How the West was Lost
- War, debt, yadda yadda
- They’re drinking our milkshake
- A central bank you can trust
While the leadership in the United States quibbles about whether we’re at war in Libya, or we’re not (hint: we are), or whether we should reduce our deficit by 0.23%, or not (that’s the $33 billion Congress is currently debating), the developing world continues to care less and less.
Take a look at the charts below, which I gleefully borrowed from a recent Bank of Japan report on commodities:
We’re well past the point of being equal partners in the usage of the world’s energy resources. If the chart on the left is any indication, we’re actually well on our way to becoming rather inconsequential as a global energy consumer.
And from the chart on the left, it’s pretty clear that any growth in developing world energy consumption means a commensurate decrease in energy consumption on a percentage basis – but what might not be so clear from the chart on the right: we’re at a point when there’s very little room for emerging world energy consumption to increase without necessarily decreasing energy consumption in the developed world.
To butcher a quote from the 2009 movie “There Will Be Blood” – the emerging markets are starting to drink our milkshakes.
The coal milkshake went first. China surpassed the United States as the world’s largest coal consumer in 2009. Today, China uses more energy than the United States, by a 5-10% margin depending on who you ask.
What’s the next milkshake? It might be oil. China’s oil consumption doubled in the last 6-7 years:
If that consumption doubles again, China will use just about as much oil as the United States. With Chinese growth practically pegged at 10% per year, their oil consumption could easily double in that time.
Let’s say they only grow by 5% per year, and their oil consumption continues along that path as well. Where do you think that extra 5% per year of oil consumption will come from?
Remember: we’re past the point of peak oil production.
That’s not me saying so. That’s the United States Department of Energy saying so.
We likely saw oil production peak back in 2008.
So if China continues to drink more milkshake, a significant portion of that milkshake will come out of our share.
China drinking our milkshake is bad enough.
But at the same time, our central bank thinks it’s a good idea to continually make that milkshake go up in price.
I’m so glad that the Bank of Japan came out with the report I mentioned at the beginning of the article, and frankly, their analysis and insight spells out the situation more clearly than I possibly could.
So I’ll leave you with a quote from the BOJ that sums up what’s going on right now and why commodity prices, (not just oil) are skyrocketing and will likely continue to do so:
“…global commodity markets have become more sensitive to portfolio rebalancing by financial investors, which has made commodity markets more correlated with other asset markets, including major equity markets. Furthermore, globally accommodative monetary conditions have played an important role in the surge in commodity prices, both by stimulating physical demand for commodities and driving more investment flows into financialized commodity markets.”
Here’s to knowing the truth,
Kevin McElroy
Editor
Resource Prospector
