You could also have used the word "hope" instead of "expect," cyclops. I know how you guys think.
You could also have used the word "hope" instead of "expect," cyclops. I know how you guys think.
okie wrote:You could also have used the word "hope" instead of "expect," cyclops. I know how you guys think.
No you don't.
Thomas wrote:okie wrote:You could also have used the word "hope" instead of "expect," cyclops. I know how you guys think.
No you don't.
I thought you were a libertarian of some type, Thomas?
US debt could trigger dollar collapse, UN warns
Submitted by Desha Priya on Thu, 2007-05-31 16:47.Global | Americas | United States | News
The United States dollar is facing imminent collapse in the face of an unsustainable debt, the United Nations warned today.
United States debt, which had now deepened to well over $3 trillion, might turn out to be unsustainable in the rest of 2007 or next, putting further downward pressure on the United States dollar, Rob Vos, the Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), told correspondents at a Headquarters press conference.
He pointed out that since its peak in 2002, the dollar had depreciated vis-à-vis the major currencies by some 35 per cent and by 25 per cent against a broader range of other currencies.
Vos made these comments at the launch of the 2007 World Economic Situation and Prospects report midyear update.
With that increased debt the risk of a sharp depreciation of the dollar continued, he warned. If countries willing to invest in United States dollar assets expected further depreciation, they might be less willing to hold dollar assets, triggering a much sharper fall in the United States dollar. The risk of disorderly adjustment and the steep fall of the dollar existed. The policy challenge was how to prevent a hard landing of the United States dollar and forge a benign adjustment of the global imbalance.
In terms of the United States housing sector, he noted that a recession in the housing sector had continued in 2007, with a slowdown in activity and a large number of unsold homes. While house prices had not fallen, that might happen in the months and years to come if the recession continued as expected. A decline in prices would affect the domestic market, particularly household consumption in the United States, resulting in the risk of a serious recession in its economy, slowing growth from 2.1 per cent to 0.5 per cent in 2007 and 2008. That would then significantly slow the world economy and transmit the recession into the rest of the world.
The United States deficit had increased to $860 billion at the end of 2006, and was expected to fall to $800 billion in 2007. That deficit was basically being financed by surpluses in the developing and oil exporting countries, as well as some major developed countries, in particular Japan and Germany. The European Union,at large, was projected to continue to have a slight deficit on its current account.
Continuing, he said the current tendency in macroeconomic policy was not all in the right direction, particularly in the surplus countries where there had been a tightening of monetary and fiscal policies, particularly in Germany and Japan, making it more difficult for the United States to lower its external deficits by export growth. The United States would also need to adopt some contractionary policies to slow down its deficit, he recommended.
Kuwait split raises questions over longevity of the dollar
By Jim Grant
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
When the Roman emperor Constantine struck off a new gold coin, he expected it to give good, durable service. And the extra-durable solidus did - about 700 years' worth. Modern monetary systems have a somewhat shorter shelf life.
That the current monetary system may not last for the ages was underscored the other day by Kuwait's decision to uncouple its dinar from the US dollar. For years, the two had been lashed together as a preliminary to the projected creation of a common Persian Gulf currency.
But the more the dollar's value sagged, the more dollars the members of the Gulf Co-operation Council have had to absorb just to maintain the desired exchange rates. Naturally, the central banks of the participating countries did not acquire their dollars with nothing. They printed the local currencies with which to buy them and the more they printed, the more that inflation welled up. Now Kuwait has chosen to go its own way, leaving Saudi Arabia, Qatar, the United Arab Emirates and Bahrain to ponder their tolerance for open-ended dollar-buying. Little Kuwait just might be the herald of big change, both in the dollar's fortunes and the world's monetary organisation. To a degree, the world turns on open-ended dollar buying and the muscular feats of money-printing it calls forth.
