Day: June 28, 2008

Why Is My Oil So Damn Expensive?

If you really want to know, then the answers are a bit complex but I will try to break it down for you.
How to explain the oil price? Why is it so high? Are we running out? Are supplies disrupted, or is the high price a reflection of oil company greed or OPEC greed. Are Chavez and the Saudis conspiring against us?

The dollar is weak because of large trade and budget deficits, the closing of which is beyond American political will. As abuse wears out the US dollar’s reserve currency role, sellers demand more dollars as a hedge against its declining exchange value and ultimate loss of reserve currency status.

In an effort to forestall a serious recession and further crises in derivative instruments, the Federal Reserve is pouring out liquidity that is financing speculation in oil futures contracts. Hedge funds and investment banks are restoring their impaired capital structures with profits made by speculating in highly leveraged oil future contracts, just as real estate speculators flipping contracts pushed up home prices. The oil futures bubble, too, will pop, hopefully before new derivatives are created on the basis of high oil prices.

There are other factors affecting the price of oil. The prospect of an Israeli/US attack on Iran has increased current demand in order to build stocks against disruption. No one knows the consequence of such an ill-conceived act of aggression, and the uncertainty pushes up the price of oil as the entire Middle East could be engulfed in conflagration. However, storage facilities are limited, and the impact on price of larger inventories has a limit.

Perhaps more difficult to understand than the high price of oil are the low US long-term interest rates. US interest rates are actually below the rate of inflation, to say nothing of the imperiled exchange value of the dollar. Economists who assume rational participants in rational markets cannot explain why lenders would indefinitely accept interest rates below the rate of inflation.

Of course, Americans don’t get real inflation numbers from their government and have not since the Consumer Price Index was rigged during the Clinton administration to hold down Social Security payments by denying retirees their full cost of living adjustments. According to statistician John Williams, using the pre-Clinton era measure of the CPI produces a current CPI of about 7.5%.

By pumping out money in an effort to forestall recession and paper over balance sheet problems, the Federal Reserve is driving up commodity and food prices in general. Yet American real incomes are not growing. Even without jobs offshoring, US economic policy has put the bulk of the population on a path to lower living standards.

The crisis that looms for the US is the loss of world currency role. Once the dollar loses that role, the US government will not be able to finance its operations by borrowing abroad, and foreigners will cease to finance the massive US trade deficit. This crisis will eliminate the US as a world power.

And that is the name of that tune!

And When Does The Promised Draw-Down Begin?

The Pentagon is preparing to order roughly 30,000 troops to Iraq early next year in a move that would allow the U.S. to maintain 15 combat brigades in the country through 2009, The Associated Press has learned.

Petraeus told Congress in May that he is likely to recommend further troop reductions in Iraq, but he did not provide any details. If he decides in the fall that fewer brigades will be needed in Iraq during the next year, there is the chance that brigades could simply be directed to the war in Afghanistan instead.

Overall, there are about 146,000 forces in Iraq, and that number is expected to dip to about 142,000 by mid-July when that last unit is all out. That total is at least 7,000 more than the number of troops in Iraq before the buildup began early last year.

Now where is the promised draw down?  Oh yeah, and then there would be a re-evaluation of the situation before more troops were drawn down.  Wait!  Wait!  If you smell crap–SAY IT!

A Warm Fuzzy Moment

The Obama-Clinton gathering in Unity was hardly a local affair. The grassy field next to Unity Elementary School looked like a rock festival with thousands on hand to hear the presumptive Democratic nominee and his former opponent. The duo attracted fans from around New England and media from all over the world.

Barack Obama and Hillary Clinton’s celebratory Democratic reconciliation here Friday goes to show that New Hampshire isn’t just influential in the primaries.

Clearly, Obama and Clinton chose to reunite in this small town near the Vermont line partly because of the unmistakable symbolism in the community’s name: Unity. Their goal was to unify a party fractured by a hotly competitive presidential-primary season, but they also picked a New England swing state that Republican John McCain is targeting. One, some observers say, that he has a shot at winning.

Ok, now that the two have made nice with each other, what was the price that Obama had to pay for this event and this PR moment?  How will Wild Bill be used?  Does this now mean that all the “miffed” fe,ales will now fall in line with Obama?  Please, your input will be appreciated.