U.S. imports of oil have skyrocketed from 28% 30 years ago to 49% in 2010 [and if the price of crude oil were to skyrocket it would have devastating effects on the economy but be advantagous to the savvy investor. Let me explain.] Words: 368
So says Katchum (http://katchum.blogspot.ca) in edited excerpts from his original article* (which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has further edited below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.)
Katchum goes on to say, in part:
If oil prices were to double we would see:
- the U.S. trade deficit double too, more or less, given that oil imports contribute about $US100 billion/quarter towards the trade deficit which is 65% of the total trade deficit,
- the net earnings of different enterprises go down as production costs went up,
- tax revenues of the U.S. government decline resulting in
- an even higher U.S. government budget deficit,
- higher food prices (the world population is still increasing exponentially and would only start to decline in year 2040 (see Chart 1 below))…as 25% of all heavy goods transportation costs in the U.K. are due to the transportation of food while in the United States, transportation costs account for 14% of the total energy consumed by the American food system.
|Chart 1: Population curve|
- the economy come to a halt as transportation (the “life blood” of the economy) accounts for more than 60% of the oil demand in the United States (see Chart 2 below). Today, households use at least 1/5 of their income on transportation. If the oil price were to double, every household would spend almost half of their salary on transportation.
- higher inflation,
- a declining dollar because the alternative would be an increase in interest rates which would cause a crash in the banking sector and housing market.
- commodities like gold, silver, copper, zinc, potash, etc…rise in value.
To benefit from higher oil prices it’s safe to say that commodities are still your best friend.
* http://katchum.blogspot.ca/2012/03/what-if-oil-prices-double.html (To access the article please copy the URL and paste it into your browser.)
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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Instead of a secular change in interest rates, gold and energy prices [like we experienced in the 1970’s, this time round] we could well see a sudden, catastrophic shift in these metrics as control is lost across a broad front. This is why it’s so important for investors to be properly positioned ahead of that catastrophic shift. [Let me explain.]
Silver will climb to $68-$70 in 2 to 3 months once resistance at $35 is taken out… In many ways silver is positioned today like it was back in the summer of 2010… Regarding gold, as goes oil, so goes gold…and the bottom line is that the wind is at the back of the bulls in both the gold and oil markets.
I think scarcity in oil is a dramatic tailwind for gold. Politicians will inflate. They don’t want oil to bring down the economy like it did in 2008. Remember, this inflation will take place with commodity prices already high. So this will create significant inflation. This means higher gold and silver. Gold at $3,000 by the end of the year, easy. Silver $60, $70, easy.