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How Europe’s Energy Disaster Will Cripple the U.S. Economy

Thanks to some particularly self-defeating economic sanctions, Europe’s vital Russian energy imports have ceased, throwing the entire continent into chaos. Brandon Smith of Alt-Market.us explains exactly how this regional chaos will throw the global economy into turmoil…

How Europes Energy Disaster Will Cripple the U.S. Economy
Photo by Carl Kho

From Brandon Smith

Though the situation is ever changing, currently the Russian government has announced an official shutdown of all natural gas exports to Europe through the Nord Stream 1 pipeline and plans to maintain the shutdown until the EU ends its economic sanctions over the war in Ukraine. This means that around 40% of Europe's energy resources are now gone, with supply chain issues surrounding the other 60% and prices skyrocketing for households and businesses.

Back in March in an article titled The Biggest Lies (So Far) Surrounding Russia and Ukraine, I noted that:

There’s something else the media does not talk about much, which is Europe’s reliance on Russian oil and natural gas. If you want to see actual price inflation caused by Russia, let the EU ban Russian oil imports, or watch as Putin cuts off the supply. Europe is dependent on Russian oil and gas for about 40% of overall energy production. They cannot even survive a single year without it. If Russia retaliated and blocked energy exports to Europe, the EU would have to siphon oil from many other countries, reducing global supply dramatically. This would cause gas prices to explode to double or even triple current levels.

Back in April, I warned you that:

The Russian economy is not about to fold anytime soon, and now the EU, which is reliant on Russian oil and gas exports for 40% of their energy needs, is about to face economic doom unless they submit to paying for energy in rubles (which they won’t) or find a replacement source for gas and oil (which is impossible). Furthermore, with Europe on the global market looking for alternative oil sources, a big chunk of the oil market will be rerouted.

What does this mean? Less oil and gas to fulfill the demand in other countries. In other words, prices are about to skyrocket higher yet again.

The media disinformation surrounding the economic situation with Russia disarmed millions of people and fooled them into believing that it was Russia facing fiscal disaster rather than Europe or potentially even the U.S.

Now, it would seem my predictions of a full spectrum crisis are coming true.

The question is, what happens next?

Don’t be distracted from the important questions

For now, all talk in the mainstream media will revolve around two things – What will be done to prevent disaster, and how evil Russia is for cutting off the European population from warmth in wintertime.

As tempting as it is, I'm not going to get into the morality of Russia's responses to Western sanctions. (After all, the U.S. and European allies tried to economically destroy Russia. Both sides are being played by globalists to create a catastrophic, worldwide economic collapse.)

Instead, I want to cover the inevitable EU response.

European governments are now in damage-control mode. Somehow, they have to prevent the inevitable political backlash from citizens watching their monthly bills skyrocket thanks to the obvious consequences of poorly-thought-out financial sanctions. They're implement the only economic policies they understand… Stimulus. Money-printing. Handouts.

Both the UK and the EU are announcing plans to “subsidize” (which means “give money to”) energy providers and to pay some portion of household and business electricity bills.

Hmmm. If it's that easy for governments to simply print money and shovel it to utility companies, then why don’t they just pay for everyone’s electric bills all the time? Why isn’t the price of electricity £0 or €0 per kilowatt hour?

Because price controls never work, that's why.

Here’s why price controls (and by extension, socialism itself) always fails

You might argue that technically, this doesn’t count as “price control” because the plan isn’t explicitly to limit the price of electricity by law. Technically, you’d be right.

However, what the EU is planning is essentially quasi-price control using currency inflation as a means to placate energy producers. They’ll print more money, they can hand it over to utility companies and everybody’s happy – at least, at first – until broad prices rise as an obvious consequence of increasing the money supply.

Now most oil and gas on the global market is priced and purchased with U.S. dollars, not euros, so it’s likely the European Central Bank (ECBO will be printing euros to either buy dollars for global trade or trying to buy oil, gas, and coal directly from producers. In either case, this will greatly reduce the euro’s purchasing power as well as its value in energy markets. In response, prices will continue to rise.

Here’s the real problem: While Europe tries to cap prices citizens pay and print money to cover the remainder, when prices keep climbing as a result of money-printing, how much are they willing to subsidize? How much are they willing to devalue the euro and the pound sterling in the process? Will they cross the line into complete hyperinflation and currency collapse to temporarily pay their electric bills?

I think that yes, they are willing to go that far. After all, energy in the forms of electricity and fuel are critical unreplaceable essentials for every developed economy. Fuel is not optional – consider Finland, a member nation of the EU, where winter temperatures average -30° to -50° F

All of the debate over government stimulus and the effects will be meaningless, though, if the issue of supply is not taken into account. The EU can print as much money as they want, but this doesn't help them if they can't acquire enough energy resources to provide the heating and power the public needs. There is zero chance that they will be able to fill the void left behind by Russian gas and oil, so a certain percentage of the European population is going to suffer regardless.

Here are the developments Europe will see in the near term:

  • Rolling blackouts
  • Further surges in energy prices
  • Further business shutdowns due to unaffordable operating costs
  • Further price inflation affecting general goods (including food)
  • More government price controls
  • Governments pushing the idea of "Universal Basic Income”
  • Rationing of food, fuel and other necessities
  • Severe economic decline and astronomical job losses
  • Significant numbers of people freezing to death this winter
  • Civil unrest including protests, riots and brutal police and military response

I could continue with this list but I’m pretty sure you get the idea...

It's not going to be pretty.

For those of us in the U.S. this seems like a scenario that’s mostly out of sight and therefore out of mind. This will not be the case for long...

Europe is going to scour global markets for energy supplies, anywhere they can find them. This means less oil, less gas, less coal, less of everything for purchase in the U.S. Sure, we could be producing most of these resources in-house, but the Biden administration will do everything they can to prevent that.

At the very least, prices are going to rise everywhere on virtually everything. I continue to predict that U.S. gas prices at the pump will climb to around $7 a gallon on average. Propane and other heating commodities will rocket beyond previous highs.

Supply chains will be weakened by the burden of transporting energy to Europe – and of course by higher fuel prices. European manufacturing will take a massive hit and many of these businesses will not be able to operate at normal capacity. Most of them will have to reduce production and institute layoffs. This means that European goods will be exported less frequently and prices on the remaining goods will spike in the U.S.

European agriculture will also be hit hard. Food production will fall as supplies of fuel and fertilizer become prohibitively expensive. European governments will hoard grain and food supplies from other nations, forcing global prices even higher. (Remember, food is already more expensive globally than ever before in history.)

Civil unrest in Europe is assured. Similar conditions are already brewing in the U.S. but it's hard to say if Europe's problems will trigger public anger here. More inflation might be the straw that breaks the camel's back, but this is unlikely until mass layoffs start later this year and into 2023.

Overall, the U.S. economy will continue destabilizing. The worst of the global crisis will begin in Europe over the next several months. Those fortunate enough to have invested their wealth in portable, international safe-haven stores of value like physical gold and silver will be better-prepared than most to weather the coming storm.

Brandon Smith has been an alternative economic and geopolitical analyst since 2006 and is the founder of Alt-Market.com.

The views and opinions expressed in this article are those of the author and do not necessarily reflect those of Birch Gold Group.

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