America’s Oil-Fiat Economy and the Oil Dollar
It appears that once the industrial/economic uses for petroleum were developed, oil became money. That is, oil reserves, and oil production capacity became the dominant form of capital or collateral giving its owners the ability to attract credit and use it as currency. The SRSrocco Report, regards the ability of the U.S. government to float Treasuries as being based on American capacity to produce oil and gas and at what cost. America and its allies built a worldwide political, social, and economic order upon this capital base. This could be called the “oil economy” and its reserve currency could be called the “oil dollar”.
During recent years, as oil prices dropped from its peak over $150/barrel to lows in the $30s, we have been witnessing this economy collapsing from its core outward. It is not just that oil reserves are depleting and/or becoming more costly to extract. It is also that the owners of this asset used the fiat banking system to borrow and create more and more currency against it, at first to build it up, and then for various other purposes. Immediate “energy return on investment” (EROI) from production at first produced a new and higher standard of living. But over time EROI increasingly failed to meet the requirements of this standard of living, and more and more of credit borrowed went to pay for the new lifestyle itself that people had come to expect. The oil economy became the “oil-fiat economy”.
That Oily American Credit Card – US Treasuries
One important aspect of this transition was the increased use of government fiat to prop up the capital structure in order to preserve national wealth and thereby the governments’ own proceeds from taxation. This applies directly to the United States and its issuance of Treasury Notes, etc., but extends to actions of governments around the world. Income deriving from capital and investments that have derived from EROI has become an increasing portion of the world economy. As one example, based on numbers from the the SRSrocco Report U.S. retirement income from investments, if you calculate a 5% return, would in itself be an economy of $1.2 trillion, or about 7% of the U.S. GDP. Putting together all the forms of income from investments among all ages and peoples today, it can be seen that this is so disproportionately great compared to income from the working people that the world economy is stumbling and failing under the weight of it. In my opinion we are witnessing the death-throws of the oil-fiat economy.
Peak Oil and Post-Oil
SRSrocco says that America’s petroleum asset actually peaked in 1970, and that while massive oil shale development in recent years makes it look as though this asset is back, poor extraction efficiencies and rapid depletion rates make this comeback illusory.
The EROI- Energy Returned On Invested of U.S. oil production declined significantly since the 1950’s. The EROI of U.S. oil and gas production in 1970 was 30/1, however shale oil comes in at a low EROI of 5/1. … (This is) way too low to sustain our modern economy that needs something north of 12/1. Why The Collapse Of The U.S. Economic & Financial System Has Accelerated, July 1, 2016
This example is emblematic of what is happening in oil and gas fields, for the most part, around the world. More importantly, energy technologies now exist that beat the EROI of petroleum even at its best. Among them are solar, wind, fusion, cold-fusion, water, hydrogen, and zero-point energy. As the oil-fiat economy dies, it is a political matter as to how, when, and where these are introduced.
A New Energy Era
The old guard – economies, mighty corporations, countries, and armies that have been built upon oil-fiat – will not go peacefully away. We will see serious disruptions and dislocations between here and the new post-oil world economy. But whatever portion of proceeds from the oil-fiat asset that have been or can be re-invested in what will become the economic/financial engine of tomorrow; that portion will become the seed-money of the new soon-coming post-oil world. Some of the best investments today could be “oil” companies – but only those willing to leave that oil moniker behind and focus on re-inventing themselves as new energy era companies.
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