Hard-working Asians (and oil-blessed Arabs) consume much less than they produce. Americans, on the other hand, produce much less than they consume. But the savers and spenders do have something in common. The workers are happy to receive dollars, and the consumers are more than happy to print them. Unlike the solidus, a greenback has no intrinsic value. It is faith-based. Here is a new idea in the world. Certainly, the unsystematic world monetary system is a new arrangement. Up until 1971, the dollar was collateralised by gold. If you were a central bank, $35 would get you an ounce on demand. The system gave good, durable service until the US started to run out of bullion. On August 15 1971, the dollar became uncollateralised. Exchange rates started to float - or to sink or be pegged. Governments made it up as they went along.
That the paper dollar finds favour the world over must be counted as one of the greatest achievements in the annals of money. To be sure, the central banks of the Middle East and Asia have had their own reasons for stockpiling the greenback and US securities. But their self-interest doesn't detract from the rarity of the historical moment. To paraphrase Richard Nixon, the president who closed the US gold window, we are all dollar bulls now.
Or rather, we are up to a point of saturation, a point that Kuwait seems to have finally reached. Its neighbours, too, appear to be on the edge of dollar surfeit. Broad money growth in the Gulf region is running at 20 per cent, in no small part a consequence of rampant dollar absorption.
"Inflation is a hot topic in the kingdom," the Financial Times reported from Riyadh recently, "as city residents feel the pinch of rental and price increases suddenly feeding into an economy that has grown used to inflation of around 1 per cent a year since the 1970s." The Saudi statistics gatherers today acknowledge a current rate of 3 per cent.
Since the international gold standard perished in 1914, successive global monetary systems have been brought down by external shocks or internal contradictions. Inflation is the bane of our non-system system. Inflation is a disease of one main cause but varied symptoms. A surfeit of money can cause derangement at the checkout counter (India), in the real-estate market (Russia) or on the stock exchange (China).
By upsetting the integrity of prices, it can disturb the architecture of production. In most of the dollar-buying states, monetary growth is fast enough to upset the eternal rest of Milton Friedman. In all cases, a slower pace of dollar absorption is an integral part of a monetary cure. It will be said that only some members of the dollar-buying bloc want to be cured. The rest - notably, China - are happy to keep on cranking the monetary presses. But the upward track of US interest rates and the downward path of the dollar exchange rate tell a different story. One thing's for sure, the greenback ain't the solidus.
Jim Grant is the founder and editor of Grant's Interest Rate Observer
Copyright The Financial Times Limited 2007
Quote:Kuwait split raises questions over longevity of the dollar
By Jim Grant
Published: May 31 2007 03:00 | Last updated: May 31 2007 03:00
When the Roman emperor Constantine struck off a new gold coin, he expected it to give good, durable service. And the extra-durable solidus did - about 700 years' worth. Modern monetary systems have a somewhat shorter shelf life.
That the current monetary system may not last for the ages was underscored the other day by Kuwait's decision to uncouple its dinar from the US dollar. For years, the two had been lashed together as a preliminary to the projected creation of a common Persian Gulf currency.
But the more the dollar's value sagged, the more dollars the members of the Gulf Co-operation Council have had to absorb just to maintain the desired exchange rates. Naturally, the central banks of the participating countries did not acquire their dollars with nothing. They printed the local currencies with which to buy them and the more they printed, the more that inflation welled up. Now Kuwait has chosen to go its own way, leaving Saudi Arabia, Qatar, the United Arab Emirates and Bahrain to ponder their tolerance for open-ended dollar-buying. Little Kuwait just might be the herald of big change, both in the dollar's fortunes and the world's monetary organisation. To a degree, the world turns on open-ended dollar buying and the muscular feats of money-printing it calls forth.
Hard-working Asians (and oil-blessed Arabs) consume much less than they produce. Americans, on the other hand, produce much less than they consume. But the savers and spenders do have something in common. The workers are happy to receive dollars, and the consumers are more than happy to print them. Unlike the solidus, a greenback has no intrinsic value. It is faith-based. Here is a new idea in the world. Certainly, the unsystematic world monetary system is a new arrangement. Up until 1971, the dollar was collateralised by gold. If you were a central bank, $35 would get you an ounce on demand. The system gave good, durable service until the US started to run out of bullion. On August 15 1971, the dollar became uncollateralised. Exchange rates started to float - or to sink or be pegged. Governments made it up as they went along.
