Tag Archives: U.S. debt

debt, oil and renewables [by Maximilian Staedtler]

download U.S. debt chart: http://www.whatmattersweblog.com/wp-content/uploads/2009/10/us-gross-debt-1910-2010.pdf

In recent years, the U.S. turned to cash-rich China to finance its enormous budget deficit. Few believe that China made a good investment. And yet, China keeps lending money to America for one simple reason: if it refused to do so, the U.S. dollar would nosedive and wipe out the value of Chinese currency reserves. Moreover, the U.S. consumer is vital to China’s economic growth. Therefore, China will continue to lend America billions of dollars until the Chinese consumer is ready to step in and drive domestic consumption. But that will take quite some time. The Chinese have the world’s highest personal savings rate and this won’t change unless the Chinese government manages to establish a reliable social security and insurance system.

The obvious reason why the U.S. will never pay back its debt to China is that it’d be impossible for a U.S. president to explain to Americans why he wouldn’t use the money to invest in the American education system, rebuild the ailing infrastructure or prop up the broken health care system.
As I said before, reducing the total amount of debt is illusory, but that doesn’t mean that debt as percentage of GDP can’t be reduced. As you can see on the chart above, gross national debt accounted for roughly 94% of gross domestic product in 1950, but while the total amount of debt more than tripled from $257.4 billion in 1950 to $909 billion in 1980, the percentage of GDP went down to 33.3%. How come this is possible?
Well, GDP was growing  faster than debt.
Rather than worrying about how to pay back mounting debt, we should think about how to grow the U.S. economy.
To achieve the growth rates we need to get the debt level under control again, we need a new key industry, something similar to the IT revolution.
 
Fortunately there is an industry which has the potential of becoming the driver of a new period of high growth rates: clean energy technologies.
Energy is the biggest business in the world. According to Fortune magazine, America’s five largest corporations are ExxonMobil (1), Wal Mart (2), Chevron (3), Conoco Phillips (4) and General Electric (5). 
Have you noticed something? Yes, 3 of the top 5 largest corporations in the U.S. are oil companies. Probably that doesn’t come as a surprise for you.
Since global oil production is close to its peak, western oil companies are falling behind state-run oil giants from the Middle East and South America and because of the harmful effects on the environment, the U.S. will be forced to shift to alternative sources of energy. This should be reason enough for Big Oil to invest in alternatives, even if just to remain a big player in the energy business.
Gradually we’re becoming more sensitive to the true cost of oil. America’s addiction to oil is not only harmful for Mother Earth but also for our security and the well-being of our economy. Domestically produced energy from both conventional and new sources of energy are keeping money locally and creating jobs instead of funding petro dictators and global jihad.
Too often I hear concerns about whether renewable energies can be scaled up fast enough to replace ever more expensive and dirty fossil fuels. The point is that once the development and production of clean energy and energy-efficient cars, homes, etc.. is getting kicked off, the American market will take charge of growing that business to a scale we need and at the same time bringing down costs.
The great thing about a green energy revolution is that it will help the U.S. economy regain strength (and solve our problem number one) and at the same time counteract climate change which is our second major problem. 
In addition, once the U.S. and much of the developed and developing world can effectively reduce oil consumption, this will reduce the threat of terrorism and radical religious groups which depend primarily on Saudi and Iranian oil income. As oil revenues go down, populist leaders from Venezuela to Iran will be forced to become more humble and reform their countries rather than distribute oil wealth.
Contrary to James Quinn’s predictions, I am convinced that there are reasons to be optimistic. As bleak as the outlook may be, one may not underestimate the innovative potential of the American market. Since there are enormous opportunities for profit, it won’t take long until creative entrepreneurs come up with countless ideas of how to generate energy more sustainably and how to use it more efficiently and earn a fortune along the way. The next Google or Microsoft will likely come from the energy tech sector. Let’s do everything we can to make sure that this  industry takes off and sparks a revolution that puts America back on track.
The profit potential in that market will be unprecedented. A strong energy tech sector is bound to drive up exports as global demand will be mind-boggling. Especially energy-thirsty China which is struggling with its spoiled environment will import whatever technologies it can get to satisfy its economy’s energy demand while keeping the impact on its environment as small as possible. Remember, this is not about CO2 emissions, it is about meeting future energy demand at a reasonable price without jeopardizing security and the environment.
Last but not least, alternative energies will not just be needed to replace fossil fuels but also to make up for unavoidable oil supply shortages. The availability and the cost of renewable energies will be increasing forever while at the same time the availability of crude oil is falling and the cost will be sky-rocketing.
Energy tech is America’s and the world’s best bet for the future. It is America’s turn to take action for two reasons:
#1: the U.S. consumes one quarter of the world’s oil though it just has 4% of the world’s population.
#2: America is the only country that can invent the technologies needed and bring them to the market quickly enough with its unequaled network of research universities, venture capitalist industry and millions of creative entrepreneurs willing to take on these challenges.
This article was originally published on www.whatmattersweblog.com on October 22nd 2009.
 
(C) 2009 by Maximilian Staedtler – WHAT MATTERS WEBLOG
(C) 2009 by Maximilian Städtler – www.whatmattersweblog.com
 
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