Martin C. Boire
www.TruthForUs.com
June 15, 2008

The Oil Ceiling

It is here posited there may be a maximum amount that can be charged for the critical substance of oil, a point at beyond which the price cannot rise, due to the final costs for all of the things that flow from its use, and which must be affordable, or else things stop. The proposition here is there is not always a higher price to which that which we must absolutely have can be raised and will be able to be paid simply because we must have it. For example, one simply must have a gallon water every day, but one cannot pay $100 a day for it because one does not have that $100 every day for the one necessary among the many necessaries.

I am not an economist. But it has been said in economic discourse that when the United States catches a cold the rest of the world catches a fever.

So it may be that everyone is on the verge of discovering we are all at a tipping-break point in the oil business, a point at which the oil producing countries or entities find that for their own sakes they have to assure that the U.S. economic engine must be enabled to continue to run and drive the sub-engines round the world. That something other than the purely free market will come to be involved in the creation and distribution of the life blood of the world’s well-being.

This is because the United States is still the economic engine that drives the rest of the world’s economy. Think of a mill town, in which everything else is driven by the activities of the mill.

The U.S. economy is the world’s largest. Even large countries which have rapidly growing economies do not yet compare. And those which are growing to our level depend heavily upon us to buy the gods they manufacture in order to continue that growth, and upon the purchasing power of other countries who buy their goods and have that purchasing power because the U.S. buys the goods from those other countries. If people in the U.S. are not spending to consume the products of the other countries, those people will have less to spend, and so on.

And while China may be booming, that does not mean that India’s population can buy enough of China’s products to keep China in business. Or visa-versa. Nor do the Africans have the money to buy it all. Nor do the South Americans.

Oil and gas prices keep climbing.

What if there is a point at which the American engine starts to sputter. That is, a point beyond which gas prices cannot go or the engine cannot internally afford to run.

As prices first began to rise, American people and companies absorbed the increases by tightening in other areas of their budget. Then those areas got used up.

Then they started to pass some of the increase to others. Airlines raised their prices. Trucking companies that haul goods to the stores shelves raised their rates. Domestic delivery services like DHL, UPS, and FedEx raised their rates. Small service companies that go around and fix or maintain things raised their rates.

But their customers had less money to spend because they themselves were paying more for the gas in their personal cars, electric bills, and companies that had already raised their rates on them. And their wages had not gone up And some 2008 presidential candidates are telling them their taxes are going to be going up.

So the customers/consumers are pulling back in. People are starting to fly less. People are starting to drive less. People are starting not to take trips. People will order less goods on line because of the shipping cost. With less travel, hotels and restaurants make less, which means people are laid off there.

As this expands, the economic engine will slow because less is happening, there is less movement, fewer goods are flowing.

As all of this pushes against the maximum limit that a person or business has available to pay to get the fuel it needs to do its thing, it reaches a point where it will stop growing. It will tread water. As the cost continues to go up, it will do less of what it is doing (because it cannot afford to even keep tread water at that current level). It will then reduce operations in other areas to be able to have the money to get the fuel it needs. It may lay off a worker. It may fail to pay sales taxes, matching tax on wages, or income taxes. If it is a business that involves driving or transport it will shrink the distance at which it reaches out to do businesses.

It is thus posited that there is a maximum amount that can be charged for the critical substance of oil. A point beyond which it cannot go due to the final costs for all of the things that flow from its use, and which must be affordable to U.S. people and business, or else things stop. There is not always a higher price to which what we charge can be raised. There are in fact maximum prices that can be charged for some things before people cannot buy enough of them to do what they have to do.

It is not the case that if and as our engine falters, others like China, India, Russia, or the EU will pick up the slack can carry the world economic engine without the U.S.. That would be like expecting the hat shop owner to carry the town entire economy when the mill lays off half of its workers. Or the subcontractor who makes a few of the parts for the mill, and is perforce dependent upon the mill, and who cannot step into the shoes of the mill and carry the entire town’s economy in place of the mill.

