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PeakTrader:

The U.S. is able to consume more than produce in the global economy and in the long run, in part, because oil is mostly priced in U.S. dollars.

So, much of the U.S. military is paid for, indirectly, by the world community.

In exchange, the U.S. does the “dirty work,” that other countries won’t or can’t do, to stabilize the world and prevent even worse outcomes.

Saddam defied the UN, used weapons of mass destruction, invaded Kuwait, and sat on trillions of dollars of oil, before the rise in price. Sending Saddam and his two sons to Allah sent an important message to other dictators, along with freeing-up needed oil.

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The World’s Reserve Currency
October 3, 2007

“A reserve currency is money that’s held by many countries as their foreign exchange reserves. It’s also the currency that’s typically used to price commodities, such as oil and gold, that are traded between countries.

A country whose currency is the predominant reserve currency benefits tremendously. In the case of the dollar, the U.S. benefits from the increased demand for the dollar that the reserve currency status creates.

Other countries give the U.S. valuable goods in exchange for dollars issued by the Federal Reserve. They also lend the dollars they’ve accumulated back to the U.S. at low interest rates. Most significantly, the U.S. benefits from importing these goods and exporting its inflation to other countries in the form of depreciating dollars.”

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Nick G:

The US creates debt in the process. Worse, a chronic trade deficit creates “dutch disease” – what does the US do when the dollar loses reserve status, and it’s exports have been deeply harmed?

I’m not sure why we would choose to allocate our excess imports to military costs.

More importantly, we could spend the same money (or less) on alternatives to oil, and make the world far safer and more prosperous.

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PeakTrader:

What debt are you talking about? Please cite it.

What “Dutch disease,” in the U.S., are you talking about?

If the dollar loses its reserve status, then Americans will work for fewer goods.

Why would exports be harmed?

You don’t believe the U.S. should maintain a military?

Why would you force Americans to spend on expensive and inefficient energy?

How does not spending on the military and spending on expensive and inefficient energy “make the world far safer and more prosperous.”

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Nick G:

It’s straightforard: I’m talking about debt by US individuals, organizations and governments. It includes T-bills sold to China and KSA, mortgages bundled into securities and sold to overseas investment funds, etc. That debt is mostly locked away as reserves right now, but if the US dollar lost reserve currency status, that would change.

It’s commonly known as “off-shoring”. It’s exaggerated a bit on one side by labor productivity improvements which have reduced manufacturing employment, and masked a bit on the other side by the enormous increase in speed of PCs (which exaggerates the size of US manufacturing), but on the whole the US has lost significant manufacturing.

The US is harming it’s current optimal allocation of resources by producing “stuff” that has no consumer value. It’s harming it’s future growth by putting so much of it’s engineering power into developing military tech, instead of consumer tech, especially health (drugs, devices, IT systems, etc).

Renewables are competitive price-wise already: windpower is cheaper than coal, in the US, and solar has reached grid parity in substantial areas. When you include the costs of pollution and supply insecurity you find that fossil fuels are far more expensive than wind, solar and nuclear, .

China is surpassing us in the development of clean energy – do we want to be left behind?

The faster we leave dirty, dangerous and expensive fossil fuels, the better off we’ll be.

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PeakTrader:

You seem to assume debt is bad. Low prices and low interest rates induce demand, which raises living standards faster. Do you prefer high prices and high interest rates?

What about equity and net worth? Moreover, non-financial U.S. corporations, in general, have strong balance sheets, including $2 trillion in cash. U.S. households behaved rationally snapping-up bargains for decades. Unfortunately, the federal government didn’t “refund” enough of those dollars back to households to allow the spending to go on, since consumers bought foreign goods and foreigners bought U.S. Treasury bonds. Furthermore, excessive regulations, e.g. in housing, finance, health care, energy, environment, transportation, education, etc. are costly. Securities held by the Fed will mature.

The U.S. offshored low-end manufacturing with declining prices , imported those goods at lower prices and higher profits, and shifted limited resources into high-end manufacturing and emerging industries with market power. Consequently, the U.S. was able to double its real manufacturing output with over 30% less labor and other inputs.

Chart of real manufacturing output: http://research.stlouisfed.org/fred2/series/OUTMS

Also, the U.S. not only leads the world in the Information and Biotech Revolutions, it leads the rest of the world combined (in both revenue and profit). Furthermore, it should be noted, U.S. export growth has been much faster than GDP growth.

U.S. military spending has generally declined as a percent of GDP, since WWII. If renewables are competitive, then allow the market to work, rather than pile-on more expensive regulations on top of a heavily regulated economy. China can squander its money. Why make U.S. households/consumers/taxpayers squander their money?

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Nick G:

Again, when you include the costs of pollution and supply insecurity you find that fossil fuels are far more expensive than wind, solar and nuclear.

So, good free markets need to include all costs, including external ones like pollution and secuirity, right?

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PeakTrader:

Let’s be real. The technology doesn’t exist for wind and solar to replace oil, natural gas, and coal. And, the opportunity costs aren’t worth it.

Wind and solar cannot be stand alone energy sources, unless the energy can be stored cheaply.

Nuclear power can charge car batteries. However, car batteries are expensive and must be disposed, and replaced, eventually, along with nuclear waste.

Yes, all costs should be included, along with regulations, taxes, and subsidies.

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Nick G:

I’m afraid you’ve been badly misinformed. What’s your source for that idea? What studies or evidence have you seen? I’ve seen quite a few studies that say that wind and solar can indeed replace fossilf fuels.
Perhaps the best authority is Germany – they’re certainly well known for engineering, and they’ve bet their economy on wind & solar.

You don’t believe that fossil fuels will run out? That we’ve had several recessions due to oil shortages? That Climate Change is real?

What do you mean by “car batteries”? What price and life are you assuming? Do you believe that industrial civilization will collapse eventually, when fossil fuels are depleted?

Ok, do you agree that should include the costs of pollution and security of supply?

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PeakTrader:

Nick G says: “Perhaps the best authority is Germany.”

Germany’s Energy Poverty: How Electricity Became a Luxury Good
Der Spiegel
September 04, 2013

http://www.spiegel.de/international/germany/high-costs-and-errors-of-german-transition-to-renewable-energy-a-920288.html

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