Click to enlarge.
Here's the math behind the black line. You take the monthly product supplied in a given month and multiply it by the WTI spot price of oil for that month. You then adjust that amount for inflation to get it into current dollars. And finally, you add up the results starting in 1981 to get a cumulative total.
Here's the math behind the red line. You take the outstanding federal government debt in a given quarter. You adjust it for inflation to get it into current dollars. That's the real debt. You then subtract off the real debt that we had in starting in 1981. The difference is how much the real debt has grown since 1981.
When looking at the chart, one might think that it is our long-term plan to simply borrow oil. One might think that. Good thing we know better.
Dick Cheney
"You know, Paul, Reagan proved that deficits don't matter."
"Oil remains fundamentally a government business."
If my blog is mysteriously shut down and I am never heard from again, then please, for the love of all that is holy, do not contact the authorities. It will be too late for me. Save yourself, lol. Sigh.
Source Data:
EIA: U.S. Product Supplied for Crude Oil
St. Louis Fed: Spot Oil Price: West Texas Intermediate
St. Louis Fed: Federal Government Debt: Total Public Debt
St. Louis Fed: CPI
Are we in a BTU deficit? A structural BTU deficit?
ReplyDeleteCP,
ReplyDeleteFor what it is worth, I'm not seeing any lines at the gasoline stations.
The electricity to fire up the TV still seems reasonably inexpensive.
Heating my home with natural gas this winter was pleasantly uneventful.
And then there is always Mr. Fusion. Wouldn't that be a game changer.
I guess I'm having a hard time believing in peak energy.
It will be interesting to see what happens to oil if China crashes hard. That could potentially lead to some divergences in this post's chart.
Just opinions of course, as usual.
ReplyDeleteWhen looking at the chart, one might think that it is our long-term plan to simply borrow oil.
ReplyDeleteSome might disagree, but I think our long term plan is borrow everything, exchanging promises in the form of computer digits for real goods and services. The government, especially, wants to do this as long as the world lets us.
It worked for Greece until it didn't and it will be the same with us.
Maybe I am crazy, but I don't like this policy even if I am benefiting from it right now.
Mr Slippery,
ReplyDeleteHaven't you heard? We've finally mastered the art of bubbles. Nothing bad can ever happen again.
And now, my beloved disciples. The moment of truth... the needle of love. - Lo Pan, Big Trouble in Little China (1986)
And, for those who chose to learn nothing from Greece, Portugal is up and Spain warming up in the batting cage.
ReplyDeleteThe HSBC survey of mostly small and medium manufacturing in China showed continued contraction...I guess the bet is the Chinese gov't. will take the pain to maintain jobs and stability...but it one helluva bet.
fried,
ReplyDeleteAnd, for those who chose to learn nothing from Greece, Portugal is up and Spain warming up in the batting cage.
We must not speak of the 800 pound ostrich in the room! ;)
Ostrich effect
Galai and Sade (2006) explain differences in returns in the fixed income market by using a psychological explanation, which they name the "ostrich effect," attributing this anomalous behavior to an aversion to receiving information on potential interim losses.
"Oil remains fundamentally a government business."
ReplyDeleteThis is actually an accurate statement. In most countries, oil resources are explicitly controlled by the state (Norway). Perhaps nationalization of US oil assets is not a bad idea. Can the oil co executives. The majors are dependent on their sponsoring govts for the most part anyway.
Since the oil crash in 1982, pretty much all marginal oil supply has come from overseas. The suppliers recycle their cash into Treasuries.
ReplyDeleteVendor financing!
Scott,
ReplyDeleteThis is actually an accurate statement.
Yeah, I agree. I didn't mean to imply that it wasn't. And just so I'm clear on the other statement, I very much think deficits matter. We cannot simply borrow our way back to prosperity.
I just made this chart:
ReplyDeletehttp://research.stlouisfed.org/fred2/graph/?g=5TI
and it momentarily stunned me.
Recasting the numerator to flows, to match GDP:
http://research.stlouisfed.org/fred2/graph/?g=5TK
I call this chart "Challenger, Go with throttle up"
I was curious what http://research.stlouisfed.org/fred2/graph/?g=5TJ was . . .
ReplyDeleteyup, same story.
Troy,
ReplyDeleteThis is change in total domestic nonfin debt / change in gdp , along with money flow :
http://research.stlouisfed.org/fred2/graph/?g=5TI#
Intersting that money flow is strong when dollars of debt added per dollar of gdp is low , and weak when it is high.
This what you were going for
ReplyDeletehttp://research.stlouisfed.org/fred2/graph/?g=5TP?
yes, there is a story to be understood there.
I think it is the trade deficit ripping trillions out of the paycheck economy, 1996-now.
We used home debt take-on to counter-act that parasitical loss last decade, and are using public debt take-on to keep the game going now.
That's my thesis at least. I don't know what I'm talking about, really.
Troy ,
ReplyDeleteSorry for the bad link. You fixed it , though.
Yes, the current account is obviously a part of the story. The neoliberals said it was a good sign that China would lend us the money to buy their goods. Ha!
P.S. I don't know what I'm talking about either , but does anybody ? I have serious doubts.
hmm, the "5TK" chart above was screwed up.
ReplyDeletehttp://research.stlouisfed.org/fred2/graph/?g= 5TU is corrected.
1975-1985 in my thesis was the baby boom turning 25, forming dual-income households, and pushing the economy forward.
That people don't understand that debt rose 25% to GDP in 2005 is by design I guess.
I believe my title for this chart before was "Malpractice".
Troy,
ReplyDeleteWe used home debt take-on to counter-act that parasitical loss last decade, and are using public debt take-on to keep the game going now.
That's my thesis at least. I don't know what I'm talking about, really.
I am a complete believer in the thesis so perhaps I don't know what I'm talking about either.
It's understandable. We are not economics professors sitting in ivory towers reciting 200+ years of American history. We haven't been officially trained to know what we are talking about, lol. ;)