If you're old enough, you remember a time when gasoline engine manufacturers and tinkerers struggled to come up with a solution to "engine knock."
In layman's terms, engine knock occurs when an unburned portion of the air-fuel mixture fires at the wrong time in the engine's cycle. It "knocks" the engine compartment with a distinct and unpleasant metallic sound.
*****The solution of adding a small amount of tetra-ethyl lead gave us leaded fuel, which prevented knock, but also contributed to elevated levels of lead in air and water.
In this case, we eventually realized that there were better solutions to engine knock, such as less-toxic additives, as well as computer-controlled fuel-air richness and engine timing.
People rightly perceive that even a small additional amount of lead in the air and water is a bad trade-off for an engine that fires correctly. In this case, the solution was worse than the problem.
But what do you do with a country with mis-firing cylinders?
*****If you're Ben Bernanke, you add Federal Reserve Notes (FRNs) into the mix. And the poorer the country's engine runs, the more FRN additive you need to mix in.
The logic being, that if a small amount of FRNs help stimulate the engine to run a little bit better, a large amount of FRNs will stimulate the engine to run much better.
And just as with leaded gasoline, the consequences of this additive can be worse than the supposed upsides.
The sad thing is, this method of juicing an economy, I thought, was pretty soundly disproved around the same time that the United States began cutting back on lead additive gasoline.
Didn't we learn the lessons of fiscal and monetary recklessness in the mid to late 1970s?
But the similarities don't end there.
Because not only do our gasoline engines run on oil, but so does this country.
And while you can easily dispose of a car that requires leaded gasoline, it's not so easy to do so with a whole country.
*****FRNs are an extremely poor substitute for gasoline, both in cars and in economies. You can add as many pieces of cotton-wood pulp blended paper into your gas tank - but you won't be going anywhere. In fact, the more FRNs you add, the worse your car is likely to run.
Eventually, it won't run at all. It will be completely choked with FRNs. No amount of gasoline will help.
That might seem like a silly extension of the metaphor, but it's the logical extension of the problem we face: we can not replace cheap oil with FRNs. At some point, we need to put gasoline in our cars.
Oil is just the best example of an energy resource. There are others, and eventually, when the FRNs lose their appeal, and we have even less access to oil, we'll need to replace oil and FRNs with another energy commodity and another money commodity.
Until then, it's a good idea to make sure you have upside exposure to higher oil prices.
from : Wyant Investments