In our economy everything is interconnected and affects the balance of everything else. Ripple effects are involved. As people and businesses are now reaching the maximum extant of fuel costs they can absorb or pass one, things will begin to affect other things and we will be reminded of how interconnected we really are to each other and our pocketbooks in this economy of ours.

For instance this writer’s local Daytona Beach gas station owner already ran out of his reserve and working capital to purchase the gas to fill his tanks to sell to his customers. He doesn’t have the $36,000 working funds to buy the tanker full of gas to fill his tanks, just to make a penny or two a gallon for himself. For weeks signs have been on the pumps that he does not have gas, and is now just a convenience store. This writer recently found another such gas station in Tampa.

The bulk of the world oil is owned a produced by entities outside the U.S. OPEC. Venezuela. Russia. They need our economy going strong to be able to keep theirs going strong. While other nations’ economic engines may be growing (India, Russia, China), they won’t carry the world decades. And they don’t want their economies to be depressed for decades waiting. I bet they believe they need to keep us going to get to their economic destination. So they will want to keep things sort of the way they are right now, at least until they have grown to be mostly our equal.

In economics, it may be that domestic security is largely found in maintaining the economic status quo. People love it when things are booming and money is easy (our U.S. population is spoiled and ignorant in this regard), people whine when things slow down a bit (to cope with this one 2008 U.S. presidential candidate is telling people not to worry because those costs will be shifted to the government as if the means it costs them nothing), but people go crazy when the economy stops and they can’t readily get what they need (and in this situation a point arrives at which revolution is discussed).

So it may be that we are at a system-break in the oil business, a point at which the oil producing entities and countries realize that for their own sakes they have to assure that the U.S. economic engine must be enabled to continue to run and drive the sub-engines around the world.

That is, perhaps oil is the one unique substance that regardless of the usually supply and demand market forces, must be artificially controlled in order to assure the economic stability of the world. To avoid economic implosion or chaos.

That is, regardless that another country or hedge fund may offer to pay more per a barrel of oil, it will not be sold to them because it is not in the world’s best interest.

Or perhaps a point at which oil is removed from the things upon which speculators may speculate in the stock market. Like not bidding for the blood supply. Like not bidding for body parts and organ donors. Such things are pegged on standards like first-come first-serve, greatest likelihood of survival, likelihood of greatest benefit to others.

Consider that if, for example, the U.S. is country A, and country B is willing to pay twice as much for oil as A, it will not be sold to them for that because if A is out of business everyone is out of business.

So the producers will sit around and dish it out. It is unlikely they will turn control of their property over the UN or some other such silly entity. It is their product. It is a natural resource that comes from within their borders. They will set their own standards and make their own judgments as is their right.

When there is a shortage of a critical substance, i.e., not enough to go around, it is rationed according to some standard. In a disaster medical care is rationed according to likelihood of survival, importance to others, availability of time, and the like, and called triage.

If the oil producers want to treat everyone the same and not have to made distinctions, then they may first hand it out in accordance with the percentages with which it was being previously taken. Maintain the consumptive status quo. Tell the consumers to make up the difference elsewhere and elsewise.

If the oil producers want to prioritize, then they may hand it out based on who is most important to the economic health of the rest. Keep the U.S. economy going as a first priority. What a barrel of oil cost yesterday, it will cost tomorrow.

This is a dangerous time for internal U.S. politics. Possibilities loom of a great depression, or of the disastrous economic decisions of the 1970s, or of a large scale financial restructuring. And this writer muses that there is now an undercurrent of socialism at play under other names in national politics, and the some 2008 presidential candidates will seek to use this situation to make people Dependant upon a socialistic American government to pass out what is needed and return votes in exchange.

What happens with fuel has remade and reshaped many societies thru history. And how this plays out will dramatically affect ours.

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