October 3, 2008

Would an energy policy fix our financial crisis?


First, the US's basic problem is a chronic trade deficit, which has lately been financed by mortgage borrowing by US households from other countries. This household borrowing reached excessive levels - the current bailout is intended to fix this.

2nd, the bailout is intended to transfer excessive household mortgage debt to the Treasury. This moves debt to where it can be better carried, but raises the risk of a currency/debt crisis in which foreigners decide the US itself isn't creditworthy.

3rd, the only longterm solution is to fix the chronic trade deficit. Such a fix would greatly improve the US's creditworthiness in the eyes of foreign lenders, and simultaneously reduce the need for such borrowing.

4th, the primary source of the US chronic trade deficit is oil imports, and has been since the 70's.

Conclusion: the US urgently, and as it's first national priority, needs an aggressive plan to reduce oil imports in the short-term and long-term. Such a plan should include short-term measures such as carpooling and telecomuting; in the medium term an aggressive increase in automotive CAFE requirements, fuel taxes, fuel substitution (PHEV/ErEV/EV's, CNG, ethanol, CTL with sequestration) and in the long-term domestic drilling.

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