Wednesday, January 07, 2015

Relationship between Oil price and US dollar

I am currently fascinated about affect of oil, peak oil and relationship between US dollar and price of oil. Hopefully by the end of this post I will have it sorted out in my Head.

My understanding of energy in our modern systems was in the terms of debt which is represented by dollar. But I have now come to the realization that the real energy in our systems is in fact energy where the energy from oil is the main ingredients and petrodollars is the main representation of that energy.

US dollar is more expensive because oil is more expensive to acquire in terms of energy commitments. My argument is that the US dollars will be more expensive vs other currencies because it reflects that the US Dollar is worth more because its harder to get energy through oil, not because of an oversupply of the product of oil.

To create energy you need energy just like in the human body. I  also going with the understanding that just before 2008 we reached a tipping point where creation of oil through real means reached a peak and we no longer able to create enough energy cheaply to supply to the expectations of the masses.

The US dollar is worth more because the amount of energy to extract oil has increased.

As the petrodollar is a representation of energy when QE was actioned, it meant US increased its virtual energy but that process follows the law of diminishing return. So the process of creating virtual energy has less affect each time QE is actioned. So the value of the dollar and oil will move to a more realistic value.

So the dollar is now more a reflection of how hard it is acquire energy to develop goods. This also means that to develop products they will have compete harder for a peace of energy pie. As a significant amount of that energy is being used to create new energy e.g Fracking or in complicated systems that are very inefficient in using the energy from the energy pie, some examples are education, healthcare, financial services, entertainment  and protection services. So these areas are sucking up significant parts of the energy pie that could be used in more productive areas of society

I am still not sold on what I have written but if it is true its means that we need to go back to community based solutions to address significant issues being faced and be able to accept that some people will have to suffer or adapt to survive. Currently based on expectations, the amount of energy needed to keep everyone happy is not sustainable.

Reread what have been writing and am still rambling but getting a better handle though of what oil/energy main role in our society and am very interested in how oil can be used as an analogy to human energy systems i.e ATP, Lactic Acid and Aerobic systems.


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