â,"The Five Eâ,"s.â, Earlier this year we identified five major trends that were reshaping the world. Then, we stopped writing about them because we could never remember what they were. But these days, itâ,"s hard to forget at least one of them. So, over the next few days, we will be providing you with updates.
Energy. The first E. Yesterday, the Associated Press reported that gasoline in the United States was at an â,"all time high.â, Meanwhile, our old friend Jim Rogers tells the world that â,"you ainâ,"t seen nuthinâ," yet.â, He says oil at $100 a barrel is a â,"sure bet.â,
Whatâ,"s going on? Is the world running out of oil? No. As far as we can see, there is plenty of the stuff. At todayâ,"s oil prices, all the producers are adding capacity as fast as they can. New wells are being drilled. Old wells are being re-opened. Theyâ,"re also busy trying to squeeze oil out of sand, tar, rock, turnips, or at least, find substitutes. In the United States, one of the substitutes, ethanol, is becoming a major swindle. Of course, it takes more energy to produce a gallon of the stuff than you can get from it. And it costs more to make a gallon than a gallon is actually worth. But itâ,"s the kind of boondoggle that everyone seems to like. Congress likes it because the pols get to hand out more of other peopleâ,"s money. Farmers like it because it helps hold up grain prices. And a lot of other people like it because it sounds â,"green,â, and they believe the country ought to be â,"energy independent.â,
So, there is plenty of E. Only, itâ,"s not cheap E and the U.S. economy depends on cheap E. Your typical American family spends all that it earns from its work - and a little more - in a house that needs a generous input of E. But as home prices rose in the last 10 years, people started looking for bargain housing farther away from town and the suburbs began to stretch farther and farther into the boondocks. Meanwhile, the average fuel economy of American automobiles - at 21 mpg - stayed the same as it was in 1982. Now, with gasoline at $3 a gallon, a lot of people must be wondering if moving so far out was such a good idea. As the price of E rises, the amount of money the family has left over goes down. It must either spend less, which would cause a recession immediately, or burrow deeper into debt, which would cause an even worse recession eventually.
No question, oil is getting more expensive. And no question that with no further home equity against which to borrow, American consumers are beginning to cut back on discretionary spending. Wal-Mart, where the lumpen go shopping, has seen its stock sink to the lowest level in five years. Middle-American sit-down restaurants - Red Lobster, Outback Steakhouse, Applebeeâ,"s, etc. - are seeing the worst fall-off in sales in industry history. Retail stocks, overall, are down. Builders have taken a hit, with confidence in the homebuilding industry at a 14-year low. Transports are sliding. All of which looks to us like the beginning of a consumer-led economic slump.
But back to the Big E. Energy. Energy, we believe, is going to get more expensive and itâ,"s going to put into jeopardy the lifestyles of the people most dependent on it - Americans. The reason is obvious. While users are proliferating like energizer bunnies, the supply of ready fuel, which took millions of years to build up, is going nowhere. Indeed, itâ,"s running out rapidly. On one hand, India and China devour energy for capital development. On the other, North America needs it for consumption. But while the Asians earn the money to pay for their energy, the typical American has to face higher energy costs without cash in his pocket. No wonder his standard of living is going down.
Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.
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