I haven’t always agreed with Tom Friedman’s “The World is Flat” thesis, because it doesn’t really take into account local cultural resistance to the Multinational Corporate Project. But this morning’s Friedman column is spot on.
It baffles me that President Bush would rather go to Saudi Arabia twice in four months and beg the Saudi king for an oil price break than ask the American people to drive 55 miles an hour, buy more fuel-efficient cars or accept a carbon tax or gasoline tax that might actually help free us from what he called our “addiction to oil.”
The failure of Mr. Bush to fully mobilize the most powerful innovation engine in the world — the U.S. economy — to produce a scalable alternative to oil has helped to fuel the rise of a collection of petro-authoritarian states — from Russia to Venezuela to Iran — that are reshaping global politics in their own image.
Goldman Sach’s Arjun Murti prediction of $6 a gallon gas in the next year (chart above), will probably be reached, even though there will be some speculative blow off in the process.7% of world GDP goes to pay for energy and in the past that was the point that brought about a reduction in demand. It may be that the rapid growth of the BRIC’s (Brazil, Russia, India and China) will take that percentage higher than the historical norm, and the fact that their currencies are strengthening against the dollar makes the price shock less painful.
One other wild card to throw in the mix. China has been a huge exporter of capital (mostly in the form of buying U.S. Treasuries). It now has one of the largest post-natural disaster rebuilding efforts in history in front of it. Doesn’t this mean they will use their reserves for internal construction and thus might move into the position of being a net seller of U.S. Treasuries? Lower demand for Treasuries means higher U.S. interest rates. That could be a problem.