The price of a barrel of oil is back in the news this morning. After sliding in price, a barrel of crude is back up to the $130 range again. The European Central Bank made a comment about the interest rates and the dollar declined and oil shot up. What does this all mean? What kind of Voodoo economics controls the price of these commodities?
It may be hard to comprehend this, but paper money is a commodity. If a government prints too much paper money, the value of that paper money becomes suspect. If diamonds were permitted to flood the market, what do you think would happen to the price of diamonds?
The United States government has flooded the world with paper dollars, but nobody talks about this fact. We read that the dollar is down in value against other major currencies, that other central banks may raise key interest rates to put further pressure on the dollar, and a host of other explanations that all talk around the problem, but fail to hit the nail on the head.
The United States government prints and borrows too much money, and outside the United States, the rest of the world is not so enamored with the way we run our books, our budget or our money.
The United States came out of the Second World War in 1945 as a young Super Power and over the next 63 years, we have managed to piss away the edge we had through a combination of stupidity and arrogance. Now, here we are in the middle of 2008, and the world has gotten wise to the games we play.
Yesterday, a report was made public by the US Senate that the reasons for going to war in Iraq were overstated and perhaps the American people were flat-out lied to about the facts as they were presented to go to war. We may think we did the right thing to invade Iraq, but the rest of the world does not have to buy into our reasons. Free peoples in other free countries can think for themselves. The key word is think.
The billions of dollars spent by the United States in our war in Iraq has required that we borrow money in the world capital markets. The amount of oil that we import every day of the year causes the United States to run a trade deficit. The amount of goods the United States imports, (and not just from China, but all imports), causes the US to run a big trade deficit. The tax cut by the present administration in Washington has caused the government to borrow even more money in the capital markets. All of this during a time of war.
Add all these things up and if you can not understand why the dollar is declining in value and the price of oil, which is traded and quoted in US dollars, is up, then it is a lost cause for you to read anymore about economics. You, like millions of my fellow Americans are economically challenged. Do not feel bad, there are at least a few hundred Senators and Congress persons that are challenged as well. Unfortunately, there is no known cure for this affliction. Perhaps the best way an individual should deal with this problem is to run for Congress.
Until the electorate wises up to the fact that government spending has a direct relationship to the value of the dollar, and that trade and budget deficits are directly related to the value of the dollar and the threat of inflation, then there really is only so much that the Fed, our central bank, can do besides giving speeches and talking up all the great things about us and our economy. Without our political stability and military muscle, I would hate to think where the value of the US dollar would be this morning. The world has cut us so much slack when it comes to the dollar for so many years, we can hardly expect them to try and kick that football again Lucy. You don’t need a degree in economics to understand what is happening to the value of the dollar in 2008. Stay tuned.
The stock market, the DOW, closed down 400 points Friday afternoon and a barrel of oil traded up about $11 and closed at the $138 range. I love that all the numbers are supplied to the reader, but no truthful analysis is provided. All these things just happen? When will we Americans start asking the question why? Why is oil going up? Why is the US dollar going down? There are reasons for all this that is taking place. Guess what? It all starts with monetary and fiscal policy. It is like everyone in the world knows we have serious economic problems, but us. Stay tuned.
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5 comments:
Well, I hope Senator Durbin and/or his staff are paying attention. And thanks - I'm feeling better today.
I remember just before the "invasion" of Iraq when our politicians were bashing the French for not joining the US, I was thinking that perhaps the French knew how devasting a war can be and it should not be taken lightly...and the American politicos got the citizens here riled up to denounce the French.
France was correct; the war is devasting, countless lives lost, economy ruined,and the reason for going to Iraq were not legitimate.
Not only have we decimated our country for the reasons you stated, but we have shown many, if not all, of our weaknesses to the rest of the world.
When you see all your problems as a nail, you tend to see your solution in the form of a hammer. It is all about getting reelected, not showing how smart you are, or your ability to analyze a complex issues. Just get out that hammer and start swinging. Far too many politicians, on the national stage, are afraid that they will be cast & challenged as being weak on defense and terrorism. Play to the fears of the masses. Are we safer today than we were before the war in Iraq? Is our military in a better state than before the war? What has the billions of dollars spent in Iraq bought us? How many more billions can we afford? What has the war done to our economy? Could not the billions spent in Iraq, not have been better spent at home on Homeland Security and our infrastructure that is crumbling?
Okay - I have a question. Pretend that your name is Bernanke. What do you do to straighten out monetary policy?
His hands to a certain extent are tied. Fiscal policy, the war in Iraq, the trade deficit and a budget deficit all are factors that make any sudden changes in our monetary policy unacceptable. The three big problems: the credit crisis, the sub-prime mortgage meltdown and the housing market, are another set of factors that prevent the Fed from raising rates that would in turn slow the decline of the dollar. But, with the economy in such a weak state, with so many jobs being lost and unemployment rising, the Fed does not want to be the one to make things more difficult (the politicians in Washington would have his head if he did). Raising interest rates, while stemming the decline of the dollar, would hurt the economic recovery. The biggest single move at this point to slow the decline of the dollar is an energy policy that would mean more control of our need for oil. Perhaps a new administration will eliminate spending overseas that is not needed for our security. We live above our means as a nation, those that have bought our debt in the past, now believe the US is in for a serious round of inflation. That is why commodity prices have shot through the roof. Investors are hedging their portfolios by buying commodities. Bernanke has a most difficult job. It would take an army of Bernankes to educate the congress as to what is in store for us if we don't change our ways. Congress doesn't have time to learn economics, they are off getting reelected. It doesn't look pretty from where I sit.
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