Thursday, June 7, 2007

Crisis? Don't Buy It

By Captain Capitalist

It's a commodity we've come to depend on for our very way of life. It's trade has brought about the rise and fall of cities, countries, entire regions of the world. Wars have been fought over it. Wars have been won and lost according to who had better access to it. It's been used as a currency, a status symbol and an international diplomatic bargaining tool. I'm talking about, of course, salt.

Yes the commodity we all take for granted today and even dump on our highways by the truckload every winter, was once very litterally, a king-maker. Salt was a highly sought after and fought over resource for at least 4,000 years. Timbuktu was once a world economic superpower because it was centered on salt trading routes. What happened? Technology and innovation has made it almost universally accessable and cheap.

Today's commodity market king of the hill is oil. We've come to depend on it for so much that it's easy to forget, we've only been economically addicted to the substance for 50 or 60 years. If the history of homo-sapiens were a day, that would be about 45 seconds. It's true that it has helped give rise to the largest, fastest rise in world economic development in history, but if you're counting on it reigning supreme over the long term, or even for more than another generation or two, you're in for a rude awakening.

Here's the reality of the current situation. We've been lead to believe that we're in the midst of a global energy crisis. The fact is that the world has enough total fossil fuel reserves, even by pessimistic estimates, to feed our energy jones for another century or so. There are a number of alternative fuel sources under development, which will be widely commercially available, competitive, and likely economicially superior choices, well before then. Fusion's a biggie, but probably 50 years off at the current rate of development. Other technologies like Thermal Depolymerization, Fuel Cells, Electolysis (which will produce hydrogen from water for both fuel cells and internal combustion), Hydrogen on Demand (from borax), Sterling Solar and Biodiesel, just to name a few, are almost ready for prime time now. When one crosses that threshhold of being cheaper, cleaner and at least equal in performance to gasoline, it won't take 25 years to deploy. The market wont leave it up to current government and industry leaders to figure out how to make it available. Entrepreneurs and risk takers, as always, will get the job done without their blessings.

So why the big paranoia over a commodity that will be largely obsolete long before anybody runs out of it? The many parties who benefit most from the oil market status quo have done a great job recently of controlling supply, regulating production, discouraging alternatives through selective subsidies and tax incentives and generally selling the idea that we can't live without it and that trying to do so would be economic suicide. This can slow, but wont stop market evolution. Change wont be gradual. I don't know when, but relatively soon, the oil market is going to fall hard. Here's what to look for preceding the event. Mechanisms will be created allowing average consumers to purchase oil and gas futures fairly easily. Brokers and trading houses will run constant commercials advising everyone to "get in now" before it's too late. The price of oil will go insanely high, then suddenly, the bottom will fall out. The same folks who bought into the Y2K scare and loaded up on any stock that had the word "intenet" attached to it just before the bubble burst will be left holding the bag.

So what do we do about energy prices today? Today we deal with the reality of today. But sleep well. The sky is not falling. Keep your eyes and ears open, your objective thinking cap on, and remember, so far everyone who's forcast the end of the world has been wrong.

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