That the paper dollar finds favour the world over must be counted as one of the greatest achievements in the annals of money. To be sure, the central banks of the Middle East and Asia have had their own reasons for stockpiling the greenback and US securities. But their self-interest doesn't detract from the rarity of the historical moment. To paraphrase Richard Nixon, the president who closed the US gold window, we are all dollar bulls now.
Or rather, we are up to a point of saturation, a point that Kuwait seems to have finally reached. Its neighbours, too, appear to be on the edge of dollar surfeit. Broad money growth in the Gulf region is running at 20 per cent, in no small part a consequence of rampant dollar absorption.
"Inflation is a hot topic in the kingdom," the Financial Times reported from Riyadh recently, "as city residents feel the pinch of rental and price increases suddenly feeding into an economy that has grown used to inflation of around 1 per cent a year since the 1970s." The Saudi statistics gatherers today acknowledge a current rate of 3 per cent.
Since the international gold standard perished in 1914, successive global monetary systems have been brought down by external shocks or internal contradictions. Inflation is the bane of our non-system system. Inflation is a disease of one main cause but varied symptoms. A surfeit of money can cause derangement at the checkout counter (India), in the real-estate market (Russia) or on the stock exchange (China).
By upsetting the integrity of prices, it can disturb the architecture of production. In most of the dollar-buying states, monetary growth is fast enough to upset the eternal rest of Milton Friedman. In all cases, a slower pace of dollar absorption is an integral part of a monetary cure. It will be said that only some members of the dollar-buying bloc want to be cured. The rest - notably, China - are happy to keep on cranking the monetary presses. But the upward track of US interest rates and the downward path of the dollar exchange rate tell a different story. One thing's for sure, the greenback ain't the solidus.
Jim Grant is the founder and editor of Grant's Interest Rate Observer
Copyright The Financial Times Limited 2007
http://www.ft.com/cms/s/f2f3a8a8-0f12-11dc-b444-000b5df10621.html
xingu, The drop in the value of the US currency has been going on for quite some time; Bush was good at exacerbating the problem (I think that's about the only thing Bush was good at; ruin our long-term economy). At any rate, there's always an upside to this problem of devalued US currency; our products in the world market becomes more competitive, and the IOU's we owe China and Japan becomes cheaper. The downside are many, but not for people who doesn't purchase foreign goods or travel abroad.
I've always maintained that the fed's playing around with short-term interest rates by quarter percentage points is only a game played for the masses; it's a bunch of BS to assume they can control inflation whent US consumers and the federal government continue on increasing the debt. You can't keep spending monopoly money forever; somebody is going to catch on that there's nothing to back up all them US dollars floating around the world; just a "promise." The way our government's trust has been lost around the globe, it won't be long when they start to cash in their chips; then watch out!
U.S. economy's fate in Saudi hands
Forget the Fed and Washington, D.C. Because of its swing position in the world's oil market, Saudi Arabia wields the real power over our economic future.
By Jim Jubak
Saudi Arabia is running the U.S. economy.
I'm not sure the Saudis want the task, but they've got it. Because the United States still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry.
That's risky, since the economic self-interest of Saudi Arabia and the United States aren't always aligned, and because keeping the fractious and often dysfunctional governments of the world's oil producers on the same economic course is a whole lot harder than building consensus among the governors of the Federal Reserve.
Fed ain't what it used to be
Remember the good ol' days? Back when the U.S. Federal Reserve and its chairman were in charge of our economy? The Fed would try to find a delicate balance in setting interest rates: High enough to control inflation and low enough to encourage economic growth. Once upon a time, those policy changes were actually the most important decisions anyone made about the U.S. economy.
By the Fed's own admission, the growth of global liquidity has reduced the U.S. central bank's ability to control interest rates -- and thus the economy -- in the United States. Think about this: The Fed raises short-term interest rates relentlessly from their 1% low in June 2003, and yet long-term rates sink as global cash flows overwhelm the Fed's domestic policy shifts.
Still, the U.S. stock and bond markets hang on the Federal Reserve's every word. Just last week the stock market rallied on the release of minutes from the Fed's rate-setting body, the Open Market Committee.
