downward spiral is to break the hold of the environmental whack jobs here at home. Drill here. Drill now. Build wind farms here, build them now. Move our cars to electric and compressed natural gas. Do it now. Build nuclear power plants. Do it NOW…before it is too late.
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