Wednesday, July 16, 2008

IF THE COUNTRY WERE FOR SALE, WHAT WOULD IT COST?

The Author came across an interesting article on MSN Money entitled “How Much Oil it’d Take to Buy the US”. Not as much as one might imagine.

As of March of 2008, the combined oil reserves of Iran and Saudi Arabia would buy the country. This estimate is based upon oil costing $140.00 per barrel and the net worth of the United States at 56 trillion dollars.

Oil has fallen from $140 per barrel to 134.82 (as of July 16th). But readers can get the general message. The article contains a graph (reproduced below) that begins in 1970 when the household worth of the US was 3.4 trillion and the price of oil $3.18 per barrel. At that time it would have taken 1.1 trillion barrels of oil to buy the US.

Household net worth/ Price of oil/ Barrels to buy America

1970 $3.4 trillion/ $3.18/ 1.1 trillion
1975 $5.1 trillion/ $7.67/ 670.3 billion
1980 $9.5 trillion/ $21.59/ 438.6 billion
1985 $14.2 trillion/ $24.09/ 589.7 billion
1990 $20.3 trillion/ $20.03/ 1.1 trillion
1995 $27.7 trillion/ $14.62/ 1.9 trillion
1998 $37.4 trillion/ $11.18/ 3.3 trillion
2004 $48.1 trillion/ $42.00/ 1.1 trillion
2007 $57.7 trillion/ $120.00/ 481 billion
2008 $56 trillion/ $140.00/ 400 billion


A BRUTAL CORRELATION. A SAD STATE OF THE NATION.

Three salients can be drawn from the graph:

1. Relative to the price of oil, the country is at a bargain basis price.
2. Economic growth has been anemic over the last four years.
3. If oil keeps rising and the economy keeps underperforming (remains at a net worth of 56 trillion), Canada with its 179 billion barrels could buy the US if oil hits $313 per barrel (5.6 (12) /1.79 (10) = 3.13 (2) or $313 per barrel). Oh, Canada! Saudi Arabia with 560 billion barrels owns the joint at only $215 per barrel (5.6 (12)/2.6(10) = 2.15 (2) or $215 per barrel)

The lesson is clear. Ceteris Paribus, America will be worth less and less in a world where oil prices accelerate. The solutions lie in slashing oil use, more efficient use of the oil remaining, and a shift to alternative and renewable energy sources with all deliberate dispatch.


IN THE DESERT OF THE REAL, CHANGE AIN’T LOOKING FOR FRIENDS. CHANGE CALLS THE TUNE AND WE DANCE TO IT (Paraphrasing Al Swearengen, a Character in “Deadwood).

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