How quaint. Investors would be better off parsing the comments of Saudi oil minister Ali Naimi.
Saudi have the clout
It's now Saudi Arabia that's trying to find a delicate balance. In the Organization of Petroleum Exporting Countries (OPEC), the Saudis are the swing producer -- the only major oil producer with enough extra production capacity to increase supply when the price of a barrel of crude soars, and the only major oil producer with the political will and foresight to cut supply when prices fall too low. Right now, the Saudis are producing at 8.5 million barrels a day. Depending on whose figures you believe, their production capacity is anywhere from 9 million to 11 million barrels a day.
If the Saudis allow oil prices to climb too high, then consumers will cut back on use, and energy alternatives will become sufficiently attractive to investors to cut into oil's share of the global energy market. Worst case: Oil prices will climb so high that they cause a global recession that will certainly cut demand.
If the Saudis allow oil prices to fall too much, they will reduce the revenue they get for oil and reduce their clout among those oil-producing countries that are only willing to follow the Saudi lead as long as it lines their pockets. Worst case: Revenue falls so far that the Saudis and other oil-producing countries don't have the cash to support their own plans for growing their economies and providing the jobs and subsidies that keep many oil-country governments in power.
An oil-thirsty world
One source of Saudi Arabia's economic clout lies in the galloping global -- and U.S. -- demand for oil. The U.S. Energy Information Administration forecasts that total world demand for petroleum will reach 118 million barrels a day in 2030, up from 83 million barrels a day in 2004.
It wouldn't matter if the world was awash in oil right now or if finding new reserves of oil hadn't become so difficult and expensive. Oil supply right now is at 83 million barrels a day, the Energy Information Administration calculates, about even with demand. To meet projected demand, oil supply will have to grow by about 33% from 2004 to 2030. That's a huge increase since, according to the agency, oil production in non-OPEC countries will be flat in the period and falling in such current big suppliers as Mexico and Venezuela.
Only if OPEC increases its production by 14 million barrels a day by 2030 will global supply match global demand. And the biggest chunk of that extra production will have to come from Saudi Arabia, where the Energy Information Administration is projecting an increase in production to 16.4 million barrels a day in 2030 from 11 million barrels a day now. That's roughly a 50% increase.
Demand, prices both rise
The other source of Saudi economic clout derives from the fact that the world is so hooked on oil -- so crucial to development in emerging economies -- that demand for oil goes up even as oil prices rise. In 2006, oil industry analysts calculate, global oil demand grew at a rate of 800,000 barrels a day. When oil is less expensive, as it looks likely to be in 2007 when the average price per barrel is forecast at closer to $62 than to 2006's average of $66, demand grows even faster. In 2007, growth in global demand is forecast at 1.3 million barrels a day.
The U.S. economy is no exception. Total oil imports into the United States jumped by 14% in March from February to hit record levels. And even as gasoline prices soar in the United States, consumption growth continues. U.S. gasoline demand in May was up about 1% from May 2006.
How much clout does that give the Saudis over the U.S. economy? The United States imports about two-thirds of its oil at a cost of about $300 billion a year. According to a study by the Rand Corp., each $10 increase in the cost of a barrel costs the average American household $700 a year.
Oil up, GDP growth down
In January 2004, the price of oil was $34.27 a barrel, according to the St. Louis Federal Reserve. It closed at $65.08 on June 1, 2007. Using Rand's numbers, that's an increase of $2,156 per household for oil. In that same period -- when the Federal Reserve's short-term interest rate increases pushed the yield on the 10-year Treasury note to 4.95% from 4.30% -- U.S. Gross Domestic Product growth dropped from 3.9% in 2004 to 3.2% in 2005, 3.3% in 2006 and to 0.6% in the first quarter of 2007. I certainly can't tease out the effects of higher oil prices from the effects of higher interest rates, but my suspicion is that the former has had a bigger effect on the U.S. economy in this period than the latter, thanks to the continued availability of cheap money from global sources such as Japan.
