Currency & Energy Crisis-Now At the Door

There has been a news overload for those that truly pay attention to what is happening in the world over these past few days and weeks.  The market is stalling, commodities are back on the rise, oil is back over $100/barrel, Wisconsin is in the middle of a budget crisis accompanied by protesting, riots are erupting again in Greece, revolution is going strong in Libya, Algeria, Bahrain, Jordan, Iran, Morocco, and many are stunted and confused as to what they should do.  The world is presently full of timely and relevant news, news that can and will affect all of us, yet CNN’s main headline article for most of today is an article about the movie “The King’s Speech”, an Oscar favorite.   The main article on Fox News today was “Jihad bomb plot busted in Texas.”  Again, mainstream news falls short.

Firstly, I must say that if there ever was a time….. now is the time to get rid of paper.  That’s right- paper money is quickly on the decline.  If you own dollars right now in a savings account or in a 401k, get rid of it.  Buy something of value, whether it is food, commodities, oil investments, gold, or silver.  Dollars will have little to no use by late 2012.  If you haven’t noticed, since the US Dollar’s acceptance as the World Reserve Currency, any time there has been uncertainty or war in the world, people have flocked to the dollar.  With the current problems in the Middle East and Europe, please be aware- people are no longer flocking to the dollar.  Today, the dollar lost against every major currency in the world.  This is just another huge indicator that faith in the dollar is gone worldwide.    In this current time of uncertainty and revolution, people are flocking to things other than the dollar to protect their assets.  At the same time, the world is seeing inflation created by the Federal Reserve at an ever accelerating pace.  The value of the dollar is now well on its way to the bottom- a harsh reality that we’ve been talking about for quite some time.  Our own government seals the deal on this currency crisis with their lack of willingness to meaningfully cut spending in any way.  They spend more time lobbying to raise the debt ceiling, than they do on real budget cuts. 

The United States is not only headed for a currency crisis by next year, but also an energy crisis.  As you know, most of our oil comes from the Middle East.  The US has had a deal with Middle Eastern OPEC countries since the 1970’s, agreeing that we would buy their oil (not drilling for our own oil here in the USA), if they in turn buy up our US Treasuries.  This has been the “under the table” arrangement ever since.  These OPEC countries have accumulated a huge reserve of US paper assets over the years.  The energy crisis will come when these Middle Eastern countries realize that they have been scammed and their paper reserves are worthless.  These treasuries through inflation won’t be worth the paper they are printed on.  Not only will they be angry, but do you think they will export any more oil to us here?  We will be left high and dry, to fend for our own oil.  The US will be forced to access the oil reserves that we are sitting on in our own land, but at an extremely high price.  China and Russia won’t be effected by any of this, as they just signed a deal confirming China will buy all of their oil from Russia using Yuan and Rubles instead of US Dollars.  China is displaying an eerie wisdom through these interesting times. 

Last year I predicted $150-200 oil for this year.  Many laughed and said, impossible.  I even had made a bet with a friend last year that Oil will reach $150 by the end of the summer.  He too was laughing at me, until this week.  Libya is the #3 oil producer in Africa, and is a main oil supplier to Italy and other parts of Europe.  As many of you have heard, due to unrest and revolution, oil production is shut down.  Libya exports 2% of the world’s total oil, and it is “out of service” for the time being.  This news was accompanied by a rally in oil prices to over $100/barrel Wednesday, and it has speculators in Japan even talking about possible $220 oil.  This speculation doesn’t even include the thought of inflationary increases.  These revolutions in the Middle East are far from over- they are just beginning.  As unrest reaches into Saudi Arabia- the main supplier of US oil- we will really see the price of oil increase, and I mean quickly.  What does this mean for us?

Energy price increases can disable business here in the US.  We are the most oil/energy dependent nation in the world.  To drive up the costs of energy, will drive many out of business, and will drive our standard of living through the floor.  There is so much volatility, and there are so many things right now that are set up to go wrong economically that if Americans can’t see a need for preparation, there is no hope for them.  We are witnessing a huge game of dominoes, and the first pieces have already been toppled.   Wisconsin is a clear sign that Americans still don’t get it.  

In Wisconsin, we have a situation where the governor is trying to balance a budget and at the same time keep everyone employed.  To do this, he must take away collective bargaining rights from the unions, and government workers must pay more cash into their health insurance plans and their pensions.  He is not attacking all unions, but only government unions.  His other option would be to lay off 6,000 workers.  This is clearly a difficult decision for anyone in office, but at the same time, not so difficult.  It costs approximately $130,000 to employ the average government employee, compared to $60,000 in the private sector.  These unions have bled the system to the point of bankruptcy.  The state has over a $3 billion deficit, with a population of only around 5 million people.  Yet there are mass protests from these government union workers.  They still don’t get the simple fact that we (the states, and the federal government) are out of money.  So many Americans are facing a rude awakening very soon. 

This same mentality has spread to Ohio, and Colorado even had a rally of union workers in the capitol this week.  My point is this- our people aren’t even hungry at this point.  Everyone is still fed, everyone has the basic necessities, yet we already have groups rising up against sound monetary policy.  We will be seeing more and more of these demonstrations as states attempt to balance their budgets.  We are headed for situations where teachers and government workers in other states will feel the need to go on strike to avoid losing portions of salary and benefits. 

This week in Providence, Rhode Island, the Superintendent of schools sent a letter to all 2,000 teachers in the district saying that they are all fired.  They are facing a $40 million deficit in the school system there.  This is of course a measure the Superintendent has taken to gain negotiation ability with the mayor, the school board, and the district to find other places to cut.  We will see this becoming more and more of a problem.  Schools may get cut, along with teachers.  Then what do you do with your kids during the day?  Again, the dominoes have begun to fall.  Please if you haven’t already take measures to prepare for the coming geopolitical and monetary changes.  This is not the end of the world, but it can be the beginning of poverty for the many that don’t prepare.  Oil is still going upwards of $150, the dollar is going to run out of steam by 2012, and we are headed for an energy crises and some tougher times.  Educate yourself and your families- that’s all I have for today.

-John F. Haettich  2/24/2011