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Oil And U.S. Hyperinflation


Jeff Nielson

As precious metals investors, it can often seem to us that the U.S. government (and the banking cabal which pulls its strings) is exclusively focused on suppressing gold and silver prices – given the historic role of precious metals as a “barometer” of economic conditions, especially inflation. However, there is a different commodity that this group obsesses about to a far greater degree than precious metals: oil.

The United State’s enormous dependency on imported oil translates directly to enormous economic vulnerability. Indeed, U.S. paranoia about “securing” oil supplies for itself has been the driving force behind most (if not all) of the wars it has instigated in the Middle East.

The U.S. dependence on petroleum goes well beyond simply the massive amounts that is spent each year by the U.S. to satisfy its oil-gluttony. Cheap oil is the essential input needed to operate the “levers” of U.S. military/economic imperialism, as well as the foundation upon which the entire U.S. domestic economy is built.

Let me summarize this dependence briefly. By itself, the U.S. military is one of the ten largest oil-consuming entities on the planet. In other words, operating the U.S. war machine by itself consumes more oil each year than all but a handful of nations. Thus, the death, destruction, and misery that the U.S. military has inflicted upon its victims over recent decades is accompanied by the horrendous waste of countless billions of barrels of our most precious natural resource.

In this respect, high oil prices are a “blessing” to much of the world, as the hopelessly insolvent U.S. government is totally incapable of financing any more “military adventures”, now that the era of cheap oil is gone forever. Indeed, we can only assume that Iranian defiance to the U.S. regarding its nuclear program is based upon their firm conviction that any military harm which the U.S. could inflict upon Iran would pale in comparison to the economic harm it would inflict upon itself from such an attack. Thus, we know the #1 reason why the U.S. is vainly attempting to keep a lid on oil prices: having a “big stick” is of little use if you’re never able to use it.

The U.S. military is but one facet of the U.S. empire totally dependent upon cheap oil. Of near-equal importance is the need for cheap oil in order to pursue its agricultural imperialism. Roughly two decades ago, the U.S. government made a conscious decision to abandon most manufacturing activity – with the exception of the industrial and hi-tech sectors which service the U.S. war-machine.

Replacing manufacturing as the foundation for the U.S. economy is agriculture. The “World’s Only Superpower” has chosen to become a “banana republic”. Indeed, on the last major, U.S. trade mission to India, the big “success” of that endeavour was being able to increase U.S. soya bean exports to India.

Around the world, the story is the same. Where U.S. consumer manufactured goods used to flood the markets of countries all over the Earth, agricultural products now take their place – heavily subsidized agricultural products.

U.S. agricultural imperialism is based upon first injecting massive subsidies (in excess of $100 billion per year) into its crop production. These heavily subsidized food items are then dumped into markets in every continent on the planet. For the other, wealthier economies, this extreme U.S. subsidization is met with competing subsidies. Indeed, for many years the U.S. and Europe have been locked in an endless exchange of dueling subsidies.

For the less-wealthy nations, however, matching U.S. subsidies for its agricultural products is economically impossible. These nations have been forced to watch helplessly as the massive quantities of subsidized U.S. agricultural products bankrupted millions of small farmers all over the world – and severely depressed agricultural production. Thus, at the same time that rising per capita incomes in developing economies is spurring an enormous increase in demand for agricultural products, we have the U.S. government engaged in a predatory campaign which has crippled numerous economies, in addition to creating crop-shortages through depressing global production.

Even here, however, the U.S.’s Achilles heel asserts itself. Apart from the fact that U.S. agriculture is highly dependent on massive water subsidies, what few people realize is that agriculture is an oil-intensive industry. Oil-powered machines plant the crops. Oil-powered machines distribute the petroleum-based fertilizer products used by most forms of agriculture.

Oil-powered machines then harvest most of these crops, so that oil-powered trucks can take this food to processing centers, before ultimately being shipped to consumers – primarily in more oil-powered trucks. Compounding U.S. oil-gluttony, the U.S. has embarked on a huge program to produce the world’s least efficient bio-fuel: corn-based ethanol.

In other words, after consuming vast quantities of oil to produce its crops, the U.S. then takes a large chunk of that agricultural production and converts it to fuel – in a process which uses nearly as much fuel as is produced, resulting in no economic benefit to anyone (and no increase in energy supply), except for a windfall for corn-farmers.

While the U.S. selfishly wastes vast quantities of oil with its war-mongering, and foolishly squanders vast, additional amounts through short-sighted agricultural policies which can only be characterized as “idiotic”, this endless waste of precious petroleum is 100% certain to destroy its domestic economy.

