Where is the US economy headed?

@georgeob1,

geoge, Let me add my .02c here. The amount of US currency in circulation has not changed all that much since 2008, but our economy is not experiencing the kind of inflation one would expect as more consumers cut back on spending.

If you look at currency components of M1, you'll see that the supply of US dollars have increased, but we didn't have much inflation to speak of.

The cause of this low inflation rate are many; lost jobs and homes, loss from the stock market in 2008, the higher cost of fuel and food, and the economic slowdown in the world's economies.

I believe these variables are greatly responsible for our low inflation rates since the 2008 crash.

If we look at the price of gold, the total value in the US equals about 50% of the US currency in circulation. That "cash" is used to speculate on a commodity that really doesn't have much practical value except for jewelry, high tech components, and industrial use. Look at the total tons of gold held by all countries; it far exceeds, at current prices, the cash volume in circulation. It just doesn't make much sense.

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@Cycloptichorn,

Cyclo,
Whether the banks in question are protected by their governments is a question for them to decide based on their perception of the relative effects on their respective countries, and on their collective concerns about the Eurozone. Bank failures do affect more than just the owners of their stock, and I suspect you would find some of these effects not to your liking. I don't much care one way or the other, though I am sympathetic to the on-again, off-again "position" of the German government that bondholders must face some significant level of the consequences.

However, I have a hard time understanding your position on the matter at hand: you appear to oppose a bailout for the banks, but want one for the Greeks. How would you accomplish that? Would you have the EU create a new entity to continue feeding the Greek government's ongoing need for more cash than it collects - after allowing Greece to default on existing bonds & loans? Who would pay the bill for that?

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@georgeob1,

george, The Greek fiscal issue concerns all the Euro countries; the default by Greece on their loans will harm the Euro of all countries. They fear a domino effect on the value of the Euro if Greece defaults now. That's quite a different issue than the one that faced the world economies in 2008-2009.

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@cicerone imposter,

And if they bail out Greece, and then Portugual, and then, Latvia & Ireland, and then Spain ..... what will be the result?

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@georgeob1,

georgeob1 wrote:

You are still evading the point.

Since Cycloptichorn thinks you are misrepresenting his point, I'm not sure it's a negative that I'm responding to his version of what his point was rather than yours.

georgeob1 wrote:

The inflation associated with the suggested generous monetary bailout of Greece (with Latvia, Ireland, Portugual and perhaps Spain waiting in the wings), is likely to be more than "moderate"

. . . and your economic model for predicting this is---what?

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@H2O MAN,

H2O MAN wrote:

What is Obama's plan to help the economy exactly?

Has the Obama regime come up with a budget yet?

Anyone? ... Bueller?

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@Thomas,

Thomas wrote:

georgeob1 wrote:
You are still evading the point.

Since Cycloptichorn thinks you are misrepresenting his point, I'm not sure it's a negative that I'm responding to his version of what his point was rather than yours.

I don't understand his point, and have addressed my question about it above. Thanks, however, for acknowleging that your response to my point was not what it appeared to be at all - which was my complaint.

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@Cycloptichorn,

There is also moral hazard in allowing the citizens of Greece to believe they can sustain the inflated government structure that they appear to be demanding.

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@georgeob1,

That's the dilemma that they're in now; it's impossible for them to "bail out" all of those countries now having deficit problems. Their economy cannot expand or pay back the loans they might get from the Euro countries and others. They're asking private citizens to buy their bonds, but that's a sure way to lose their investment. They're between a rock and a hard place. Their boat has too many holes for any solution.

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The IEA's announcement to release 60 million barrels of oil from reserves in the U.S. (30M), Europe (18M) and other countries (12M) over the next 2 and a half months caught everyone by surprise. The official explanation is that the IEA feels the need to replace the lost production from Libya. I listened to or read from pundits and heard close to a half a dozen explanations and put bits and pieces from a couple of them to come up with my theory.

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@realjohnboy,

That's good news! The cost of fuel has been a handicap to the world's economy, and this will relieve a bit from consumers to spend on other things.

If only this trend follows for the next five plus years.

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@realjohnboy,

realjohnboy wrote:

The IEA's announcement to release 60 million barrels of oil from reserves in the U.S. (30M), Europe (18M) and other countries (12M) over the next 2 and a half months caught everyone by surprise. The official explanation is that the IEA feels the need to replace the lost production from Libya. I listened to or read from pundits and heard close to a half a dozen explanations and put bits and pieces from a couple of them to come up with my theory.

I think this was clearly intended to be a message to the speculators, is a "we know what you are doing and we have the power to hurt you if you get out of line". Governments cant really be honest about what is going on though because there is no will to fix the oil markets, and the global economy is already circling the toilet bowl in large part because there is little faith in the current economic systems, the last thing governments want to do is to admit that a hugely important market is not working, that the thieves are using the oil markets to plunder huge amounts of wealth.

