I've just done a piece for Pajamas Media which is up today on the subject of solving the mystery of sky-high oil and gas prices.
In a rare, rare moment of agreement with George Soros about anything, I agree that we are now in and oil and gas bubble that's getting bigger by the minute. But does he know how the bubble got started? The bubble that's now being blown up by speculators in the commodites market? He should, since it's how he made his billions, as in speculating in currencies assets on the world market.
The U.S. House of Representatives--- to wit ---and various talking heads, blame our gas miseries on OPEC and Big Oil, but I have a little different answer to our energy conundrum. Do go over and read Who Murdered Cheap Oil, and let us know what you think. And thanks.
I agree that much of the rise in gasoline prices is due to the Fed's reduction in interest rates. But some of it must be due to the unexpected demand of Asia - at least unexpected over the long term that petroleum investment decisions are made.
ReplyDeleteFor what it's worth, I believe that petroleum and gasoline futures markets actually reduce the price of crude oil and gasoline. When oil producers and oil refiners can hedge their risks - risks of both input and output prices - they can make long term investments that were otherwise not economical. Those incremental investments at the margin have increased the supply of crude oil and increased the global refining capacity. Increased supply, of course, will almost always lead to lower prices.
I hadn't thought of it that way, John....a bit more sophisticated take than mine. Thank you for this excellent comment.
ReplyDeleteA very insightful piece on Pajamas. Had no idea you we're so versed in economics.
ReplyDeleteThis all did start with the run-a-way budget and Bush's failure to use the veto. This was simultaneous with no leadership within the Republicans in Congress. These guys wrote the budgets that Bush endorsed. Remember I mentioned to you last week my sense that Gingrich might have kept fiscal responsibility a reality rather than a slogan but he was pushed aside.
The Republicans never seem to have the political courage to do what's right and take the heat. It's hard to make a case for backing them though clearly the Democrat policies would be worse in terms of national security and tax policy. Sadly I don't see a Republican leader showing up.
I think it important to elect McCain and buy time, maybe a hero will be found.
This oil bubble will burst but meanwhile lots of damage will be done. The average middle class family has no way to hedge against the cheapened dollar and that means wealth erosion. When people are economically threatened they do strange things and listen to charlatans of all fashions hoping for a savior. Not to over dramatize but that's why the Germans embraced Hitler.
We could get Obama who promises change, even though he doesn't tell us what change it will be.
:-D Good job! No matter what you say, someone will disagree with you. But I agree with you - the devalued dollar started this house of cards. Hopefully, the oil bubble will pop before we all go bankrupt!
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