Energy Dependence Continues to Stymie U.S. Recovery

From the Stonegate Institute:

At year end, 2011, as Americans emptied their wallets at the gas pump and crude oil reached almost $100 a barrel, OPEC kingpin Saudi Arabia reported an $81.6 billion 2011 budget surplus.

The White House action at the same time was to ask Congress to increase our debt ceiling by $1.2 trillion to $16.4 trillion to cover budget deficits.

Nations decline and fall when their economies and monetary policies are incompetently managed. Unfortunately, it appears to be a lesson lost on too many of our leaders who have allowed the very stability of our nation to be imperiled by budget deficits and mounting debt. Our leaders have also failed on Energy Independence, allowing the cost and supply of the strategic commodity of oil to be controlled by foreign nations.

The ominous linkage between cyclical recessions and our repeated failure to achieve energy independence and oil price stability has caused much hardship on our citizenry and severe damage to our economy.

The historical evidence is clear. Whenever oil prices spiked as they did between 1972-1980, and then again between 2003-2008 and beyond, recessions in America followed.

In 1972, crude oil prices were $ 3.60 a barrel. By 1980, the cost of that barrel was $ 37. This 1000% oil price increase contributed to a negative economic chain reaction. The CPI more than doubled during this period. Double digit Inflation ensued, causing the Federal Reserve to raise interest rates. This, in turn, sent the Prime Rate to over 20% by 1980. A recession followed.

Whenever the United States took serious notice of oil prices as an underlying cause of these problems, Congress would debate energy savings and energy independence. A concerned OPEC would then divert America’s attention by opening their spigots, increasing production and causing oil prices to drop to under $20 a barrel and remain relatively low for a period of time. While the immediate crisis would be averted by these actions, Congress did little to protect our future. Consequently, by 2003, oil was up again to $30 a barrel and steadily increased to over $90 in January 2008 and spiked to over $140 in July 2008.

As in the past, by 2008, the enormous increase in the cost of oil resulted in nationwide price increases and surcharges in substantially all industries. It was an assault, like a fiscal tsunami, that put too great a financial burden on the United States economy and its citizenry and set the stage for business failures, unemployment and a decline in real estate values. Rating agencies blessed mortgage investments based on a rising economy however, the chaotic oil spikes triggered the opposite effect. Thus, as in a violent storm, weak structures failed, especially the over-leveraged mortgages and the volatile mortgage-backed securities and related financial markets, which became illiquid. causing the American economy to experience the 2008 meltdown.

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