 | Oilwatch Monthly - March 2008 | The Oil Drum: Europe | France and Italy: is nuclear power the way for energy independence? |  |
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Now, if we could we do a similiar set of charts for a basket of other non-renewable commodities, i.e, gold, silver, copper, platinum, tin, etc.
I would imagine the results would come out very similiar, that is, dollar value decline in comparison to value of commodities in general.
Recently TOD US did a survey asking about future prices of oil, and gave as one option something like "it doesn't matter, it's the deflation of the dollar driving the price." or something to that effect.
Much to my surprise, almost no one voted for the "declining dollar" option as a cause of the price increase in oil, while many blamed politics.
In one way, the declining dollar achieves what many in the peak oil aware community desires to see, that is, higher oil and gas prices, thus forcing consideration of alternatives and efficiency/conservation. It is essentially a tax that never had to pass the House or Senate, and that no President had to vote on, thus saving them the politically suicidal step of having to tax fuel in America. The weak dollar drives up prices of imports (petroleum) slows economic growth and thus reduces consumption, all the things a petroleum tax would do. For those who believe that the Powers That Be know all too well about the coming age of peak oil, it could be conjectured that a weak dollar policy is a valuable tool going into an oil short age.
Cynical....nah, not me....:-)
(the risk of course is tha that the value of the dollar could start sneaking back up, and the price of commodities collapse in nominal dollar terms, leaving buyers of commodities and those they represent holding the bag...not likely you say, but stranger things have happened.
RC
Although I like the analysis and your interpretation I consider it a short term issue. Right now the EU is still enjoying growth. China if they wish could unpeg more against the dollar and show falling oil prices and even commodity prices for a bit. Of course their export economy would begin to slow as exports got more expensive even though commodity inputs where falling. What this shows is that the EU has been more fiscally responsible vs the US and thats not saying a lot.
The key is how this graph changes as the EU goes int a recession despite its economic policies.
In my opinion the EU has exactly the same economic structure as the US and will suffer the same fate as deflation takes hold. It may follow the US down slightly behind but will it and is it following you betcha. This is a intrinsic structural problem and until we revamp our economies to function in a declining energy deflationary environment the outcome is certain.
Can the EU change well that a political and social problem not economic. I'd say Europe has a better chance. In fact the euro points out why. Its impossible for the member countries to play the devalue the currency game as easy as the US can thus they have to deal with money reverting to a store of value if they keep the euro.
I guess I'll expand on that a bit its what I've been thinking about. Money has two uses as a liquid store of value and as debt. We mix the two together and I've been thinking about a monetary system where debt and store of value where two different entities.
So you could get paid in two types of money store of value or credit.
Excepting a credit note means you take on the risk of devaluing while the store of value note is constant. A credit note fluctuates vs a store of value. The store of value is in effect a replacement for gold or it could easily be gold.
They key here is credit notes are not unlinked from the entity that took on the debt. If that entity defaults the credit notes lose all value. Credit thus correctly maintains its risk vs a store of value.
In any case since we are entering a effectively infinite deflationary period the blurring of credit and store of value will be destroyed hiding this was only possible with continued growth. Thus how economies handle this unveiling is the key.
I don't agree, because the EU is, in the aggregate (and not counting the UK), more or less solvent. The US is not. Equilibrium can only be found through a huge debt-equity swap, where the sovereign funds end up .. owning you.
If you think being solvent or insolvent makes a difference then you simply did not understand what I wrote.
I'm not sure I understand it, either. At face value, the Eurozone as well as the EU as a region without trade deficit, and still strong internal manufacturing output, seems rather different from the credit-dependent US economy.
Or, do you mean it on the longer term, do you mean its fossil fuel dependency? On that I'd agree, the EU is not better on that presently. However, the EU (or at least some of its members) are ahead in the development and installation of renewables, as well as sustained energy efficiency measures (say in building codes). In my opinion this puts it potentially in a better position when supplies are shrinking, though a lot depends on the timescales.
Yes I mean on the longer term. Short term solvency in fiat currencies based on infinite growth is not all that important. One reason I think the US has no problem running its currency in the ground. TPTB know its dead and are milking it for all its worth. I don't agree with the approach but if your goal is a third world economy then the US is going to win big over Europe. Europe won't be able to compete with the new poor in America willing to work for nothing. Europe is going to have to deal with the rest of the world opting for a small wealthy class and a large poverty stricken working class.