As U.S. “inner cities” became increasingly uninhabitable due to endemic poverty – and the crime which inevitably accompanies that – U.S. “urban sprawl” turned into a gigantic population-shift, where urban Americans became “suburban Americans”, forced to commute long-distances (in oil-powered vehicles) just to make it to work each day.

Meanwhile the rest of the world chose to reduce their own oil-consumption through adding high taxes to oil, which also made various forms of mass, public transit economically viable – further reducing their oil-dependence. In its typically short-sighted fashion, the U.S. did the exact opposite. It continued to heavily subsidize oil consumption amongst its population.

Decades of this totally suicidal policy has left the U.S. with the following problems. Americans possess tens of millions of obsolete gas-guzzlers – for which they are still making $billions in payments. They live in massive homes they can no longer afford to heat, located so far from employment centers that they can’t afford to drive to work. Meanwhile, equally short-sighted city planners never bothered to embark upon any significant investments in mass-transit.

Even if the U.S. had the money to begin to create 21st century mass transit for its cities (which it doesn’t), these long-term infrastructure projects would take at least a decade before making a significant dent in U.S. oil consumption. The U.S. has no money, no oil, and no options.

While Wall Street caused the “Crash of ’08” to attempt to hide its own insolvency as being merely part of a “global crisis”, the U.S. government had an entirely different motive for engineering a global economic crash, and a total meltdown in all commodity markets: $140/barrel oil. In this respect, Rob Kirby wrote a very interesting article about U.S. “machinations” in the oil market, beginning in May/June of 2008.

Through a combination of sleuthing and deduction, Kirby connected a dramatic change in U.S. oil policy to the Crash of ’08, and otherwise inexplicable price-behavior regarding the different grades of global crude – which coincided with the change in U.S. energy policy. He also noted that these “machinations” bore an uncanny resemblance to “activities” of the U.S. government in precious metals markets.

Media talking-heads continue to perpetuate the myth that a “cheaper dollar” will improve the U.S. trade balance – and ultimately help the U.S. dig its way out of insolvency. Empirical data has revealed this to be nothing but wishful thinking. In fact, each time the U.S. dollar takes another nose-dive, the U.S. trade deficit usually widens, as the modest up-tick in U.S. exports is overwhelmed by the soaring bill for U.S. imported oil.

The bottom-line for these parameters is that the only way in which the U.S. can delay economic collapse is to continue to push-down oil prices (versus the U.S. dollar). Where precious metals factors into this equation is that oil-producing nations (most notably the Arab, OPEC nations) watch gold and silver prices – to tell them when/if they need to push crude prices higher, as compensation for the ever more rapid dilution/depreciation of the U.S. dollar.

Therefore, while the U.S. government desperately wants to keep gold and silver prices down, it absolutely needs relatively cheap oil prices. What this means is that when oil surges above $100/barrel (likely by January or February) we should all expect another made-in-the-USA “economic crisis”.

If (or when) the U.S. finally loses any ability to control oil prices, the consequence is inevitable: hyperinflation. Soaring oil prices increase the U.S. trade deficit, cripple the domestic economy, negate any/all benefit of its massive agricultural subsidies, and leave its war-machine “out of gas”.

Simply, there is not a single facet of the U.S. economy which can remain solvent with high oil prices. When cities, states, and most average Americans begin a downward spiral toward bankruptcy due to high oil prices, the last and only option for the U.S. is more money-printing – much, much more.

With current U.S. money-printing already a threat to set-off U.S. hyperinflation, any further escalation of Bernanke’s monetary madness must result in hyperinflation. Much like decades of suppression of the silver market has resulted in the near-total depletion of silver stockpiles, so too has the U.S. policy of depressing global oil prices resulted in the depletion of global oil reserves – decades sooner than would have occurred with any kind of sensible, long-range planning.

While the silly, suicidal bullion-banks only increase silver demand each time they launch another “attack” on prices (advancing the date of their own funerals), so too has the U.S. government’s permanent policy of oil price-suppression merely served to dig its own economic grave.

At the exact same time that U.S. vulnerability to high oil prices has reached a new, all-time high, the ability of the U.S. to suppress oil prices through any form of moderate/subtle manipulation of global markets has been exhausted. With the U.S. economy already on the verge of collapse, creating another “crisis” (its last and only “tool”) will require nothing more than simply being honest about the severity of its economic problems.

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