American’s are paying much less for gasoline than nearly any other free-market country. Its northern neighbor Canada is energy independent and its gasoline costs are close to double those common in the US. Clearly chasing the dream of energy independence is not the answer to much of anything.

American’s need to remember that in 1975-76 everyone was telling us that we were out of oil or would be at some early future date, the one that sticks in my mind was 1980.

There are more reserves of petroleum now than there were in 1975-76. There is easily a 300 year supply of oil and gas in conventional forms. There is no structural shortage right now.

American’s should think back to the year 1980 when we were supposed to be out of oil and look at the real-dollar cost of crude back then. At one point in the year it was 9 bucks a barrel.

The biggest problem America faces is its continued inability to remember what happened last week or two decades ago. Instead any sign of a change in anything that negatively affects their pocket books is seen as a dire emergency and impending disaster.

Let the market do its job and stay out of its way. If the oil companies gave back all of their combined profits, the price of gasoline may drop by 30 or 40 cents.

They clearly are not the problem.

The reason oil was 9 buckish in 1980 was political. The same could be true of the high price today.

In 1980 President Reagan decided to crush the Soviet Union economically. He knew in his bones that all economic information coming from the Soviet Union was either an outright lie, or impossible for them to actually get.

He knew that the only way the Soviet Union could stay intact was to have a huge military to compete with America and NATO. The only way they could do this was to spend hard currency on military stuff.

The only real source of hard currency that the Soviets had was their vast supplies of oil that they exported for the market price of the day. They also gave loads of it away at below market cost to those in their sphere of influence.

So President Reagan took the well documented decision to drive the price of oil down to nothing. He knew it would kill the oil industry in America, but it would also destroy the Soviet Union. The oil industry would recover but the Soviet Union would be gone. In his mind a small price to pay.

It worked.

This time last year, everyone in the US was worried about how the trade balance with China was going to destroy the American economy.

China needs to generate US Dollars to purchase oil and a great deal of other commodities. If the price of oil keeps going up and the value of the US Dollar keeps going down, their economy will be seriously damaged.

China has a banking system that is bankrupt. The Renminbi is not tied to anything but the value the Chinese Government puts on it. Its real value is very much lower than that level.

If the Renminbi were tied to the US Dollar two things would happen; the cheap labor advantage would disappear and the Chinese banks would have an immense run on them. The savings of the Chinese peasantry is held in those banks. China has always been ruled at the pleasure of the peasantry.

Those peasants will not be at all happy when they find out that the value of those savings has been wildly reduced.

The banking system in China would simply implode. Growth of the Chinese economy would turn into a recession or possibly the deflation would be so large that it would turn into a depression. Projects in China that are now underway by being financed by its banks would inflate in cost to the point that they simply could not be sustained. Especially since its false cost advantage would have destroyed its ability to generate exports.

What could be taking place right now is a plan to bring about the downfall of the Communist government in China. Just like what happened to the Soviet Union.

The Chinese people would look to the success of large market economies in Europe, North America and Japan and conclude that their personal economic freedom is worth more than any promise the Communist Tyrants who rule now could possibly provide. The Army simply would be overwhelmed by the peasantry and could not retain the hold over the people they currently have. China is no stranger to bloody revolt by its peasants; this would simply be the continuation of its ancient traditions of the change of its government.

No one can predict what the results could be, but certainly the potential of freeing a billion people from oppression is a worthy goal.

Cheers,

Bloefeld