1 Reply

@hawkeye10,

hawkeye10 wrote:

I think this was clearly intended to be a message to the speculators, is a "we know what you are doing and we have the power to hurt you if you get out of line".

Excellent, Hawkeye. You nailed one of the 6 or so explanations. Investing in oil is not necessarily bad but there is finger pointing about the impact of possibly excessive speculation. The question that comes to my mind is - if this was the motive - why wasn't the release done at $114/barrel rather then $90.

1 Reply

@realjohnboy,

Quote:

Wall Street speculation in oil and energy markets is jacking up the price of oil, and thereby siphoning money from the pockets and pocketbooks of consumers.

Even Goldman Sachs suggests that legal speculation may be adding 65-70 cents to the price of a gallon of gasoline. Exxon CEO Rex Tillerson says supply-and-demand fundamentals suggest the price of oil should be $65-$70 a barrel, about a third less than the current price. Experts from the home heating oil industry believe even the $65 figure is too high.

http://www.dailykos.com/story/2011/06/17/986152/-Excessive-Oil-Speculation:-Wall-Streets-Tax-on-Us

out of our pockets and into the thieves go billions of dollars a year.

1 Reply

@hawkeye10,

by Paul Davidson, Editor, Journal of Post Keynesian Economics
Visiting Scholar, Schwartz Center For Economic Policy Analysis

Quote:

If speculation plays some role in pushing up crude prices in recent years,
is there some policy that the government can institute to remove this
speculative excess? The US government can test this speculation and
likely force futures oil prices down, perhaps even well below $100 a barrel, by a strategic use of the world's largest emergency supply, the US
Strategic Petroleum Reserve (SPR).
As of May 2008 the SPR held 701 million barrels (96% of capacity). If
the United States was to dump say between 70 and 105 million barrels on
the future market, it is likely that speculators could lose a significant
amount of money, while the U.S. would earn billions of dollars on the sale of oil. These dollars would offset a significant portion of the current U.S.
government deficit. Gasoline prices would might fall by more than the
amount that the suggested Clinton- McCain gasoline tax holiday from
Memorial Day to Labor Day would provide as a respite to American drivers.
.
.
.
If there is any speculative froth in the crude oil market, then if the
government would sell between 10 and 15 per cent from the SPR on the
market, we would really have a test of the importance of speculation on 12
commodity prices. Since SPR can pump up to 4 million barrels a day, the
government can readily sell oil the futures markets for at least two months
without significantly draining the SPR. (It would also be a test of what
would happen to world oil prices if OPEC used its current unused capacity
instead of refusing to use this capacity under the argument that it is
speculation and not withholding of supply that is creating this oil price
escalation.) Can one imagine what the sale of SPR oil would do to reduce
the speculative force behind crude price increases?

http://bus.utk.edu/econweb/faculty/davidson/challenge%20oilspeculation9wordpdf.pdf

1 Reply

@hawkeye10,

I'd like to know what the US paid for their oil reserves before making any guess about how much of the deficit they can pay down. After all, when they add those reserves to the open market, the price of oil is going to go south.

1 Reply

@cicerone imposter,

cicerone imposter wrote:

I'd like to know what the US paid for their oil reserves before making any guess about how much of the deficit they can pay down. After all, when they add those reserves to the open market, the price of oil is going to go south.

$29.76

http://etfdailynews.com/2011/04/11/u-s-strategic-petroleum-reserve-what%E2%80%99s-the-trigger-release/

1 Reply

@hawkeye10,

Source for this info?

Found it on Wiki.
http://en.wikipedia.org/wiki/Strategic_Petroleum_Reserve_%28United_States%29

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@cicerone imposter,

cicerone imposter wrote:

Source for this info?

DOE

http://fossil.energy.gov/programs/reserves/spr/spr-facts.html

Quote:

Current storage capacity - 727 million barrels
Fill status - The SPR completed fill on December 27, 2009 with a cargo that arrived and began to unload on Christmas Day. The cargo was 493,000 barrels of Saharan Blend, a light sweet crude that ws delivered to the Bryan Mound site.
Current days of import protection in SPR - 75 days (based on EIA data of 9.70 million barrels/day for 2009 net petroleum imports 2009). Note: the maximum days of import protection ever held in the SPR was 118 days in 1985.
International Energy Agency requirement - 90 days of import protection (both public and private stocks). The United States fulfills its commitment with a combination of SPR stocks and industry stocks.
Average price paid for oil in the Reserve - $29.76 per barrel

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There are something like 727M barrels in the oil reserve (which is at full storage capacity), at an average cost of $30/barrel (vs the market price of $90).
I am not at all in favor of using the SOR to manipulate prices, and I think Obama and Bush and others resisted doing that.

1 Reply

Where is the US economy headed?

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