It's got to hurt before it gets better
There are solutions to high oil prices, the housing crisis and outsourcing, but they require some sacrifice.
The financial crisis in the United States is not a crisis if you do not want to sell your home, do not have a house with a sub-prime mortgage and have a good job that you are not about to lose.
Very few Americans have to sell their homes right now. Those who bought a house on speculation get what they get. After all, they "speculated" and lost. Very few Americans have a sub-prime mortgage. Those with bad credit have bad credit. Most have a job they are not about to lose.
So what is all the fuss about? The meltdown of the financial markets.
Shouldn't we just let the big guys lose? After all, they are big guys. The answer is no. The credit markets, like those before the 1929 crash and during the Depression, affect us all.
What should be done?
The answer starts with the heart of the problem: the sub-prime mortgages. These mortgages have to be written down to less than the current value of the house so that if the borrower walks away, he or she has something to lose. The government (taxpayer) is going to have to pay to write down these mortgages. This is the subsidy -- and the only subsidy -- that should be given to the lenders.
If the borrowers don't walk away from their sub-prime mortgages, there is no crisis in the financial markets.
In the future, we can regulate the markets to prevent sub-prime mortgages. But that is the future. Let's get to the real crisis: the rising cost of oil and the outsourcing of American jobs.
There is a solution to the rising cost of oil, but it is a painful one. Let's say there is a lot of $20-a-barrel oil in the world -- deep-sea oil, Canadian tar sands. But who would look for $20-a-barrel oil if someone else (Saudi Arabia) has lots of $5-a-barrel oil? The answer is: no one.
Basically, American taxpayers have to guarantee potential producers that the price in the future will not fall below $20 a barrel and that they will not lose their investments.
This is easy to do. The U.S. needs to guarantee that it will buy all of its oil at $20 a barrel before buying anything from OPEC. This forces the price of oil down to $20 a barrel, but it eliminates the possibility that it will ever go back to $5 a barrel.
Painful!
Outsourcing has an equally simple solution. Let us encourage the dollar to fall. At some value of the dollar, it will pay producers to bring jobs back to the United States.
