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Capital Flows Over Trade Flows, Or Is Speculation The Primary Driver Behind The Euro's Move?

Tyler Durden's picture


Some pro-dollar observations from Brown Brothers Harriman



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Mon, 03/15/2010 - 13:27 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

This output gap is to some extent a fiction since the empty factories that were producing goods until recently will require more oil when / if production is fired up again. The distribution system of America is much more oil intensive then Europe and this really matters in a era of slower or stagnant supply of oil - we are no longer living in a post war infinite growth wet dream where you can just increase the money supply and energy flows immediately.

Consumption will have to be curtailed until after a larger proportion of wealth goes into highly capital intensive energy projects.

Mon, 03/15/2010 - 13:41 | Link to Comment SDRII
SDRII's picture

Obama says we need High Speed Trains and we are all set circa 1970.. Just wait and see the blowback if the Israelis hit Iran as the normally reliable Spengler indicates is what the American public demands


Mon, 03/15/2010 - 14:23 | Link to Comment trav7777
trav7777's picture

People struggle with this notion of oil, DORK.

They talk about what we could have built had we spent the bailout money on banks.

They fail to get that building requires real things.  The banks' balance sheet repair required no oil.  Therefore there was no real cost.

There is an increasing difference between nominal and real cost...this is the gap between the dollar "cost" of doing something versus the amount of energy it requires.

I'm going out and saying right now that most real economic activity right now is of negative profitability for this very reason.  The dollar's nominal "value" is way out of whack with its real value.

Mon, 03/15/2010 - 14:57 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I disagree Trav7777 - the bailout money transferred to banks gets turned into real bank wages ,bonuses , dividend and interest payments - this money is then spent on real things but most of this money is generally spent on more consumables which is not really invested in the future capital of a country .

If I was to invest all those profits and wages in lets say a nuclear power plant which would produce power for 50 years then that would also consume resources but the investment would become positive over time as its income would at some time overtake its construction cost - that is the nature of investing - deferring consumption for future gain - what people fail to realise is that banks are merely utilities not unlike power companies and to run down the capital of either of these companies eventually causes either the power to fail or the bankruptcy of a financial institution.

As we run down more and more capital it becomes harder and harder to enforce austerity on the populace - the tragedy of the Reagan monetarist agenda is that it rightly persuaded a populace to embrace a measure of austerity but the benefactors of the subsequent surplus have squandered their profit on frivolous outgoings.


Mon, 03/15/2010 - 15:18 | Link to Comment Orly
Orly's picture

We are spending nominal dollars guarding (real stuff...) oil pipelines and poppy fields in Afghanistan.

I think Trav7777 has a great point there.

Dork also has a point in that once we were relieved of the malaise of the Carter years, we should have spent our surpluses doing better things.  Unfortunately for us, the Bush NWO machine had taken over completely at that point, through the back door.

Perhaps if we can get our country back, we won't be idiotic enough to let the fox into the henhouse ever again.

Time for a reset/do-over.  Let's just get it over with already.

Mon, 03/15/2010 - 15:39 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

Orly one caveat  - my logic only really works for a country without a reserve currency - burning the worlds oil today deprives another country of that resourse - if America became less oil intensive tomorrow then other areas of the world such as China and Europe would benefit from cheaper oil. This is a major problem as it is in the interest of America to burn all the oil in the Persian gulf as fast as possible. However you can use this time window when you still have military power to continue down the dead end of consumption growth or rebuild your economy now remembering that this is the last chance salon and the infrastructure would take 20 years to build - Saudia Arabia will most likely be in terminal decline then anyhow.

However resourse utilisation at home could have better strategic planning - as I have said before on this forum using NG for electrical power is a great waste of a precious resourse as there is numerous ways (chiefly nuclear) that could be used in its stead.

Mon, 03/15/2010 - 15:56 | Link to Comment Orly
Orly's picture

I understand your idea that resources are limited to the planet and that if one uses, one can't, or will pay more for it.  Economic laws of spply and demand.

However, I disagree with the use of NatGas for our power.  It is estimated that there is nearly a century's worth of NatGas on our continent alone, directly under our feet.  We should strive to solve the problems of bringing up poison with the gas, work diligently to refine our methods and invent new technology that will allow the United States to export this technology to the rest of the world.  I am sure the Russians have been working on it with limited resources and the last time I checked, they were pretty bright people.

Dare I say that we need to think outside the box and discard old paradigms that have kept us in the hands and pockets of the petroligarches for entirely too long.  We have the technology to convert practically every moving machine in use today to run on NatGas.

With the advent of new technology, such quibbles as you desribe would become immediately out-dated and out-moded.  No need to worry about the price of oil because we don't need it.  Let developing countries use it for relatively pennies on the dollar.  Fine.  Who cares?  To us, it will be just some dirty, brown gooey stuff they pull out of the ground.

By the time we are anywhere near exhausting our potential in NatGas, we will have developed new energy systems, including new designs in nukuler power that will be safer and cleaner and possibly more accesible to everyone.  Imagine having a very small nukuler reactor/generator powering your home and office.  The power will be relatively inexhaustible and we may even be able to pull a Doc Brown and put our garbage into it to power our cities.  Give us forty years and we can certainly think of something if we put our minds to it.

I say to hell with a level playing field.  Let's change the game altogether.

Mon, 03/15/2010 - 16:23 | Link to Comment THE DORK OF CORK
THE DORK OF CORK's picture

I think of fossil fuels as the capital base of a economy - you do not or should not extract such fuels to increase consumption alone - you use that wealth to build a much broader capital base.

These new Gas fields (I am ignorant of the technical Process) seem have the potential to supercharge growth once again but what happens when that little golden age is over - our children will face even bigger problems with a even smaller capital base. Also beware of figures stating 100 year resourse lifetime - exponential growth is a funny thing and soon it is over.

Wed, 04/14/2010 - 09:50 | Link to Comment mark456
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