Solving the Energy Crisis for Dummies

As gasoline is approaching $4.00/gallon, and the cost of heating our homes and illuminating our houses reaches the stratosphere, it’s time that America comes to its senses with its energy policy, and fully understand and address the conundrum we have created. Unless we escape the cage into which we have locked ourselves, we are doomed as a nation. It is our Achilles heel. The cage will destroy our financial system.

I am no economist or business wunderkind. But I do have some common sense. The Federal Reserve regulates our economy by the insertion or depletion of money in and out of the system. If the economy slows down, it lowers interest rates and inserts money into the system to stimulate it. If the economy heats up, it raises interest rates and takes money out of the system to slow it down and stop inflation. It assumes, however, that there is a free market which will respond in a normal fashion to the stimulation or lack thereof.

Unfortunately, energy, and in particular oil, has ceased being a free market. Much of the supply is controlled by a cartel, or governments hostile to the interests of the United States. These folks have an agenda that really gives a rip about our well being. Even as late as 10 years ago, a slow down in the American economy would have had at least some effect on the financial well being of OPEC and other sympathetic countries. They learned that they could screw us; but if oil prices got too high, it would eventually hurt how much oil they could sell, and the prices would fall.

That has all changed as China and India have become economic powerhouses. The long and the short of it is the Fed can do whatever it wants, but it will not affect the price of oil because we have unlimited, worldwide demand, for a controlled and limited product. It would take a severe, worldwide depression to drive down the cost of oil.

What does that mean for us? It means that the Federal Reserve's arsenal of financial tricks is now depleted. It is the commodities, in particular oil, that has become the regulator of our financial stability. The Fed can try...but its interest rate manipulations can't compete with commodity prices in determining the strength of our economy. In fact, the Fed can hurt. The devaluation of our currency is a direct result of Fed action competing with commodity prices, and that exaggerates the commodity prices. The last ten bucks in oil costs are directly related to the devaluation of our currency as a result of the Fed rate cut. Any decrease in interest rates has been offset by the increasing oil prices.

And what are we doing in the United States to alleviate the situation? Nothing. Sure, we point the finger at the oil companies. They are an easy target with record profits, but their profit margin is actually 10%, which is an average profit margin for an American company. Microsoft’s profit margin is 17%. How much do we complain when we have to buy a new version of Microsoft Office every time we get a new computer?

Then we point the finger at the auto manufacturers. Yes, look at those gas guzzling SUV’s driving down the street. But I don’t think I saw the President of GM holding a gun to the head of that 100 lb. woman forcing her buy that Cadillac Escalade that she almost ran me off the road with this morning.

Then there are the environmentalist whackos. Don’t drill for oil, except if you are the Chinese drilling off the coast of Cuba, stealing American oil. Don’t build new refineries. Don’t put up windmills for electrical production, they hurt the birds. Don’t put up solar panels, they scar the environment. Don’t burn coal, global warming. Don’t build nuclear power plants, too much waste. And, oh my God, don’t build a damn for hydro electric power, except if you are the Chinese building the largest damn in the world, submerging 1000 year old cities. You might kill a fish.

Then you have the protectionists who want to scuttle NAFTA. Newsflash, folks, the 2nd largest oil reserves in the world are in CANADA!!!! Hello!! Do you really want to do that?

And let us not forget the peaceniks. We have just spent hundreds of billions of dollars to free Iraq of Saddam Hussein. But don’t touch the oil!!!!!!! Not even to repay us our out of pocket expenses?? It’s not moral, they say. We don’t fight wars for oil.

And finally, let’s not forget the farmers, who are thrilled to have historically high corn prices as we turn our food into Ethanol. How stupid is that!!!!

So there is the box we are in. Unless we break out of it, we are all going to be broke.

Here is the strategy:

1) Allow the oil companies to drill for oil off the coast of Florida and in Alaska. It can be monitored and kept environmentally friendly. Streamline the process to allow building of new refineries that can refine sour crude.

2) Give massive tax incentives and cash infusions to the American automakers to develop alternative modes of powering our cars, such as hydrogen fuel cells. We are close…it wouldn’t take much to reach the goal. Fund the building of the infrastructure that will be needed to make these cars go.

3) Muzzle the environmental whackos to allow the building and development of wind and solar power facilities, as well as clean coal burning power plants.

4) Work with Canada in developing its oil shale and oil sand resources.

5) Repay ourselves for the money spent in Iraq by taking in kind payment from Iraq’s oil.

6) Use corn for food. The increasing world population will support corn prices all by itself.

That’s how to do it folks. But what are the chances??