Punting On Energy Projects Guarantees Stagflation

Demand for U.S. products from Europe is going to slow down to due the debt crisis. The high price of oil is serving as a drag on the U.,S. economy. The U.S. debt is increasing by $3 billion a day. Given these three headwinds, the job market seems likely to stay bleak. The dotcom boom fueled job creation in the late '90's. The housing boom fueled the job creation in the middle of the last decade. This leads to the question of "where is U.S. job growth going to come from in 2012?"

There is only one obvious area of opportunity to ramp up job creation in the U.S., and that is by unleashing domestic energy related projects. A U.S. drive for energy independence offers the best opportunity for getting hiring and the U.S economy back on track

While delaying a decision on the Keystone XL Pipeline by itself is not fatal to the U.S. economy, the hostility of the current administration to energy projects that are economically viable without subsidies is a huge drag on job creation.

The European debt crisis had led to funds flowing to U.S debt auctions. The rates the U.S. is paying to fund our debt is staying remarkably low. This is keeping the cost of funding the $14.9 trillion debt down to only about 10% of receipts. However, while the interest rates on U.S. issued debt has remained low, demand has been a bit soft at a couple of recent auction. It is only a matter of time before the need to fund the rapidly expanding debt leads buyers to demand better returns. This becomes a vicious cycle, higher rates increases the cost of funding the deficit, which requires ever larger actions, and a cycle of higher rate. Thus, the growing deficit ensures that ultimately interest rates will be higher. This is almost certain to cause inflation and a declining value for the U.S. dollar.

The combination of this soon to be upon us debt fueled inflation and not enough new jobs leaves the U.S. on a path toward of devastating stagflation, with both high unemployment and rising inflation.

The risk of the U.S. becoming as much of an economic basket case as Greece has already become is very real. Thus, the delay of a decision on the Keystone XL Pipeline epitomizes why the current job market is such a disaster and why the economic situation is likely to get worse.