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American oil in a word is – OURS.  We Americans give up our ownership of this valuable part ofAmericabecause the federal government, custodians of American land and trustees of our collective interests, have used a system of selling these rights to private companies – the oil and gas companies.  This is not a slam against Washington or the oil and gas companies, since for years this has been quite successful.  But the world has changed, and it’s time for us to change; especially how our rights are sold and/or transferred.

 Here is how I understand the current system works; and this is subject to correction.  The federal government through The Department of Interior leases land to gas and oil companies both onshore and submersed lands on the Continental Shelf.  These are lands owned by Americans that the federal government is responsible to getting the greatest rate of return for its citizens.

 Through a series of very detailed and meticulous calculations, the Department of Interior determines the value of various lands for lease and offers them, based upon an estimated amount of oil and gas beneath the surface.  These leases are sold at auction.  Oil companies bid for these leases that include a cost for the lease and a royalty for any oil or gas produced from the leases.  And the money goes to the federal government. Continue reading →

As of this writing gas prices are quite high and appear to be on their way to record highs. Everyone is concerned and they seem to not know what to do – especially our elected leaders. For decades going back to the early 1970’s when the OPEC oil embargo started up one of the deepest recessions and more important one of the longest downturns in recent history we have searched for an energy plan. And yet we have never had a comprehensive nor a practical policy on how to protect the country for the harmful impacts of oil prices.

Why are oil prices so important? Not just because they are high, but since 1973 they have been the trigger to every recession in the United States. Look to the following graphs. They are broken in two since gasoline prices have risen so much in the last several years that the early years are lost in the analysis (as can happen with graphs). Can you tell when the recessions were? They are listed below the graphs. 

November 1973, January 1980, July 1981, March 2001

December 2007

In every case, the recession parallels the sharp increase in gas prices (excepting late 2011/early 2012, but economic data is still coming in and frequently “corrected”)

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Not long after this recession hit I was hearing all the politicians and news people proclaiming this current recession as “the worst since the Great Depression”.  Even our president and other economic advisors proclaimed this as the worst.  Of course I scoffed at this since I did not believe it even measured up to the recession in 1980/81.  I felt like an old timer saying this, since many I was saying this to had not yet been born.  How do I know this and why?

 I graduated from business school in March of 1980 and began my finance career in commercial banking in May 1980.  Six months after entering the commercial lending world, the prime interest rate hit its high of 21½ %.  Unemployment was high and the worse was the inflation rate which was 12%.  I believed it was this inflation rate that made it worse – I am still not totally convinced it was not.  Some have said “what about the interest rates – wasn’t that the worse?”  Of course it was, but compared to our current day recession it is equal.  Say what?  You must be kidding?!? 

 At 21% we were lending, we had to just to keep companies afloat.  Today, although somewhat better, the banks are still not lending money; so the interest rate does not matter.   3% or 21% – if you are not lending, the rate doesn’t matter. A lot of the current population did not live during this time and has not “tasted” the scourge or inflation; at least as it is measured now.  I think we are living it, it’s just not being reported as such and that makes it worse.  Ah… that is for another article.

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Picture this – a majestic cargo ship, “The United States” (The US) steams out of port to the rest of the world with its cargo – billions of dollars to invest in far away lands.  Another majestic cargo ship, “The Republic of China” (The China) steams out of port to the rest of the world with its cargo – trillions of dollars to invest in far away lands.   Its first stop is the United States where it hopes to unload billions of dollars of its cargo.

 The captain of The US is told to unload his cargo, wait for factories, manufacturing facilities, fabricating facilities, call centers and so forth to be built and then load his ship with the products and services made and come home.  When home the products and services are “unloaded” and millions of dollars are loaded on The US and it is sent out again so “payment” for the products and services is made.  With enough product, the owners of The US shut plants in the US and lay off workers as they are not needed and are more costly than those overseas.  And the owners of The US add to their treasure.

The captain of The China does not have specific orders.  Look for investments and make them as soon as possible he is told.  Simply wait and the cash starved politicians (mayors, governors, economic development concerns, etc.) and societal leaders will rush to you with many offers and many deals. 

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