Saudi Arabia has no interest in killing the U.S. or the global golden goose. Sending our economy or, worse yet, the global economy into a recession, or even quarter after quarter of growth below 2%, would wreak havoc with Saudi revenues.
Many oil producers use oil revenue for political gains, but Saudi Arabia actually has a relatively reasonable long-term view, says MSN Money's Jim Jubak. That's better than what we see from countries like Iran and Mexico, who manage their oil for short-term gains, he adds.
But it is in Saudi self-interest to charge the most the market will bear; after all, oil is an exhaustible resource. Even though we can debate about when that resource might be so depleted that Saudi Arabia can't produce significant oil, we all know that one day the oil will be gone. So every time a terrorist attack in Nigeria, a flare-up in tension between the United States and Iran or an expropriation by Venezuela's Hugo Chavez spikes the price of oil, you can bet the Saudis are studying the market response. If a price spike doesn't result in a significant decline in consumption, then the inclination of any rational oil producer would be to let prices drift higher (or to push them higher by cutting production).
And it won't end soon
I have bad news for anybody who thinks that this Saudi control over the U.S. and global economies is a brief phase that will end by itself. The decision among oil producers such as Saudi Arabia to shift away from being a mere producer of crude oil to becoming a producer of value-added products made from oil -- such as gasoline, fertilizer and plastics -- will prolong the economic clout of these countries. Saudi Arabia will go from being the low-cost swing producer of crude oil to being the low-cost dominant producer in gasoline, fertilizer and plastics.
The cost advantages that Saudi Arabia brings to the game are huge. Methane and ethane, key feed stocks for petrochemical production, cost about 75 cents per million BTU in Saudi Arabia and $7.50 per million BTU (for methane) on New York commodity markets. Within five or 10 years, new industries now being built in Saudi Arabia are likely to soak up cheap natural-gas-feed stocks such as these. But even if the country has to switch to refined feed stocks such as naphtha, Saudi Arabia will have a huge cost advantage. Naphtha from a Saudi refinery might cost $50 per metric ton compared to a market price of 10 times that from a refinery elsewhere in the world.
It's up to the consumer
The only thing that changes this game -- that redresses the balance between supplier economies and consumer economies -- is a change in the price signals that consumer economies send in response to price increases. As long as the response to an increase in the price of oil is an increase in consumption, then oil prices will drift higher at a pace set by the self-interest of oil producers. Those of us who live in the consuming economies will just have to hope that the Saudis and other oil producers efficiently milk consuming countries' cash-cow economies.
On the other hand, if higher prices lead to less consumption because consumers become permanently more efficient in the ways they use energy, and because consuming economies adopt lasting sources of alternative supply (and don't abandon them at the next dip in oil prices), then consuming countries have a chance to take back some degree of control over their own economies.
And then -- oh joy, oh rapture -- once again, investors would be justified in hanging on every one of Fed Chairman Ben Bernanke's words
Quote:U.S. economy's fate in Saudi hands
Forget the Fed and Washington, D.C. Because of its swing position in the world's oil market, Saudi Arabia wields the real power over our economic future.
By Jim Jubak
Saudi Arabia is running the U.S. economy.
I'm not sure the Saudis want the task, but they've got it. Because the United States still doesn't have a national energy policy, we've thrown decisions about how fast our economy grows and whether our standard of living rises or falls into the hands of Saudi Arabia's oil ministry.
That's risky, since the economic self-interest of Saudi Arabia and the United States aren't always aligned, and because keeping the fractious and often dysfunctional governments of the world's oil producers on the same economic course is a whole lot harder than building consensus among the governors of the Federal Reserve.
Fed ain't what it used to be
Remember the good ol' days? Back when the U.S. Federal Reserve and its chairman were in charge of our economy? The Fed would try to find a delicate balance in setting interest rates: High enough to control inflation and low enough to encourage economic growth. Once upon a time, those policy changes were actually the most important decisions anyone made about the U.S. economy.
By the Fed's own admission, the growth of global liquidity has reduced the U.S. central bank's ability to control interest rates -- and thus the economy -- in the United States. Think about this: The Fed raises short-term interest rates relentlessly from their 1% low in June 2003, and yet long-term rates sink as global cash flows overwhelm the Fed's domestic policy shifts.
