Are we in an asset bubble? Is OPEC about to crash and burn after half a century of commanding undue attention?
Those questions came to mind as I took another long-term look at the value of our country with one of my favorite thought exercises.
Measuring in barrels of oil
I like to think about the value of our country as a whole – about everything we all have, collectively, and how much it is worth. But I do it a different way, measuring in barrels of oil. Not dollars.
This isn’t as weird as it may seem. For one thing, I’ve lived in Texas for 35 years, so I have a good idea of how important oil is for making this part of the world go round. I also lived in Boston during the first OPEC embargo and have vivid memories of long lines at gas stations, not to mention wandering the neighborhood with a cross-cut saw looking for dead tree limbs. I don’t like being cold.
Kings, governments and hoarders may like gold and think of it as a “real” asset, but a real asset, in my book, is something that makes things happen. That would be oil and its very efficient storage of British Thermal Units, the energy that keeps the world in motion – at least for now.
The 1973 OPEC embargo
Shortly after the 1973 embargo the New York Times noted that Saudi Arabia was getting enough for its oil that it would be able to buy control of every company on the New York Stock Exchange in a few years.
It never happened.
That’s a good thing. The level of civil discourse in America may have plunged to new lows but as far as I know, American civilians have yet to be murdered and dismembered in a public building while trying to arrange their marriage.
Back in 1970 the Federal Reserve estimated the net worth of American households at $3.4 trillion (not adjusted for inflation). They got that figure by adding the value of all our stuff, including cars, all our houses, and all of our financial assets. Then they subtracted all that we owed. The result was U.S. household net worth. With the price of oil then at $3.18 a barrel, it would have required over a trillion barrels of oil to buy us, lock, stock and, err, barrel (see table, below).
The Value of America, in Barrels |
|||
| This table takes the net worth of American households and nonprofit organizations as measured by the Federal Reserve and divides by the price of oil to find how many barrels of oil it would take to buy the country. | |||
| Year | Household Net Worth (in billions) | Price of Oil | Barrels to Buy America
(in billions) |
| 1970 | $3,418.5 | $ 3.18 | 1,075.0 |
| 1975 | 5,141.5 | 7.67 | 670.3 |
| 1980 | 9,468.6 | 21.59 | 438.6 |
| 1985 | 14,206.6 | 24.09 | 589.7 |
| 1990 | 20.249.9 | 20.03 | 1,112.0 |
| 1995 | 27,732.4 | 14.62 | 1,896.9 |
| 1998 | 37,369.7 | 11.18 | 3,342.6 |
| 2004 | 48,092.8 | 42.00 | 1,145.1 |
| 2007 | 57,718.0 | 120.00 | 481.0 |
| 2010 | 66,427.0 | 94.11 | 705.9 |
| 2019 | 118,577.0 | 61.73 | 1,920.9 |
| 2020, Q2 | 118,955.0 | 39.58 | 3,005.4 |
| Sources: Federal Reserve, Bloomberg, macrotrends.net | |||
When America was on sale, cheap
By 1980 the combination of inflation, rising interest rates, record low stock valuations and much higher oil prices made America cheap. We could be had for only 438 billion barrels. That wasn’t a whole lot more than the proven oil reserves of the Middle East at that time, about 362 billion barrels.
What’s noteworthy is that 1980 was our low point. We’ve had some big ups and downs since then, but most of the time our collective net worth has been a lot higher than it was in 1970 when our country was worth over a trillion barrels of oil. Even in 2007, the start of the Great Recession, our net worth clocked in at 481 billion barrels, a bit better than the 1980 low when the price of oil hit $120 a barrel.
Not worth pumping out of the ground
Today, with asset values high (think houses, stocks) and oil prices low enough that some oil isn’t worth pumping out of the ground, the U.S. household balance sheet is worth 3 trillion barrels, a near record. The only time we scored better was back in 1998 as we approached the peak of the Internet Bubble. Back then, our household balance sheet clocked in at 3.3 trillion barrels.
What does it mean?
My take is that we, as a country, may be a big mess, but we’re still doing a few things right.
Oil isn’t a very good measure
And maybe oil, like gold, isn’t very meaningful as a measure of value. Today, Venezuela leads Saudi Arabia in having the largest reserves on the planet – about 303 billion barrels. That’s nicely ahead of Saudi Arabia at 267 billion barrels. It’s double the reserves of either Iran or Iraq.
Having huge oil reserves hasn’t done Venezuelans much good. More than four million people have left Venezuela in the last few years, mostly in search of food.
It all leaves me wondering. If it isn’t dollars, or gold, or oil, what could the enduring measure of value really be?
Then a flash comes. It’s a line from the late poet, Charles Bukowski.
“What matters most is how well you walk through the fire.”
Keep calm and look ahead. Stride.
Related columns:
Scott Burns, “The Value of America in Barrels,” 5/9/2008 https://scottburns.com/the-value-of-america-in-barrels/
Sources and References:
Federal Reserve, Financial Accounts of the United States, Household Balance Sheet https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/table/
Macrotrends.net, Crude Oil Prices -70 Year Historical Chart https://www.macrotrends.net/1369/crude-oil-price-history-chart
This information is distributed for education purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product, or service.
Photo: Pexabay.com
(c) Scott Burns, 2020