Tuesday, August 25, 2009


Two seemingly unrelated stories:

1. According to the White House OMB, the projected deficit over the next decade will be 9 trillion dollars. According to this story, this amount is "more than the sum of all previous deficits since America's founding." In case these amounts seem too vast to wrap one's brain around, here's a neat little program that might assist the mathematically bewildered.

2. According to this commodity investment manager, oil supply is "collapsing" and we can expect all-time highs - beyond the previous record of $140 per barrel - by 2011-2012.

At the moment there's the unarticulated but assumed expectation that we'll be able to pay down the national debt once we get out of the Great Recession. But the very conditions that will allow us to move out of the Recession will cause a spike in oil prices, either leading to the intense return of deflation in the form of economic collapse, or a drastic spike in commodity inflation. Or, as this investment manager explains, both scenarios are simultaneously possible, with the U.S. hitting an economic wall ("a second leg down in the real estate market") while the dollar collapses and gold and oil soar, with these commodities becoming the defacto replacement as the international currency.

In short, while among the chattering classes there are now smug congratulations and back-slapping taking place for a job well-done in preventing a worldwide Depression, there seem to be the conditions afoot - fostered by the very mechanisms of salvation - that portend a Third World financial future for the U.S. Then again, with a first world military, who knows how we'll react to such ignominy.


Sceptic said...

what, we'd believe a commodity investment manager?

Patrick Deneen said...

Sure, he has a vested interest in people following the wake of his investments. But, he states some facts that ought not be ignored, including the crash of Mexico's Cantarell oil field - the U.S.'s third largest provider of crude. Perhaps you trust a more objective source?

Boz said...

I generally like your stuff and broadly agree with you that we ought to be better stewards of our natural resources, but be careful on this stuff about oil spiking soon. A decent amount has been written about the role of Goldman Sachs in last summer's oil bubble, and earlier this week Nouriel Roubini predicted that a lot of the extra liquidity that has been pumped into the system and that banks aren't lending out will likely end up in the commodity markets.

marble said...

While everyone else argues over what oil will or will not do (or banks or the financial fortunetellers). . . . I was struck by the vastness of the money owed, the implausibility of "making" enough money not only to continue living as we do - but also to pay this enormous sum back (and to whom?) - and chilled at the prospect you sketch of a first-world military being called in to hold off third-world financial ignominy.

Military reset. But a reset that would destroy the foundation of the economic system.

I find it ironic to discover that trust - faith - is at the foundation. Trust that we will all continue to play by the same rules. That the stronger will not use their weapons as an accounting tool, to 'erase' debts owed. Trust that the concept of economic debt and repayment are solid standards, not given to erosion like our other promises have proven to be.

And what is a debt, if not a promise to repay?

Parables abound.

Oengus said...

"We have met the enemy, and he is us." —Pogo

Our country seems bound and determine to write that saying in blazing neon fluorescent colors on its final epitaph.