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54 Trillion IOU and $200 Oil - 5/12/08

Dollar bills have doubled since George W. Bush took office and the known supply of crude oil has decreased by 13% over the same time frame.

When the human race started drilling for oil 150 years ago there was about 2 trillion barrels available. The world has burned up one trillion so there is we have one trillion left. During those same 150 years, America’s government liabilities went from $75 million to $54 trillion.

The federal deficit for the fiscal year ending in 2006 was $4.6 trillion up from $3.5 trillion in 2005. Federal obligations at year end were $54.6 trillion up from $50 trillion in 2005.

John Williams, founder of Shadow Government Statistics states, “has deteriorated beyond any hope of a solution within the existing system. Raise taxes? Even a 100% personal income tax would leave a deficit…Such circumstances in the past – though no nation on earth has ever come close to experiencing the level of fiscal and financial fraud now being perpetrated on the American people – typically have been ‘cured’ by revving up the printing presses and creating excessive quantities of money. The end result is a monetary collapse in a hyperinflation, with the currency becoming worthless.”

$200.00 oil does not sound so outlandish.

Federal Reserve chief Bernanke may think printing more money will get us out of this mess, but printing more money only caused the value of the dollar to drop. Goes back to supply and demand the more you have of anything like dollars the less it is worth. The opposite holds true for the soaring commodity prices “priced in dollars”. The supply of worldwide commodities like oil, corn, wheat is depleting causing the price to go up. With a falling dollar you just add fuel to the fire causing commodities to soar even more than they normally would during this commodity super cycle.

This growth in money supply started in 1971 when President Nixon removed the link between the dollar and gold. Changing the link from something of value ‘gold’ to a ‘faith based’ system.

This caused the U.S. Treasury to borrow vastly more money than it would receive in taxes piling up trillions in dollar liabilities. This has resulted in $1,000 gold and $125 crude oil.

Paper currencies many times through history from the Romans to more recently Zimbabwe have gone to nearly zero in value. Natural resources have never been zero. That is why in this environment of paper money natural resources like crude oil will only increase in price over time.

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