(Swedish version in separate blog)
One question that has dominated the news in recent weeks is the USA’s debt crisis and I will begin there. The newspapers around Sweden are discussing this issue and one example is an editorial from Dagens Nyheter [a broadsheet] titled, “When craziness reigns”.
When we celebrated the new millennium in 2000 I was with my daughter Malin in Washington. At the stroke of midnight we had gathered with thousands of others and with President Clinton on National Mall to see a fantastic fireworks display. At that time the US foreign debt was $5,751,743,092,605 or $5,752 billion. One year later when President George W. Bush took control in January 2001 the debt had shrunk to $5,727 billion. The strong growth in the US foreign debt that had occurred under the presidencies of Reagan and Bush Senior from $1,000 billion to $4,000 billion had been dampened. During the first four years of Bush Junior’s reign the debt increased to $7,596 billion and when President Obama took control on 20 January 2009 the debt had risen to $10,700 billion. Last Friday on 4 August when the stock market closed in New York the debt had risen to $14,565 and it was in this situation that Standard & Poor decided to downgrade the USA’s credit rating from AAA to AA+. The USA is living beyond its means. The downgrade is the first since 1941 when the USA received the highest grade of AAA. China is the nation that has loaned the most money to the USA. They have also criticized the political turmoil in the USA. They have even asserted that this is evidence that democratic rule is not very effective. “Those who are in debt are not free” so what might China do with the USA?
A contributing factor to the large foreign debt is, of course, the high oil price. It can be interesting to compare the import cost of oil with the rising state debt. The difference between consumption and production of oil in the USA requires the USA to import 11 million barrels per day. Five years ago it was 13 million barrels per day. At an oil price of $110 per barrel the cost per day is $1.2 billion and, per year, $440 billion. At the start of the first decade of this century the import cost of oil for the USA was only 110 billion dollars. I have not made any exact calculations but one can see that the high oil price in recent years has caused an increased import cost of around $1,500 billion. The war in Iraq is estimated to have cost 900 billion and to that we must also add the cost of the conflict in Afghanistan so the increased costs for oil and war during the past 11 years are of the order of $3,000 billion. The increase in debt between 2000 and 2011is $8,000 billion and approximately 34% of this increase is related to oil and war. The rest – more than $5,000 billion – is from overconsumption that the USA could not afford to pay for.
During the periods when the Republicans have held the US Presidency their priority has been to reduce taxes rather than balancing the budget and now the Republicans have forced President Obama to follow the same line. Apparently 70% of US tax income is based on consumption so the more people shop the more tax the people of the USA pay. Thus, the oil price has a direct cost on the USA economy as its price rises and an indirect cost as people paying higher petrol prices reduce other consumption and so tax intake decreases. One year ago the price of oil was down at $70 per barrel and now it is up at $110 per barrel. This price increase means that we are seeing dampened economic growth around the world. It is time that those in control, not the least the World Bank, to stop ignoring reality and Peak Oil.
Aleklett's Energy Mix 
tahoevalleylines
August 9, 2011
China is at the center of the world as they follow carefully the teachings of SunTzu, amassing foreign capital and arranging to secure tangible natural resources. America uses military means to exert foreign policy objectives. China builds railways into places where resources can be extracted.
America falls without relief from dependency on imported oil. Countries and citizens of wealth, homelanders or others, need to consider a world without America. If US leadership is unable to re-orient transport to energy efficiencies, should outside investment consider projects in America with benefits of energy security? In earlier posts we ask sovereign wealth funds to consider the trajectories of food supply, Peak Oil effects on transport & distribution, in context of US railway projects serving agriculture traffic.
China is now investing in American real estate, commercial land holdings adjacent to transportation arterials. We are witnessing a de facto occupation of strategic objectives without a shot being fired. This is not a new behavior; we see who maintains the Panama Canal and many other transportation/resource assets around the world. Therefore, we ask Professor Aleklett and readers here to consider the several benefits of engaging interested parties in a rebuild program for American dormant branch line railways, to assure victuals production and distribution.
Trillions in capital waits on the sidelines. Investment in American food production and rail upgrades for distribution is an investment in World “Societal & Commercial Cohesion”, including China! An American Industrial Designer, Christopher C. Swan has a book, “Electric Water” (New Society Press, 2007) a compendium for off the shelf hardware and methodologies for local power and water supply. Swan’s inclusion of renewables-powered railway in the mobility and distribution scheme makes his work germane in the work of saving America from her toxic love affair with cars and the oil they feed on..
Ed Pell
August 15, 2011
I can see China investing in the tar sands of Canada and Venezuela. I can see China investing in farm land and water in Argentina and the horn of Africa. Why would China want to invest in over priced, over taxed America for the benefit of Americans? It does not maximize their return nor promote their interests.
Robert Smart
August 11, 2011
I had this thought. We concentrate on the high oil prices. That’s approximately the cost of the most expensive barrels produced. Meanwhile most barrels are still, presumably, less than $20 and the difference from the price is pure profit. High prices certainly hit the importing countries, but they benefit the exporting countries exactly as much. Adjustment is painful, but essentially the high price doesn’t affect the total world economy.
On the other hand, what is killing the world economy, and is going to get worse, is the loss of those cheap barrels from the bottom as the cheap oil depletes away.
What do you think?
Ed Pell
August 15, 2011
The US is at the page in the IMF play book where all public assets are sold off for pennies on the dollar. Just as was done in Argentina in 2001. All public assets will be stolen roads, ports, land, fishing rights, water systems, train systems, etc.
Let us hope the Israelis can show the world the way forward by putting a mussel on the tycoons and repudiating all debt.