WASHINGTON MERRY-GO-ROUND
Founded by Drew Pearson 1932
America’s piggy bank
By Douglas Cohn and Eleanor Clift
WASHINGTON – America has a piggy bank it no longer needs, a piggy bank with sufficient resources to pay for the current fiscal year’s sequestration, albeit a resource unlikely to be used because friends and foes might misinterpret its purpose.
Sequestration, which is scheduled to go into effect on March 1 per the Budget Control Act of 2011, mandates budget cuts for the next 10 years, beginning with $85 billion this year. Congress is struggling to come up with cuts and revenue to offset this, but has so far failed.
There is another solution. In 1975, responding to OPEC’s (Organization of Petroleum Exporting Countries) 1973 oil embargo, the United States established the SPR (Strategic Petroleum Reserve), which now includes four sites in Louisiana and Texas holding approximately 695 billion barrels of oil worth nearly $63 billion – oil that cost the government around $20 billion.
Would it be feasible to sell off the SPR? According to Citigroup, the United States, aided only by Canadian oil imports, can expect to achieve energy independence within five years. This would be a result of increased production and decreased consumption primarily due to increased fuel efficiencies. It would eliminate the SPR as a critical need. After all, the United States managed quite well without the SPR prior to 1973. The country would have no more reason to stockpile oil than it would to stockpile any other important natural resource that are available in domestic abundance. And even if there is a call to refill the SPR, it would be good business to do so when oil prices have fallen.
Further, with U.S. troops stationed in several Mideast countries and the U.S. 5th Fleet patrolling the Persian Gulf, Red Sea, and Arabian Sea following our defense of the region, there is no chance of another OPEC oil embargo. In fact, there is even speculation that OPEC is on its last legs due to competition from Russian, North Sea and other regions’ oil production, as well as decreasing U.S. oil imports.
Meanwhile, $63 billion is not $85 billion, and here the math becomes complex. Selling 695 billion barrels of oil would impact the world’s per-barrel price, which means the sale would generate something less than $63 billion. On the other hand, a reduction in the price for oil would be a boon to the economy, creating a ripple effect that would impact corporate profits and consumer disposable spending, all of which would increase tax revenues.
It would be impossible to say if these dynamics would provide enough money to cover the $85 billion sequestration for 2013. There is even a chance that the figure could be surpassed, but whether the final number comes up short or over would be inconsequential because finding $10 billion or $20 billion in spending cuts, if necessary, would be much more palatable than finding $85 billion in cuts or revenue.
True, the SPR can only solve the sequestration problem for 2013, but that might be sufficient. As a minimum, it would provide Congress with more time to resolve the budget issues. At best, improvements in the economy could substantially lessen the size of sequestration sums needed in 2014 and beyond.
© 2013 U.S. News Syndicate, Inc.
Distributed by U.S. News Syndicate, Inc.
END WASHINGTON MERRY-GO-ROUND