Saudi Arabia is running the U.S. economy.
I'm not sure the Saudis want the task, but they've got it. Because the United States still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry.
Yes, it's the lack of a national energy policy that allows the Saudis to exert this control over our economy. I would politely suggest that the reason we are so dependent on the Saudis is that we have tried to enact a national energy policy in the past. Every time the government has gotten involved in energy policy over the years - and that is disturbingly frequent regardless of Mr. Juback's yearning for more - it has made matters worse.
Energy policy is not the only area where Mr. Juback seems to yearn for the good old days of central economic planning:
Remember the good ol' days? Back when the U.S. Federal Reserve and its chairman were in charge of our economy? The Fed would try to find a delicate balance in setting interest rates: High enough to control inflation and low enough to encourage economic growth. Once upon a time, those policy changes were actually the most important decisions anyone made about the U.S. economy.
Yeah, that's the ticket! Let's get government employees back in charge of the US economy. If someone is going to exert control over the economy, let's make sure they are US government bureaucrats. The reason this attempt at control always fails is revealed in Juback's own words. "The Fed would try to find a delicate balance in setting interest rates: High enough to control inflation and low enough to encourage economic growth." The key word in that sentence is "try". The Fed can no better "find" the right price for interest rates than the Soviets could the price of toilet paper. In case Mr. Juback hasn't heard, markets are much better at setting prices.
Furthermore, Mr. Juback doesn't seem to get the connection between excessive liquidity, oil prices and oil demand. In one paragraph, he laments the Fed's lack of control due to excess liquidity:
By the Fed's own admission, the growth of global liquidity has reduced the U.S. central bank's ability to control interest rates -- and thus the economy -- in the United States. Think about this: The Fed raises short-term interest rates relentlessly from their 1% low in June 2003, and yet long-term rates sink as global cash flows overwhelm the Fed's domestic policy shifts.
Then he opines that rising global demand is what gives the Saudis some of their control:
One source of Saudi Arabia's economic clout lies in the galloping global -- and U.S. -- demand for oil. The U.S. Energy Information Administration forecasts that total world demand for petroleum will reach 118 million barrels a day in 2030, up from 83 million barrels a day in 2004.
Okay, let's see if we can figure this out. The Fed prints too many dollars. Those dollars are accumulated by the Chinese which causes the Chinese to print too many Yuan in an effort to maintain their exchange rate. The excess Yuan creation causes overinvestment and excess consumption in China which creates excess demand for oil from Saudi Arabia. And somehow that is the source of the Saudis power over our economy. Maybe, just maybe, if the Fed would quit flooding the world with dollars, some of that excess demand would go away. And we wouldn't have to depend on the good graces of the Saudis to maintain our standard of living.
According to Mr. Juback, this situation is set to get worse too:
I have bad news for anybody who thinks that this Saudi control over the U.S. and global economies is a brief phase that will end by itself. The decision among oil producers such as Saudi Arabia to shift away from being a mere producer of crude oil to becoming a producer of value-added products made from oil -- such as gasoline, fertilizer and plastics -- will prolong the economic clout of these countries. Saudi Arabia will go from being the low-cost swing producer of crude oil to being the low-cost dominant producer in gasoline, fertilizer and plastics.
All I can say is Thank God some nation wants to build refineries. Certainly, it is unlikely to happen in the US where environmentalist and their government enablers have succeeded in blocking any effort to build them here. Mr. Juback continues the article by talking about the cost advantages the Saudis have:
The cost advantages that Saudi Arabia brings to the game are huge. Methane and ethane, key feed stocks for petrochemical production, cost about 75 cents per million BTU in Saudi Arabia and $7.50 per million BTU (for methane) on New York commodity markets. Within five or 10 years, new industries now being built in Saudi Arabia are likely to soak up cheap natural-gas-feed stocks such as these.
Well the US has some pretty big natural gas fields too. There are trillions of cubic feet of natural gas lying just offshore. Oh never mind, the environmetalists won't let us drill for that either.
Apparently, the only way for us to regain some control is to conserve and use alternative fuels:
On the other hand, if higher prices lead to less consumption because consumers become permanently more efficient in the ways they use energy, and because consuming economies adopt lasting sources of alternative supply (and don't abandon them at the next dip in oil prices), then consuming countries have a chance to take back some degree of control over their own economies.
Well, here is my national energy policy. Drill for more oil and natural gas in the US. Then drill for more oil and gas in the outer continental shelf of the US. Build some nuclear power plants. Build some refineries. Then if we really want to get radical, enact a carbon tax. That will reduce demand for fossil fuels while also making alternative fuels more competitive. Last and most important, reduce the power of the Federal Reserve. In fact, eliminate the Federal Reserve. And someone tell Alan Greenspan to just please shut up.
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