We Can Not BS Open Free Markets Around The World

Over the last month, I have discussed many facets of the economy, and like the old tale about a group of blind people touching different parts of an elephant and all having a very different description of the same animal, so too, many of the economists, near economists, market watchers, talking heads and commentators have different opinions of the economy. What and where they see the problems is also a matter of opinion. Let me give you mine.

My approach is to start with energy, and more specifically oil which is refined into gasoline and diesel fuel. I listened this morning as a group discussed how gas prices are low relative to what people are paying around the world in other advanced economies such as England and Europe. This is true. The problem is not just the price of oil, gasoline and diesel, but the direction and speed of the price increases. Couple to that, that while we import such vast quantities of oil, and we import so many products from China, and we are spending billions of dollars in Iraq on the war, and we, the US Treasury, is borrowing heavily in the international debt markets, that with all these factors coming together with a sub prime mortgage crisis, a crisis of confidence in the valuation of securities that are asset-backed, a falling real estate market, and finally a dollar that is falling in value against other major world currencies, and now you have real economic trouble.

Politics and national economic policy are man made items. They have little if anything to do with the forces that are purely economic such as supply and demand and yield curves. Unfortunately, not all policies promote what is best for all the people, or even the country as a whole. And here comes the rub, the politics of money unfortunately has taken this nation down the wrong path. Welcome to the reality the United States of America finds itself in March 2008.

Take oil out of the equation, and by this I mean reduce substantially the amount of oil we import or reduce it by an amount that would make the number of dollars leaving the economy for oil to be negligible, and a major part of the economic equation would see relief. We could continue to import products from China, even though from a national economic policy angle, that is, in my opinion, a bad idea, but because we would not be importing oil, the US dollar would not be under the selling pressure that it is now in the world currency markets.

If we had had a comprehensive, (I heard this morning the word holistic used), energy policy as a nation, I seriously doubt we would be in Iraq today. Even Alan Greenspan says that the war in Iraq is about oil. But, there were those people that did not want the United States to be independent of foreign oil, and so we are now paying the price for a lack of a comprehensive energy policy.

Even a strong and dynamic country such as the United States has its limits. Those economic limits have been reached, and the rest of the world is telling us in their buying and selling of commodities that we have reached them. Gold rose to $1,000 an ounce in US dollars, not 1,000 Euro. Oil is selling over a 100 US dollars a barrel, not over a 100 Euros. The world economies vote on the success of the job we are doing running our economy with their money. And, the vote is not going our way. If our own leaders will not do the right thing for this nation economically, others by the movement of their money will. The bottom line is we can not BS our way out of mismanaging our economy to the rest of the world. We talk a lot about free open and competitive markets, and now we are seeing them in action on a global scale. Stay tuned.