RANGER AGAINST WAR: Less Bang for Your Buck <

Saturday, December 22, 2007

Less Bang for Your Buck

Jonathan Herder, Ten Dollar Bank Note (2007)

You'll find your fortune falling

all over town.
Be sure that your umbrella, is upside down.
--Pennies From Heaven, Hal Kemp
__________

Speculation and the falling dollar have colluded to raise U.S. oil prices by $20 per barrel. Traders gamble that oil prices will rise, pulling up the current, or spot, price of oil -- "the classic self-fulfilling prophecy
(The Oil Speculator Premium)."

Ranger does not claim to be an economist or to understand high finance, but he does remember 9th grade economics and the Law of Supply and Demand, an iron-clad rule when dealing with commodities, be they oil, cocaine or pork bellies.


Obviously there is a higher world demand for oil with the emergence of China and India. America is competing for a slice of that pie, but using shrunken dollars. Even making the pie higher will not change that sorry fact. Not only is the supply smaller, but the dollar buys less. Viola -- the price of a barrel of oil rises $20 just to account for the diminished buying power of the buck.


Oil speculating is not illegal, but the precipitous fall of the USD is criminal. The culprits? All the usual suspects:

  1. Excessive debt for phony wars
  2. Deficit spending, both personal and governmental
  3. Excessive expenditures for non-essential items, ditto.
  4. Trade deficits
  5. Shifting economic realities

What can be done to rectify the situation? The first step would be a national dialog to determine if it is in the best interests of America to have a strong or a weak dollar.


Whatever the answer, there must be realistic policies that shape the destiny of the nation. Merely reacting to economic emergencies is not a policy, but a symptom of a diseased infrastructure.


It is simple for the government to preach that a weak dollar favors America, but this is only true because the government is incapable of maintaining a strong dollar. Ranger believes that espousing a weak dollar is the same as espousing the use of wet toilet paper. Neither really pass the test of maximal functionality.


Roberts, the author of "The End of Oil: On the Edge of a Perilous New World," says Washington is loathe to intervene. Meanwhile,


"Iran, for example, is now raking in roughly $5.5 billion extra a month because of the speculator's premium -- cash that could be used to fund any number of nasty ventures, and that could offset whatever economic sanctions Washington manages to deploy against Tehran."

"In the ultimate oil irony, even the merest mention by President Bush of sanctions against Iran is enough to push up oil prices -- and thus to send even more dollars to Tehran."

A strong dollar is more important than a strong Army. That is something you can take to the bank.

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5 Comments:

Anonymous Anonymous said...

Hey Ranger and Lisa,

I agree with your thoughts on the dollar.

And the following should not surprise you, either.


http://articles.moneycentral.msn.com/Investing/Extra/CheneysBettingonBadNews.aspx


Re: Oil and the "speculative premium" - I kind of disagree with that whole thing.

Here's the thing. Oil demand is about 85 mln barrels per day (bpd).

You lose about 5 mln bpd in supply each year due to declining fields and such. So you've got to find 5 mln bpd just to stay even. Then there is the forecast that demand will go to 125 mln bpd by 2015. So you have to find another 5 mln bpd of suppy each year for the next 8 yrs.

At this time, finding this much oil does not seem likely.

What people are calling the 'speculator's premium' is, in my opinion, simply the recognition of an resolved problem by the market. And in this environment, the market is going to be more sensitive to anything bullish.

Market prices move lower when there seems to be the prospect or evidence of sustained oversupply. When the Saudi's flooded the market in the mid-80s - speculators had no problem taking the price down to $10 per bbl. But given the current supply/demand outlook - sustained oversupply does not look likely.

To the 'spec premium' crowd, I say lay off of the specs and look at the Admin. Ignoring the Israel/Palestine issue, invading Iraq and threatening Iran are three of the most bullish things that could push the price of oil higher - as the commodity was moving forward into what would have been a tight supply and demand picture anyway.

Saturday, December 22, 2007 at 10:53:00 PM GMT-5  
Anonymous Anonymous said...

Looks like the link got eaten in the previous post ...

http://articles.moneycentral.msn.
com/Investing/Extra/CheneysBettingonBadNews.aspx

Saturday, December 22, 2007 at 10:57:00 PM GMT-5  
Blogger Lisa said...

Merry Christmas, friend Whale!

Thank you for the link and your further explication.

The sociopolitical scenario does seem contrived to drive the oilmen's profits up, doesn't it? It is certainly not behavior which is working in my better interests.

Sunday, December 23, 2007 at 2:17:00 PM GMT-5  
Anonymous Anonymous said...

Hi Lisa,

Hope springs eternal. :-)

(Wonder if it comes in black, though ... )


http://www.popularmechanics.com/automotive/new_cars/4237853.html?series=19

Okay - I'm off to badger the piano player at Nordstroms. Every year, I give him a hard time for not playing any cuts from Rage Against The Machine or even a few cuts from The Clash. (After about two hours of badgering and a few shots from my flask - he'll probably agree to the annual compromise. He'll go 'off script' with the Nordstroms piano version of James Brown's "Cold Sweat." I can't wait.)

See ya,

KW

Sunday, December 23, 2007 at 3:33:00 PM GMT-5  
Blogger Lisa said...

KW,

Good for you for bringing him into the spirit (spirits?).

Rock on,

L.

Sunday, December 23, 2007 at 4:01:00 PM GMT-5  

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