Energy prices are continuing to increase as the global demand for fossil fuels increases and our limited refining capacity is regularly disrupted by hurricanes and flooding. A major part of America’s current predicament is that America has not taken energy conservation seriously and has not planned ahead well. For example, part of the problem with high gasoline prices in the US is the lack of refining capacity. It has been over 30 years since a new refinery facility has opened in America.

Alternative fuels will only give a partial answer to our use of energy and to high energy prices. Energy prices are rising fast all over the world and likely will keep on increasing due to strong demand, especially from Asia. Even with such a strong incentive to move towards alternative energy there are important uses for oil that are difficult if not impossible to substitute.

For example, no one has yet been able to find a substitute for jet fuel. Perhaps one will be created in time but with peak oil already here in at least a few important oil producing fields, like the North Sea field in the UK and Mexico’s Cantarell field, we don’t have much time. Then it is highly likely that OPEC members have been lying for years about proven reserves. Saudi Arabia and the other OPEC producing nations may have far less reachable oil remaining to be pumped then the figures that they make public.

Energy conservation offers the best short term solution but no doubt no matter how effective energy conservation measures may be we can not completely conserve our way out of an oil shortfall. The obvious conclusion is that living standards will fall in America and other oil deficit nations as oil demand continues to grow globally and supplies remain tight. This will force prices even higher and drain off more precious resources just to pay for imported oil.

The kind of thinking that got us into this oil and energy mess is not the kind of thinking we need to create our future. A weak dollar, unofficially pursued by the American government as a way of making it easier to service America’s huge foreign debt, only serves to push oil prices higher. The spot price of oil rises as the dollar falls in value. This is followed in a few weeks, even a few days, by the pump price of gasoline. There will be a lot more whining by the American people about OPEC and other “bad guys” in the oil picture, like big oil companies, but the injury to the economy is largely self inflicted and is a failure of US government policies over many years to aggressively pursue energy conservation and alternative energy programs.

Increased costs are always a challenge for businesses. Increasingly, now that we are experiencing an energy crisis, the weight of international diplomacy is moving towards the global warming advocates’ camp. More and more legislation is being passed at the global, regional, national, state and local level to drive compliance with carbon emission reduction standards. The tightening up of emission standards does increase production costs. While this action is needed in order to attempt to slow down the effects of climate change, these actions tend to increase the cost of energy inputs, especially with coal. Mankind has created a catch 22 energy and climate change trap and there may be no good escape. Standards of living will fall as energy prices continue to escalate.

Refiners were once relatively free to use heavy crude to make transportation fuel. Today, environmental regulations make it difficult and costly. Refinery capacity is just too tight, and some argue that Saudi Arabian oil production has peaked. If this is true, incredible pressure will be placed on crude oil prices because growing worldwide demand is going to run head on into falling supply.

Even with the tremendous economic growth achieved by India and China over the past decade the amount of oil used by those nations citizens is only a fraction per capita of that used by US citizens. There is room for huge increases in oil consumption by those countries. There is a frightening possibility that it will take much higher prices for crude oil than $135 a barrel to cut into this demand.

Higher energy prices act like a tax. They reduce the disposable income people have available for other things after they’ve paid their energy bills. In America many families are now feeling the belt tightening effects of this “tax”.

Renewables are not developed enough to replace barrel for barrel our current US energy demand. Relying solely on renewables would mean that the US would have to severely restrict our current energy use. Renewable sources of energy are a growing part of the energy mix, and will become increasingly important in the years to come.

Although the amount of energy generated by renewable sources is presently small, investment in renewable technologies is increasing. Unfortunately, it is unlikely that renewable energy sources can be developed fast enough to prevent a considerable amount of pain as people are forced to reduce their standard of living. This is going to be a political minefield for the next US president, whether the next occupant of the Whitehouse is Barack Obama or John McCain.

Consumers should feel outraged by the purposeful federal failure when they pay spiraling fuel charges. The federal government’s inaction in promoting energy conservation and in putting a massive effort in developing alternative energy is inexplicable, inexcusable, and anti-consumer. Consumption is fundamental to underpin a favorable business cycle in the U.S. With consumers now hurting from high energy prices, by being deeply in debt, and by falling housing prices, a deep recession, even a depression, is all but inevitable.

Ben Bernanke and his partners in crime at the Fed are making a heroic effort to prevent a severe contraction of the US economy. The problem is that mismanagement of the American economy has taken place for many years. The US manufacturing base has been all but destroyed. If it weren’t for Boeing and a few other high tech manufacturers and American farmers there would be few products made or produced in America that foreigners want.

American energy policy is a complete failure. We now import over 66% of our crude oil and that high percentage is increasing. Not only that but we import about 18% of our refined products requirements. In addition, we burn about 1,700,000 gallons of fuel every day in Iraq fighting a misguided never ending war. With a shortage of high value products to export and with extreme bills to pay for imported oil and refined products, including jet fuel, America is on a path to third world nation status. A total disaster is on the way for the American middle class.

With billions flowing overseas daily to pay for energy imports, with 12 billion a month being spent on wars in Iraq and Afghanistan, with the US relying upon China, Japan, and other nations for funds to keep on going the future of the American Empire looks increasingly grim. By running up such a trade balance with China, they now hold some 1.4 trillion dollars in foreign exchange, most of it in Dollars, we have given the Chinese the power to bring down the American economy any time they chose.

All the Chinese would have to do is to start aggressively selling US Dollars on foreign exchange markets. The panic that would follow would quickly take the US Dollar down to levels that would create hyperinflation in the US as oil and all imported goods prices soared in Dollar terms. Yet, our government seems to not at all understand this. Our elected officials visit China and lecture the Chinese on how to run their own government. It is not wise to insult those that you depend upon for living money.

High energy prices and all of the complications that they bring are a disaster for oil deficit nations like the United States. We continue to borrow huge amounts of money from the Chinese and our financial institutions accept billions in investments from sovereign wealth funds and the like just to stay afloat. Giving so much leverage to foreigners over America’s affairs and assets can not possibly be good long term foreign policy for the US.

The golden rule is more valid now than ever. While the Chinese would be hurt along with the US should they start to dump US Dollars in mass, as that action would decrease the value of their remaining US Dollar holdings, the Chinese are very smart financial operators. Over the past few years their domestic economy has progressed to the point where the Chinese do not depend upon export markets nearly as much as the US may think. As their domestic market continues to grow the “golden rule” weapon could be used by the Chinese to win a global dominance war without firing a shot.

Even if America wakes up now to the seriousness and dire consequences of its energy problem and spend, spend, spend policies and starts to take needed actions it is probably too late to prevent serious damage to the American economy and a drastic reduction in the lower and middle classes standards of living.

And we had better learn to be nice and polite to the Chinese government. They are destined to be the next global superpower as at their present rate of growth the Chinese economy will become the largest in the world in about ten years.

We should make every effort to remain friendly with the Chinese. They have in fact become our banker and it is never wise to offend those to whom you own large sums of money.

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