Why so? Something is becoming apparent about energy as the economic driver of the present. No one really knows what it takes to maintain energy stability among nations, or even whether it's possible or politically desirable to do so. That's true not just in the long run, but also in the short run, as energy production is an international game board which is constantly in motion.
This should not be problematic, for much of productive economic activity occurs within close distances. And it would not be problematic, if improvements for spatial economic capacity and time use aggregates were already on the table. Perhaps because such important discussions are not yet taking place, central bankers have become too reliant on energy and commodities, as government versions of consumption led economies have begun to stall - both in terms of services formation and the housing market.
Because of their always reasonable production costs, Saudi Arabia continues to hold sway over oil production to a greater degree than has been acknowledged. That's $25 a barrel presently: oh my. Sure, everyone could wait and produce more expensive oil when Saudi Arabia basically runs out, but there have been plenty of political reasons all along, not to wait. Only consider the last time Saudi Arabia played havoc with Russia, through the oil markets of the two nations. A long time ago? It does not feel that way to me at all.
At some point I'm going to dig through some old Wall Street journal articles from a decade earlier, because one of them explains that nineties story in excruciating, up close detail. Whereas a quick Google search only came up with recent examples of the renewed "battle" of which Russia is now only a part. In the nineties, Saudi Arabia's low production costs made it possible to affect the lives every Russian citizen in the worst ways possible. Reflecting on my present day aversion to wealth formation as based on commodities in general, that comprehensive WSJ story must have played a greater role than I realized.
Even though Russia stands to lose the most in the latest fallout, they will be far from alone. In the U.S. heartland, some recent fracking efforts could well hit the skids. News reports are already honing in on small town "empty" restaurants, which only yesterday were filled with oil workers.
In spite of a diverse economy, this only serves as a reminder that rural America in too many instances is anything but diverse. What happens to rural America, eventually comes knocking at the door of more prosperous regions. What's more, should oil prices remain low, some of that Texas "miracle" will certainly be tarnished.
So this is a good time for me to make a request of the Fed - perhaps one might even call it a plea. It is this: Oil can be a great wealth builder for nations. But please, please, please. Quit relying on oil production and its commodity counterparts to the degree you have, as central components of wealth. When different nations have such frightfully different oil production costs, relying on the energy economy as central, is just not a good strategy for the long run. In some respects, even the earlier reliance on gold as monetary base could scarcely have seemed as problematic.
Between recent energy events and the latest round of battles over the ungodly liquidity trap (a concept which refuses to die), my mind has been a tangled mess in which it is difficult to even put together a cohesive post. So today I'll keep it simple: make time value central to economic life, where it belongs. After all, many commodities besides oil remain at stake, if production and consumption are not defined on more inclusive terms.
Time value trumps commodity value, every time. It is the primary source of economic stability in the long run. When citizens are finally allowed to be front and center of their own economies, perhaps central bankers will not remain in the quandary which exists for them now.
Update: This, this, this is why wealth needs time value as a base: http://www.sliptalk.com/abandoned-town/?utm_source=fb-abandon&utm_medium=boost&utm_campaign=abandoned-town
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