Still, the U.S. stock and bond markets hang on the Federal Reserve's every word. Just last week the stock market rallied on the release of minutes from the Fed's rate-setting body, the Open Market Committee.
How quaint. Investors would be better off parsing the comments of Saudi oil minister Ali Naimi.
Saudi have the clout
It's now Saudi Arabia that's trying to find a delicate balance. In the Organization of Petroleum Exporting Countries (OPEC), the Saudis are the swing producer -- the only major oil producer with enough extra production capacity to increase supply when the price of a barrel of crude soars, and the only major oil producer with the political will and foresight to cut supply when prices fall too low. Right now, the Saudis are producing at 8.5 million barrels a day. Depending on whose figures you believe, their production capacity is anywhere from 9 million to 11 million barrels a day.
If the Saudis allow oil prices to climb too high, then consumers will cut back on use, and energy alternatives will become sufficiently attractive to investors to cut into oil's share of the global energy market. Worst case: Oil prices will climb so high that they cause a global recession that will certainly cut demand.
If the Saudis allow oil prices to fall too much, they will reduce the revenue they get for oil and reduce their clout among those oil-producing countries that are only willing to follow the Saudi lead as long as it lines their pockets. Worst case: Revenue falls so far that the Saudis and other oil-producing countries don't have the cash to support their own plans for growing their economies and providing the jobs and subsidies that keep many oil-country governments in power.
An oil-thirsty world
One source of Saudi Arabia's economic clout lies in the galloping global -- and U.S. -- demand for oil. The U.S. Energy Information Administration forecasts that total world demand for petroleum will reach 118 million barrels a day in 2030, up from 83 million barrels a day in 2004.
It wouldn't matter if the world was awash in oil right now or if finding new reserves of oil hadn't become so difficult and expensive. Oil supply right now is at 83 million barrels a day, the Energy Information Administration calculates, about even with demand. To meet projected demand, oil supply will have to grow by about 33% from 2004 to 2030. That's a huge increase since, according to the agency, oil production in non-OPEC countries will be flat in the period and falling in such current big suppliers as Mexico and Venezuela.
Only if OPEC increases its production by 14 million barrels a day by 2030 will global supply match global demand. And the biggest chunk of that extra production will have to come from Saudi Arabia, where the Energy Information Administration is projecting an increase in production to 16.4 million barrels a day in 2030 from 11 million barrels a day now. That's roughly a 50% increase.
Demand, prices both rise
The other source of Saudi economic clout derives from the fact that the world is so hooked on oil -- so crucial to development in emerging economies -- that demand for oil goes up even as oil prices rise. In 2006, oil industry analysts calculate, global oil demand grew at a rate of 800,000 barrels a day. When oil is less expensive, as it looks likely to be in 2007 when the average price per barrel is forecast at closer to $62 than to 2006's average of $66, demand grows even faster. In 2007, growth in global demand is forecast at 1.3 million barrels a day.
The U.S. economy is no exception. Total oil imports into the United States jumped by 14% in March from February to hit record levels. And even as gasoline prices soar in the United States, consumption growth continues. U.S. gasoline demand in May was up about 1% from May 2006.
How much clout does that give the Saudis over the U.S. economy? The United States imports about two-thirds of its oil at a cost of about $300 billion a year. According to a study by the Rand Corp., each $10 increase in the cost of a barrel costs the average American household $700 a year.
Oil up, GDP growth down
In January 2004, the price of oil was $34.27 a barrel, according to the St. Louis Federal Reserve. It closed at $65.08 on June 1, 2007. Using Rand's numbers, that's an increase of $2,156 per household for oil. In that same period -- when the Federal Reserve's short-term interest rate increases pushed the yield on the 10-year Treasury note to 4.95% from 4.30% -- U.S. Gross Domestic Product growth dropped from 3.9% in 2004 to 3.2% in 2005, 3.3% in 2006 and to 0.6% in the first quarter of 2007. I certainly can't tease out the effects of higher oil prices from the effects of higher interest rates, but my suspicion is that the former has had a bigger effect on the U.S. economy in this period than the latter, thanks to the continued availability of cheap money from global sources such as Japan.
