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China's economic growth has become more and more dependent on crude oil in recent years, and its energy shortage is acute.
What happened is that, with energy and transportation sectors already bursting at the seams under the deluge of investment in industries such as steel, cement and real estate, and with bad debts piling higher on banks' books, Beijing tried to rein in the runaway enthusiasm, issuing a moratorium on further investment in those key industries. The central state's decree fell on deaf ears. Local governments kept pouring money into these booming sectors.
Whenever a nation decides to go to war, there are plans made for who is going to win and who is going to lose; no one goes to war expecting to lose but it isn't always the obvious target of the aggression that is the real thrust behind the war. Sometimes, it isn't a case of what you expect to win from a war but rather a case of what you hope someone else loses; and it doesn't have to be your stated enemy who you hope will sustain the losses. In this case, Bush's hoped-for victim is the European economy.
So what happens if OPEC as a group decides to follow Iraq's lead and suddenly begins trading oil on the euro standard? Economic meltdown. Oil-consuming nations would have to flush dollars out of their central bank reserves and replace them with euros. The dollar would crash in value and the consequences would be those one could expect from any currency collapse and massive inflation (think of Argentina for an easy example). Foreign funds would stream out of U.S. stock markets and dollar denominated assets, there would be a run on the banks much like the 1930s, the current account deficit would become unserviceable, the budget deficit would go into default, and so on.
And that's just in the United States.
A more gradual shift might be manageable but even that would change the financial and political balance of the world. Given the size of the European market, its population, its need for oil (it actually imports more oil than the U.S.), it may be rapidly approaching that the euro will become the de facto monetary standard for the world.
US economy's net foreign indebtedness--the accumulation of two decades of running larger and larger trade deficits--will reach nearly 25 percent of US GDP this year, or roughly $2.5 trillion. Fifteen years ago, it was zero. Before America's net balance of foreign assets turned negative, in 1988, the United States was a creditor nation itself, investing and lending vast capital to others, always more than it borrowed. Now the trend line looks most alarming. If the deficits persist around the current level of $400 billion a year or grow larger, the total US indebtedness should reach $3.5 trillion in three years or so. Within a decade, it would total 50 percent of GDP.
Other countries have gradually been climbing on to the euro bandwagon. An article in the Iran Financial News, 8/25/02, revealed that more than half of Iran's Forex Reserve Fund assets had been converted from dollars to euros. In 2002 China began diversifying its currency reserves away from dollars into euros. According to Business Week (2/17/03) Russia's Central Bank in the past year has doubled its euro holdings to 20 percent of its $48 billion foreign exchange reserves. And for a very good reason, according to its First Deputy Chairman Oleg Vyugin: "Returns on dollar instruments are very low now. Other currency instruments pay more."
Business Week continues:
`The story is the same across the globe. Money traders say that institutions as diverse as Bank of Canada, People's Bank of China, and Central Bank of Taiwan are giving more weight to the European currency. By the end of this year, they predict, the euro could account for 20% of global foreign currency reserves, which today amount to a cool $2.4 trillion. Little more than a year ago, the euro made up just 10%. "No one is saying that the euro's going to replace the dollar as the premier reserve currency," says Michael Klawitter, a currency strategist at WestLB Research in London. "But it will increase in importance for many central banks."...
If not deterred, OPEC could follow suit. Libya has been urging for some time that oil be priced in euros rather than dollars. Javad Yarjani, an Iranian senior OPEC official, told a European Union seminar in April 2002 that, despite the problems raised by such a conversion, "I believe that OPEC will not discount entirely the possibility of adopting euro pricing and payments in the future."
Meanwhile Hugo Chavez has been taking Venezuelan oil out of the petrodollar economy by bartering oil directly for commodities from thirteen other third world countries. Although this has not yet qualified Venezuela for official membership in Bush's "axis of evil," the heavy hand of the Bush Administration in the recent coup attempt against Chavez was only too obvious. (See "Venezuela Coup Linked to Bush Team," London Observer, 4/21/02, for details about the roles of US officials Elliot Abrams, Otto Reich, and John Negroponte.)
America's response to the euro threat was predictable. It has come out fighting.
President Bush did promise to protect the American way of life. This is what he meant
I wish I could believe, but I simply don't see the real value. Maybe I don't know enough about it. From what I understand it will lead to new materials to be used in high tech gadgets. The problem is all those electronic high tech toys are a waste of resources. (think obsolescense of cell phone models from last year for example). Besides I'm seeing this as simply the next dot-com tech bubble everyone is getting excited about. We are a long way from 7of9's nanoprobes!
Discovery of a vast new oil field? Highly unlikely and would only postpone the inevitable by a few years.
Natural Gas is also in crisis. Perhaps worse that the oil crisis! Here is a recent analysis with many references incorporated.
Thank you for reminding me of the Creative Destruction paradigm. I wish that is what we were facing at this point in time but the problems seem more fundamental to me and I'm not even an economist!
Well Sardion those are great posts.
You certainly seem enthusiastic about nanotech. I hope you are right.
Science has been taken over by business and investment speculators in my opinion. Which is why I am a bit skeptical on this.
I hope the energy crunch is not as acute as seems to be apparent and that we have the time to reach that new economic paradigm you envision.
Quote Source Europe Eclipses U.S. Solar Shift
The cost of installing solar energy is finally within reach for many Americans, but people who have waited for this seemingly opportune time are being told to move to the back of the line. U.S. manufacturers of solar panels are sending products to the lucrative German and Japanese markets, casting a shadow over the domestic solar industry.
After years of escalating electricity prices, power failures and concerns about energy independence, states including California, New Jersey and Maryland recently passed laws to make it more affordable for businesses and homeowners to go solar. The states will pay up to 70 percent of the cost of installing photovoltaic solar panels, prompting many people who were interested in solar for environmental reasons to make the investment.
I think I will use a few of those links for a post I'm working on in the Campaign2004 Issues forum. Hope you don't mind
Originally posted by sardion2000
Sure that's what I've been sorta hoping cuz no one has really tackled anything like this yet though it is still very early.
Originally posted by cryptorsa1001
It appears we have hit or will soon experience peak oil. When peak oil hits us there will not be a dramatic plunge in oil production but will be a decline never less causing a steady rise in prices which will help to facilitate investment in development of alternative energy sources.
Has anyone developed a method to use the Tesla coil for energy needs? Is that what UFO’s are using? They way they move makes me think they are using the earths magnetic field or an energy source such as the Tesla coil. Sorry I got of post but I couldn’t resist.
Quote source www.wired.com...
California sunshine: California officials are proposing that half of all new homes in the state be running on solar energy in 10 years, an effort spurred by $100 million in annual incentives paid for by electricity consumers.
The move comes three years after the state suffered through an energy crisis that left utility customers paying off billions in debts incurred when wholesales electricity rates hit record-high levels.
The plan proposes that the state give rebates to home builders who install solar panels on new homes, and incentives for installing panels on existing homes, according to a copy of the California Environmental Protection Agency draft.