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Sunday, May 31, 2009

On Oil

CF turned me on to Zero Hedge. I noticed that on Friday there was a guest post on oil, TARP, etc.
$66 oil is a noose around the neck of this economy as the it was cheaper oil that helped us begin to recover as it stayed around $40 from November through the beginning of March. On a per barrel basis alone, that was $500M a day LESS than we are paying now but, despite the fact that oil is still 54% in price from this time last year, gasoline has gone up so fast that it’s only down 23% from the prices that knocked the wheels out from our economy. Including refined products, that extra $26 a barrel is costing US consumers $1Bn a day, $365Bn a year or 1/2 of the TARP money going straight out of our economy and back to the countries that fund terrorism through the very ugly hands of GS (who are partners in ICE) and other TARP recipients who have funded and coordinated this commodity "rally," screwing the American people over with our own tax dollars.

I don't agree with everything written in this post, because I think that it is not just speculation but true hedging against dollar losses that is causing oil and commodities to shoot up. However, it is a fact that a lot of the funds given to financials appear to have gone into speculation. ICE is also a problem, and Congress will do nothing about it. A shadow commodities exchange that is substantially unregulated makes a great vehicle for price-cranking.

Regardless, the money people pay for oil is going to come straight out of other funds, and oil at $70 implies a drop in real GDP of about 1.5-2% over the next year.

No serious analyst can possibly predict these prices, but the same folks last year were predicting oil at $200. I conclude, therefore, that integrity takes a backseat to profits at many of the big financials.

Not that it is just oil. The TALF program (use FDIC funds to guarantee profits, give private interests money to buy bad bank "legacy" loans and securitized loans) recently prompted the hilarious applications by some banks to both sell their loans into the program (for an artificially high rate) and receive funds under the program (at taxpayer and healthy bank's expense) to garner some of the profits.

Like I say, this was the shortest Democratic revolution in history. If anything, this administration appears more dominated by big banks and Goldman Sachs than the last. A lot of it is Congress, although there can be no excuse for the TALF program whatsoever. It's theft.

When I think that I ruled out voting for Hillary because of the Clinton record of being in bed with big bankers, I feel that the ironies of the situation are just too much to bear.

Comments:
Given how the Bush 43 administration had Goldman-Sachs alumni seeded through it, government of, by, and for Goldman-Sachs is unlikely to perish from the earth. They're equal-opportunity corruptors; doesn't matter which party's in power, they worm their way to the top.
 
The price is now in the vicinity where various alternative sources become economical, no? If it stagnates there for a while, someone may be able to find the money to get some oil flowing from shale or sands.
 
NJCommuter - Hahahaha. The Canadian projects have been viable right along, and if supplies were really low, the current prices might jumpstart a few more of those projects.

But the current administration has fed this by yanking the US shale leases and by reimposing the drilling ban.

If you are a speculator in oil, the current administration is your friend.
 
And when consumer spending figures rise because of those gasoline prices, the media will greet the news as yet another exciting "green shoot." After all, they've been told that consumer spending drives the economy.

It never occurs to them to wonder if all spending is equal.
 
Good comment, Craig. Had not thought of that myself.

Is it not clear to anyone who has taken just a casual look that the USA standard of living floats on a sea of reasonably priced, reliable energy? And yet those geniuses in the Obama administration just don't get it. A lot of the problem is most of them do not really have to worry about such mundane things as paying for utilities or transportation. They have the money and then some so it just isn't a consideration. Joe Sixpak's welfare is the farthest thing from their minds. What they also don't see is that cheap energy is the lifeblood of commerce. Everything is transported by truck, bus, train or airplane. When that cost goes up something has to give.

They're also too much under the influence of the enviro-whackos. I've run into too many of them here in the Pacific Northwest. They see degradation of the environment in everything humans do. Don't water your lawn, don't flush your toilet, homeowners should not own/control the wells they drilled for domestic water, can't use excess runoff to irrigate crops, can't let anyone cut down a tree, and on and on. They are completely off the deep end. But they are well financed and extremely vocal.

Our only hope is to change Congress in 2010. Without a copmpliant Congress the Obamans will not be able to push their irrational anti capital agenda.
 
Craig - well, what happens is that as people divert more income to paying for the basics (food, fuel, utilities, clothing) they spend less on discretionary and big-ticket items. So that produces the patterns we have seen over the last year and half.
 
I suspect that this all just one last big party on the public dime--somewhere in the back of their minds the political class know it's not sustainable. They know they're toast, if not in the next two years then certainly when Social Security and Medicare blow up. This is just one final pig-out at the public trough. Apre moi, le deluge.

MOM, this is slightly OT, but I've been watching I-bonds vs. T-bonds vs. corporate AAA as an indicator of inflation vs. default vs. another round of "flight to quality". So far, it just looks like a return to normality, although the rate of change is alarming. Any thoughts on the validity of this method?

Link to graph follows:
http://preview.tinyurl.com/nys5kv
 
If anything, this administration appears more dominated by big banks and Goldman Sachs than the last. A lot of it is Congress, although there can be no excuse for the TALF program whatsoever. It's theft.

Theft is Goldman Sach's specialty. Carl loves them. I can see the corruption that is inherent in everything they do. GS orchestrated the last oil price spike too. There is nothing these bastards won't do
 
ICE is also a problem, and Congress will do nothing about it.

Yet *another* product of the wonderful Phil Gramm 2000 bill (passed by almost all of congress and signed by Clinton) that gave us unregulated-forever CDS.

When I think that I ruled out voting for Hillary because of the Clinton record of being in bed with big bankers, I feel that the ironies of the situation are just too much to bear.

Tell me about it.
 
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