Seeking Alpha

Bonner & Partners'  Instablog

Bonner & Partners
Send Message
Bill Bonner founded Agora Inc. in 1978. It has grown into one of the largest independent newsletter publishing companies in the world. In 1999, along with Addison Wiggin, Bill founded The Daily Reckoning. Today, this daily e-letter reaches over 500,000 readers around the globe. Bill has also... More
My company:
Bonner & Partners
My blog:
Diary of a Rogue Economist
  • Don't Hold Your Breath For The Shale Boom 0 comments
    Dec 6, 2012 7:33 AM

    U.S. stocks edged down yesterday. And the price of gold has dropped below $1,700 an ounce.

    Commentators still talk about the "fiscal cliff." Pay no attention to it. It's only noise. As we've seen over the last few days, the fiscal cliff is barely a pimple. Nobody talks about the real problem: federal unfunded debt and liabilities of $86 trillion... growing 21 times faster than the economy.

    Cutting a little here. Trimming a little there. Sequestering a bit of the defense budget. It's not going to make much difference.

    Will Oil and Gas Save Us?

    But what about energy?

    Many people think cheap energy will save us. We've got it. Others don't. Cheap energy, they say, will give us growth, which will increase the feds' revenues and decrease their deficits.

    "Growth," they argue, reduced America's debts after World War II... and again in the 1990s. It will do it again. From Lawrence B. Siegel:

    Recent fossil fuel discoveries have been a pleasant and unforeseen surprise (though we'd be foolish to rely on more such good fortune). People have been finding cheaper substitutes for existing resources since the beginning of human history, and there is no sign that we will stop any time soon.

    Many people think that shale oil, fracking and new gas discoveries are going to bring back the good times, when the U.S. economy was growing at 5% and more!

    They're even planning to put Clinton back in the White House -- Hilary Clinton. No kidding. They're probably already planning some high-profile diplomatic adventure to put her in the public eye two years from now.

    This is not noise. It is not insignificant. It is just wrong.

    If the new discoveries really do substantially lower the price of energy for a sustained period of time...

    And if this cheaper energy really does create a robust and durable boom...

    Then we would have a real "game changer" on our hands. Oh, happy day! Maybe we could score in this new game. Maybe we wouldn't be like dwarfs in the NBA or slobs in the 100-yard dash. Maybe the deck wouldn't be loaded against us. And maybe the ref wouldn't be blind!

    Five Problems With Fracking

    But wait. Is it true? Will energy really be significantly cheaper as a result of these new discoveries? We can't say. All we have is questions:

    1. As production increases, aren't costs going up too?

    2. Aren't more and more people trying to stop fracking?

    3. Some people are also trying to limit export of the new energy in order to keep prices lower at home; won't this discourage further output?

    4. Aren't world markets able to absorb substantially more U.S. production without lowering prices?

    5. The world anticipates increased U.S. energy output... how come prices haven't come down more already?

    And here are some more fundamental questions. If cheap energy were the cause of prosperity how come Venezuela is so poor? For that matter, what about Saudi Arabia? Or Iraq? Or almost any of the big producers?

    On the other hand, if high energy prices were the cause of poverty, how come the three richest places on the planet have no energy at all?

    As far as we know, there is no word in Japanese for "fracking"... and Switzerland is not exactly covered in oil rigs. As for Singapore, the country doesn't produce even enough fuel for a cigarette lighter.

    A Fool for Fuel

    Energy availability and energy production have relatively little to do with prosperity (except for those who own it). What matters is what you do with energy, not how much you have.

    So, here's the main reason why the "energy boom" forecast is probably wrong:

    When you're headed for a brick wall, don't speed up.

    Yes, dear reader, you may quote us on this. America, bless its heart, is a fool for fuel. It uses its energy to rush to disaster. The last thing it needs is more horsepower.

    The zombies are in charge now. They suck up resources -- including fuel -- and give nothing back.

    They regulate. They redistribute. They control. They consume. Every airport is full of them. So is the Pentagon. And the universities. And the healthcare industry. And the banking industry.

    Our old friend Grover Norquist is right: It's better to cut them off. Feed them, and they grow stronger. They spend more money. And go deeper into debt.

    Cheaper energy may give the U.S. economy a slight boost. But it will only give more resources to the zombies... allowing them to go further... faster... until we all smash into the wall ahead.

    P.S. Silver Scam Leads to Huge Gains

    Evidence has surfaced that some of the world's largest investment banks conspired to strangle silver prices for a decade.

    But their ability to maneuver through the market is coming to an end… and the silver market is poised tosoar as much as 521%.

    Learn all about this silver scam and get three chances to profit today…

    Click here to learn how.

    Disclaimer

    Article brought to you by Inside Investing Daily. Republish without charge. Required: Author attribution, links back to original content or www.insideinvestingdaily.com. Any investment contains risk. Please see our disclaimer.

    Themes: energy, shale, fracking, oil
Back To Bonner & Partners' Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

Latest Comments


Most Commented
Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.