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The San Diego Democracy for America Meetup Group Message Board › The real problem with $50 oil

The real problem with $50 oil

A former member
Post #: 168
This is an excllent article to help one understand what is REALLY going on in the 'world of finance' and it's implications for the U.S.(and therefore yours and 'your'un's'). It is a long article so here's the link .
Some tidbits:
Oil and gas import is the single largest component in the US trade deficit, not imports from Japan or China.
In other words, higher energy prices do not take money out of the economy, they merely shift profit allocation from one business sector to another.
As cash flow increases for the same amount of material activities, the GDP rises while the economy stagnates.
Pension arbitrage is producing the same destructive effect on labor as cross-border wage arbitrage.
The prospect of a private pension collapse is more pressing than the accounting crisis in Social Security.
The result is that the PBGC will fail financially as more companies default on their pension obligations, the same away the Federal Deposit Insurance Corp (FDIC) did during the savings and loan crisis of the 1980s.
While low Asian wages are keeping global inflation in check through cross-border wage arbitrage, rising energy prices are the unrelenting factor behind global inflation that no interest-rate policy from any central bank can contain.
War-making is a gluttonous oil consumer. With high oil prices, America's wars will carry a higher price, which will either lead to a higher federal budget deficit, or lower social spending, or both. This translates into rising dollar interest rates, which is structurally recessionary for the globalized economy.
But now, as explained by Facts 3 and 4 above, in a debt bubble, oil in the ground can be more valuable than oil above ground because it can serve as a monetizable asset through asset-backed securities (ABS) in the wild, wild world of structured finance (derivatives).
Thus there is no incentive to expand refinery capacity to bring gasoline prices down because the return on new investment will need high gasoline prices to pay for it.
a case can be made that the United States cannot drastically reduce its trade deficit without paying the price of a sharp recession that could trigger a global depression.
The WTO regime imposes draconian free-market rules on trade except except for oil and currencies, while OPEC blatantly practices intergovernmental manipulation of oil prices and the IMF acts as the world's policeman in defense of dollar hegemony.
So at the post-1997 price of $10-plus per barrel, only the profit margin was reduced and some idiotic oil brokers in Chicago holding high futures contracts, and some high-rolling investors in oil rigs in Texas, got wiped out, including a future occupant of the White House. But the good news for the oil industry was that it gave a big boost to oil-company mergers to consolidate the sector and reserves and downsize employment, which in better times the US government would have never approved for antitrust reasons.
OPEC is an example of how economic nationalism can be co-opted into Western-dominated neo-imperialist globalization.
A 1998 survey of 24 of the larger US oil companies indicated that on the average it cost $4.48 to "find" a barrel of oil and $4.12 to produce it. That means there will be no profit for this group below $8.60 per barrel for new oil and no positive cash flow from operations below $4.12 per barrel.
Fifty-dollar oil need not be damaging to the global economy, but it nevertheless forces a restructuring of the global economy that has political reverberations.
The net result is a transfer of wealth from the "working families" of the world to the capitalists the world over. Consumer demand will shift, with more money spent on fuel and utilities and less for other types of consumption that improve the standard of living, but equity prices will rise because there will be more dollars chasing the same number of shares.
Capital-gain tax measures are resisted on the doctrine that what hurts capital hurts the poor also, if not more. This ideological fixation is increasingly inoperative in a world saddled with overcapacity and widening income disparity.
Therein lies the key issue of the coming oil crisis - ballooned equity prices unsupported by earnings and a dampening of consumer demand.
We now appear to be heading toward a replay of the early 1980s when a widening trade deficit and a precipitous fall of the dollar triggered the 1987 collapse of the equity markets. Greenspan's strategy of reducing market regulation by substituting it with crisis intervention is merely swapping the extension of the boom for increased severity of the bust down the road.

Now, which national 'leader' is addressing all this?
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