Saudi Arabia has no interest in killing the U.S. or the global golden goose. Sending our economy or, worse yet, the global economy into a recession, or even quarter after quarter of growth below 2%, would wreak havoc with Saudi revenues.
Many oil producers use oil revenue for political gains, but Saudi Arabia actually has a relatively reasonable long-term view, says MSN Money's Jim Jubak. That's better than what we see from countries like Iran and Mexico, who manage their oil for short-term gains, he adds.
But it is in Saudi self-interest to charge the most the market will bear; after all, oil is an exhaustible resource. Even though we can debate about when that resource might be so depleted that Saudi Arabia can't produce significant oil, we all know that one day the oil will be gone. So every time a terrorist attack in Nigeria, a flare-up in tension between the United States and Iran or an expropriation by Venezuela's Hugo Chavez spikes the price of oil, you can bet the Saudis are studying the market response. If a price spike doesn't result in a significant decline in consumption, then the inclination of any rational oil producer would be to let prices drift higher (or to push them higher by cutting production).
And it won't end soon
I have bad news for anybody who thinks that this Saudi control over the U.S. and global economies is a brief phase that will end by itself. The decision among oil producers such as Saudi Arabia to shift away from being a mere producer of crude oil to becoming a producer of value-added products made from oil -- such as gasoline, fertilizer and plastics -- will prolong the economic clout of these countries. Saudi Arabia will go from being the low-cost swing producer of crude oil to being the low-cost dominant producer in gasoline, fertilizer and plastics.
The cost advantages that Saudi Arabia brings to the game are huge. Methane and ethane, key feed stocks for petrochemical production, cost about 75 cents per million BTU in Saudi Arabia and $7.50 per million BTU (for methane) on New York commodity markets. Within five or 10 years, new industries now being built in Saudi Arabia are likely to soak up cheap natural-gas-feed stocks such as these. But even if the country has to switch to refined feed stocks such as naphtha, Saudi Arabia will have a huge cost advantage. Naphtha from a Saudi refinery might cost $50 per metric ton compared to a market price of 10 times that from a refinery elsewhere in the world.
It's up to the consumer
The only thing that changes this game -- that redresses the balance between supplier economies and consumer economies -- is a change in the price signals that consumer economies send in response to price increases. As long as the response to an increase in the price of oil is an increase in consumption, then oil prices will drift higher at a pace set by the self-interest of oil producers. Those of us who live in the consuming economies will just have to hope that the Saudis and other oil producers efficiently milk consuming countries' cash-cow economies.
On the other hand, if higher prices lead to less consumption because consumers become permanently more efficient in the ways they use energy, and because consuming economies adopt lasting sources of alternative supply (and don't abandon them at the next dip in oil prices), then consuming countries have a chance to take back some degree of control over their own economies.
And then -- oh joy, oh rapture -- once again, investors would be justified in hanging on every one of Fed Chairman Ben Bernanke's words
http://articles.moneycentral.msn.com/Investing/JubaksJournal/DoYouTrustTheSaudis.aspx?page=all
Intersting article in today's San Jose Merc about people earning $250,000/year are having difficulty with cash flow; most are living from paycheck to paycheck. Not all bad news, though, because it seems some are at least putting away some of it into their savings.
...people earning $250,000/year are having difficulty with cash flow; most are living from paycheck to paycheck. ...
cicerone imposter wrote:Intersting article in today's San Jose Merc about people earning $250,000/year are having difficulty with cash flow; most are living from paycheck to paycheck. Not all bad news, though, because it seems some are at least putting away some of it into their savings.
As you already undoubtedly know CI, our nation has become a spend, spend, spend economy full of a need for instant gratification. I have never lost more respect for a people as when I heard president Bush say, after 9/11 that American's just needed to spend more money.
He said it again on 12/20/2006, see the video here:
http://thinkprogress.org/2006/12/20/bush-shopping/
What a bunch of selfish, superficial people we American's are becomming.
